Company Overview
Li-Cycle Holdings Corp. (LICY) is a leading global lithium-ion battery resource recovery company, pioneering innovative solutions to address the growing demand for critical battery materials. Established in 2016, Li-Cycle's mission is to create a domestic closed-loop battery supply chain, transforming the way the world manages the life cycle of lithium-ion batteries.
The company's proprietary Spoke & Hub Technologies™ are designed to address the industry's growing need for sustainable battery recycling. At its Spokes, or pre-processing facilities, Li-Cycle processes battery manufacturing scrap and end-of-life batteries to produce black mass, a powder-like substance containing valuable metals. These intermediate products are then sent to the company's Hubs, or post-processing facilities, where they are further refined into critical materials for the lithium-ion battery supply chain, including battery-grade lithium carbonate and mixed hydroxide precipitate (MHP) containing nickel, cobalt, and manganese.
Company History and Milestones
Li-Cycle's journey began in 2016 with a clear vision: to revolutionize the way the world recycles and reuses lithium-ion batteries. The company's founders, Ajay Kochhar and Tim Johnston, recognized the growing global demand for electric vehicles (EVs) and the corresponding need for a robust and sustainable battery supply chain. Driven by their passion for innovation and environmental stewardship, they set out to develop a game-changing recycling solution that could unlock the full potential of lithium-ion batteries.
Over the past six years, Li-Cycle has accomplished several key milestones that have solidified its position as a leader in the battery recycling industry. In 2020, the company opened its first commercial-scale Spoke facility in Rochester, New York, demonstrating the scalability and efficiency of its proprietary technology. This was followed by the expansion of its Spoke network, with additional facilities in Arizona, Alabama, and Germany coming online in 2022 and 2023.
The company's transformative moment came in 2024, when it secured a groundbreaking $475 million loan facility from the U.S. Department of Energy (DOE) to support the development of its flagship Rochester Hub project. This represents the first DOE loan to be finalized for a sustainable lithium-ion battery materials company, underscoring the government's recognition of Li-Cycle's critical role in building a domestic, circular battery supply chain.
The Rochester Hub is expected to be North America's first commercial-scale hydrometallurgical resource recovery facility, capable of producing up to 8,250 tonnes of battery-grade lithium carbonate and 72,000 tonnes of MHP annually. This strategic investment from the DOE, combined with Li-Cycle's existing commercial partnerships, positions the company as a key supplier of recycled critical materials for the rapidly growing EV and energy storage industries.
In 2021, Li-Cycle achieved a significant milestone by completing a business combination transaction and becoming a publicly-traded company, listing its shares on the New York Stock Exchange. This strategic move provided the company with substantial capital to fuel its ongoing growth initiatives and expand its operations.
Despite its progress, Li-Cycle encountered challenges in 2023 that necessitated a reevaluation of its strategy. The company announced a pause in the construction of the Rochester Hub project, pending a comprehensive review of the project's go-forward strategy. In response to these challenges, Li-Cycle implemented a cash preservation plan that included workforce reductions, temporary suspension of production at certain Spoke facilities, and a slowdown in the development of new Spoke and Hub projects. These measures were taken to manage the company's liquidity position and operating expenses while it explored alternative strategies and financing options for the Rochester Hub and its broader business operations.
Financials
Li-Cycle's financial performance has shown promising signs of progress, despite the challenges posed by the COVID-19 pandemic and broader macroeconomic headwinds. In the first nine months of 2024, the company reported a 79% year-over-year increase in total revenue, reaching $21.0 million. This growth was driven by higher recycling service revenue and improved product revenue due to favorable pricing and customer mix. Notably, Li-Cycle was able to reduce its selling, general, and administrative (SG&A) expenses by 20% year-over-year, demonstrating its ability to optimize costs and drive operational efficiency.
The company's most recent quarter showed continued improvement, with revenue reaching $6.4 million, representing a 79% increase compared to the same quarter in 2023. This increase was attributed to higher recycling service revenue, higher metal prices, and lower unfavorable non-cash fair value pricing adjustments. The net income for the quarter was $67.2 million, while operating cash flow (OCF) and free cash flow (FCF) were -$16.8 million and -$10.8 million, respectively.
Li-Cycle operates two main product segments: Product Revenue and Recycling Service Revenue. Product Revenue is generated from the sale of materials produced by the company, including Black Mass Equivalents (BME) and shredded metal. During the three and nine months ended September 30, 2024, product revenue was $4.40 million and $11.50 million, respectively. Recycling Service Revenue, which includes coordinating inbound logistics and recycling/destruction of lithium-ion batteries, amounted to $4.00 million and $9.50 million for the same periods.
The company's revenue is generated from key customers, including leading companies in the global battery supply chain such as battery manufacturers, EV OEMs, miners, and raw material buyers. Geographically, Li-Cycle operates primarily in the United States and Canada, with one operational Spoke facility in Germany.
Liquidity
The company's liquidity position has been a focal point, as it navigates the capital-intensive nature of its business. As of September 30, 2024, Li-Cycle had $42.1 million in cash, cash equivalents, and restricted cash, a decrease from the $80.3 million it held at the end of 2023. This reduction in cash was primarily due to the company's ongoing investment in its Spoke network and the pause in construction at the Rochester Hub project.
To address its liquidity needs, Li-Cycle has proactively explored various financing options. In addition to the DOE loan facility, the company has utilized its at-the-market (ATM) equity program, raising $1.1 million in net proceeds during the third quarter of 2024 by issuing 701,320 common shares. Furthermore, the company has renegotiated certain supplier agreements to extend payment terms, providing additional financial flexibility.
The company's debt-to-equity ratio stands at 0.77, while its current ratio and quick ratio are 0.95 and 0.89, respectively, as of September 30, 2024. The recently secured $475 million loan facility from the U.S. Department of Energy includes up to $445 million in principal and up to $30 million in capitalized interest, with a fixed interest rate at the applicable long-dated U.S. Treasury rate with no spread.
Future Outlook and Priorities
Looking ahead, Li-Cycle remains focused on several key priorities. First, the company is actively evaluating financing and strategic alternatives to secure a full funding package needed to restart construction at the Rochester Hub project, of which the DOE loan is a critical component. Second, Li-Cycle is advancing its comprehensive review of the Hub project, including a technical and economic analysis to finalize the go-forward decision on the MHP scope. Finally, the company is continuing to optimize its Spoke network, with the goal of building a financially accretive and self-sufficient Spoke business, particularly through the deployment of its Gen 3 technology at facilities in Arizona, Alabama, and Germany.
The long-term growth prospects for Li-Cycle remain robust, driven by the increasing supply of battery materials available for recycling and the ongoing support for building a localized battery and critical materials supply chain. The widespread adoption of electric vehicles in North America and Europe is expected to drive a significant increase in the supply of recycling materials, with the potential to more than double by 2030 compared to 2025 levels. The electric vehicle and hybrid vehicle market in North America is projected to grow at a CAGR of approximately 20% from 2025 to 2030, further increasing the supply of battery materials available for recycling.
Additionally, the Biden administration's focus on energy and critical material independence has created a positive regulatory environment for battery recycling. The recent finalization of guidance on the U.S. 45X tax credit, which provides a 10% production tax credit on the lithium carbonate expected to be produced at the Rochester Hub, is a testament to the government's commitment to supporting the development of a domestic, circular battery supply chain.
In terms of specific guidance, Li-Cycle expects to produce up to approximately 8,250 tonnes of battery-grade lithium carbonate and up to approximately 72,000 tonnes of mixed hydroxide precipitate (MHP) at their Rochester Hub project once operational. The estimated total capital cost of the Rochester Hub project to mechanical completion remains unchanged at approximately $960 million, with the current estimated cost to complete the project at approximately $487 million, including approximately $92 million in commitments for costs incurred but not yet paid.
Conclusion
While Li-Cycle has faced its share of challenges, the company's resilience and innovative spirit have positioned it as a key player in the sustainable battery revolution. With the support of the DOE, the company's growing commercial partnerships, and the favorable industry trends, Li-Cycle is well-positioned to capitalize on the burgeoning opportunities in the lithium-ion battery recycling market. As the company continues to execute its strategy and overcome near-term obstacles, it remains focused on its long-term vision of creating a closed-loop, sustainable battery supply chain that will play a crucial role in the global transition to clean energy and electric mobility.