Li-Cycle(US:LICY)2024-05-10 10:35Part I Item 1. Unaudited Condensed Consolidated Interim Financial Statements Li-Cycle's unaudited Q1 2024 financials show a $136.7 million net loss, $109.1 million cash, and substantial going concern doubt Q1 2024 Financial Performance Summary | Metric | Q1 2024 (in millions USD) | Q1 2023 (in millions USD) | | :--- | :--- | :--- | | Total Revenue | $4.2 | $3.6 | | Loss from Operations | $(44.2) | $(39.1) | | Net Loss | $(136.7) | $(36.5) | | Loss per Share (basic & diluted) | $(0.76) | $(0.21) | Balance Sheet Highlights (as of March 31, 2024) | Account | Amount (in millions USD) | | :--- | :--- | | Cash and cash equivalents | $109.1 | | Total Assets | $932.3 | | Total Liabilities | $689.3 | | Convertible Debt | $447.7 | | Total Equity | $243.0 | - The Company concluded substantial doubt about its ability to continue as a going concern due to recurring operating losses of $44.2 million in Q1 2024, $29.1 million net cash used in operations, and the Rochester Hub pause72 - The Company issued a $75.0 million senior secured convertible note to Glencore, amending existing notes and resulting in a $58.9 million debt extinguishment loss75137 - The Company faces legal proceedings, including shareholder class actions and a dispute with MasTec seeking $48.7 million150151159 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A details Li-Cycle's Q1 2024 financials, highlighting Rochester Hub pause, $136.7 million net loss, and ongoing going concern doubts Recent Developments and Strategic Outlook Rochester Hub construction paused, Cash Preservation Plan initiated, $75 million Glencore note secured, and 'MHP scope' review underway - Construction on the Rochester Hub was paused on October 23, 2023, due to escalating costs, prompting a comprehensive strategic review175 - A Cash Preservation Plan was implemented, including a 17% workforce reduction in March 2024, expected to save approximately $10 million annually in payroll and benefits178193 - The Company secured a $75.0 million senior secured convertible note from a Glencore affiliate on March 25, 2024, to improve liquidity182 - The Rochester Hub review focuses on an 'MHP scope' with a revised estimated project cost of approximately $960.2 million and a cost-to-complete of about $504.3 million, requiring significant additional funding198200 Results of Operations Q1 2024 revenue rose to $4.2 million, but net loss widened to $136.7 million due to a $58.9 million debt extinguishment loss and higher SG&A Q1 2024 vs Q1 2023 Financial Results (in millions USD) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $4.2 | $3.6 | $0.6 | | Cost of Sales | $(16.8) | $(19.1) | $2.3 | | SG&A Expense | $(31.7) | $(22.7) | $(9.0) | | Net Loss | $(136.7) | $(36.5) | $(100.2) | | Adjusted EBITDA Loss | $(27.4) | $(37.9) | $10.5 | - Revenue increased to $4.2 million in Q1 2024 from $3.6 million in Q1 2023, primarily due to a $1.8 million increase in recycling service revenue239241 - SG&A expenses rose by $9.0 million (40%) year-over-year, driven by $7.9 million in increased professional and legal fees and $5.1 million in severance costs246 - Other expense was $92.5 million, compared to other income of $2.7 million in Q1 2023, primarily due to a $58.9 million debt extinguishment loss and a $23.8 million fair value loss on financial instruments250 Liquidity and Capital Resources As of March 31, 2024, the Company had $109.1 million cash, facing substantial going concern doubt without securing additional financing - As of March 31, 2024, the Company had $109.1 million in cash and cash equivalents and $447.7 million in convertible debt265 - The Company concluded substantial doubt about its ability to continue as a going concern, as current cash is insufficient to support operations for the next twelve months without additional financing266270 Cash Flow Summary (in millions USD) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(29.1) | $(22.4) | | Net cash used in investing activities | $(6.2) | $(86.3) | | Net cash provided by financing activities | $73.7 | $0.0 | - Net cash from financing activities of $73.7 million was primarily from the $75.0 million gross proceeds of the Glencore Senior Secured Convertible Note issued on March 25, 2024275276 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company faces market risks from currency, interest rates, and commodity prices, especially nickel and cobalt, without hedging - The Company's revenues are sensitive to market prices of constituent metals like cobalt and nickel, and it does not engage in commodity price hedging338 Commodity Price Sensitivity for Provisionally Invoiced Sales (as of March 31, 2024) | Commodity | Metric Tonnes Subject to Adjustment | Impact of 10% Price Increase (in millions USD) | Impact of 10% Price Decrease (in millions USD) | | :--- | :--- | :--- | :--- | | Cobalt | 1,124.7 | $0.1 | $(0.1) | | Nickel | 1,124.7 | $0.1 | $(0.1) | - The Company is exposed to interest rate risk from its variable rate debt but does not expect a material impact and does not engage in interest rate hedging335 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective due to material weaknesses in ICFR, with remediation efforts underway - Management concluded that as of March 31, 2024, the Company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting (ICFR)342 - Identified material weaknesses include an ineffective control environment, risk assessment, and information/communication processes, primarily due to insufficient experienced personnel and ineffective IT general controls345 - A remediation plan is underway to address weaknesses by building internal competency, enhancing risk assessment, strengthening communication, and improving control documentation, but weaknesses are not yet remediated346 Part II Item 1. Legal Proceedings The Company faces legal proceedings, including an arbitration with MasTec seeking $48.7 million for Rochester Hub construction - On April 9, 2024, MasTec initiated arbitration against a Li-Cycle subsidiary, seeking $48.7 million allegedly due under the Rochester Hub construction contract350 - MasTec also filed a foreclosure action in New York Supreme Court related to the dispute, expected to be stayed pending arbitration350 - The $48.7 million claimed by MasTec in arbitration has been reflected in the Company's accounts payable350 Item 1A. Risk Factors Key risks include substantial going concern doubt, reliance on limited partners, potential loss of key personnel, and persistent material weaknesses in internal controls - There is substantial doubt about Li-Cycle's ability to continue as a going concern, as it will not have sufficient cash for operations for the next twelve months without additional financing353354 - The Company relies on a limited number of commercial partners, primarily Traxys and Glencore, for most revenue, and a change in Rochester Hub's product strategy could affect existing offtake agreements358362363 - The business is heavily dependent on key executives and personnel, with recent leadership changes and a 17% workforce reduction creating risk of disruption and loss of talent364366367 - Identified material weaknesses in internal control over financial reporting persist, potentially impairing timely and accurate financial statements, with remediation efforts slowed by resource constraints368372 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No unregistered sales of equity securities, use of proceeds from registered securities, or issuer purchases of equity securities occurred - There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the reporting period374375376 Item 3. Defaults Upon Senior Securities Not applicable - Not applicable377 Item 4. Mine Safety Disclosures Not applicable - Not applicable378 Item 5. Other Information Neither the Company nor its directors or officers adopted or terminated any Rule 10b5-1 trading plans during Q1 2024 - During Q1 2024, neither the Company nor its directors or officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements379 Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including various agreements and officer certifications - The report includes exhibits such as the Rights Agreement, various convertible note agreements and amendments with KSP and Glencore, and new employment and separation agreements382384 - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to SEC rules are filed as exhibits384