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 Li-Cycle Holdings Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. I would now like to turn the call over to Nahla Azmy, Head of Investor Relations. Please go ahead..

Good morning, and thank you everyone for joining us today for Li-Cycle's 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, Li-Cycle issued a press release and a presentation, which can be found on 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 uncertainty.

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.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. With that, I'm pleased to turn the call to Debbie..

Thank you, Nahla, 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. I remain laser focused on the execution and rollout of our integrated Spoke & Hub network.

We continue to meet meaningful strides, contributing Li-Cycle as the long-term preferred recycling partner supplier of lithium-ion battery materials, particularly in North America and Europe, with strong commercial connectivity in 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 under 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 win percentage in battery recycling in North America and Euro, which is underpinned by commercial contracts and strategic partnerships with the Rochester Hub as the key future value driver, and we are traditionally funded to complete our current project pipeline with potential for debt financing from both traditional and government sources in support of our future growth.

Beginning on Slide 3 with quarter highlights, which Ajay, Tim and I will come earlier 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 to our current project pipeline.

On the commercial front, our expertise in logistics, handling and processing knowhow have allowed us to expand our sources of battery materials from diverse customers across the supply chain.

Including battery manufacturers and OEM, two recent examples, Li-Cycle was selected for one of the largest energy storage decommissioning projects in North America. We completed a two phased decommissioning project in July, which amounted to more than 1,400 metric tons of battery materials, which started back up to renewable energy.

Also, an emerging electric vehicle OEM with a manufacturing facility in North America linked Li-Cycle as its selected global lithium-ion battery recycler.

On an operational level, we completed optimization projects at our Arizona Spoke, under August and September run rates are around tracking to target throughput, with the Arizona 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 2023.

Now, I'll provide a more detailed discussion of our financial results, specifically regarding black mass production, revenue, adjusted EBITDA and cash flow. Beginning on Slide 4 for black mass production, we continue to generate higher product sales volumes with a start-up with our new Arizona Spoke.

Black mass production during the quarter of 961 ton was more than 80% higher than the same quarter last year, and up more than 30% from the second quarter, driven primarily by the backdrop of the Arizona Spoke.

While our third quarter volumes reflect favorable progress relative to our first half run rate, black mass production was more than our original targets as we took some temporary downtime on our Arizona Spoke to complete optimization projects.

In addition, we intentionally pace the regional start-up of our Arizona Spoke to implement the same process improvements. Ajay 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 sequential ranges of 6,500 to 7,500 tons to a range of 3,500 to 3,800 tons. We're pleased to report that since successfully completing the optimization projects in Arizona, our August and September run rates are now tracking near targets throughput.

Turning to Slide 5 for a discussion on revenue. By way of background and as a reminder of our discussion on our last earnings calls, aligning with the contracts and IFRS reporting requirements, we recognize revenues on product sales at the point of delivery to our customers, based on product sales volume and prevailing market metal prices.

Our customers take title of the materials and we retain pricing exposure until the receivables into recesses. As a result, fair market value adjustments are booked to revenue, a gain is recognized when metal prices, nickel and cobalt in particular, increase and the loss is recognized when metal prices decrease.

Also to add, we're currently paid for cobalt and nickel content and not for the lithium in our black mass deals 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 until 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 revenues were negative $2 million, compared with a profit of $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 the fair market value gain of $400,000 in the comparable to last year.

It was as a direct result of declines of 32% and 37% for nickel and cobalt prices respectively during the quarter, which impact is approximately 3,200 unsettled tons believe to prior black mass scale.

As shown here, this negative fair market value adjustment is non-cash and largely a reversal of fair market value gains through the first half of the year, when metal 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 will expect further fair market value adjustments to revenue with the potential for increases or decreases. Just to close on what is most important here.

During the third quarter, when excluding the fair market value adjustment, our revenues 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 6 for adjusted EBITDA, both for 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 likely related to higher employee compensation for operational, corporate, commercial and engineering resources, as we continue to support expansion of our network, particularly the Rochester Hub.

Cost 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 Spoke operation.

I would also note that the quarter included non-cash stock-based compensation of $4 million versus $0.3 million 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 adjustment. Turning to Slide 7 for review of the strength of our balance sheet and liquidity. Li-Cycle ended the third quarter was approximately $650 million 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 the current pipeline of projects in development.

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 leasehold improvements for our North Americans and Europeans Spoke.

With much of our procurement needs having largely met, we expect the majority of our future capital expenditures will be focused on construction for the continuous build out of our Rochester Hub. 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 partner 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 captive structure and provide flexibility. This is intended to enable additional groups to meet significant consumer demand beyond the current pipeline. Now, I'll turn things over to Ajay..

Thank you, Debbie. I will discuss the continued favorable market and regulatory secular trends and provide an update on our Spoke & Hub network. Turning to Slide 8. We continue to see favorable trends for early movers in the battery supply chain.

With tight supply demand dynamics, these trends underscore the importance of incorporating recycled materials into the supply chain to help augment, reliable, domestic supply.

Our total addressable market or TAM for lithium-ion batteries available for recycling in our focus regions is driven by increased battery manufactured mega factory investments, which is expected to grow by more than 16x by 2025 from current levels.

As a result, this is projected to drive combined TAM growth in terms of lithium-ion batteries available for recycling in North America and Europe by more than 5x by 2025 from current levels.

Business dynamics that is causing many global supply chain participants to walk in commercial recycling arrangements, which we continue to see benefiting Li-Cycle, as we expand our network capacity. Turning Slide 9. We continue to see favorable tailwinds from a number of new public policy programs in the U.S.

aimed at providing financial support to facilitate domestic expansion of the battery supply infrastructure, essentially getting this to be a critical strategic industry. The recent enactment of the Inflation Reduction Act or the IRA should provide significant benefits to the EV batteries recycling industry beginning in 2023.

IRA comes on the heels of the Bipartisan Infrastructure Law, which calls for $6 billion in grants across the battery sector supply chain, as well, the Presidential Determination, that's carving out a $500 million in investment to support critical materials for battery production.

We believe IRA recognizes recycling as an accelerator for the domestic supply of battery materials to support the increasing demand for EVs and energy storage. These programs will reduce the cost of building new facilities to produce domestic critical materials and help bring down manufacturing costs for batteries.

We highlight here key IRA benefits broadly for the recycling industry and our business namely up to $250 billion in clean energy loans to the DOE loan programs office or LPO, up to $60 billion in five year production tax credits, which provides for 10% of the cost of producing critical materials, including lithium cobalt pinnacle, and up to $10 billion in advanced energy project tax credit, which allocates up to a 30% investment tax credit for developing clean energy facilities in the U.S.

And importantly, this includes recycling facilities. Additionally, it is worth knowing that the IRA is pushing for building EV batteries using material source in the U.S. or free trade agreement countries. New vehicle placed in service next year need at least 40% of battery critical minerals to come from the U.S.

for free trade agreement countries to qualify for the clean vehicle tax credit, and this increases to 80% by 2027. We believe this push for domestically sourced critical battery grade materials will incentivize automakers to incorporate a higher percentage of recycled material.

This is why it is critical to be a first mover with environmentally sustainable technology. Our patented technologies are proven in the North American market as a leading way to recycle lithium-ion batteries. And we have two key advantages.

One, Li-Cycle has an opportunity to explore these government funding opportunities to potentially benefit our Spoke & Hub network growth. And two, we have the capability to assist automakers in achieving the clean vehicle tax credit conditions by meeting their production requirements for domestic content via recycled material. Turning to Slide 10.

Here we depict the current portfolio of Spoke & Hub projects in North America and Europe that are expected to come online in 2022 and 2023. We will review these in more detail. Turning to Slide 11.

As we've discussed on prior earnings calls, in order to be a reliable secondary source of battery grade material, it is important to secure sustainable feedstock for the intake of battery materials for recycling.

Here, we show the competitive advantages of our Spoke network that make Li-Cycle a go to leading recycling strategic partner for battery supply chain participants. First, we are battery and form factor agnostic with the capability to process entire EV and energy storage battery packs with no disassembly.

This has provided Li-Cycle with a further hedge as EV battery types have continued to become larger and automakers are implementing sales to pack architecture with minimal ability to dismantle.

Hence, our full pack processing capabilities that are proven at our Arizona Spoke and are being implemented in subsequent Spoke such as our Alabama Spoke provide Li-Cycle with a strong competitive edge.

Second, we are also processing with an increasingly efficient, environmentally sustainable footprint, with minimal emissions and waste water discharge. This provides significant accelerated advantages in terms of permitting.

And third, to facilitate an adequate intake of battery utility recycling, we are looking at our Spokes hosted battery automotive manufacturers as well as EV penetration, thereby minimizing transportation risk and cost.

To reiterate, we are positioning the Spoke network to capture growing volumes of manufacturing scrap to provide a strong base load of materials for operations. Subsequent to this will be end of life battery volumes, which should continue to rise steadily in the coming decade. Turning to Slide 12 for an update on our European expansion.

Similar to our strategy in North America, we are strategically targeting Spoke locations in close proximity to battery and electric manufacturers and EV penetration. We expect that Spoke capacity will be easily absorb by robust European demand.

In particular, for EV related battery supply and energy storage systems, given high renewable energy use in the region which is resulting in additional commercial partnerships. We have secured strategic site and have initiated the equipment fabrication with a local industrial partner.

In Norway, our site is located with favorable access to logistics networks. Further, this site will meet most of its energy needs through sustainable sources, making our business and attractive commercial partner in Europe.

In Germany, our site is located in your various cell battery and EV manufacturing facilities and also has access to renewable energy sources. Similar to the Arizona and Alabama Spokes, we are taking a staged approach to the start-up in the facilities, with Germany places the outline first, followed surely by Norway.

We expect both of the European Spokes to be in production by the second half of fiscal 2023. This is a modest shift from the first half of the year, there's a more conservative lens for additional commissioning and start-up time as we continue to finance the best operational practices and learnings from the North American Spokes.

Turning to Slide 13 for an update on our new North American Spokes in the Arizona and Alabama. As Debbie discussed earlier, during the third quarter, we took deliberate steps to optimize operations of these Spokes facilities, which are the first in their time to process entire EV and stationary energy storage battery packs without dismantling.

In order to make these improvements, the pace of operations at our Arizona Spoke, were temporarily affected, and we moderately postponed the start-up of our Alabama Spoke, which is a carbon copy of the Arizona Spoke.

Since completing these low capital cost optimization projects, the Arizona Spoke is now ramping successfully to near target throughput, and as demonstrating higher recovery yields of black mass relative to our first generation science in Ontario and New York.

We are leveraging the key learnings and process improvements from the Arizona Spoke for the relatively Alabama Spoke and European Spoke locations. Lastly, we continue to work with Ultium on the development of the Ohio Spoke and are validating the optimal execution path. Now, I'll turn it over to Tim to provide an update on our Rochester Hub..

Thank you, Ajay. I'll provide an overview and update on the Rochester Hub, which is expected to be the first commercial battery resource recovery facility in North America positioning Li-Cycle as a leading domestic supplier of battery grade materials. Starting with Slide 14 for the key attributes of the Rochester Hub.

While our facility will produce a range of end products, we are focused on the production of lithium carbonate, nickel sulfate and cobalt sulfate as key value drivers. We estimate that the Hub will process battery material that is equivalent to approximately 225,000 electric vehicles per year.

We strategically selected the Rochester Eastman Business Park to location about how to leverage existing infrastructure for power, steam and cooling water.

Also worth highlighting is that our proprietary technology has been developed to minimize air emissions and applies zero liquid discharge technologies where liquid streams are collected and treated on site. This process provides a sustainable pathway for critical materials and contributes to the circular economy.

This has proven to be an advantage for obtaining key environmental permits for the construction of the Rochester Hub. Turning to Slide 15. Just to take a step back briefly, I would like to discuss our pilot plant, which underpins the design for commercializing the Rochester Hub.

We proved out the process of our Hub with a large scale pilot plant in Kingston, Ontario, which operated for over one year, primarily between 2019 and 2020. We tested our flow sheet with known equipment and proven chemical processing technologies.

The scale of the individual unit operations exceeded that of industry standards for piloting this type of equipment, giving us added confidence regarding our ability to scale up. Finally, we tested and qualified the end products with key customers in the global battery supply chain, many of whom we have working with today. Turning to Slide 16.

You will see the layout of the Rochester Hub, the number of buildings refer to different processing areas. Starting with area 100, here we receive one ton bags of black mass from our warehouse.

The black mass is unloaded into leaching tanks, which are used to dissolve the metals in water and acid leaving behind the graphite, which is dried and packaged for shipment. The liquid solution containing the metals is called the pregnant leach solution or PLS.

Moving forward, the PLS solution then goes through two stages of impurity removal for elements such as copper, aluminum and iron in areas 200 and 300.

Following impurity removal, the PLS enters the heart of the plant three solvent extraction circuits in areas 400, 500 and 600 are used to selectively recover manganese, cobalt and nickel before crystallization, drying and packaging of these products. The PLS solution now contains mostly sodium and lithium.

In area 800, the sodium is recovered through crystallization ahead of lithium carbonate production. The Rochester Hub had two stages of lithium production shown in area 900. First, a crude lithium carbonate is produced by adding sodium carbonate.

Impurities are removed in a second step called bicarbonation, which provides significant flexibility to produce a battery grade lithium carbonate product. The linear design of the process provides flexibility to handle a wide variety of inputs from black mass with tight controls on product quality.

As part of that goal to set the bar for environmentally sustainable refining of battery grade materials, the Hub also includes a zero liquid discharge circuit, which recovers trace impurities and produces fresh condensate water. Turning to Slide 17 for an update on the construction of the Hub.

To recap, our team has achieved significant milestones today. We obtained key environmental permits which enabled us to move forward with the project construction. We complete a key commercial contract for engineering and procurement with Hatch and for construction management with MasTec industrial.

And we locked in the delivery schedule and pricing for the majority of the long lead equipment and make progress purchasing construction materials. During the third quarter, we have maintained our procurement momentum providing enhanced confidence in material and equipment pricing to keep our projected timeline and costs within target.

Additional highlights include the warehouse structural building is near complete and on track to receive black mass by the spring of 2023.

Construction has advanced by areas 100 associated with black mass leaching, and areas 400, 500 and 600 solvent extraction, with concrete foundations on the way receiving our building steel materials and significant progress on underground utilities.

While we continue to monitor supply chain labor costs and seasonality conditions in Rochester, New York, the Hub remains on track to start commissioning in stages in 2023. Turning to Slide 18, I would like to close with a recap.

We are accelerating growth based on a strong secular market and government policies that support a localized supply of critical battery materials.

Underpinned by commercial contracts and strategic partnerships, we are continuing our first mover rollout of our Spoke & Hub network in North America and Europe with the Rochester Hub being a key value driver. We have sufficient liquidity to fund our current projects pipeline and operating needs.

In addition, we continue to evaluate multiple capital sources, including debt financing alternatives from both traditional and government sources in support of the next phase of growth beyond that current project pipeline. That concludes our formal remarks. Operator, we are ready to take questions..

[Operator Instructions] Our first question will come from Robin Fiedler from BMO Capital Markets. Your line is now open..

My first question is on the Hub commissioning guidance.

So is only a portion of the 90,000 ton Hub then can be starting up initially? And then maybe you can walk us through the cadence timing to get to the full operating rate?.

Hi, Robin, good morning, and I'll turn it over to Tim, who’ll provide some color there..

Good morning, Robin. So when we're talking about commissioning, now that we're further advanced on the project overall, we're now saying to build out our detailed commissioning plan. And what we're talking about here is that effectively commissioning is done and what we're going to refer to as three stages.

Stages 1, through to 3, starting with completion checks, we will then do leak testing instrumentation work in terms of calibration before the final stage of commissioning, which is ultimately the introduction on black mass. What you'll see on slide 17 is the commissioning actually overlaps with construction.

So what's important is that, as we go through the start-up of the plan, it's not the sort of plant that you just turn everything on all in one go.

It's actually important to tie in the sequencing of commissioning with construction, because you want to have certain circuits available so that you can actually start up and progressively move through the plant and doing those checks as part of the end of construction.

So, that's all we mean by -- well, well we want to sort of start to provide this sort of framework, because as we get closer to this milestone, we expect to be able to come back to you with more color in relation to how we're progressing in relation to these different stages, and what we're doing.

We want to set up the framework in terms of terminology early..

Okay, maybe just to follow up.

So, I mean, I appreciate that there are different steps associated with the commissioning phase itself, but as far as the letter, the wording of a staged commission, I just want to be sure that that doesn't mean that the 90,000 ton is going to be introduced in stages as well as just from like a volume or an output perspective.

Like, I just want to clear that stage commissioning, but once you have completed its 90,000 ton run rate thereafter, is that correct?.

Yes. So, I'm not sure what, but thinking like is 35,000 tons per year of black mass. And so, yes, 35,000 tons per year of black mass, so stages just to break it down in more detail. So, stage one is really about confirming satisfactory completeness against the engineering designs.

This is the checks and balances, basically the sign off on the end of construction, on mechanical completion across the different stages. Stage two is where we are now energizing equipments where doing leak testing and water testing out through the system. We will be doing instrument calibrations and alike.

And then Stage three is the introduction of black mass. It's not actually -- so we're not talking about starting up in terms of like stage of production throughput. It's really about stages of activity in terms of how we sequence the different parts of commissioning..

Okay, that's clear.

And then just based on the graphic on Slide 17, am I right that to assume that maybe the commissioning step of number three, the black mass introduction kind of more Q1 '24 or maybe even spring? Or is it too early to give specific timing on that?.

Yes, I'd like to just hold off on giving specific timing for now, Robin. Just I want to get further through construction, but I do want to lay it up so that we can come back to and talk about how we are going to sequence commissioning, as we roll out the end of construction..

If I could just sneak one more question and I do want to touch on the Inflation Reduction Act. I just want to be clear. I know you outlined some of the different benefits that you could receive.

So on the 10% production tax credit and potential of the investment tax credit, is that something you guys expect to receive? Is that something you have been told you will receive? Or is it still I guess to be determined you just would assume that you would be in line for something like that, but maybe not quite definitive yet? Is that fair or just want to be clear on?.

Yes, I would say, we can't speak specifically to anything that's not firm and ready to be public. But I would say, the strategy here was outlined as a lot of different programs through different legislature and enactment to various things that have to come through. So, wanted to described, I think to vis-à-vis the tax credit.

So our understanding is that that's going through the treasury department and it would come through be available starting for next year, but there will be a process associated with that to assess and allocate appropriately.

So really just wanted to help -- first of the sizes to help distill all this relatively confusing information out there sometimes and to what's applicable potentially for us..

Thank you. Our next question will come from Ben Kallo with Baird. Your line is now open..

Hey, guys. Let me just first -- thanks for the explanation of the fair market value.

But just how does it relate to cash? And then, is there any way that you can kind of mute that volatility going forward in a way that you structure your contracts? And then Tim, I have some questions on a follow-up from the previous caller too?.

Hey, Ben. Thanks for the question. So on the SMB side and the financial side, Debbie will take that, and then Tim will take the -- I think [indiscernible]. But first is Debbie..

Good morning, Ben. So, the fair market value, you are just wondering, it is non cash, right? So, it doesn't -- it impacts your cash to the extent that you're settled on the market value at settlement time. But the ups and downs in the in between time for the adjustments are non-cash adjustments.

And then if we look forward, I think maybe just a reminder that we were in this world right now where we're selling black mass and that's not the world we're going to be. So there's a long settlement period associated with the way black mass is trade.

Eventually, that black masks will be produced in our Spokes, and it will go to our hubs for further refining into the battery materials, and the settlement periods on those types of contracts will be much shorter. So when we get to that stage, the window of exposure for us will be much reduced..

Just add to that, because it's been from a near-term modeling standpoint, we started with offline. But in the MD&A, under the revenue discussion, we've actually provided even further disclosure regarding kind of an aging analysis of black mass has been settled.

So, we can talk about that separately, but just to flag that would be financed disclosure on that..

And just on the different steps of the solvent extraction. And I don't know if it's in the timeline here, but it looks like the there are several steps of different solvent extractions.

How long does it take to get I guess the correct formula for the lack of a better word of solvents before you're up and running? And we don't you have to kind of tweak that and that can take time to figure out, the different mixture that you need.

I'm just wondering, how that ramps into the previous question about the ramp up of how that extends because of the several steps there?.

Yes, no worries, and happy to answer that. So basically, so we know, the formulation of the solvent extraction reagents that we'll be using, they're the same. It's the same process that we ran through our demonstration plant, to the same extract. It's the same deal, same processing conditions.

And so from that perspective, we're not expecting to make any changes that. We don't expect that in, itself will affect commissioning or ramp up. The number one thing about commissioning is on solvent extraction site is really about getting the solutions moving through at the right flow rates.

And so, it's all about volumetric flow rates through solvent extraction. Ultimately, that's what you're targeting, which is much more mechanical, than it is processing in nature..

Our next question will come from Brian Dobson with Chardan Capital Markets. Your line is now open..

Do you think that you could speak to your expected total capacity during each of the three quarters? And then further what you expect your capacity utilization rates to be in each of those quarters?.

Hey, Brian, so you mean just to be clear this past year -- sorry..

No.

Moving forward over the next several quarters, what do you expect your capacity utilization rate to be?.

Yes, so we're, I would just say we're, I think there was some broad indication there after reaching our year-end and then during call in January. So don't want to get ahead of ourselves, but there will be some preview of the business outlook for the year. So don't want to get ahead of ourselves.

But I would say just high-level and then maybe Debbie or Tim will add on. So, we elucidated there, I mean, obviously, on the surface of it, it looks pretty drastic in terms of the change to be frank about it.

But right down to the day here, as Debbie articulated, and I did, it's really a shift of approximately one to two quarters relative to where we wanted to be. And we took the tough decisions to fix these low capital cost optimization projects.

Yes, it added some time, but it's the right thing to do before we go rolling out a whole bunch of additional assets. And we're seeing the benefits of that now, as you saw in the slides, even with the August results, just preliminarily that we put in the slide deck.

So just speak into the in quarter and what we're seeing right now, that's a bit of a qualitative direction..

And further to that, Brian. We don't expect it to impact the Hub. I mean, at the end of the day, what we're trying to do is get up Spokes network optimized between now and when the Hub start-up to make sure that we can generate the black mass that we need to generate, but we believe that we're still low on track to that..

And then lastly, Brian, on page 10, you'll see what we put out there. These are the broad timing for the different assets and expect that..

Excellent. And I guess, just to clarify, so it seems like your guidance is implying that 30%, 35% increase in black mass production in the fourth quarter from the third quarter sequentially.

Could you just hit on the key item theories that are driving that increase?.

Yes, no worries. So, the number one driver of that is really the recognition of the Arizona Spokes. And it's starting to now hit its target throughput and capabilities. And then there's a small influence there as well in relation to Alabama starting up which is eminent.

And that will have an additional positive increase in terms of run rates quarter-on-quarter for black mass production..

And do you expect the momentum of those facilities to continue into 2022 through 2023?.

Yes, so with Arizona, we are very close to our target throughput rate for Arizona, we expect to be able to continue to improve upon that and maintain it. And then ultimately, it's about the ramp up of Alabama. But given this, the lessons learned from Arizona, we are anticipating that that facility will ramp up well..

And as you're thinking about that projects in Europe, would you expect in those facilities to open with higher utilization rates than the U.S.

facilities given the greater adoption in Europe? Or do you think it should be similar in terms of modeling those facilities?.

Yes. So, we expect that the throughput rates of these new plants like Arizona, Alabama, Germany, and Norway, all have very similar utilizations. And something that Arizona is an early indicator is doing very well. In that regard, we are seeing strong demand in Europe from a commercial perspective. And so, we expect that trend will continue as well..

And just as a final question, related to the Inflation Reduction Act.

Do you have any color on the timing of when the federal government might make those funds available?.

Yes, broadly speaking Brian. It's Ajay. So, a lot of those programs are really 2023 onwards. So, I think they've gone through the enactment and that's really getting through the operationalizing those programs and bulking early 2023 onwards..

Thank you. Our next question will come from PJ Juvekar with Citi. Your line is now open..

The black mass production degree just seemed drastic, like you said, but you're just delayed by one to two quarters.

You mentioned optimization of the Arizona Hub, what exact -- what kind of process improvements did you do there? Does that lower your cost? Or does it just like de bottlenecking? And have you real -- are you seeing all those benefits in your current production?.

Yes. Thanks PJ. I will turn to Tim to answer..

Yes, absolutely. So most of the aspects that we were dealing with in Arizona were around materials handling, and so you can think of things like shoots for example just making sure that we can get the material to flow through at the rate that we needed. That's now being addressed and incorporated into our standard design.

In terms of the long-term implications, we don't see any negative implication in terms of the cost of these plants from these changes. I would say that one of the benefits of our overall business model is the carbon copy nature of that spoke plants.

So the lessons that we've learned here, we can roll out into that standard design and optimize those facilities going forward. So overall, we think it was definitely time well spent. We learned a lot, we we're happy with the progress that we've now made and looking forward to continue to roll out these future sites..

And do you have any approximate timing on future sites? You mentioned Alabama start by end of 4Q, anything on Ohio site as well as Norway and Germany?.

Yes, PJ, I think page 10 is a good broad timing there, and also beginning the early next year and the outlook for there. We'll see what else we add to that potentially, but that's really a bit of a pipeline view of our buildup..

Okay. And then lastly, you mentioned potential launch through DOE, but besides that you mentioned, the sort of locally sourced clean vehicle program and credits associated with that.

How does battery recycling fit into that, which I'm sure is a critical part by end of decade that you need recycling? And how do you benefit from that particular program?.

Yes. It’s a good question, PJ. Just to clarify. So, I thought us, it's an indirect benefit for us, so that's of course for the purchase of the EVs, but to get that credit, there are a range of increasing domestically supplied content requirements, so starting at a 40% and growing to much more than that and the years thereafter.

So, the whole question is how does somebody meet that requirement with domestic supply, where's it going to come from, especially with, as you know, the very long lead for domestic mining? So what we've seen from a demand poll perspective is even more accelerated interests from automaker, cell makers, trying to see how they can meet these requirements, and recycling is a much quicker pathway to get that supply, and hence we can help them meet those requirements.

Does that make sure their vehicles are eligible for it as much as possible?.

Okay, thank you..

[Operator Instructions] Our next question will come from Jeff Osborne with Cowen & Company. Your line is now open..

Hey, good morning. Just a few questions on my end. On the optimization, it was helpful to appreciate that, it was more material handling and low CapEx.

Is there a way of quantifying what the improvement in yields would be on black mass recovery, especially relative to the SPAC merger deck?.

Yes. Thanks Jeff. Go ahead, Tim..

Yes. So I mean, we don't provide specific guidance in terms of yield improvements. But notably, we have noticed a remarkable improvement in terms of overall recoveries through the new generation plan, but I can't provide specific details..

Yes. And just to add to that, Jeff, and I know where you are going. We just have the broader comment. When Tim was answering the previous question regarding people might say, hey, these are 10-K you have 5-K, so like what's the big difference. Just I spoke to my remarks, but I just want to emphasize it.

So, we upped the form factor that we are actually processing. So, we are taking in full packs as opposed to the modules, which are like the building blocks of the packs. That's very bad to disrupt as automakers move towards bigger and bigger packs and sell it to pack architecture, no dismantling.

But it also then does change obviously what the client is doing, right? So a multi-state shredding, a little bit different, same core technology, but a little bit different in this year. That's really what we're working through. It's nothing major.

But now with that under our belt, it's great for us, because as Tim said, it's our carbon copy approach for the future plans..

And do you anticipate rolling that out in Rochester as well or any battery related recalls or requirement for full form factor would have to be done in Ohio, Arizona or Alabama?.

Yes. So in Rochester, we do plan on doing an upgrade to the front end of the plant. It's a nominal capital investment, but it will give us enhanced capabilities to take larger form factor materials through the plants as well as improve overall recoveries and yield.

All future plants at this point in time, all these, what we would consider our new generation full pack plants. So when you look at our forecast for new facilities, they are all based on that full pack capability plant..

And just Tim, given that will be one of three operational plants in the spring of '23 in the U. S.

if you're doing it in the first half of the year, should we assume some downtime for that?.

It's normal. It's really what we're doing is collectively with our partners in Rochester as we're actually doing the construction and assembly of the equipment alongside the existing operating plant.

And then, we will be basically doing a hub change, which will have a very, very small impact in terms of the quarter, from downtown perspective as we swap over some of the key pieces of the plant..

Got it. And my final question is -- very helpful and the slides are very helpful. So appreciate the transparency on the process steps and the commissioning timeline. I just wanted to reconcile two comments you made. One, I think it was building 100 in the map, would be operational in the spring of at '23, which was the receiving for the black mass.

And then the commissioning and the introduction of the black mass would be in late '23 through early '24.

I'd imagine at some point in time you're going to have to start building inventory and you wouldn't have black mass sales and any revenue would be tied to non-battery metals or plastics or maybe recall fees that are paid to disassemble recall batteries? How do we think about the timing especially with the warehouse opening up in the spring? Do you need to build three to four quarters of inventory to sort of feed the beast? Or how do we think about that as you -- I would imagine, slowly introduced black mass, as you commissioned the first two steps and move to Phase 3 as you've articulated?.

Yes, as you rightly pointed out, we'll have our warehouse complete in the spring of next year ready to receive black mass. I'll let Debbie provide some commentary in terms of our current disclosure around where we might stand on inventory building..

Hey, Jeff, I love your terminology cease to be. So I'll start by saying we haven't made any commitments yet to a definitive plan on building inventory. I think there's a couple of things that are worth noting. It will be smart for us to have some inventory on hand as we go through this start-up.

And we will certainly put a plan around that, if we go through our planning for next year is definitely something that's on our list to work through. So that would be a smart move on our part.

When there's facilities to mention earlier, our job was our Spokes right now it really -- sorry, it just really means a little bit drastic, but really think of this as a lead time in terms of getting our Spokes ready to be purchasing for our house.

And so if you think of that in a pretty much in the end, a continuous operation where we wouldn't need a lot of inventory on hand, materials or features spokes, and they'll go directly to our house. But in that interim period, when we go through start-up, it would be wise for us to have some material on hand.

And then the last part is really, just, I keep reminding everybody in this selling black mass is not our business. And actually, it's not the most economic use of the material either. So to the extent that we can shift sooner versus later on extracting lithium from these materials, far better economic story for us.

So that sits in the background is a little bit of economic pressure to get to the end, and to have black mass available for that in formula versus intermediate sale..

Excellent, Debbie. Just a very quick follow-up on the last comment.

Leaving lithium on the table, would you say you're leaving $0.50 on the $1 if not more per kilogram or a ton of black mass? It's older, how do we think about quantifying that economic dilemma that you're in?.

Yes, it moves all around, right, obviously with pricing. So we’d love to do around -- [take care on] [indiscernible]? But yes, for sure. I mean, this is really the core essence. And sometimes I think it's missed about our story that our Rochester Hub will be producing between 7,500 and 8,500 tons of lithium carbonate.

And if you take today's prices, that's a substantial amount of economics subsequently for the Company. So on a per ton basis and those rounds that your math, I'd say is directionally right.

And it's pretty interesting because four or five years ago, and even a year ago, you would have heard say like it's a third to third to third, roughly equal contribution. And often, we would be told, hey, like, why are you even focusing on lithium, like six years ago, but this is the core of it.

And the bottom line is that market is severely in deficit of supply versus increasing demand. So, we're a near-term relatively versus mining solution for that. And it's super important from a financial perspective, for the value of the Company in the future and how that partly through to the present..

Thank you. Our next question will come from Robin Fiedler with BMO Capital Markets. Your line is now open..

Just maybe here's a high-level discussion on how you're thinking about the Hub 2 I know it's your hands full with Hub 1 right now.

But with the IRA bill, how much is that influenced were you thinking about the second Hub location? Would there be enough feedstock, let's say, midterm feedstock for you to justify like a Hub 2 location in North America to receive these OpEx and CapEx benefits that you could receive from the IRA bill? Or is your, maybe some of your partnership obligations are still going to make you focus on Europe for maybe Hub 2? Or would you ever -- and this might be getting greedy, but will you ever consider sort of a parallel expansion for two and three around the same time, I am trying to get a sense of how you think about that as the policy changes are occurring kind of in real time?.

Yes, great question, Robin. And I'll start deep into what we can say, I would say, look, I mean, the IRA is super exciting. I think it's a great step in the right direction, long time coming. So, it's good to see. Same time in Europe, we see tremendous tailwinds for our business, similarly, commercially, similar from regulatory perspective.

So, we'll assess all options. And as we said before, there are longer lead low dollar, really just time oriented activities that we can progress, vis-à-vis site selection via permitting, once it's ready, et cetera. So, we'll continue down that track, look forward being able to give an update on that when we can.

But I would say we don't see really necessarily overkill. Either way, I would say interesting is probably pretty equal. So, we'll have some interesting decisions ahead of us..

Thank you. Appears, there's no further questions at this time. I'll now turn the call back over to Ajay for his closing remarks..

Thank you. So in closing, we continue to execute on our Spokes & Hub network growth objectives, and strengthen our position as a long-term preferred recycling, and resource recovery partner to global strategic participants in the battery supply chain.

We have sufficient liquidity for capital and operating needs to fund the current pipeline of projects and development, and we are evaluating ways to further optimize our capital structure to support future growth.

Finally, our integrated Spoke & Hub network is uniquely positioned to capitalize on the accelerating electrification trends, as well as favorable tailwind from increasing government policy support to translate into significant earnings and cash flow. Thank you. We appreciate your time and interest in Li-Cycle.

I look forward to continue to update you regarding our ongoing build out and execution..

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect..