Li-Cycle Holdings Corp. (LICY) on Q1 2022 Results - Earnings Call Transcript
Operator: Good day. My name is Leo, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2022 Li-Cycle Holdings Earnings Call and webcast. Thank you. I will now turn the call over to Nahla Azmy, Head of Investor Relations. Please go ahead.
Nahla Azmy: Thank you, Leo. Good morning, and thank you, everyone, for joining us today for Li-Cycle's review of our first quarter 2022 results ended January 31. We will start today with formal remarks from Tim Johnston, Co-Founder and Executive Chairman; Ajay Kochhar, Co-Founder, President and Chief Executive Officer; 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 Tim.
Tim Johnston: Thank you, Nahla, and good morning. We're excited to provide you with the review of our first quarter results and an update on the continued progress we have made on our Spoke & Hub network. I will begin the call by covering key operational and commercial developments. Debbie will then review our financial performance and balance sheet position. We will also discuss our competitive positioning and economic value proposition. Beginning on Slide 3. The recent developments in3 key areas. I'll cover these briefly and then in more detail later. On the commercial front, we continue to grow our battery supply customer base, recently adding 2 new emerging electric vehicle manufacturers. In addition, we are making progress on the strategic multiyear commercial partnership with LG Chem and LG Energy Solution. We anticipate the completion of these agreements by the end of April. On operational level, we made significant progress on our Spoke & Hub network. We received the air-permit approval for our Rochester Hub project from the New York State Department of Environmental Conservation, which is the critical path item for proceeding with the next phase of construction. The permitting milestone was received with strong support from local and state authorities, a validation of the net positive environmental footprint and economic value we bring to the community. This allows us to push ahead for targeted commissioning in 2023. Also, we are nearing completion of the Arizona Spoke, in line with our scheduled timing for early 2022. The Arizona Spoke is a first of a kind on multiple fronts, which I'll discuss in more detail shortly. On the financial front, the Ontario and New York Spokes delivered higher year-on-year black mass production, which resulted in higher revenues. We also continued to maintain a strong balance sheet with more than $550 million in cash. This will be augmented further by the LG investment that we expect to close in late April. Turning to Slide 4. Let me take you through the status of our spoke build-outs and black mass production targets in more detail. We have several key competitive advantages that are integral to our strategy. With our patent-protected Module Spoke technology built in our Spoke fabrication facilities, we have the capability to rapidly deploy new plants in lockstep with our customers' accelerating growth. The small physical and environmental footprint of these plants allow us to efficiently co-locate with partners like Ultium to provide on-site recycling solutions or support multiple customers through regional merchant facilities. The Arizona Spoke nearing completion, represents the next level in our innovation in spoke design with regards to scale and process capability. This template was developed in response to growing demand. When operational, it will have an annual processing capacity of 10,000 tonnes of lithium-ion batteries. The plant is the first of its kind, capable of processing full electric vehicle battery packs, making it safer and more labor efficient. Next in line is the Alabama Spoke, which is the same design as the Arizona Spoke and is due to be online in our third quarter of 2022. When both Arizona and Alabama Spokes are operational, we will have a total processing capacity of 30,000 tonnes, up from 10,000 tonnes. We continue to target black mass production for the fiscal year in the range of 6,500 to 7,500 tonnes. As we noted in our previous quarterly call, this step-up will be evident in the second half of this fiscal year, driven by the expected timing of these 2 new facilities. Turning to Slide 5 for an update on the Rochester hub. As I commented earlier, we're excited to share with you that we have obtained the air-permit from the New York State Department of Environmental Conservation. This was a significant milestone allowing us to move to the next phase of construction with the installation of permanent infrastructure. The issuance of the air permit follows the approval by the town of Greece of a negative declaration of environmental impact under the State Environmental and Quality Review Act in November 2021. Achieved in 14 months both of these approvals endorse the sustainable nature of our operation and the positive environmental approach to our process. The hub is the first major facility of its kind in North America and demonstrates a substantial community and regulatory support for our environmentally advanced Spoke & Hub technologies. We view this support as a significant competitive advantage as we continue to grow our network. I would also note that the patented protected hub process utilizes standard equipment. It is based on proven technology, validated through our pilot facility and incorporated into the final design of the Rochester Hub. We previously shared that Hatch is our engineering and procurement contractor for the Rochester Hub. Recently, we have selected MasTec Industrial as our general contractor for the project. We are finalizing contract details for completion in the coming months. As you may also recall, we have firmed up timing and pricing for the majority of the long lead equipment. We are well underway with procuring this equipment, which will continue into the next quarter. Finally, we have continued to make progress with the addition of commercial partners, including the partnership with LG Chem and LG Energy Solution. In December 2021, we announced that LG Energy Solutions and Li-Cycle intend to participate on recycling nickel-bearing battery scrap. In addition, Li-Cycle will supply LG with a total of 20,000 tonnes of nickel from the Rochester hub over a 10-year period beginning in 2023. In conjunction with completing these agreements, LG intends to make a combined $50 million equity investment in Li-Cycle at a price of $11.32 per share. We expect to conclude these commercial agreements by the end of April. That concludes my formal remarks. Debbie will now review our financials.
Debbie Simpson: Thank you, Tim, and good morning, everyone. If I could turn your attention to Slide 6, let me first review results for the first quarter ended January 31, 2022. Revenue for the quarter increased by 277% to $3.8 million compared to $1 million in the same quarter last year, driven by increases in product sales and market prices. The increase in volume is primarily related to the quantities of batteries and battery scrap processed at the New York Spoke. Adjusted EBITDA loss was $16.9 million compared to $3.7 million for the same period last year. This was largely driven by higher staffing and network development costs related to the growth and expansion of the business, particularly in North America. Higher personnel costs are for operational, corporate, commercial and engineering resources as well as professional fees and administrative costs in support of a public company, which we did not have in the comparative period. I would note that while year-over-year revenue is significantly higher, our revenue for the quarter is lower than the previous quarter. This decrease is largely timing-related due to a delay in scheduled maintenance at 1 of our production facilities, driving a shift of black mass sales from the first quarter into the second quarter. We would expect that the remaining quarters of fiscal 2022 will show sequentially increasing black mass production with corresponding revenue increases. This ongoing upward trend is supported by the shift in order fulfillment into the second quarter and increasing production from the Arizona and Alabama Spokes in the second half of the fiscal year. Moving to Slide 7, I'll cover a few highlights on the balance sheet. Li-Cycle ended the first quarter with more than $550 million of cash on hand. This strong balance sheet position is expected to fund a large majority of the capital needed for the Rochester hub, the 5 spokes in development and the operating needs of the business through 2023. To further strengthen our balance sheet, optimize our capital structure and provide future flexibility, we are evaluating multiple capital sources that are available to us. These include debt-based financing alternatives such as traditional corporate debt, project financing, government-related funding and funding from potential strategic partners. With that, let me turn this over to Ajay.
Ajay Kochhar: Thanks, Debbie. I'll cover our business model and value proposition and close with future key milestones, and I'll begin with Slide 8 with the total addressable market or TAM for battery recycling material in our strategic focus readings. It is projected that by 2025, the North American TAM will grow to be more than 420,000 tonnes of lithium-ion battery equivalent, and Europe will be more than 300,000 tonnes of lithium-ion battery equivalent available for recycling. This is largely attributable to surging demand for electric vehicles which is driving incumbent and emerging electric vehicle OEMs to accelerate their demand for battery materials with increased Gigafactory investments. More recently, we have seen a supply and demand imbalance for these critical battery materials, driving pricing to all-time highs, particularly for nickel and lithium. Turning to Slide 9. I'll review how Li-Cycle Spoke & Hub network fits in the battery material supply chain. First, in North America. With our announced pipeline of projects in operation and development, we are leading the market in terms of lithium-ion battery recycling capacity. When our Rochester Hub is operational, we expect to also be a leading domestic source of battery materials. Let me explain how. As you depict here, mining is the primary source of battery materials to supply cell and auto OEMs. Most of this mine supply is resourced from outside of North America and Europe. We will collect end-of-life batteries and manufacturing scrap from a variety of sources within these markets. Then we will recycle these materials through our spokes to convert them into black mass, an intermediate material which contains valuable metal content. From there, we will process the black mass produced at our spokes to our hub, resulting in finished battery-grade specialty materials that can be sold as a domestic source of supply and an alternative to mined sources. Hence, the core of our strategy. Our Spoke & Hub network is designed to be a key domestic source of critical battery materials to the supply chain loop. We call this the urban mining solution. In addition to serving as a domestic supplier, we had another key advantage relative to primary sources, and that is the expedited timing at which we can supply the market. Our speed to market is a function of 2 key strengths: one, the net positive environmental impact of our processing technology, and two, our innovative and scalable construction approach. This reduces time to market by at least half for sustainable materials relative to mining. Turning to Slide 10. Simply put, our strategic and competitive advantage is twofold. First, we have patented and proven our Spoke & Hub technologies. Second, we have rapidly expanded our commercial network with leading global battery participants. On the technology front, we believe that our IP protected processing technology, both the Spoke & Hub is disrupting conventional primary sources such as mining in prior processing. On the commercial front, we continue to expand and diversify our portfolio of customers, both with respect to the battery material intake and offtake. On the intake side, we continue to grow our customer supply sources while remain agnostic to battery chemistries and recycling all types of lithium-ion batteries. We have flexibility to process different types of battery materials at the same time. On the uptake side, 100% of the production from our spokes and specialty battery materials from our future hub are committed to tractors. As such, we have mitigated our exposure on end product sales. Over time, as our hub comes online, we will look to direct our black mass production from these spokes directly to our hub. Turning to Slides 11 and 12 for economic value proposition. First, Slide 11 depicts our integrated Spoke & Hub model, which is uniquely positioned to unlock significant economic value from battery materials collected from various suppliers. Let me describe the steps in how we capture increasing value. We received input battery materials from suppliers, which are either processed by us for a fee or purchased at a discount to metal value due to the form of the materials. Our spokes process these battery materials into black mass and intermediate material, which is sold at index pricing facing its nickel and cobalt content. This thereby earns a margin spread relative to the input cost of battery materials. While the Rochester Hub is operational, we will process its black mass into refined specialty materials, including lithium carbonate, nickel sulfate and cobalt sulfate. These specialty materials can be sold at a premium to reference metal index pricing due to the battery grade form. For reference, in the first quarter, we achieved an average black mass selling price of approximately $3,800 a tonne. Once the hub is operational, we would expect to realize approximately 3x to 5x more value on a per tonne of black mass basis through the sale of the specialty materials as compared to selling black mass to third parties. Slide 12 provides more specifics on the Rochester Hub projected volumes and pricing dynamics. Once operational, the Rochester Hub will not only play a significant role in providing a domestic source of critical battery materials, it will also be a meaningful value driver for Li-Cycle and our shareholders. I'll elaborate on that point. Pricing for our key battery material and products will be driven by the hub production volumes, at an agreed-upon premium to metal index pricing with some flexibility to capture upside and favorable supply and demand dynamics. As you can see on the slide, we provide our expected annual production output equivalencies for nickel sulfate, cobalt sulfate and lithium carbonate. For further reference in terms of pricing mechanics for our battery grade and products, we provide the metal volume equivalencies for nickel and cobalt based on the relevant chemical equivalencies. Along this on the slide, we show recent historical market pricing for nickel, cobalt and lithium carbonate. In the case of nickel and cobalt, while we track the LME price as an underlying reference point, we typically expect to earn premium pricing to this based on the battery-grade form of these end products. In summary, not only do we earn a premium spread, but if underlying reference prices are increasing, we retain commercial flexibility to capture some of the upside in the underlying index pricing. Moving to Slide 13. This summarizes our current pipeline of Spoke & Hub projects and the expected timeline through 2023. Earlier, we covered the 2 spokes in operation at the Arizona and Alabama spokes coming online in 2022. We have 3 additional spokes in development. One is the Ohio Spoke, which will be co-located with LTM cells battery mega factory. The Ohio Spoke will have an annual processing capacity of approximately 15,000 tonnes and is expected to be operational in early 2023. Two, is our Norway Spoke, which is in initial launch into Europe. This is planned to be through a joint venture with Eco Stor, a leading second-life storage business and Morrow Batteries, which is building a battery cell manufacturing plant with an annual capacity more than 40 GWh. The Norway Spoke is expected to come online by early 2023 with an annual processing capacity of 10,000 tons. And three, is our spoke in Germany, with an annual processing capacity of 10,000 tonnes, which we expect to come online in 2023. Finally, as we reviewed in detail earlier, we are on track for commissioning our Rochester Hub in 2023. Bringing this all together, by the end of 2023, we expect to have a total of 65,000 tonnes of lithium-ion battery spoke processing capacity between North America and Europe with the first hub in North America, capable of processing 35,000 tonnes of black mass annually. On the capital cost side, we estimate up to $10 million for the development of each of these remaining spoke projects, and approximately $485 million for the Rochester hub with an accuracy of plus or minus 15%. As Debbie noted, our current cash balance can fund the large majority of this pipeline of projects and the operating needs of the business for approximately the next 2 years. We are proactively evaluating a number of financing alternatives that are available to us to further strengthen our balance sheet position, optimize our capital structure and provide future flexibility. Over the course of 2022 and 2023, we will continue to provide updates on the developments of our portfolio. Turning to Slide 14. I I'd like to reiterate our key management objectives for 2022. Health, safety, environment and quality remain core to Li-Cycle's culture, values and operating disciplines. We remain focused on delivering on our black mass production target of 6,500 to 7,500 tonnes in fiscal year 2022. We will continue our execution on the Rochester Hub project for commissioning in 2023. And finally, we expect to maintain and enhance our balance sheet position with financial flexibility for future growth and pursue a disciplined approach to managing operating expenses as we build our path to future profitability. This concludes our formal remarks, and we look forward to your questions.
Operator: We'll take our first question from P.J. Juvekar of Citi.
P.J Juvekar: Volatility in lithium, nickel prices with the big spikes we saw, that's generally not good for any business. So what happened to black mass pricing, let's say, in the last 6 months, but really interested in last quarter, how did it black mass pricing change? And have you seen any changes in the battery costs that you procure?
Ajay Kochhar: Thank you, P.J. Yes, and I can start and then Tim and Debbie can add on as needed. So yes, look, let me start with the black mass, and I'll work my way backwards to the feed. In short, yes, actually, our black mass pricing is based on a formula, and it tracks with the index of nickel and cobalt. So that is the case as time goes on that we are going to benefit from potential upside. The flip side of that is on the input side is also the protection to the downside. So in terms of the feed, we, from a commercial perspective at a high level, and we're not always paying for battery materials, but when we do, it's facing a fixed and a variable discount. And that, again, allows us to benefit from the upside while protecting the downside.
P.J Juvekar: Okay. And in the future, which of your spokes will feed the Rochester hub because some of these spokes are quite far, like, for example, Arizona Spoke from Rochester Hub. So can you just talk about how do you see that integration when all this is built out? .
Tim Johnston: No problem, P.J. I can answer that one. So from our perspective, it is a true network effect. So we expect that all of our spoke facilities will feed our Rochester Hub. How we look at this is that when you compare the cost of battery materials versus the cost of price of black mass, you end up having a much higher value product being black mass that's easier and safer and therefore, lower cost of transport. So one of the key benefits of the business model is we're able to turn those potentially volatile materials on the inbound side into an easily transportable -- And as you can see in the deck, we average price at around $3,500 per tonne for the quarter, high-value intermediary product that is shipped in bulk bags like most concentrates that you've seen around the world directly to the facility in Rochester. One thing I will add is that 1 of the reasons why we chose the Rochester location because it's -- of its serviceability by infrastructure. So we do have direct rail and road transport with just coming off the highway there in Rochester, which does allow us to optimize our logistics costs. And just 1 clarification, P.J. apologies as I said, $3,500 for the quarter, it was actually $3,800 per tonne of black mass for the quarter. For the same sentiment applied. It's a high-value, easily transportable intermediary.
Operator: We'll take our next question from Brian Dobson of Chardan Capital Markets.
Brian Dobson: You mentioned that there was a maintenance issue at 1 of your spokes that shifted some of the sale of black mass in 1Q to 2Q. Can you give us a little bit more color on that? What was the revenue impact?
Tim Johnston: Yes. No problem. So I can address that one. So let me -- so the issue there was the availability of spares. So we do have consumables that we use through the process and unfortunately, we didn't have it available when we needed it, which meant that we are forced to run at a significantly lower processing capacity through the Kingston operation for almost a month. So you can think of it as effectively having -- almost losing a month of true process capacity through the Kingston operation. We've addressed that on our side in terms of we understand that the world has changed and the world has changed, I think, forever in how we manage spares and inventory spares, we've been able to address that so that we won't have this issue again, but it was definitely a significant impact that we had to deal with in the quarter.
Ajay Kochhar: And I would just add. Ajay here, as you think about on a go-forward basis, and I understand, obviously, what folks are trying to think is as we talked about the incremental subsequent folks how it's translating and what does it mean on a go forward. What I would just say that really simply put is as you think about this year, I would just encourage you to have listened to Debbie's remarks that we're talking about the Alabama and Arizona spokes coming in primarily in terms of ramp up in the back half of the year as you think about how to model this year in terms of the guidance we've stuck with, obviously, in terms of the black mass production.
Brian Dobson: Okay. Excellent. That's very helpful.
Operator: We'll take our next question from George Gianarikas of Baird.
George Gianarikas: Welcome, Debbie, nice to have you aboard.
Debbie Simpson: Thanks, George.
George Gianarikas: Just a very quick question. First, on your permitting. You mentioned that you issued a negative declaration of environmental impact from the town of Greece, New York, sounds like a wonderful place. If you could just share what that was like and what exactly they went through? Did they go through your future operations and determine the negative declaration? Or was it just based on the build-out of the hub?
Tim Johnston: No, that's a great question. So the negative declaration is a process, and we say it was issued by the town of Greece because they were -- the municipality or the party that was ultimately responsible for facilitating the program, but it did have inputs and reviewed by well over a dozen different agencies within the state in broader. And what they're looking at is they're looking at the environmental community economic impact of not just the construction, but the long-term operation of the facility. So they're looking at what sort of levels of air emissions, water emissions. They're also looking at what will happen during construction or one-off, et cetera, if you go on. It's a very detailed process. And having done that and going through that and have all the agencies reviewed it and come back and said that they're going to see that we will have a meaningful impact in getting that negative declaration. It was a major milestone. That allowed us to move forward with our air-permit application, which was a process that's administrated by the New York State Department of Environmental Conservation. And ultimately, we were able to receive that permit earlier this month.
George Gianarikas: Congratulations. And 1 more. Just as we approach the hub in 2023, can you share kind of broadly additional learnings, additional insights in terms of its future operation? .
Tim Johnston: Sorry, I'm not sure I quite understand the question. Can you please repeat that?
George Gianarikas: Sure. Meaning that you've had another 3 months now to plan out the hub, and I'm curious as to any additional insights, any operational changes you've had made or how comfortable you feel with getting that up and running by 2023? .
Tim Johnston: Yes. So I mean, we continue to remain on track for commissioning in 2023. We haven't learnt of anything that really changes our view in that regard. The process is essentially locked down where we're in what we call the detailed design, engineering and procurement phase. We've started basic earthworks on site, and that's continuing to move forward. So from that perspective, no, nothing that would change our view.
Operator: We'll take our next question from Robin Fiedler of BMO.
Robin Fiedler : Congrats on the hub permit. So with volumes ramping and the lag benefit from higher commodity prices, offset by presumably costs continuing to grow as well. With all those 2 puts and takes, like do you expect the quarterly cash burn to get better or worse across the year?
Ajay Kochhar: Yes, I can maybe start and then Debbie can add on that. Thanks for the question, Robin. So I think at a high level, as you folks think about going forward, of course, we're -- we're growing, and we're bringing on additional assets. That said, and we're also scaling headcount to support the network. But we have a good base today that's going to be also benefit our future buildout as well. And there will also be, of course, the revenue benefit from those incremental assets, of course, that we shouldn't forget maybe Debbie wants to add to that.
Debbie Simpson: No, I would just echo what Ajay said, you've seen our Q1. I think the way I would characterize it is you could probably get in more increase in our SG&A as we continue to build out. But then as you said, then we're going to have some revenue streams come on as we continue to build out.
Robin Fiedler : Okay. And -- just a question on the spoke operating rates. Like what is the ability for you to run a spoke maybe above this capacity for a particular quarter. I guess what I'm going to figure out is with the Kingston plant running below for this last quarter with the maintenance, can you catch up, so to speak, because with your maintained -- all your black mass production, I would have thought that you would need Rochester and Kingston running pretty close to 100% capacity. So maybe the offset is just Arizona, Alabama getting -- having a stronger ramp than I would have thought. So maybe if you can just unpack a little bit more and what gives you conviction if you still meet this for your volume guidance? .
Tim Johnston: No problem. So let me -- I'm going to answer your question in reverse. I'll start with Arizona and Alabama. They -- as Ajay and Debbie, were stating earlier that we do expect the production to be heavily weighted towards the back end of the year. They will make a significant change in terms of the operational capacity of the network of spoke facilities here in North America. One of the other benefits that we don't often get a chance to talk about, so I'll take the opportunity now is that, our spokes will also -- this is the first time that we've been able to roll out our full pack processing capacity. And what that basically means is that we'll now have an assortment of spokes with capabilities that are stronger in regards to larger format batteries. And we'll be able to modify how we feed these plants to be optimized for the style of plant that it is. And that's a very technical answer, Robin, but the intent is just to say that as we increase the number of spoke facilities, our optimization of these assets that -- our existing assets will also improve. And so I do believe that as we state, we're still targeting the same annual production of black mass. It's just going to be heavily weighted towards the back end of the year. So despite having a lower-than-expected production quarter, we haven't changed our guidance for the full year.
Robin Fiedler : Maybe just a follow-up on that. So is the output from Kingston, is there like lost production there? Or I guess, part of what you're doing, like shifting some of your feedstock to the other plants to maintain that same volume. Like is there -- was there a output destruction at Kingston for the full year basically? .
Tim Johnston: Yes. So as -- I think I understand where you're coming from, and so correct me if I'm wrong. But -- so for Kingston as we bring on the other facilities, we will optimize what we send to what plant. So keeping in mind, Kingston today processes material from all over North America, not just from, let's say, the Ontario basin. And so what we will do is we will prioritize sending larger-format material, for example, to Arizona and Alabama as those facilities are better situated to handle it at a higher throughput rate than what Kingston is. We also talked about scheduled maintenance, the benefit of that is increased uptime, less maintenance because it's -- we're actually using the facility for what it was truly designed to do rather than pushing it to process large format material.
Operator: We'll take our next question from Dan Ives of Wedbush.
Dan Ives : So just with rising costs across the board. And obviously, with the build-out in Rochester. Can you just talk about from a guidance perspective or just internally how you're thinking about the variables there? Like what's the major thing that could maybe go wrong or go right when you're thinking about sort of forecasting the cost structure over the next 6 to 12 months?
Tim Johnston: No problem. And so -- and when it comes to the hub in Rochester, one of the things that we've been very conscious of is the higher volatility in pricing. And that's -- we referred to long lead procurement and we've been very aggressive in targeting only procurement packages early on. So on the back of the DFS, we've placed the majority of our long lead packages, which is locked in the pricing for those. Of course, the world continues to be volatile. So I'm not going to say that it's completely not, but those have been largely locked in. And at this time, we're continuing to move forward with construction with Hatch and MasTec. And we still feel that the project is tracking within that plus/minus 15% range that we targeted on the backs of the DFS.
Operator: And we'll take our next question from Evan Silverberg of Morgan Stanley.
Evan Silverberg: Evan Silverberg on for Adam Jonas. Just combining a few different thoughts you guys have thrown out there. You said -- I believe, Ajay, you said that there's enough cash on hand to fund the business for close to 2 years. So I mean if we're looking at the big chunk of cash here is going to be the hub. So I mean, is that really going to -- are we thinking operationally that's more the back half of '23 versus the front half of '23 if you really think you could keep that cash balance for close to 2 years?
Ajay Kochhar: Yes. Maybe I'll start and then I'll turn it over to Debbie. Yes, I think probably you're thinking about the time frame in the right way. Of course, there's a lot of puts and takes, right? There's capital, there's our OpEx component, and there's also the revenue benefit from the additional spokes to bring them online and alter selling black mass and of course, given the broader environment, which is favorable for us from a supply-demand perspective for those materials and their associated material pricing that factors in the black mass that's, of course, favorable. There's a few puts and takes, I would say. But Debbie can add to that.
Debbie Simpson: Yes. So if you look at the combination of where we sit in terms of Q1 and Q4. If you or if you're looking to sort of figure out a little bit of math, if you think of that, pretty much is a good indication, brining my comments earlier, right, with regards to our run rate. I think that's really helpful. And then if you look at our needs on the capital side, so there is up construction, and we've got the 5 spokes under development for the next couple of years. When you put all of that together, I think what you get to is we've got the large majority covered by our current situation. And we look at a sort of time frame that we can manage, where there's a number of sources available to us that we can execute on. So when we're looking on both short, medium and long term, we tend to chunk this up a little bit. And we're sort of approaching it from a basis of as we execute additional projects, we've got opportunity to execute additional layers of financing. So what we're trying to do is match our balance sheet on financing alternatives that are open to us as we grow the business in a modular way in the same way that we're approaching the growth of the business. So kind of see that whole financing plan hand in hand with the approach to building out the growth for the business.
Evan Silverberg: One follow-up, if you don't mind. While not perfect math here, if we were to take the black mass produced in the first quarter and kind of imply with the lithium-ion battery equivalent into the spokes via pricing as the third variable, you kind of get like a low 70% conversion rate, which would make sense given that right now, a lot of the input is feed scrapped. So as we're kind of looking at the back or the rest of the year, and you're looking at your supply, do we think that conversion rate kind of holds? Or do you see maybe larger format items coming into the spokes, which would then reduce that conversion rate? .
Tim Johnston: Yes, at a high level, using something in the range of -- I think we actually have it in the deck as a footnote on 1 of the pages, but it's roughly speaking, you can use a ratio of like 0.35 tonnes of black mass to 0.65 tonnes of black mass, maybe a little bit more. This is approximate for every tonne of input. And I would just say, obviously quite variable as you're getting at, I would just say that's why we like to focus people on that intermediate product production number because the feed can be quite variable.
Operator: We'll take a follow-up from Brian Dobson of Chardan Capital Markets.
Brian Dobson: So you received licensing for the Rochester facility. New York is a very rigorous jurisdiction to receive such licensing, I suppose. Were there any key takeaways or learnings from that process that you think could accelerate future licensing processes for health facilities?
Tim Johnston: Yes, it's a great question. So I would say that -- and I have to take my hat off to my team, our team that -- they did an excellent job in terms of managing the communication making sure that all the key stakeholders were well educated in the process, well in advance of us going through the formal application process. But I think that, that point just from whilst not a direct technical point is just really important. And that's how we approach all the activities. And then going forward, that's, I think, a key aspect of how we operate and combine that with our technologically advanced process. It's easy for people to understand what we're doing and why we're doing it, and easy to see the minimal impact that we're able to have but start with communication.
Ajay Kochhar: And just to add a little bit on Tim's point or from a bigger picture, and I touched on this in my remarks, but I really want to emphasize this because it's -- it just speaks to our importance of Li-Cycle. What we just did on the Rochester Hub, you would not be able to do. And I think everybody knows this on a primary mine and refinery. I would take 5, 10 years, maybe never, depending on the locale and the various complexities involved. And you factor up that with a market that is short of these critical materials. So our speed to market, I talked about this in my remarks, so just really want to emphasize is, is way faster than any primary source. And we're entering a period where the winners of this space in terms of broader EV argues will be driven by their critical material access. And we will be, as I parsed there, we try to break down pretty simply on Page 12, a natural beneficiary of that. So it sounds quite technical when we talk about the permitting, but that's the real big picture importance of it.
Tim Johnston: And I would just sort of overlay one final point on that, and that is in relation to traditional recycling approaches and their lack of sustainability, and what I'm referring to there is high-temperature processing and the large amount of air emissions and solid waste that is generated from those processes is, we've deliberately gone away from that, and that is a key advantage for us to be able to address this and ultimately address the needs of domestic supply here in North America.
Operator: We'll take a follow-up from Robin Fiedler of BMO.
Robin Fiedler : Just wondering how important the expected feedstock from Ultium's Ohio plant is this year to meet the production guidance, trying to get a sense of if that plant maybe ramps slower than expected, what that impact could be your side?
Ajay Kochhar: Yes, I can maybe start and then Tim can add on. I think we look at a high level, I think their timing is public. It's out there. It's not showing anything here that's not known, but they are certainly in the ramp-up phase this year -- and I think again, it's public that it's really more through next year that they're into that more ramp-up phase in earnest. But that's some commentary at a high level.
Tim Johnston: Yes. I would just add to that is that like any plans, there is a commissioning and ramp-up phase associated with bringing these assets online and we take that into consideration in our own forecast, as we make our estimates.
Operator: We'll take a follow-up from P.J. Juvekar of Citi.
P.J Juvekar: Yes. A quick one on your -- some of your key partners. Can you just talk about what was the delay with LG and LG ES contracts, do we read anything into that? And also a question on Koch Engineered Solutions or KES that was your partner in building some of the stuff out. Can you just provide some update on that?
Ajay Kochhar: Yes. I'm going to start P.J. I can start with LG and Tim can take KES. So yes, in terms it was just we needed more time with LG numerous agreements, numerous parties involved. We filed the amended subscription agreement. You'll see the only thing that's changed is the outside date. And that's it. Simple as that.
Tim Johnston: And then in relation to Koch and our partnership with Koch, we continue to work with Koch there, in fact, the lead on the build-out for our Norway facility. And so we're utilizing their engineering team to convert our design to meet the European standards as well as managing the construction logistics and logistics support rather for that facility. So we're very happy with our partnership with Koch, they’ve been a great partner
Operator: And this does conclude our question-and-answer session. I'd be happy to turn the call over to Tim Johnston for closing comments.
Tim Johnston: Thank you very much. So briefly closing with a recap. We continue to execute on our Spoke and Hub network growth objectives. We've obtained all key environmental permits for our Rochester Hub to maintain on track commissioning in 2023. And we expect 4 operating spokes in 2022 and 7 operating spokes in 2023. Our Spoke and Hub model is leading in North America with IP-protected technology, an environmental net positive solution and speed to market, it is helping us solve the domestic shortage of battery materials. We are well funded for our current portfolio of projects with cash on hand and plans to future funding options. Li-Cycle is positioned to capture significant economic value with tightening battery material supply and demand dynamics that are driving pricing for battery materials to all-time highs. And our 2022 performance objectives are directly tied to key value drivers for shareholders. We appreciate your time and interest in Li-Cycle and look forward to continuing to update you regarding our exciting growth prospects.
Operator: This concludes today's Li-Cycle Holdings First Quarter 2022 Earnings Call and Webcast. Please disconnect your line at this time, and have a wonderful day.
