Li-Cycle Holdings Corp. (NYSE:LICY) is a leading global lithium-ion battery resource recovery company, dedicated to creating a domestic closed-loop battery supply chain for a clean energy future. The company's innovative "Spoke & Hub" recycling and resource recovery process has positioned it as a key player in the rapidly growing battery recycling industry.
Financials
In the first quarter of 2024, Li-Cycle reported a net loss of $136.7 million, compared to a net loss of $36.5 million in the same period of the previous year. The company's annual net income for the fiscal year 2023 was -$138 million. Revenue for the first quarter of 2024 increased to $4.2 million, up from $3.6 million in the prior-year quarter, while the company's annual revenue for fiscal year 2023 was $18.3 million. Li-Cycle's annual operating cash flow for fiscal year 2023 was -$99.8 million, and its annual free cash flow was -$434.7 million.
Business Overview
Li-Cycle was founded in 2016 and has since established a global footprint with operations in North America and Europe. The company's core business model is to build, own, and operate recycling plants tailored to regional needs. Li-Cycle's Spoke & Hub Technologies provide an environmentally-friendly resource recovery solution that addresses the growing global lithium-ion battery recycling challenges, supporting the global transition toward electrification.
Li-Cycle's Spoke facilities are decentralized facilities that mechanically process batteries close to sources of supply and handle the preliminary processing of end-of-life batteries and battery manufacturing scrap. The company's first commercial-scale Hub, which is currently under development in Rochester, New York, is designed to process the black mass and other intermediate products generated by the Spokes to produce critical battery-grade materials, including lithium carbonate.
Operational Highlights
As of March 31, 2024, Li-Cycle had four operational Spokes in North America and Europe, located in Rochester, New York; Gilbert, Arizona; Tuscaloosa, Alabama; and Magdeburg, Germany. The company's Spokes have a combined annual material processing capacity of 56,000 tonnes, with the ability to process lithium-ion batteries through both main line and ancillary processing.
During the first quarter of 2024, Li-Cycle produced 1,319 tonnes of Black Mass & Equivalents (BM&E), a 29% decrease compared to the 1,853 tonnes produced in the same period of the previous year. This decrease was primarily attributable to the pause and slowdown of operations at the company's North American Spokes as part of its cash preservation plan.
Comprehensive Review of the Rochester Hub
In October 2023, Li-Cycle announced a pause in the construction of its Rochester Hub project, pending a comprehensive review of the go-forward strategy for the project. The company has since made significant progress in this review, focusing its technical analysis on constructing, commissioning, and operating only those process areas needed to produce two key products: lithium carbonate and mixed hydroxide precipitate (MHP).
Li-Cycle's current estimate of the cost to complete the Rochester Hub project under the MHP scope is approximately $504.3 million, including $111.3 million of costs incurred but not yet paid as of March 31, 2024. Taking into account the total cash spend of $455.9 million as of March 31, 2024, the revised estimated project cost of the Rochester Hub project is approximately $960.2 million for the MHP scope.
The company is continuing to develop a more detailed analysis of the MHP scope and is working on its financing strategy in line with the revised project scope. Li-Cycle will require significant additional funding before restarting the Rochester Hub project, on the basis of the MHP scope or otherwise.
Liquidity
Li-Cycle has taken several steps to enhance its liquidity and financial position. In March 2024, the company closed a $75 million investment from Glencore, strengthening its long-term partnership and improving its liquidity. Additionally, in April 2024, Li-Cycle 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 its Germany Spoke.
As part of its cash preservation plan, Li-Cycle has also implemented a strategic decision to transition from a regional business model to a centralized one, which is expected to generate approximately $10 million in annualized cost savings through workforce reductions. The company has also been actively engaged with certain contractors and suppliers to the Rochester Hub, reaching agreements for extended payment cycles.
Li-Cycle continues to evaluate further financing and strategic alternatives to bolster its liquidity and facilitate the restart of the Rochester Hub project. The company is working closely with the U.S. Department of Energy (DOE) Loan Programs Office towards the closing of a loan for gross proceeds of up to $375 million.
Commercial Highlights
Li-Cycle's capability to process all types of lithium-ion batteries, independent of form factor and chemistry, coupled with its operational capacity, has led to the establishment of a broadly diversified global base of battery supply customers spanning the entire battery supply chain. During the first quarter of 2024, the company continued to attract new customers while extending and amending existing agreements.
In Europe, Li-Cycle signed new recycling agreements or expanded and amended current agreements with three of the largest electric vehicle (EV) original equipment manufacturers (OEMs) on the continent. The company now has agreements in place with four of the largest EV OEMs in Europe to recycle modules and full battery packs. In North America, Li-Cycle entered into two new recycling agreements with EV OEMs for full battery pack batteries and extended an existing agreement with a leading battery cell manufacturer.
Sustainability and ESG Performance
Sustainability is a core focus for Li-Cycle, and the company believes it is a key value differentiator. In 2023, Li-Cycle strengthened its data tracking and reporting capabilities for greater transparency, aligning its sustainability report with SASB standards. Key highlights from the company's 2023 sustainability performance include 0% of its Scope 1 air emissions being from its recycling processes, the Germany Spoke procuring all of its electricity from renewable sources, and the company maintaining a strong safety record with 0 critical safety, environmental, and community incidents since its inception.
Risks and Challenges
Li-Cycle faces several risks and challenges that could impact its future performance. The company's ability to execute its growth strategy, including the development of its Rochester Hub and Spoke network, is subject to various risks, such as engineering, financing, permitting, procurement, construction, commissioning, and ramp-up challenges. There is also substantial doubt about Li-Cycle's ability to continue as a going concern, as the company has a history of losses, negative cash flows, and a declining cash balance.
The company's reliance on a limited number of customers, who generate most of its current and expected revenue, also poses a risk. If Li-Cycle or its off-take partners are unwilling or unable to fulfill their contractual obligations, the company's business could suffer, and it may not be able to find alternative partners on similar or more favorable terms.
Outlook
Li-Cycle remains focused on its key strategic priorities, including the comprehensive review of the Rochester Hub project, securing additional financing and strategic alternatives, and optimizing its Spoke network operations. The company is working closely with the DOE Loan Programs Office towards the closing of a loan for gross proceeds of up to $375 million, which would be a significant step in enabling the restart of the Rochester Hub project.
Conclusion
Despite the challenges the company has faced, Li-Cycle's innovative recycling technology, diversified customer base, and commitment to sustainability position it as a leader in the rapidly growing battery recycling industry. As the global transition to electrification continues, Li-Cycle's ability to execute its strategic initiatives and address its liquidity needs will be crucial in determining its long-term success.