licy-20240630FALSE2024Q212/310001828811P6M0.1251Subsequent eventsAuditor selection - (b) Appointment of New Independent Registered Public Accounting Firm
As previously disclosed, on March 28, 2024, KPMG LLP (“KPMG”), the Company’s independent registered public accounting firm, notified the Company that it had decided to decline to stand for re-appointment as the Company’s independent registered public accounting firm to serve as independent auditor.
On August 7, 2024, the Audit Committee of the Board unanimously approved the selection of Marcum Canada LLP (“Marcum”) to replace KPMG as the Company’s independent registered public accounting firm for the 2024 fiscal year, and the Board recommended that shareholders of the Company vote for the appointment of Marcum at the reconvened annual and special meeting of shareholders of the Company on [October 10, 2024]. Marcum’s appointment is expected to be effective immediately following shareholder approval.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
For the quarterly period ended June 30, 2024 |
| or |
| | | | | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | | | | | | | | | |
| For the transition period from | | to | |
| | | | | |
| Commission File Number | 001-40733 |
___________________________
Li-Cycle Holdings Corp.
(Exact Name of Registrant as Specified in Its Charter)
___________________________
| | | | | | | | |
Province of Ontario, Canada | | Not Applicable |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
207 Queens Quay West, Suite 590, Toronto, ON, M5J 1A7, Canada |
|
| (Address of principal executive offices, including zip code) |
|
(877) 542-9253 (Registrant’s telephone number, including area code) |
|
| Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(S) | Name of each exchange on which registered |
| Common shares, without par value | LICY | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | x | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | o |
| | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 2, 2024, the registrant had 22,500,212 common shares outstanding.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q may be considered “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, Section 21 of the U.S. Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws.
Forward-looking statements may generally be identified by the use of words such as “believe”, “may”, “will”, “continue”, “anticipate”, “intend”, “expect”, “should”, “would”, “could”, “plan”, “potential”, “future”, “target” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. Forward-looking statements in this Quarterly Report on Form 10‑Q include but are not limited to statements about: the expectation that Li-Cycle will recover critical battery materials to create a domestic closed-loop battery supply chain for a clean energy future; the expectation that the steps taken under the Cash Preservation Plan will result in cash savings; Li-Cycle’s expectations regarding cash outflows; Li-Cycle’s expectations regarding the DOE Loan; Li-Cycle’s expectations that it will require significant funding before restarting the Rochester Hub project or that it will be able to restart the Rochester Hub project and the cost to complete; Li-Cycle’s expectations that it will be stopping or slowing operations at its remaining operating Spokes and re-evaluating its strategy for bringing on additional Spoke and Hub capacity in the near-term; Li-Cycle’s expectation to recognize revenue from the sale of critical battery materials; Li-Cycle’s expectation regarding other capital expenditures; Li-Cycle’s expectation that it will need to secure an alternative short or long-term financing in the near term or else it will not have sufficient cash and cash equivalents on hand or other resources to support current operations for the twelve months following the filing of this Quarterly Report; expectations related to potential financing and other strategic alternatives; expectations related to the outcome of future litigation, including the disclosure of certain mechanic's liens against the Company and the amount owed; expectations regarding the ability to attract new suppliers; expectations regarding annual growth rate of the number of EVs and hybrids; expectations regarding the price and supply of nickel and cobalt; and expectations regarding expected growth in the amount of LIB materials available for recycling. These statements are based on various assumptions, whether or not identified in this Quarterly Report on Form 10-Q, made by Li-Cycle’s management, including but not limited to assumptions regarding the timing, scope and cost of Li-Cycle’s projects, including paused projects; the processing capacity and production of Li-Cycle’s facilities; Li-Cycle’s expectations regarding workforce reductions; Li-Cycle’s ability to source feedstock and manage supply chain risk; Li-Cycle’s ability to increase recycling capacity and efficiency; Li-Cycle’s ability to obtain financing on acceptable terms or execute any strategic transactions; Li-Cycle’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners; the success of the Cash Preservation Plan, the outcome of the review of the go-forward strategy of the Rochester Hub, Li-Cycle’s ability to attract new suppliers or expand its supply pipeline from existing suppliers; general economic conditions; currency exchange and interest rates; compensation costs; and inflation. There can be no assurance that such assumptions will prove to be correct and, as a result, actual results or events may differ materially from expectations expressed in or implied by the forward-looking statements.
Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle, and which may cause actual results to differ materially from the forward-looking information. The risk factors and cautionary language discussed in the Annual Report on Form 10-K provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:
•our estimated total addressable market;
•risk and uncertainties related to Li-Cycle’s ability to continue as a going concern;
•Li-Cycle’s reliance on the experience and expertise of senior management and key personnel;
•the potential for Li-Cycle’s directors and officers who hold Company common shares to have interests that may differ from, or be in conflict with, the interests of other shareholders;
•Li-Cycle’s insurance may not cover all liabilities and damages;
•Li-Cycle’s reliance on a limited number of commercial partners to generate revenue;
•customer demand for recycled materials;
•the NYSE may delist our common shares, which could limit investors’ ability to engage in transactions in our common shares and subject us to additional trading restrictions
•Li-Cycle’s failure to effectively remediate the material weaknesses in its internal control over financial reporting that it has identified or its failure to develop and maintain a proper and effective internal control over financial reporting; and
•risk of litigation or regulatory proceedings that could materially adversely impact Li-Cycle’s financial results.
The risk and uncertainties discussed in our Annual Report on Form 10-K, as well as other risks and uncertainties related to Li-Cycle’s business and the assumptions on which the forward-looking information is based are described in greater detail in the sections titled “Part II—Item 1A. Risk Factors”, “Part I—Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Because of these risks, uncertainties and assumptions, readers should not place undue reliance on these forward-looking statements. Actual results could differ materially from those contained in any forward-looking statements. Li-Cycle assumes no obligation to update or revise any forward-looking statements, except as required by applicable laws. These forward-looking statements should not be relied upon as representing Li-Cycle’s assessments as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Unless otherwise indicated, the estimates included in this Quarterly Report on Form 10-Q, including with respect to the size of the EV and hybrid market in North America, price and supply of nickel and cobalt and the supply of battery materials for recycling in North America are based on the good faith estimates of our management, which in turn are based upon our management’s review of internal surveys, independent industry surveys and publications, including reports by third party research analysts and publicly available information. These data involve a number of assumptions and limitations and you are cautioned not to give undue weight to such estimates. We have not independently verified the accuracy or completeness of the data contained in such sources.
FREQUENTLY USED TERMS
As used in this Quarterly Report on Form 10-1Q, unless the context otherwise requires or indicates otherwise, references to “we,” “us,” “our,” “Li-Cycle” or the “Company” refer to Li-Cycle Holdings Corp., an Ontario corporation, and its consolidated subsidiaries.
In this document:
“A&R Glencore Convertible Notes” means the Glencore Unsecured Convertible Notes, as amended and restated on March 25, 2024 in connection with the closing of the issuance of the Glencore Senior Secured Convertible Note.
“Alabama Spoke” means Li-Cycle’s Spoke near Tuscaloosa, Alabama, which commenced operations on October 13, 2022.
“Allocation Agreement” the North American Black Mass and Refined Products Allocation Agreement by and between Li-Cycle and certain of its affiliates, Traxys and Glencore.
“Amalgamation” means the amalgamation of Peridot Ontario and NewCo in accordance with the terms of the Arrangement.
“Annual Report on Form 10-K” means the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024, as amended by the Form 10-K/A filed with the SEC on April 29, 2024.
“Arrangement” means the plan of arrangement (including the Business Combination) in substantially the form attached as Annex C to the proxy statement/prospectus forming a part of the registration statement on Form F-4, filed by the Company with the SEC on July 6, 2021.
“Arizona Spoke” means Li-Cycle’s Spoke in Gilbert, Arizona, which commenced operations on May 17, 2022.
“black mass” means a powder-like substance which contains a number of valuable metals, including nickel, cobalt and lithium.
“Black Mass & Equivalents” or “BM&E” means black mass and products analogous to black mass that have a similar metal content.
“Business Combination” means the transactions contemplated by the Business Combination Agreement.
“Business Combination Agreement” means the Business Combination Agreement, dated as of February 15, 2021, as amended, by and among Peridot, Li-Cycle Corp. and NewCo.
“B.Riley” means B. Riley Securities, Inc.
“Cash Preservation Plan” means the cash preservation plan initiated on November 1, 2023, which included reducing staffing in its corporate support functions, pausing production at its Ontario Spoke and implementing a plan to manage lower levels of Black Mass & Equivalents production and otherwise slow down operations at its remaining operating Spoke locations in order to reduce expenses and slow cash outflows as well as reviewing existing plans for bringing on additional Spoke capacity and taking other steps to preserve the Company’s available cash while pursuing funding alternatives for the Company and continuing to review the go-forward strategy for the Rochester Hub project.
“common shares” means the common shares of the Company, without par value.
“Company” means Li-Cycle Holdings Corp.
“Consolidated Financial Statements” means the unaudited condensed consolidated interim financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
“Continuance” means the continuance of Peridot from the Cayman Islands under the Companies Act to the Province of Ontario, Canada as a corporation existing under the OBCA.
“DFS” means definitive feasibility study.
“EV” means electric vehicles.
“Germany Spoke” means Li-Cycle’s Spoke in Magdeburg, Germany, which commenced operations on August 1, 2023.
“Glencore” means Glencore plc and its subsidiaries.
“Glencore Convertible Notes” means the A&R Glencore Convertible Notes and Glencore Senior Secured Convertible Note together with any PIK Notes issued in satisfaction of interest due and payable thereon.
“Glencore Note Purchase Agreement” means the note purchase agreement, dated as of May 5, 2022, between the Company and Glencore Ltd.
“Glencore Senior Secured Convertible Note” means the senior secured convertible note in an aggregate principal amount of $75.0 million issued to an affiliate of Glencore plc on March 25, 2024 pursuant to the Glencore Senior Secured Convertible Note Purchase Agreement, as such note may be amended from time to time.
“Glencore Senior Secured Convertible Note Purchase Agreement” means the agreement dated March 11, 2024 and amended and restated on March 25, 2024, by and between the Company, an affiliate of Glencore plc and the other parties named therein for the issuance of the Glencore Senior Secured Convertible Note.
“Glencore Unsecured Convertible Note” means the unsecured convertible note in the principal amount of $200.0 million due May 31, 2027 issued to Glencore Ltd. pursuant to the Glencore Note Purchase Agreement on May 31, 2022, as such note may be amended from time to time.
“Glencore Unsecured Convertible Notes” means the Glencore Unsecured Convertible Note together with any PIK Notes issued in satisfaction of interest due and payable thereon.
“Glencore Warrants” means warrants to be issued by Li-Cycle to the holder of a Glencore Convertible Note in connection with an optional redemption of such Glencore Convertible Note that entitle the holder to acquire, until the maturity date of such Glencore Convertible Note, a number of common shares equal to the principal amount of the Glencore Convertible Note being redeemed divided by the then applicable conversion price.
“Hub” means a centralized facility for large-scale production of specialty materials that achieves economies of scale in recycling.
“KSP Convertible Note” means the unsecured convertible note in the principal amount of $100.0 million due September 29, 2026 originally issued to Spring Creek Capital, LLC (an affiliate of Koch Strategic Platforms, LLC, being a company within the Koch Investments Group) pursuant to the KSP Note Purchase Agreement on September 29, 2021 and subsequently assigned on May 1, 2022, to one of its affiliates, Wood River Capital, LLC, and amended on May 5, 2022, February 13, 2023 and March 25, 2024, as such note may be further amended from time to time.
“KSP Convertible Notes” means the KSP Convertible Note together with any PIK Notes issued in satisfaction of interest due and payable thereon.
“KSP Note Purchase Agreement” means the Note Purchase Agreement, dated as of September 29, 2021, between the Company and Spring Creek Capital, LLC, and assigned on May 1, 2022, to Wood River Capital, LLC.
“LIB” means lithium-ion batteries, including lithium-ion battery manufacturing scrap and end-of-life lithium-ion batteries.
“LIBOR” means the London Inter-Bank Offered Rate.
“main line processing capacity” means, in relation to Li-Cycle’s Spokes, the capacity to process LIB using Li-Cycle’s patented submerged shredding process or “wet shredding” designed specifically for battery materials that contain electrolyte and have risk of thermal runaway.
“MHP” means mixed hydroxide precipitate, containing nickel, cobalt and manganese.
“MHP scope” means a scope for the Rochester Hub project that focuses only on those process areas needed to produce lithium carbonate and MHP.
“Moelis” means Moelis & Company LLC.
“NewCo” means Li-Cycle Holdings Corp. prior to the Amalgamation.
“New York Spoke” means Li-Cycle’s operational Spoke in Rochester, New York, which commenced operations in late 2020.
“Norway Spoke” means Li-Cycle’s planned Spoke in Moss, Norway, the development of which is currently paused.
“NYSE” means the New York Stock Exchange.
“OBCA” means the Ontario Business Corporations Act.
“OEM” means an original equipment manufacturer.
“Ontario Spoke” means Li-Cycle’s Spoke in Kingston, Ontario, the operations of which were paused on November 1, 2023 and which has since been closed.
“Peridot” means, before the Continuance, Peridot Acquisition Corp., a Cayman Islands exempt company and, after the Continuance, Peridot Ontario.
“Peridot Ontario” means Peridot as continued under the OBCA following the Continuance.
“PIK Notes” means the additional unsecured convertible notes that may be issued by Li-Cycle from time to time in satisfaction of the interest due and payable on the KSP Convertible Notes, the A&R Glencore Convertible Notes or the Glencore Senior Secured Convertible Note, as the case may be, as such notes may be amended from time to time.
“Planned Portovesme Hub” means the planned joint development project with Glencore to produce critical battery materials at a Hub facility in Portovesme, Italy, the definitive feasibility study for which is currently paused.
“Rochester Hub” means Li-Cycle’s planned, first commercial-scale Hub, under development in Rochester, New York, the construction of which is currently paused.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Share Consolidation” means the share consolidation of all the common shares at a ratio of one post-consolidation common share for every eight pre-consolidation common shares, effective June 3, 2024.
“SOFR” means the Secured Overnight Financing Rate.
“Special Committee” means the Special Committee comprised of independent directors that was established in connection with the comprehensive review of the go-forward strategy of the Rochester Hub project. See “Part I—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Liquidity Developments.”
“Spoke” means a decentralized facility that mechanically processes batteries close to sources of supply and handles the preliminary processing of end-of-life batteries and battery manufacturing scrap.
“Traxys” means Traxys North America LLC.
References to “dollar,” “USD,” “US$” and “$” are to U.S. dollars, references to “CA$” and “Cdn. $” are to Canadian dollars and references to “EUR”, “€” are to the common currency of the European Monetary Union.
This Quarterly Report on Form 10-Q includes certain trademarks, service marks and trade names that we own or otherwise have the right to use, such as “Li-Cycle” and “Spoke & Hub Technologies” which are protected under applicable intellectual property laws and are our property. We have, or are in the process of obtaining, the exclusive right to use such trademarks, service marks and trade names in the countries in which we operate or may operate in the future. This Quarterly Report on Form 10-Q also contains additional trademarks, tradenames, and service marks belonging to other parties, which are the property of their respective owners. Solely for convenience, our trademarks, service marks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbol, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. We do not intend our use or display of other parties’ trademarks, tradenames, or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Unaudited Condensed Consolidated Interim Financial Statements
| | | | | | | | | | | | | | | | | |
| Li-Cycle Holdings Corp. |
| Unaudited condensed consolidated interim statements of operations and comprehensive loss | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
|
| | For the three months ended
June 30, 2024 | For the three months ended
June 30, 2023 | For the six
months ended
June 30, 2024 | For the six
months ended
June 30, 2023 | | |
| | | | | | | |
| Revenue | | | | | | | |
| Product revenue | | $ | 5.2 | | $ | 3.1 | | $ | 7.1 | | $ | 6.2 | | | |
| Recycling service revenue | | 3.2 | | 0.5 | | 5.5 | | 1.0 | | | |
| Total revenue | | 8.4 | | 3.6 | | 12.6 | | 7.2 | | | |
| | | | | | | |
| Cost of sales | | | | | | | |
| Cost of sales - Product revenue | | (17.9) | | (20.2) | | (34.9) | | (39.3) | | | |
| Cost of sales - Recycling service revenue | | (1.5) | | — | | (2.4) | | — | | | |
| Total cost of sales | | (19.4) | | (20.2) | | (37.3) | | (39.3) | | | |
| Selling, general and administrative expense | | (15.3) | | (24.9) | | (45.9) | | (47.6) | | | |
| Research and development | | (0.6) | | (1.3) | | (0.5) | | (2.2) | | | |
| Loss from operations | | $ | (26.9) | | $ | (42.8) | | $ | (71.1) | | $ | (81.9) | | | |
| | | | | | | |
| Other income (expense) | | | | | | | |
| | | | | | | |
| Interest income | | 0.9 | | 4.2 | | 1.5 | | 9.2 | | | |
| Interest expense | | (15.6) | | (0.1) | | (27.1) | | (1.2) | | | |
| Foreign exchange gain (loss) | | (1.3) | | (0.5) | | (0.2) | | (1.0) | | | |
| Fair value gain on financial instruments | | 34.7 | | 7.3 | | 10.9 | | 6.6 | | | |
| Debt extinguishment loss (Note 11) | | — | | — | | (58.9) | | — | | | |
| | | | | | | |
| | $ | 18.7 | | $ | 10.9 | | $ | (73.8) | | $ | 13.6 | | | |
| | | | | | | |
| Net loss before taxes | | $ | (8.2) | | $ | (31.9) | | $ | (144.9) | | $ | (68.3) | | | |
| Income tax | | — | | — | — | (0.1) | | |
| Net loss and comprehensive loss | | $ | (8.2) | | $ | (31.9) | | $ | (144.9) | | $ | (68.4) | | | |
| | | | | | | |
| Net loss and comprehensive loss attributable to | | | | | | | |
| Shareholders of Li-Cycle Holdings Corp. | | (8.2) | | (32.0) | | (144.9) | | (68.3) | | | |
| Non-controlling interest | | — | | (0.1) | | — | | (0.1) | | | |
| | | | | | | |
| Loss per common share - basic and diluted | | $ | (0.36) | | $ | (1.45) | | $ | (6.44) | | $ | (3.08) | | | |
| | | | | | | |
The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.
| | | | | | | | | |
Unaudited condensed consolidated interim balance sheets |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
| | June 30, | December 31, |
| | 2024 | 2023 |
| | | |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | | $ | 57.0 | | $ | 70.6 | |
| Restricted cash | | 9.6 | | 9.7 | |
| Accounts receivable, net | | 5.7 | | 1.0 | |
| Other receivables | | 1.5 | | 1.9 | |
| Prepayments, deposits and other current assets | | 21.4 | | 56.2 | |
| Inventories, net | | 9.1 | | 9.6 | |
| Total current assets | | 104.3 | | 149.0 | |
| | | |
| Non-current assets | | | |
| Property, plant and equipment, net | | 697.8 | | 668.8 | |
| Operating lease right-of-use assets | | 89.9 | | 56.4 | |
| Finance lease right-of-use assets | | — | | 2.2 | |
| Other assets | | 7.9 | | 9.6 | |
| | 795.6 | | 737.0 | |
| Total assets | | $ | 899.9 | | $ | 886.0 | |
| | | |
| Liabilities | | | |
| Current liabilities | | | |
| Accounts payable | | $ | 103.6 | | $ | 134.5 | |
| Accrued liabilities | | 26.1 | | 17.6 | |
| Deferred revenue | | 0.6 | | 0.2 | |
| Operating lease liabilities | | 9.3 | | 4.4 | |
| | | |
| Total current liabilities | | 139.6 | | 156.7 | |
| | | |
| Non-current liabilities | | | |
| Accounts payable | | 6.3 | | — | |
| Deferred revenue | | 5.3 | | 5.3 | |
| Operating lease liabilities | | 85.6 | | 56.2 | |
| Finance lease liabilities | | — | | 2.3 | |
| Convertible debt | | 426.4 | | 288.1 | |
| Asset retirement obligations | | 1.0 | | 1.0 | |
| | 524.6 | | 352.9 | |
| Total liabilities | | $ | 664.2 | | $ | 509.6 | |
| Commitments and contingencies (Note 14) | | | |
| Going concern (Note 1) | | | |
| | | |
| | | |
| Equity | | | |
Common stock and additional paid-in capital Authorized unlimited shares, Issued and outstanding - 22.5 million shares at June 30, 2024 (22.2 million shares at December 31, 2023) | | 652.5 | | 648.3 | |
| Additional paid-in capital | | | |
| Accumulated deficit | | (416.5) | | (271.6) | |
| Accumulated other comprehensive loss | | (0.3) | | (0.3) | |
| | | |
| | | |
| Total equity | | 235.7 | | 376.4 | |
| Total liabilities and equity | | $ | 899.9 | | $ | 886.0 | |
The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Li-Cycle Holdings Corp. | | | | | | | | |
| Unaudited condensed consolidated interim statements of equity |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
|
| For the three months ended | Number of common shares | | | Common stock and additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Equity attributable to the shareholders of Li-Cycle Holdings Corp. | Non-controlling interest | Total |
| Balance, March 31, 2024 | 22.4 | | | $ | 651.6 | | $ | (408.3) | | $ | (0.3) | | $ | 243.0 | | $ | — | | $ | 243.0 | |
| Settlement of RSUs | 0.1 | | | — | — | — | — | — | — |
| | | | | | | | | |
| Stock-based compensation - RSUs | — | | | 0.5 | — | — | 0.5 | — | 0.5 |
| Stock-based compensation - options | — | | | 0.4 | — | — | 0.4 | — | 0.4 |
| Net loss and comprehensive loss | — | | | — | (8.2) | — | (8.2) | — | (8.2) |
| Balance, June 30, 2024 | 22.5 | | | 652.5 | (416.5) | | (0.3) | | 235.7 | | — | | 235.7 | |
| | | | | | | | | |
| Balance, March 31, 2023 | 22.1 | | | 638.7 | | (170.1) | | (0.3) | | 468.3 | | 0.2 | | 468.5 | |
| | | | | | | | | |
| Exercise of stock options | 0.1 | | | — | | — | | — | | — | | — | | — | |
| Stock-based compensation - RSUs | — | | | 2.8 | | — | | — | | 2.8 | | — | | 2.8 | |
| Stock-based compensation - options | — | | | 1.1 | | — | | — | | 1.1 | | — | | 1.1 | |
| Payment to the holders of non-controlling interest in subsidiary | — | | | (0.4) | | — | | — | | (0.4) | | (0.2) | | (0.6) | |
| Net loss and comprehensive loss | — | | | — | | (31.9) | | — | | (31.9) | | — | | (31.9) | |
| Balance, June 30, 2023 | 22.2 | | | $ | 642.2 | | $ | (202.0) | | $ | (0.3) | | $ | 439.9 | | $ | — | | $ | 439.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended | Number of common shares | | | Common stock and additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Equity attributable to the shareholders of Li-Cycle Holdings Corp. | Non-controlling interest | Total |
| Balance, December 31, 2023 | 22.2 | | | $ | 648.3 | | $ | (271.6) | | $ | (0.3) | | $ | 376.4 | | $ | — | | $ | 376.4 | |
| Settlement of RSUs | 0.3 | | | — | — | — | — | — | — |
| | | | | | | | | |
| Stock-based compensation - RSUs | — | | | 3.2 | — | — | 3.2 | — | 3.2 |
| Stock-based compensation - options | — | | | 1.0 | — | — | 1.0 | — | 1.0 |
| Net loss and comprehensive loss | — | | | — | (144.9) | — | (144.9) | — | (144.9) |
| Balance, June 30, 2024 | 22.5 | | | 652.5 | (416.5) | | (0.3) | | 235.7 | | — | | 235.7 | |
| | | | | | | | | |
| Balance, December 31, 2022 | 22.0 | | | 635.3 | | (133.6) | | (0.3) | | 501.4 | | 0.2 | | 501.6 | |
| Settlement of RSUs | 0.1 | | | — | | — | | — | | — | | — | | — | |
| Exercise of stock options | 0.1 | | | — | | — | | — | | — | | — | | — | |
| Stock-based compensation - RSUs | — | | | 5.5 | | — | | — | | 5.5 | | — | | 5.5 | |
| Stock-based compensation - options | — | | | 1.8 | | — | | — | | 1.8 | | — | | 1.8 | |
| Payment to the holders of non-controlling interest in subsidiary | — | | | (0.4) | | — | | — | | (0.4) | | (0.2) | | (0.6) | |
| Net loss and comprehensive loss | — | | | — | | (68.4) | | — | | (68.4) | | — | | (68.4) | |
| Balance, June 30, 2023 | 22.2 | | | $ | 642.2 | | $ | (202.0) | | $ | (0.3) | | $ | 439.9 | | $ | — | | $ | 439.9 | |
The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.
| | | | | | | | | | |
| Li-Cycle Holdings Corp. | | | | |
| Unaudited condensed consolidated interim statements of cash flows | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts | |
| | | | |
| | For the six months ended June 30, | |
| | 2024 | 2023 | |
| Operating activities | | | | |
| Net loss for the period | | $ | (144.9) | $ | (68.4) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
| Share-based compensation | | 4.2 | 6.9 | |
| Depreciation and amortization | | 6.8 | 3.9 | |
| Foreign exchange loss on translation | | — | 0.4 | |
| Fair value (gain) on financial instruments | | (10.9) | (6.6) | |
| | | | |
| Bad debt expense | | — | 1.1 | |
| Inventory write downs to net realizable value | | (0.2) | (0.2) | |
| Loss on write off of fixed assets | | 0.1 | — | |
| Interest and accretion on convertible debt | | 27.1 | 1.2 | |
| Interest paid | | (0.3) | — | |
| Debt extinguishment loss (Note 11) | | 58.9 | — | |
| Non-cash lease expense | | (0.5) | (0.1) | |
| | (59.7) | (61.8) | |
| Changes in working capital items: | | | | |
| Accounts receivable | | (4.7) | 2.3 | |
| Other receivables | | 0.4 | 5.0 | |
| Prepayments and deposits | | (2.3) | (12.1) | |
| Inventories | | 0.8 | 5.3 | |
| | | | |
| Deferred revenue | | 0.4 | 5.4 | |
| Accounts payable and accrued liabilities | | (6.9) | (7.9) | |
| Net cash used in operating activities | | $ | (72.0) | $ | (63.8) | |
| | | | |
| Investing activities | | | | |
| Purchases of property, plant, equipment, and other assets | | (15.4) | (164.9) | |
| | | | |
| Net cash used in investing activities | | $ | (15.4) | $ | (164.9) | |
| | | | |
| Financing activities | | | | |
| Proceeds from convertible debt | | 75.0 | — | |
| | | | |
| Payments of transaction costs | | (1.3) | — | |
| Purchase of non-controlling interest | | — | (0.4) | |
| | | | |
| | | | |
| Net cash provided (used in) by financing activities | | $ | 73.7 | $ | (0.4) | |
| | | | |
| Net change in cash, cash equivalents and restricted cash | | (13.7) | (229.1) | |
| Cash, cash equivalents and restricted cash, beginning of period | | 80.3 | 517.9 | |
| Cash, cash equivalents and restricted cash, end of period | | $ | 66.6 | $ | 288.8 | |
| | | | |
| Supplemental non-cash investing activities: | | | | |
| Purchases of property and equipment included in liabilities | | $ | 12.6 | | $ | 9.8 | | |
| | | | |
| Supplemental information: | | | | |
| | | | |
| Bad debt recovery | | $ | 1.0 | | $ | — | | |
The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
1. Basis of Presentation and Summary of Significant Accounting Polices
The accompanying unaudited condensed consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and applicable quarterly reporting regulations of the SEC and are presented in U.S. Dollars.
These condensed consolidated interim financial statements of the Company, including the condensed consolidated interim balance sheet as of June 30, 2024, the condensed consolidated interim statements of operations and comprehensive loss, condensed consolidated interim statement of equity and condensed consolidated interim statement of cash flows for the six months ended June 30, 2024 and 2023, as well as other information disclosed in the accompanying notes, are unaudited. The condensed consolidated balance sheet at December 31, 2023, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of its financial position as of June 30, 2024, and the results of operations for the three and six months ended June 30, 2024, and 2023, and cash flows for the six months ended June 30, 2024, and 2023, have been included. Interim results are not necessarily indicative of financial results for a full year or any future years or interim periods.
The Company reclassified certain amounts in the condensed consolidated interim financial statements to conform to the current period's presentation.
Going concern
The going concern basis of accounting assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated interim financial statements are issued. Based on its recurring losses from operations since inception, which included losses from operations of $26.9 million and $71.1 million for the three and six months ended June 30, 2024 ($42.8 million and $81.9 million for the three and six months ended June 30, 2023), net cash used in operating activities of $72.0 million during the six months ended June 30, 2024 ($63.8 million for the six months ended June 30, 2023), and the pause on construction of the Rochester Hub project (as described below), the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these unaudited condensed consolidated interim financial statements were issued.
As of June 30, 2024, the Company had $9.6 million in restricted cash of which $2.9 million is held as security for waste disposal obligations related to the Germany Spoke operations, and $5.5 million is a bank guarantee against a reservation fee for future battery waste recycling services. Additionally, the Company has funds held as cash collateral with its bank as security for credit cards and a performance bond. As the use of these funds is contractually restricted, and the Company does not have the ability to use these funds for general operating purposes, they are classified as restricted cash in the consolidated balance sheets.
To date, the Company has financed its operations primarily through proceeds received in connection with: (i) the Business Combination; (ii) the concurrent $315.5 million private placement of common shares; and (iii) private placements of other Company securities (including convertible notes and common shares). On March 11, 2024, the Company entered a private placement agreement (the “Glencore Senior Secured Convertible Note Purchase Agreement”) to issue a senior secured convertible note in an aggregate principal amount of $75.0 million to an affiliate of Glencore plc (the “Glencore Senior Secured Convertible Note”) which closed on March 25, 2024. The Company is actively exploring external financing options, including working closely with the United States Department of Energy (“DOE”) to reach a definitive financing agreement. However, there can be no assurance that the Company will be able to secure additional funding at attractive commercial terms or at all. Furthermore, any additional financing, including the recent Glencore Senior Secured Convertible Note investment, may be insufficient to provide adequate liquidity for ongoing operations, to fund the Company’s future growth or capital projects, including the Rochester Hub, or otherwise satisfy any of the Company’s funding needs and obligations. Additional financing will have restrictive covenants that significantly limit the Company’s operating and financial flexibility or its ability to obtain future funding.
In addition, there are inherent risks associated with the Company’s ability to execute its growth strategy. There can be no assurance that the Company will develop the manufacturing capabilities and processes, secure reliable sources of component
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
supply to meet quality, engineering, design or production standards, or meet the required production volumes to grow into a viable, cash-flow-positive business successfully.
These factors, in addition to potential rising inflation, commodity and labor prices and other challenging macroeconomic conditions, have led the Company to undertake mitigation initiatives to strengthen its financial position, enhance liquidity and preserve cash flow, including:
•On October 23, 2023, Li-Cycle announced that it had paused construction work on its Rochester Hub, pending completion of a comprehensive review of the project’s future strategy.
•In connection with the comprehensive review of the go-forward strategy of the Rochester Hub project, the Board of Directors (the “Board”) established the Special Committee to, among other things, (1) oversee and supervise a strategic review of all or any of the Company’s operations and capital projects including its sales, general and administration functions, and (2) consider financing and other strategic alternatives.
•The Special Committee selected Moelis and other advisors to assist with exploring financing options to increase the liquidity of Li-Cycle and strategic alternatives managing short-term liquidity and implementing liquidity generating initiatives.
•On November 1, 2023, the Company initiated the implementation of the Cash Preservation Plan including reducing staffing in its corporate support functions, pausing production at its Ontario Spoke and implementing a plan to manage lower levels of BM&E production and otherwise slow down operations at its remaining operating Spoke locations. As part of the Company’s ongoing efforts under the Cash Preservation Plan, during the quarter ended June 30, 2024, the Company completed the workforce reduction announced on March 26, 2024, affecting approximately 17% of the Company’s workforce, primarily at the corporate level. Similarly, the Company anticipates the closure of the Ontario Spoke and warehouse facility in Kingston in the coming months. The Cash Preservation Plan continues to involve reviewing existing plans for additional Spoke capacity and taking other steps to preserve the Company’s available cash while pursuing funding alternatives and reviewing the go-forward strategy for the Rochester Hub project.
These factors represent material uncertainties that cast substantial doubt about the Company’s ability to continue as a going concern. These unaudited consolidated interim financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis were not appropriate for these unaudited condensed consolidated interim financial statements, adjustments to the carrying value of assets and liabilities or reported expenses may be necessary, and these adjustments could be material.
Impairment of long-lived assets
The Company reviews long-lived assets such as plant and equipment, intangible assets with finite useful lives and ROU assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset or asset group may not be recoverable. These events and circumstances may include significant decreases in the market price of an asset or asset group, significant changes in the extent or manner in which an asset or asset group is being used by the Company or in its physical condition, a significant change in legal factors or in the business climate, a history or forecast of future operating or cash flow losses, significant disposal activity, a significant decline in the Company’s share price, a significant decline in revenue or adverse changes in the economic environment. The existence of an individual indicator outlined above, or otherwise, is not automatically an indicator that a long-lived asset may not be recoverable. Instead, management exercises judgment and considers the combined effect of all potential indicators and developments present, potentially positive or negative, when determining whether a long-lived asset may not be recoverable.
For further information and details of the Company’s significant accounting policies, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K, and “Part I. Financial Information—Item 2. Management’s discussion and analysis of financial condition and results of operations - Material Accounting Policies and Critical Estimates” in this Quarterly Report on Form 10-Q.
2. Accounting Changes
Recently issued accounting standards
Segment Reporting Disclosures
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
Standard/Description – Issuance date: November 2023. This guidance requires the disclosure of significant segment expenses that are regularly provided to a company's chief operating decision maker and included within each reported measure of segment profit or loss. The Company must also disclose “other segment items,” which is the difference between segment revenue less significant expenses for each reported measure of segment profit or loss, and a description of its composition. This guidance also requires all segment annual disclosures to be provided on an interim basis.
Effective Date and Adoption Considerations – The guidance is effective for annual periods beginning in 2024, and for interim periods beginning January 1, 2025, and is required to be applied on a retrospective basis to all prior periods presented. Early adoption is permitted. The Company will adopt the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters – The Company is currently evaluating the impact of adoption on its financial statements; however, as the guidance is a change to disclosures only, no impacts to the consolidated financial results are expected.
Income Tax Disclosures
Standard/Description – Issuance date: December 2023. This guidance requires disaggregated disclosure of the tax rate reconciliation into eight categories, with further disaggregation required for items greater than a specific threshold. Additionally, the guidance requires the disclosure of income taxes paid disaggregated by federal, state and foreign jurisdictions.
Effective Date and Adoption Considerations – The guidance is effective January 1, 2025 and early adoption is permitted. The Company expects to adopt the guidance as of the effective date.
Effect on Financial Statements or Other Significant Matters – The Company is currently evaluating the impact of adoption on its financial statements; however, as the guidance is a change to disclosures only, no impacts to the consolidated financial results are expected.
3. Revenue – product sales and recycling services
| | | | | | | | | | | | | | |
| For the three months ended June 30, 2024 | For the three months ended June 30, 2023 | For the six months ended June 30, 2024 | For the six months ended June 30, 2023 |
| Product revenue recognized in the period | $ | 5.0 | | $ | 4.8 | | $ | 6.4 | | $ | 12.0 | |
| Fair value pricing adjustments | 0.2 | | (1.7) | | 0.7 | | (5.8) | |
| Product revenue | $ | 5.2 | | $ | 3.1 | | $ | 7.1 | | $ | 6.2 | |
| Recycling service revenue recognized in the period | 3.2 | | 0.5 | | 5.5 | | 1.0 | |
| Revenue | $ | 8.4 | | $ | 3.6 | | $ | 12.6 | | $ | 7.2 | |
During the currently paused construction of the Rochester Hub project, the Company's principal lines of business are the sale of products (including Black Mass & Equivalents and shredded metal) and lithium-ion battery recycling services which together account for 100% of sales. The principal markets for the Company's products and recycling services are the United States, Canada, Germany, and Asia.
Product revenue, and the related trade accounts receivables are measured at initial recognition using provisional prices for the constituent metals on initial recognition and any unsettled sales are remeasured at the end of each reporting period using the market prices of the constituent metals. Changes in fair value are recognized as an adjustment to product revenue, and the related accounts receivable, and can result in gains and losses when the applicable metal prices increase or decrease from the date of initial recognition.
Accounts receivable, net
The Company recognizes current estimated credit losses (“CECL”) for trade receivables not subject to provisional pricing. The CECL for accounts receivable are estimated based on days past due consisting of customers with similar risk characteristics that operate under similar economic environments. The Company determines the CECL based on an evaluation of certain criteria and evidence of collection uncertainty including client industry profile. When specific customers are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately.
The allowance for credit losses as at June 30, 2024 was $nil (December 31, 2023 : $nil) and no expected credit loss provisions were recognized for the six months ended June 30, 2024.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
Bad debt expense recovery for the three and six months ended June 30, 2024 was $1.0 million and $1.0 million (Bad debt expense for the three and six months ended June 30, 2023: $0.1 million and $1.1 million).
Accounts receivable are stated at the amount the Company expects to collect. The Company generally does not require collateral or other security in support of accounts receivable. To reduce credit risk, the Company performs ongoing credit evaluations of its customers’ financial condition.
Deferred revenue
In the normal course of business, the Company receives advances from customers for the sale of products and the provision of lithium-ion battery recycling services. The table below depicts the activity in the deferred revenue account during the six months ended June 30, 2024 and 2023.
Product Revenue
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
Balance, beginning of the period | $ | — | | $ | — | |
Additions | 3.4 | | — | |
| Revenue recognized | (2.8) | | — | |
| Foreign exchange loss | — | | — | |
Balance, end of the period | $ | 0.6 | | $ | — | |
| Current deferred revenue | 0.6 | | — | |
| Non-current deferred revenue | $ | — | | $ | — | |
Service Revenue
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
Balance, beginning of the period | $ | 5.5 | | $ | — | |
Additions | — | | 5.4 | |
| Amounts recognized in product revenue | — | | — | |
| Foreign exchange revaluation | (0.2) | | 0.1 | |
Balance, end of the period | $ | 5.3 | | $ | 5.5 | |
| Current deferred revenue | — | | 0.2 | |
| Non-current deferred revenue | $ | 5.3 | | $ | 5.3 | |
The remaining performance obligation (RPO) relates to the delivery of products or services for which cash has been received in advance. At June 30, 2024, $5.3 million relates to services and is expected to be recognized in 3-5 years, and $0.6 million relates to products and is expected to be recognized in 2024.
4. Prepayments, deposits and other current assets
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
| Prepaid equipment deposits | $ | 0.9 | $ | 40.1 |
| Prepaid transaction costs | 10.0 | 7.8 |
| Prepaid lease deposits | 6.1 | 5.6 |
| Prepaid insurance | 5.6 | 4.6 |
| Prepaid construction charges | 0.9 | 2.6 |
| Other prepaids | 4.2 | 3.3 |
| Total prepayments, deposits and other current assets | $ | 27.7 | $ | 64.0 |
| Non-current security deposits | (6.1) | (5.0) |
| Non-current insurance | (0.2) | (2.8) |
| Current prepayments and deposits | $ | 21.4 | $ | 56.2 |
Other prepaids consist principally of other deposits, prepaid subscriptions and environmental deposits. Non-current security deposits and non-current insurance are recorded in other assets on the condensed consolidated interim statements of financial
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
position. Prepaid transaction costs primarily consist of prepayments made in connection with the conditional commitment with the U.S. Department of Energy Loan Programs Office for a loan.
5. Inventories, net
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
| Raw materials | $ | — | $ | 0.8 |
| Finished goods | 3.0 | 3.7 |
| Parts and tools | 6.1 | 5.1 |
| | |
| | |
| Total inventories, net | $ | 9.1 | $ | 9.6 |
The inventory balances for raw materials and finished goods are presented at the lower of cost or net realizable value. For the three and six months ended June 30, 2024, the write down of inventory was $2.0 million and $0.2 million (three and six months ended June 30, 2023: reversal of write down of $2.3 million and $0.2 million). The adjustments are recorded in cost of sales in the unaudited condensed consolidated interim statements of operations and comprehensive income (loss).
6. Property, plant and equipment, net
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
| Plant equipment | $ | 53.3 | | $ | 55.3 | |
| Computer equipment | 4.6 | | 4.5 | |
| Vehicles | 0.2 | | 0.2 | |
| Leasehold improvement | 13.0 | | 13.5 | |
| Construction in progress - Rochester Hub | 579.5 | | 547.2 | |
| Construction in progress - Spoke Network | 38.5 | | 34.7 | |
| Construction in progress - Buildings | 29.6 | | 29.5 | |
| $ | 718.7 | | $ | 684.9 | |
| Less – accumulated depreciation | (20.9) | | (16.1) | |
| Total property, plant and equipment, net | $ | 697.8 | $ | 668.8 |
For the three and six months ended June 30, 2024, $nil and $nil in borrowing costs (for the three and six months ended June 30, 2023: $9.1 million and $16.8 million) were capitalized to assets under construction due to the pause of construction at the Rochester Hub. Depreciation expense for the three and six months ended June 30, 2024 was $2.6 million and $4.8 million compared to $2.0 million and $3.9 million in the corresponding periods of 2023. In the three months ended June 30, 2024, the Company recognized as a reduction in the Construction in progress - Spoke Network amount on the receipt of $5.8 million (€5.3 million) of the $6.9 million (€6.4 million) approved grant for the Germany Spoke from the State of Saxony-Anhalt, Germany.
Refer to Note 14 (Commitments and contingencies) for details of contractual commitments to purchase fixed assets.
7. Leases
The Company’s lease portfolio is predominantly operating leases for plant operations, storage facilities, and office space. The Company presents operating lease and finance lease balances separately on the consolidated balance sheets. The Company’s finance leases relate to plant operations. The Company does not include options to extend leases in the lease term until they are reasonably certain to be exercised. The following table presents the Company's lease balances and their classification on the unaudited condensed consolidated interim statements of operations and comprehensive loss:
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
| | | | | | | | |
| June 30, 2024 | June 30, 2023 |
| Finance lease | | |
| Amortization of ROU assets | $ | — | | $ | — | |
| Interest on lease liabilities | 0.1 | | — | |
| Total finance lease cost | $ | 0.1 | $ | — |
| | |
| Operating lease cost | $ | 6.4 | | $ | 2.3 | |
| Short-term lease cost | — | | — | |
| Variable lease cost | 0.8 | | 0.4 | |
| Total lease cost | $ | 7.3 | $ | 2.7 |
The weighted average remaining lease term of the Company's premises and equipment operating leases is 20.50 years as at June 30, 2024 and 14.48 years as at December 31, 2023. The weighted average remaining lease term of the Company's premises and equipment finance leases is 2.50 years as at June 30, 2024 and 46.78 years as at December 31, 2023.
The weighted average lease discount rate of the Company's premises and equipment operating leases is 8.00% as at June 30, 2024 and 7.69% as at December 31, 2023. The weighted average lease discount rate of the Company's premises and equipment finance leases is 11.56% as at June 30, 2024 and 9.49% as at December 31, 2023.
| | | | | | | | |
| Supplemental Cash Flow Related Disclosures | For the six months ended June 30, 2024 | For the six months ended June 30, 2023 |
| | |
| Cash paid for amounts related to lease liabilities: | | |
| Operating cash flows from operating leases | $ | 6.1 | | $ | 4.8 | |
| Operating cash flows from finance leases | 0.1 | | — | |
| Financing cash flows from finance leases | — | | — | |
| | |
| Recognition of ROU assets and lease liabilities for new operating leases | $ | 36.8 | | $ | 7.3 | |
| Derecognition of ROU assets and lease liabilities for new finance leases | (2.2) | | — | |
Maturities of lease liabilities as of June 30 were as follows:
| | | | | | | | |
| Operating Leases | Finance Leases |
| | |
| | |
| 2025 | $ | 13.7 | | — | |
| 2026 | 13.6 | | — | |
| 2027 | 12.8 | | — | |
| 2028 | 12.1 | | — | |
| 2029 | 11.9 | | — | |
| Thereafter | 161.1 | | — | |
| Total future minimum lease payments | $ | 225.2 | | $ | — | |
| Imputed interest | (130.3) | | — | |
| Total lease liabilities | $ | 94.9 | | $ | — | |
At June 30, 2024, none of the Company's executed leases that had not yet commenced will create significant rights or obligations in the future and sublease transactions are not material. There were no restrictions or covenants imposed by the Company’s leases.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
8. Other assets
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
Non-current security deposits | $ | 6.1 | | $ | 5.0 | |
Non-current insurance | 0.2 | | 2.8 | |
| | |
Intangible assets, net | 1.6 | | 1.8 | |
| Total other assets | $ | 7.9 | | $ | 9.6 | |
As of June 30, 2024 and December 31, 2023, the Company's intangible assets consisted of the following:
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
Internal-use software | $ | 0.6 | | $ | 0.7 | |
Cloud computing arrangements | 1.3 | | 1.3 | |
| $ | 1.9 | | $ | 2.0 | |
Less - accumulated amortization | (0.3) | | (0.2) | |
Intangible assets, net | $ | 1.6 | | $ | 1.8 | |
Amortization expense relating to cloud computing arrangements is recorded in selling, general and administrative expenses in the unaudited condensed consolidated interim statements of operations and comprehensive loss for the three and six months ended June 30, 2024 is below $0.1 million and $0.1 million (for the three and six months ended June 30, 2023: $nil and nil).
9. Related party transactions
For information about Li-Cycle’s related party transactions, refer to Note 9 (Related party transactions) to the Consolidated Financial Statements and the section of the Annual Report on Form 10-K titled “Item 13. Certain Relationships and Related Transactions and Director Independence—Certain Relationships and Related Transactions.”
The Company has convertible debt instruments with affiliates of Glencore plc. (“Glencore”). Refer to Note 11 (Convertible debt) for more information.
The Company has agreements with Glencore to sell certain products from its Spokes. During the three and six months ended June 30, 2024, the Company recorded a net loss of below $0.1 million and $0.3 million, respectively, from sales to Glencore, which was driven by losses from the finalization of provisional sales from prior periods, which exceeded sales in the period (revenue from sales to Glencore were $0.3 million and $1.2 million for the three and six months ended June 30, 2023).
On May 31, 2022, the Company entered into agreements with Glencore, pursuant to which the Company pays (i) sourcing fees on feed purchased for the Company's Spokes; and (ii) marketing fees on the sale of Black Mass to third parties. Sourcing fees and marketing fees for the three months ended June 30, 2024 were below $0.1 million, compared to below $0.1 million in the three months ended June 30, 2023. The sourcing fees and marketing fees for the six months ended June 30, 2024, were below $0.1 million (for the six months ended June 30, 2023: below $0.1 million). The net account payable to Glencore as of June 30, 2024 was $0.3 million (net account receivable as of December 31, 2023: $0.2 million).
The Company has engaged Fade In Production Pty. Ltd., which is controlled by certain members of the immediate family of the former interim non-executive Chair of the Company’s Board, to provide it with corporate video production services since 2017. Total expenses were below $0.1 million for the six months ended June 30, 2024 (below $0.1 million for the six months ended June 30, 2023).
In September 1, 2020, the Company engaged Consulero Inc., which is controlled by certain members of the immediate family of the Company's President and Chief Executive Officer, to provide it with technology services in relation to the Company's inventory management system. Total expense and accrual was $nil and below $0.1 million for the three and six months ended June 30, 2024 (below $0.1 million and below $0.1 million for the three and six months ended June 30, 2023, respectively).
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
10. Accounts payable and accrued liabilities
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
| Accounts payable | $ | 109.9 | | $ | 134.5 | |
| | |
| Accrued expenses | 18.7 | | 14.5 | |
| Accrued compensation | 7.4 | | 3.1 | |
Total accounts payable and accrued liabilities | $ | 136.0 | | $ | 152.1 | |
| Non-current accounts payable | (6.3) | | — | |
| Current accounts payable and accrued liabilities | $ | 129.7 | | $ | 152.1 | |
During the six months ended June 30, 2024, the Company reached new agreements and renegotiated certain previous agreements with certain suppliers to extend the payment terms for the amounts invoiced beyond one year. The Company recorded these amounts as non-current accounts payable in the unaudited condensed consolidated interim balance sheet as of June 30, 2024.
On March 25, 2024, the Board approved plans to reduce approximately 17% of its workforce, primarily at the corporate level, as part of the Company’s ongoing efforts to right size and right shape its organization as part of the Cash Preservation Plan. The workforce reduction provides certain executives and non-executives with contractual termination benefits as well as one-time termination benefits. The Company recorded an expense of $0.6 million in cost of sales and $5.4 million in selling, general and administrative expense in the unaudited condensed consolidated interim statements of operations and comprehensive loss for the six months ended June 30, 2024 for contractual termination benefits that are considered severance benefits plans as they are both probable and reasonably estimable as of June 30, 2024.
11. Convertible debt
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
| KSP Convertible Notes (a) | $ | 107.9 | | $ | 99.1 | |
| Glencore Convertible Notes (b) | 318.5 | | 189.0 | |
| Total convertible debt at end of the period | $ | 426.4 | | $ | 288.1 | |
The KSP Convertible Notes and the A&R Glencore Convertible Notes are all unsecured debt instruments and the Glencore Senior Secured Convertible Note is a secured debt instrument. The amount of maturities and sinking fund requirements for convertible debt instruments, with interest components rolled into principal, for each of the next five years are as follows as of June 30:
| | | | | |
| |
| 2025 | $ | — | |
| 2026 | — | |
| 2027 | 164.9 | |
| 2028 | 320.1 | |
| 2029 | 130.9 | |
| |
| |
| Total | $ | 615.9 | |
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
(a)KSP Convertible Notes
| | | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 | |
| Principal of convertible note at beginning of period | $ | 119.3 | | $ | 110.2 | | |
| Issuance of convertible notes | 7.2 | | 9.1 | | |
| Principal of convertible notes at end of the period | $ | 126.5 | | $ | 119.3 | | |
| | | |
| Conversion feature at beginning of period | $ | — | | $ | 6.0 | | |
| Fair value (gain) loss on embedded derivative | — | | (6.0) | | |
| Conversion feature at end of period | $ | — | | $ | — | | |
| | | |
| Debt component at beginning of the period | $ | 99.1 | | $ | 85.4 | | |
| Debt component issued | 7.2 | | 9.1 | | |
| Accrued interest paid in kind | (7.2) | | (9.1) | | |
| Accrued interest expense | 8.8 | | 13.7 | | |
| Debt component at end of period | $ | 107.9 | | $ | 99.1 | | |
| Total KSP convertible debt at end of period | $ | 107.9 | | $ | 99.1 | | |
On September 29, 2021, the Company entered into a Note Purchase Agreement (the “KSP Note Purchase Agreement”) with Spring Creek Capital, LLC (an affiliate of Koch Strategic Platforms, LLC, being a subsidiary of Koch Investments Group) and issued an unsecured convertible note (the “KSP Convertible Note”) for a principal amount of $100 million to Spring Creek Capital, LLC. The KSP Convertible Note will mature on September 29, 2026, unless earlier repurchased, redeemed or converted. Interest on the KSP Convertible Note is payable semi-annually, and Li-Cycle is permitted to pay interest on the KSP Convertible Note in cash or by payment in-kind (“PIK”), at its election. Initially, interest payments made in cash were based on an interest rate of LIBOR plus 5.0% per year, and PIK interest payments were based on an interest rate of LIBOR plus 6% per year, with a LIBOR floor of 1% and a cap of 2%. Since July 1, 2023, as the LIBOR interest rate is no longer published, under the terms of the KSP Note Purchase Agreement, the interest rate is instead based on the sum of the SOFR and the average spread between the SOFR and LIBOR during the three-month period ending on the date on which LIBOR ceases to be published, subject to a floor of 1% and cap of 2%. On March 25, 2024, the Company amended the KSP Note Purchase Agreement to modify the interest rate terms of the KSP Convertible Note, by removing the SOFR floor of 1% and cap of 2% and including penalty interest upon an event of default consistent with the penalty interest provision of the Glencore Senior Secured Convertible Note. The amendment was accounted for as a debt modification and no gain or loss was recognized. After the amendment, the effective interest rate of the KSP Convertible Note is 18.7%. Interest payments are based on an interest rate of the SOFR for a tenor comparable to the relevant interest payment period plus 0.58%.
The PIK election results in the issuance of a new note under the same terms as the KSP Convertible Note, issued in lieu of interest payments with an issuance date on the applicable interest date. On May 1, 2022, Spring Creek Capital, LLC assigned the KSP Convertible Note and the PIK note outstanding at that time to an affiliate, Wood River Capital, LLC. The Company has elected to pay interest by PIK since the first interest payment date of December 31, 2021. The KSP Convertible Notes as at June 30, 2024, comprised the following:
| | | | | | | | |
| Note | Date Issued | Amount Issued |
| Initial KSP Note | September 29, 2021 | $ | 100.0 | |
| PIK Note | December 31, 2021 | 1.8 | |
| PIK Note | June 30, 2022 | 4.1 | |
| PIK Note | December 31, 2022 | 4.3 | |
| PIK Note | June 30, 2023 | 4.4 | |
| PIK Note | December 31, 2023 | 4.7 | |
| PIK Note | June 30, 2024 | 7.2 | |
| Total | | $ | 126.5 | |
At the option of the holder, the KSP Convertible Notes may be converted into common shares of the Company at a conversion price of $107.44 ($13.43 prior to the Share Consolidation), subject to customary anti-dilutive adjustments. If the Company’s share price is equal to or greater than $139.68 ($17.46 prior to the Share Consolidation), for a period of twenty consecutive days, the Company can force conversion of the KSP Convertible Notes at an amount equal to the sum of principal, accrued but unpaid interest, plus any make-whole amount which equal to the undiscounted interest that would have been payable from the date of
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
conversion to the maturity date. At the Company’s option at any time, the Company can also redeem all of the KSP Convertible Notes at any time for a cash purchase price equal to 130% of the principal plus unpaid interest until maturity. The conversion feature under the KSP Convertible Notes has been recorded as a bifurcated embedded derivative liability since the conversion ratio does not always result in a conversion of a fixed dollar amount of liability for a fixed number of shares due to the optionality of the interest rate utilized on conversion at the Company’s option. The KSP Convertible Notes are also subject to redemption upon a change of control event or an event of default. Under an event of default, redemption happens upon occurrence of an event at the holder’s discretion. Under a change of control event, mandatory redemption happens upon occurrence of an event. Both the change of control and event of default options under the KSP Convertible Notes have been recorded as bifurcated embedded derivative liabilities as the redemption price triggered by these features represents a substantial premium over the principal amount. The bifurcated embedded derivatives are measured at fair value bundled together as a single compound embedded derivative. As at June 30, 2024, no conversions or redemptions had taken place.
The fair value of the compound embedded derivative upon issuance of the KSP Convertible Notes was determined to be a liability of $27.7 million whereas the remaining $72.3 million, net of transaction costs of $1.6 million, was allocated to the principal portion of the debt. During the three and six months ended June 30, 2024, the Company recognized a fair value gain of $0.1 million and less than $0.1 million on the embedded derivatives (for the six months ended June 30, 2023: gain of $0.7 million). The embedded derivatives were valued using the Binomial Option Pricing Model. The assumptions used in the model were as follows:
| | | | | | | | | | | |
| (Issuance date)
September 29, 2021 | December 31, 2023 | June 30, 2024 |
| Risk free interest rate | 1.1% | 4.2% | 4.8% |
| Expected life of options | 5.0 years | 3.8 years | 2.3 years |
| Expected dividend yield | 0.0% | 0.0% | 0.0% |
| Expected stock price volatility | 66% | 63% | 71% |
| Share Price | $12.56 | $4.76 | $6.53 |
Expected volatility was determined by calculating the average implied volatility of a group of listed entities that are considered similar in nature to the Company.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
(b)Glencore Convertible Notes
| | | | | | | | |
| As at | June 30, 2024 | December 31, 2023 |
| Principal of convertible note at beginning of period | $ | 225.3 | | $ | 208.1 | |
| Issuance of convertible notes | 75.0 | | 17.2 | |
| Principal of convertible note at end of period | $ | 300.3 | | $ | 225.3 | |
| | |
| Conversion feature at beginning of period | $ | 0.4 | | $ | 16.5 | |
| Change in the period: | | |
| Fair value gain for the year ended December 31, 2023 | — | | (16.1) | |
| Fair value loss on the conversion features embedded in the A&R Glencore Convertible Notes from January 1, 2024 to March 25, 2024 | 1.8 | | — | |
| Extinguishment of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification | (2.2) | | — | |
| Issuance of conversion feature embedded in Glencore Senior Secured Convertible Note | 59.0 | | — | |
| Issuance of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification | 99.2 | | — | |
| Fair value gain on the conversion features from March 26, 2024 to June 30, 2024 | (12.7) | | — | |
| Conversion feature at end of period | $ | 145.5 | | $ | 0.4 | |
| | |
| Debt component at beginning of period | $ | 188.6 | | $ | 164.9 | |
| Change in the period: | | |
| Issuance of debt component | — | | 17.2 | |
| Accrued interest paid in kind | — | | (17.2) | |
| Accrued interest expense for the year ended December 31, 2023 | — | | 23.7 | |
| Accrued interest and accretion expense from January 1, 2024 to March 25, 2024 | 5.9 | | — | |
| Extinguishment of the debt component related to A&R Glencore Convertible Notes as part of the modification | (194.5) | | — | |
| Issuance of debt component of the Glencore Senior Secured Convertible Note | 48.0 | | — | |
| Issuance of the debt component of the A&R Glencore Convertible Notes as part of the modification | 124.4 | | |
| Transaction costs | (8.6) | | — | |
| Accrued interest expense from March 26, 2024 to June 30, 2024 | 9.2 | | — | |
| Debt component at end of period | $ | 173.0 | | $ | 188.6 | |
| Total Glencore convertible debt at end of period | $ | 318.5 | | $ | 189.0 | |
| | |
| Reconciliation of net change in Convertible debt to Debt extinguishment loss in the six months ended June 30, 2024 |
| Extinguishment of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification | $ | (2.2) | | |
| Issuance of conversion feature embedded in Glencore Senior Secured Convertible Note | 59.0 | | |
| Issuance of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification | 99.2 | | |
| Total change in the conversion features | 156.0 | | |
| Extinguishment of the debt component related to A&R Glencore Convertible Notes as part of the modification | (194.5) | | |
| Issuance of debt component of the Glencore Senior Secured Convertible Note | 48.0 | | |
| Issuance of the debt component of the A&R Glencore Convertible Notes as part of the modification | 124.4 | | |
| Total change in the debt components | (22.1) | | |
| Total net change in convertible debt in the six months ended June 30, 2024 | 133.9 | | |
| Proceeds from convertible debt | (75.0) | | |
| Debt extinguishment loss | $ | 58.9 | | |
On March 25, 2024, the Company amended, restated and consolidated, the Glencore Unsecured Convertible Note and the PIK notes issued thereunder, such that they were split into two tranches, and certain terms of the Glencore Unsecured Convertible Note and the PIK notes issued thereunder were amended, effective from the occurrence of: (a) for the first tranche (the “First
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
A&R Glencore Note”), the earliest of the date that is one month after the effectiveness and initial funding, if any, of a project loan financing for the Rochester Hub, and December 31, 2024, and (b) for the second tranche (the “Second A&R Glencore Note” and together with the First A&R Glencore Note, the “A&R Glencore Convertible Notes”), the earliest of (i) the first commercial production from the Rochester Hub, (ii) construction costs exceeding the construction budget set forth in the project loan financing, and (iii) June 1, 2026 (each such date in the case of the foregoing clauses (a) and (b), an applicable “Modification Date”). Upon the occurrence of the applicable Modification Date, the terms of the applicable A&R Convertible Note shall automatically be modified to be consistent with the corresponding provisions of the Glencore Senior Secured Convertible Note (as defined and described below): the maturity will be amended to be five (5) years from the applicable Modification Date, the interest rate will be amended to match the interest rate applicable to the Glencore Senior Secured Convertible Note, mandatory redemption will be required (including, from the applicable Modification Date, the amount equal to a specified percentage of the excess cash flow generated by the Company and its subsidiaries for the applicable fiscal year (less certain deductions and subject to pro rata application to certain other debt of the Company) in a pro rata amount across the A&R Glencore Convertible Notes (to the extent the applicable Modification Date with respect thereto has occurred) and the Glencore Senior Secured Convertible Note), and the Company will provide guarantees and pari passu security for the A&R Glencore Convertible Notes on substantially the same terms with the Glencore Senior Secured Convertible Note. In addition, at each Modification Date, the conversion price for the applicable A&R Glencore Convertible Notes will be adjusted to be the lesser of (x) an amount determined on the basis of a 30-Day VWAP (volume weighted average trading price) having a reference date equal to the applicable Modification Date plus a 25% premium per share, and (y) $79.60 ($9.95 prior to the Share Consolidation) per share. The amendment was accounted for as a debt extinguishment and the Company recorded $58.9 million as a debt extinguishment loss presented in the unaudited condensed consolidated statement of operations and comprehensive loss for the three months ended June 30, 2024. After the amendment, the effective interest rate of the A&R Glencore Convertible Notes and Glencore Senior Secured Convertible Note is 20.6%.
On March 25, 2024, the Company issued the Glencore Senior Secured Convertible Note for an aggregate principal amount of $75 million to Glencore Canada Corporation, a subsidiary of Glencore plc (LON: GLEN). The Glencore Senior Secured Convertible Note will mature on March 25, 2029, unless there is an earlier repurchase, redemption or conversion. Interest on the Glencore Senior Secured Convertible Note is payable semi-annually, with Li-Cycle permitted to pay interest on the Glencore Senior Secured Convertible Note in cash or by PIK, at its election. Interest payments made in cash are based on an interest rate of the SOFR for a tenor comparable to the relevant interest payment period plus 5% per annum if interest is paid in cash or plus 6% per annum if interest is paid in PIK. In the case that an event of default has occurred and is continuing, the interest rate will be the rate stated above, plus one percent (1%) per annum (which additional 1% will be payable in cash). The PIK election results in the capitalization of the interest by adding such interest amounts to the aggregate outstanding principal balance of the Glencore Senior Secured Convertible Note then outstanding on the applicable Interest Date.
All obligations of the Company with respect to the Glencore Senior Secured Convertible Note are guaranteed by Li-Cycle Corp., Li-Cycle Americas Corp., Li-Cycle U.S. Inc., Li-Cycle Inc., and Li-Cycle North America Hub, Inc (the “Issuance Date Note Guarantors”), each a subsidiary of the Company. Li-Cycle Europe AG and Li-Cycle Germany GmbH (the “Post-Closing Guarantors” and together with the Issuance Date Guarantors, collectively the “Note Guarantors”), both subsidiaries of the Company, are required to guaranty all obligations of the Company with respect to the Glencore Senior Secured Convertible Note as Note Guarantors within a certain time period following the issuance of the Glencore Senior Secured Convertible Note. Effective May 31, 2024, Li-Cycle Europe AG and Li-Cycle Germany GmbH guaranteed all obligations of the Company as noted above. The Company and the Issuance Date Note Guarantors have also granted perfected, first priority security interests (subject to customary exceptions and permitted liens) in all of their respective assets, including intellectual property and a pledge of the equity interests of each other Note Guarantor to secure the obligations of the Company with respect to the Glencore Senior Secured Convertible Note. Within a certain time period following the issuance of the Glencore Senior Secured Convertible Note, the Post-Closing Guarantors are required to grant a perfected, first priority security interest (subject to customary exceptions and permitted liens) in all intra-group receivables owing to them and over all bank accounts held by such entities in their respective jurisdictions of organization and Li-Cycle Europe AG is require to further pledge its equity interests in Li-Cycle Germany GmbH to secure the obligations of the Company with respect to the Glencore Senior Secured Convertible Note. The Post-Closing Guarantors successfully granted a perfected, first priority security interest effective May 31, 2024.
The Company has elected to pay interest by PIK since the first interest payment on the Glencore Unsecured Convertible Note on November 30, 2022. The First A&R Glencore Note, the Second A&R Glencore Note and the Glencore Senior Secured
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
Convertible Note are referred to collectively as the “Glencore Convertible Notes”, and as at June 30, 2024, comprised the following:
| | | | | | | | |
| Note | Date Issued | Amount Issued |
| First A&R Glencore Note | March 25, 2024 | $ | 116.6 | |
| Second A&R Glencore Note | March 25, 2024 | 114.6 | |
| | |
| | |
| Glencore Senior Secured Convertible Note | March 25, 2024 | 75.0 | |
| | |
| Total | | 306.2 | |
At the option of the holder, the A&R Glencore Convertible Notes may be converted into common shares of the Company at a conversion price which shall be adjusted to be the lesser of (x) an amount determined on the basis of a 30-Day VWAP (volume weighted average trading price) having a reference date equal to applicable Modification Date plus a 25% premium, and (y) $79.60 ($9.95 prior to the Share Consolidation) per share (the current conversion price of the A&R Glencore Convertible Notes), subject to customary anti-dilutive adjustments. At the option of the holder, the Glencore Senior Secured Convertible Note may be converted into common shares of the Company at a conversion price of $4.24 ($0.53 prior to the Share Consolidation) per share. The conversion feature under the Glencore Convertible Notes has been recorded as an embedded derivative liability as the conversion ratio does not always result in a conversion of a fixed dollar amount of liability for a fixed number of shares due to the optionality of the interest rate utilized on conversion at the Company’s option. The A&R Glencore Convertible Notes are also subject to redemption upon a change of control event or an event of default. Under an event of default, redemption happens upon occurrence of an event at the holder’s discretion. Under a change of control event, mandatory redemption happens upon occurrence of an event. The Glencore Senior Secured Convertible Note is subject to redemption at any time by payment of the required redemption payment. Commencing with the delivery of the financial statements for the fiscal year ending December 31, 2026, the Company will be required to redeem a portion of the outstanding principal amount of the Glencore Senior Secured Convertible Note in an amount equal to a specified percentage of the excess cash flow generated by the Company and its subsidiaries for the applicable fiscal year (less certain deductions and subject to pro rata application to certain other debt of the Company). The Company is also required to redeem the Glencore Senior Secured Convertible Note in the event of certain continuing events of default upon request by the holder, certain bankruptcy-related events of default and upon a change of control transaction, unless in each case, the Glencore Senior Secured Convertible Note is first converted by the holder. The change of control, event of default, and mandatory redemption provisions under the Glencore Convertible Notes have been recorded as bifurcated embedded derivative liabilities. The bifurcated embedded derivatives are measured at fair value bundled together as a single compound embedded derivative. As at June 30, 2024, no conversion or redemption had taken place.
In connection with any optional redemption, and with respect to the Glencore Senior Secured Convertible Note and A&R Glencore Convertible Notes, any mandatory redemption and provided that the applicable holder has not elected to convert the Glencore Convertible Notes into common shares, the Company must issue Glencore Warrants to the applicable holder on the optional redemption date or receipt of notice of redemption, as applicable, that entitle the holder to acquire, until the end of the applicable exercise period, a number of common shares equal to the principal amount of the Glencore Convertible Notes being redeemed divided by the then applicable conversion price. The initial exercise price of the Glencore Warrants will be equal to the conversion price as of the applicable redemption date.
The fair value of the embedded derivative liability upon issuance of the Glencore Convertible Notes was determined to be $46.2 million with the remaining $153.8 million, net of transaction costs of $1.3 million, allocated to the initial amortized cost of the host debt instrument. During the three and six months ended June 30, 2024, the Company recognized a fair value gain of $34.7 million and $10.9 million on the embedded derivatives (three and six months ended June 30, 2023: gain of $6.4 million and $5.9 million). The embedded derivatives were valued using the Finite Difference Method. The assumptions used in the model were as follows:
| | | | | | | | | | | |
| (Issuance date)
May 31, 2022 | December 31, 2023 | June 30, 2024 |
| Risk free interest rate | 2.9% | 4.2% | 4.3% to 5.3% |
| Expected life of options | 5.0 years | 4.4 years | 4.7 to 6.9 years |
| Expected dividend yield | 0.0% | 0.0% | 0.0% |
| Expected stock price volatility | 68% | 63% | 71% |
| Share Price | $8.15 | $4.76 | $6.53 |
Expected volatility was determined by calculating the average implied volatility of a group of listed entities that are considered similar in nature to the Company.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
12. Common stock and additional paid-in capital
The following details the changes in issued and outstanding common shares for the three and six months ended June 30, 2024.
| | | | | | | | |
| (in millions) | Number of shares outstanding | Amount |
| Common shares and additional paid-in capital outstanding as at March 31, 2024 | 22.4 | | $ | 651.6 | |
| Settlement of RSUs | 0.1 | | — | |
| | |
| Stock-based compensation – RSUs | — | | 0.5 | |
| Stock-based compensation – options | — | | 0.4 | |
| | |
| Common shares and additional paid-in capital outstanding as at June 30, 2024 | 22.5 | | $ | 652.5 | |
| | |
| | |
| Common shares and additional paid-in capital outstanding as at December 31, 2023 | 22.2 | | $ | 648.3 | |
| Settlement of RSUs | 0.3 | | — | |
| | |
| Stock-based compensation – RSUs | — | | 3.2 | |
| Stock-based compensation – options | — | | 1.0 | |
| | |
| Common shares and additional paid-in capital outstanding as at June 30, 2024 | 22.5 | | $ | 652.5 | |
At the annual general and special meeting of the Company’s shareholders on May 23, 2024, the shareholders approved an amendment to the Company’s articles to consolidate all of the Company’s issued and outstanding common shares on the basis of a consolidation ratio within a range between two pre-consolidation common shares for one post-consolidation common share and eight pre-consolidation common shares for one post-consolidation common share, and granted to the Board the authority to fix the consolidation ratio. The Board subsequently approved a share consolidation and fixed the consolidation ratio at one post-consolidation common share for every eight pre-consolidation common shares. On June 3, 2024, the Company obtained from the Ontario Ministry of Public and Business Service Delivery a certificate of amendment in respect of the articles of amendment filed to effect a share consolidation of all the common shares at a ratio of one post-consolidation common share for every eight pre-consolidation common shares effective on June 3, 2024 (the “Share Consolidation”). Subsequently, the Company restated the provisions of its existing articles, without any changes to such provisions, by filing restated articles of incorporation on July 18, 2024.
As a result of the Share Consolidation, every eight common shares have been automatically consolidated into one common share. Any fractional shares resulting from the Share Consolidation have been deemed to have been tendered by the holder thereof immediately following the Share Consolidation to the Company for cancellation for no consideration. The Share Consolidation did not affect the total number of authorized common shares or modify any voting rights or other terms of the common shares. The common shares began trading on the NYSE on a post-consolidation basis on June 4, 2024. As a result of the Share Consolidation, the exercise or conversion price and the number of common shares issuable under any of the Company’s outstanding securities that are exercisable or convertible into common shares, including under equity awards, warrants, rights, convertible notes and other similar securities, were proportionally adjusted in accordance with the terms of such securities.
All per share amounts, common shares outstanding and stock-based compensation amounts with respect thereto in the unaudited condensed consolidated interim financial statements have been retroactively adjusted to reflect the Share Consolidation, as if the consolidation occurred at the beginning of the earliest period presented in this Quarterly Report on Form 10-Q.
13. Financial assets and liabilities
Fair value measurements
The Company’s financial assets and financial liabilities measured at fair value on a recurring basis are as follows:
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
| | | | | | | | | | | | |
| As at June 30, 2024 | Balance | Level 1 | Level 2 | |
Accounts receivable (subject to provisional pricing) | $ | 0.4 | $ | — | $ | 0.4 | |
Conversion feature of convertible debt (refer to Note 11 (Convertible debt)) | 145.5 | — | 145.5 | |
| | | | |
| As at December 31, 2023 | Balance | Level 1 | Level 2 | |
| Accounts receivable (subject to provisional pricing) | $ | 0.6 | $ | — | $ | 0.6 | |
Conversion feature of convertible debt (refer to Note 11 (Convertible debt)) | 0.4 | — | 0.4 | |
Refer to Note 3 (Revenue – product sales and recycling services) above for additional details related to measurement of accounts receivable and the concentration of credit risk of accounts receivable. Certain non-financial assets such as property, plant and equipment, operating right-of-use assets, goodwill and intangible assets are also subject to non-recurring fair value measurements if they are deemed to be impaired. The impairment models used for non-financial assets depend on the type of asset. There were no material impairments of non-financial assets for the three and six months ended June 30, 2024 and 2023, respectively.
Financial assets and liabilities not measured at fair value
Current Receivables and Payables
Current receivables, prepaids and deposits are financial assets with carrying values that approximate fair value. Accounts payable (including the non-current portion) and other accrued expenses are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 in the fair value hierarchy.
14. Commitments and contingencies
Legal Proceedings
The Company is and may be subject to various claims and legal proceedings in the ordinary course of its business. Due to the inherent risks and uncertainties of the litigation process, we cannot predict the final outcome or timing of claims or legal proceedings. The Company records provisions for such claims when an outflow of resources is considered probable and a reliable estimate can be made. No such provisions have been recorded by the Company.
Shareholder Litigation relating to the October 23, 2023 Announcement of Rochester Hub Construction Pause
Three shareholder lawsuits were launched following the Company’s announcement on October 23, 2023 that it would be pausing construction on the Rochester Hub project, described below.
On November 8, 2023, a putative federal securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York against the Company, and certain of its officers and directors, on behalf of a proposed class of purchasers of the Company’s common shares during the period from June 14, 2022 through October 23, 2023. On March 15, 2024, the lead plaintiff filed an amended complaint on behalf of a proposed class of purchasers of the Company’s common shares during the period from January 27, 2022 through November 13, 2023. See Hubiack v. Li-Cycle Holdings Corp., et al., 1:23-cv-09894 (S.D.N.Y.) (the “Hubiack Securities Action”). The amended complaint asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and alleges that the defendants issued false and misleading statements regarding the Rochester Hub’s construction budget, costs and timeline, which were allegedly revealed beginning on October 23, 2023, when the Company announced that it would pause construction on the Rochester Hub project. The complaint seeks compensatory damages and an award of costs. On April 12, 2024, the defendants moved to dismiss the amended complaint in its entirety. On June 10, 2024, the court granted the motion to dismiss in full and with prejudice. On July 9, 2024, the lead plaintiff filed a notice of appeal. In view of the uncertainties inherent in litigation, we do not express a judgment as to the outcome of this litigation.
On November 27, 2023, a putative Ontario securities class action claim was filed in the Ontario Superior Court of Justice against the Company and its CEO. The claim was amended on February 8, 2024, again on May 6, 2024, and will be amended once more as a result of the defendants' settled motion (described below). The claim is on behalf of a proposed class of purchasers of the Company’s common shares who acquired their shares during the period from February 27, 2023 through November 10, 2023. The claim, which is captioned as Wyshynski v. Li-Cycle Holdings Corp. et al., Court File No. CV-23-00710373-00CP, alleges common law secondary market misrepresentations. It also seeks an oppression remedy under s. 248 of the Ontario Business Corporations Act, based primarily on allegations of misconduct of senior management. The Wyshynski claim alleges that the Company’s public disclosures through the class period contained misrepresentations because they omitted material facts regarding the cost of the Rochester Hub project and the availability of financing. The Wyshynski claim alleges that the purported
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
misrepresentations were publicly corrected on (i) October 23, 2023, when the Company announced that it would pause construction on the Rochester Hub project; and (ii) November 13, 2023, with the release of the Company’s Q3 2023 earnings report. The putative class includes all Canadian resident beneficial owners who acquired Li-Cycle common shares during the class period and who held some or all of those common shares until after the release of at least one of the alleged corrective disclosures. The claim seeks compensatory damages and an award of costs, along with the appointment of a third party monitor. On April 5, 2024, the defendants moved to stay the action on the basis that New York is the more appropriate forum for the litigation. The defendants agreed to settle the motion on August 1, 2024, in exchange for certain concessions from the plaintiff which resulted in narrowing of the claims and the proposed class. The plaintiff agreed to abandon their claims under the Ontario Securities Act and constrain the class to only the Canadian resident beneficial owners of the Company's shares. In view of the uncertainties inherent in litigation, we do not express a judgment as to the outcome of this litigation.
On December 4, 2023, a putative shareholder derivative action was filed in the Supreme Court of the State of New York, Monroe County, purportedly on behalf of the Company (as nominal defendant) against certain of the Company’s current and/or former officers and directors. The action, which is captioned as Nieves v. Johnston, et. al., Index No. E2023014542 (N.Y. Sup. Ct.), principally concerns the same alleged misstatements or omissions at issue in the Hubiack Securities Action, and asserts common law claims for breach of fiduciary duty, waste, unjust enrichment, and gross mismanagement. The action seeks to recover unspecified compensatory damages on behalf of the Company, an award of costs and expenses and other relief. On February 29, 2024, the parties agreed to stay the action pending resolution of the Hubiack Securities Action. In view of the uncertainties inherent in litigation, we do not express a judgment as to the outcome of this litigation.
Subrogation Liability Claim
On or around January 2, 2024, the Company received a notice of a subrogation liability claim by an insurance company on behalf of one of the other tenants of the New York Spoke’s warehouse. The claim relates to a small fire which occurred at the building on December 23, 2023, involving lithium-ion batteries being stored at the warehouse. The claimant has not provided details of potential damages and the Company’s general liability insurer is providing coverage for this claim, including defense of the claim.
Commercial Claim – Pike Conductor DEV 1, LLC
On January 17, 2024, Pike Conductor DEV 1, LLC (“Pike”) sent the Company a purported notice of default claiming that the Company failed to pay certain amounts in connection with leasing a warehouse and administrative building related to the Rochester Hub, and failed to clear certain liens levied on the property.
On January 26, 2024, the Company filed a lawsuit in New York State Court in Monroe County, seeking an order requiring Pike to amend and restate the agreement as a ground lease and to pay damages of at least $39.0 million - $53.0 million. The Company also sought an order barring Pike from seeking to, among other things, terminate the agreement or evict the Company from the property while the lawsuit is pending. Under the agreement between the parties, Pike agreed to construct the property and lease it to the Company. The Company agreed to finance up to $58.6 million of Pike’s construction costs, including $14.5 million in tenant’s improvements. Based on the agreement between the parties, if, by November 1, 2023, Pike had not repaid the pre-financing costs, less the tenant improvements, then the parties would restate the agreement as a ground lease and the Company would own the Warehouse. To date, the Company has funded approximately $53.5 million of the construction costs.
Following certain court-ordered settlement conferences, the parties reached a settlement. The parties entered into an Amended and Restated Ground Sublease Agreement date May 31, 2024 that provides for, among other things, the resolution of the lawsuit. Following the delivery of certain releases and satisfactions of mechanic’s liens, the parties filed a Stipulation of Discontinuance on June 24, 2024.
Dispute with MasTec, its Subcontractors and other Contractors Regarding Rochester Hub Construction Contract
On April 9, 2024, Mastec Industrial Corp. (“MasTec”) commenced (i) arbitration proceedings against the Company’s subsidiary, Li-Cycle North America Hub, Inc., under the terms of the construction contract for the Rochester Hub project, and (ii) a foreclosure action in the Supreme Court, County of Monroe, New York. The arbitration proceedings are being conducted with the American Arbitration Association and seek recovery of $48.7 million allegedly due under the construction contract for the Rochester Hub project, plus interest, fees, costs and expenses. The Company is defending its interests and has made certain counter-claims against MasTec. Amounts owed, if any, are expected to be determined in the arbitration, and Li-Cycle intends to file a motion for a stay of the foreclosure action pending determination of the arbitration. Additionally, on July 22, 2024, MasTec North America Inc. commenced a separate foreclosure action on behalf of several subcontractors from whom it has taken assignments. Li-Cycle will seek to consolidate this foreclosure action into the already pending MasTec foreclosure action. For reporting purposes, the amount claimed in the arbitration proceedings has been reflected in the Company’s accounts payable.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
Contractual Obligations and Commitments
The following table summarizes Li-Cycle’s contractual obligations and other commitments for cash expenditures as of June 30, 2024, and the years in which these obligations are due:
| | | | | | | | | | | | | | | | | |
| $ millions, undiscounted | Payment due by period |
| |
| Contractual Obligations | Total | Less than | 1 - 3 years | 3 - 5 years | More than |
| 1 year | 5 years |
| Accounts payable and accrued liabilities | $ | 136.0 | $ | 129.7 | $ | 6.3 | $ | — | $ | — |
| Lease liabilities | 238.0 | 13.7 | 26.4 | 36.9 | 161.1 |
| Restoration provisions | 1.6 | 0.2 | 0.1 | — | 1.3 |
| Convertible debt principal | 375.0 | — | 100.0 | 275.0 | — |
| Convertible debt interest | 240.9 | — | 64.9 | 176.0 | — |
| Total as of June 30, 2024 | $ | 991.5 | | $ | 143.6 | | $ | 197.7 | | $ | 487.9 | | $ | 162.4 | |
As of June 30, 2024, there were $7.4 million in committed purchase orders or agreements for equipment and services, compared to $8.3 million as of December 31, 2023.
15. Loss per share
| | | | | | | | | | | | | | |
| For the three months ended June 30, 2024 | For the three months ended June 30, 2023 | For the six months ended June 30, 2024 | For the six months ended June 30, 2023 |
| Total net income (loss) | $ | (8.2) | $ | (32.0) | $ | (144.9) | $ | (68.3) |
| Weighted average number of common shares (in millions) | 22.5 | 22.1 | 22.5 | 22.1 |
Effect of dilutive securities: | | | | |
| Stock options | — | | — | | — | | — | |
| Restricted share units | — | | — | | — | | — | |
| | | | |
| | | | |
| | | | |
| Dilutive number of shares | $ | 22.5 | | $ | 22.1 | | $ | 22.5 | | $ | 22.1 | |
| | | | |
Basic and diluted earnings (loss) per share | $ | (0.36) | $ | (1.45) | $ | (6.44) | $ | (3.08) |
Adjustments for diluted loss per share were not made for the three and six months ended June 30, 2024 and 2023, as they would be anti-dilutive in nature. The following table presents shares (denominated in millions) from instruments that could dilute basic loss per share in the future, but were not included in the calculation of diluted loss per share because they are antidilutive for the periods presented:
| | | | | | | | |
| As at | June 30, 2024 | June 30, 2023 |
| Stock options | 0.4 | | 0.5 | |
| | |
| Convertible debt | | |
KSP Convertible Notes | 1.2 | | 1.1 | |
Glencore Convertible Notes | 21.2 | | 2.7 | |
| Restricted share units | 2.2 | | 0.4 | |
| Total | 25.0 | | 4.7 | |
16. Segment reporting
The consolidated financial information presented in these financial statements is reviewed regularly by the Company’s chief operating decision maker (“CODM”) for making strategic decisions, allocations resources and assessing performance. The information review by CODM for decision making purposes aligns with the information provided above in the statements of operations and comprehensive (loss), financial position, and cash flows. The Company’s CODM is its Chief Executive Officer.
Li-Cycle Holdings Corp.
Notes to the unaudited condensed consolidated interim financial statements
| | |
All dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
The Company’s revenue primarily comes from eight key customers, as shown in the table below. The Company’s remaining customers do not make up significant percentages of these balances. For additional details on product sales and fair value adjustments recognized in the period, refer to Note 3 (Revenue – product sales and recycling services).
| | | | | | | | | | | | | | |
Revenue | |
| For the three months ended June 30, 2024 | For the three months ended June 30, 2023 | For the six months ended June 30, 2024 | For the six months ended June 30, 2023 |
| Customer H | 21.4 | % | 0.0 | % | 20.0 | % | 0.0 | % |
| Customer D | 20.5 | % | 0.0 | % | 27.4 | % | 0.0 | % |
| Customer E | 16.0 | % | 1.0 | % | 10.7 | % | 7.3 | % |
| Customer G | 14.8 | % | 0.0 | % | 20.6 | % | 0.0 | % |
| Customer B | 3.9 | % | 73.1 | % | 0.7 | % | 14.2 | % |
| Customer A | 0.0 | % | 0.0 | % | 2.2 | % | 37.4 | % |
| Customer C | 0.0 | % | 0.0 | % | 0.0 | % | 16.9 | % |
| Customer F | 0.0 | % | 15.0 | % | 0.0 | % | 15.2 | % |
During the three months ended June 30, 2024, the Company operated in the United States and Germany, and during the three months ended June 30, 2023, the Company operated in the United States and Canada. Management has concluded that the customers, and the nature and method of distribution of goods and services delivered, if any, to these geographic regions are similar in nature. The risks and returns across the geographic regions are not dissimilar; therefore, the Company operates as a single operating segment.
The following is a summary of the Company’s geographical information:
| | | | | | | | | | | | | | | | | |
| Canada | United States | Germany | Other | Total |
| Revenues | | | | | |
| Three months ended June 30, 2024 | $ | 0.1 | $ | 7.2 | |