Greetings, and welcome to the Lifecycle Holdings Corp. 3rd Quarter 2021 Financial Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded.
I will now turn the conference over to your host, Ashish Gupta, Investor Relations for Lifecycle Holdings. Thank you. You may begin.
Thank you, operator, and thank you, everyone, for joining us today. Hosting the call are Lifecycle's Co Founder, President and Chief Executive Officer, Ajay Kochar Co Founder and Executive Chairman, Tim Johnson Chief Financial Officer, Bruce MacInnis and Chief Commercial Officer, Kunal Palfour. Ahead of this call, Lifecycle issued its Q3 2021 earnings press release and presentation, which we will reference today. These can be found on the Investor Relations section of our website at investors. Lifecycle.com.
On this call, management We'll be making statements based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward looking statements Many of our key assumptions are incorrect because of factors discussed in today's earnings release, during this conference call are in our latest reports and filings with the Securities and Exchange Commission. These documents can be found on our website at investors. Lifecycle.com. We do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non IFRS financial measures. You should refer to the information contained in the company's Q3 2021 earnings press release for definitional information and reconciliations of historical Non IFRS measures to the comparable financial measures. With that, let me turn it over to Ajay.
Thank you very much, Ashish, And good morning, everyone. For today's presentation, we'll be referring to the slides that were posted to the Investor Relations section of our website early this morning. Now as this is our first earnings call since the closing of the business combination with Peridot last month, I'd like to start by thanking our employees for their contributions to Lifecycle's success. I would also like to thank our shareholders for their support and patience for the completion of the transaction. Becoming a public company was an important milestone for Lifecycle and the transaction provides Lifecycle with $527,000,000 of cash, net of expenses and funds are base case business plan.
This is a real differentiating aspect that goes to derisking the overall business. To give you a brief overview of today's agenda, first, I will start off by giving a short overview of the company, its current opportunities and where we aim to be in the future. 2nd, I will then highlight what differentiates us from other industry players and how we are well positioned To capitalize on accelerating secular trends with our fit for purpose technologies for battery recycling. 3rd, I will also provide an overview of the drivers of accelerated near and medium term quantities of lithium ion batteries available for recycling And how this bodes extremely well for Lifecycle's continued rollout. 4th, our CFO, Bruce McInnis, We'll provide financial and operational highlights from the Q3.
And wrapping it up, my fellow co founder, Tim Johnston, We'll review our Spok and Hub execution progress. Let's start on Slide 4. So who is Life Cycle? Well, we are the sustainable pure play leader in advanced resource recovery and recycling. Lifecycle is a commercial business scaling in lockstep with our battery supply customers and to meet the accelerating demand for critical Battery grade materials.
Moving to Slide 5. Next question is why is lithium battery recycling important today? And some may have an initial knee jerk reaction Thinking that battery recycling is a need for many years away. However, the reality is that the need for recycling lithium ion batteries is here today due to manufacturing scrap and only accelerating further. The pace of announced new battery manufacturing facilities worldwide is far exceeding Our expectations of only a few months ago.
On an industry wide and average basis, At least 5% to 10% of manufacturing volumes are typically rejected and hence are available for recycling. As lithium ion batteries are made, the manufacturing process is not perfect, thereby resulting in manufacturing rejects This manufacturing reject approach is important as battery manufacturers look to uphold unwavering quality standards. For example, we forecast that almost 70% Our 2025 volumes will come from manufacturing scrap. In a nutshell, If you believe in the rapid growth in EV adoption, you believe in lifecycle. We expect our recycling volumes to grow in line with manufacturing volumes over the next several years.
Looking at Slide 6, prior to starting Lifecycle, my Co Founder, Tim Johnson and I Worked in the battery metals and chemicals industry, focused on hydrometallurgical and chemical plants to produce battery materials. Our time working in the industry led us to the recognition of a glaring hole in the future of our increasingly electrified economy, It was the lack of an environmentally and economically sustainable solution for the recycling of lithium ion batteries that have become globally ubiquitous. We started Lifecycle in 2016 with the mission of solving this global battery manufacturing scrap and end of life lithium battery problem And simultaneously creating a secondary supply of critical battery materials, while also ensuring a sustainable future for our planet. Lifecycle derives deep competitive advantages from its proprietary SpokenHub technologies, Which enable it to outpace existing and emerging lift line battery resource recovery approaches. Lifecycle's technologies are proven and we are Copying pasting our operations and lost step with our accelerating customer needs.
So what is Lifecycle's strategy? Well, today we have 10,000 tons of annual lithium ion battery equivalent spilled processing capacity With an additional 15,000 to 20,000 tons of annual processing capacity expected from our 2 in progress folks. And on the hub side, we have 60,000 tons of annual lithium ion battery equivalent of processing capacity is on track to be operational in early 2023. The Rochester Hub is located in the former Easton Business Park. This facility is ideal for chemical infrastructure and has a large labor pool and strong support from the State of New York.
On the right side of the slide, you can see where we aim to be. We are already the leader in North America. We strive to be the go to global recycler of lithium batteries and producer of key battery grade materials. By 2025, we are targeting a global network of at least 100,000 tons of annual lithium battery equivalent spoke crossing capacity And a centralized network of 220,000 to 240,000 tons of annual lithium ion battery coolant hub processing capacity. Moving to Slide 7, we see key macro tailwinds accelerating for the left of the page.
North America is expected to have over 2 25 gigawatt hours of annual battery production capacity by 2025, which is an increase of over 400% from today. Year to date, over 480 gigawatt hours of incremental Battery cell production capacity has been announced globally, but is planned to be online for 2025. Continued electrification and mobility will drive earnings power for us. Moreover, over 17 automotive companies Have committed to electrifying their product lineups, ensuring dominant EV sales over the next 2 decades. Since we started Lifecycle 5 years ago, there has been significant and increasing government regulation on battery recycling as well.
Recently, regulations started heavily focusing on something called recycling efficiency rate or RER. Recycling efficiency rate is a measure of the mass of the battery entering a process versus the mass extracted as products that go back to the Traditional methods that use heat when burning plastics, electrolytes and other elements in a battery Can result in 30%, 40% or even 50% loss in recoverable battery material. The point is our world and our customers are moving away from this historical approach That is not fit for purpose for lithium ion batteries. As you can see from the right of the slide, it's starting to be regulated. For example, in the EU, proposed levels are around 65% to 70%, if not more.
In California, there's legislation being discussed right now That would require recycling efficiency rate of as close to 100% as possible. While in China, the rate is over 80%. Our hydroventallurgical or hub process enables recovery of up to 95% of all This is far greater than our competitors who primarily target only cathode or typically cobalt and nickel. Our wet chemistry method extracts valuable battery grade materials from black mass as a battery grade product that is thereby reusable On Slide 8, you can see why we are a critical node in the lithium ion battery supply chain. We have a 2 part patented Spokenhub process That follows both the technical aspects of how we process the materials and also follows our business model.
In our Spok facilities, we process any format of lithium battery from the smallest type of lithium battery all the way up to a full electric vehicle battery dock. We take in lithium ion battery materials at our spoke facilities and we process them through to intermediate materials. The low cost modular design of our spokes enables us to construct them quickly and locate them close to sources of battery supply. In fact, they can even be directly located on a major customer site. At the back end of the patented spoke process, we produced 3 key products including mixed copper and aluminum, mixed plastics and the key product is what the industry calls black mass or black mass concentrate.
In simple terms, black mass is the anode and cathode materials from within the battery. When people talk about critical battery materials, things like cobalt, Nickel, lithium and graphite, they all exist within the black mass material. The second step, our hub technology Utilizes a patented hydrometallurgical process to treat the black mass. That's just a way of saying we treat it using a wet chemistry based system In order to recover the key battery materials and place them back into the lithium ion battery supply chain. The products produced by our hub process are battery grade in nature, As good if not better than virgin battery grade materials and produced in an inherently economic fashion.
Our hub design is non pyro and allows for recycling efficiency rates of up to 95% versus a historical industry average of 50%. Moving to Slide 9, it is important to note that the competitive landscape is segmented between preprocessing Involving lithium ion batteries and lithium ion battery materials being converted to intermediate products and post processing Involving intermediate products being converted to finished end products. In order to best understand lithium ion battery recycling, solutions can be segmented into preprocessing With Lifecycle's spokes falling into this category and post processing with Lifecycle's hubs falling into this category. Through Lifecycle's patented SpokenHub Technologies, the traditional lithium ion battery recycling supply chain is collapsed and simplified. The result is much more economic and environmentally sustainable recycling of all types of lithium ion batteries.
Moreover, through Lifecycle's non pyro technology, we do not burn any portion of the lithium batteries since our emissions are significantly reduced and are permanently completed on accelerated basis. As is evident from the bottom of Slide 9, with respect to the incumbent lithium ion battery recycling supply chain, Preprocessing has been highly manual, high cost in nature, combustion based and has unoptimized from both an environmental and economic perspective. Moreover, post processing approaches have involved processing intermediate product Through legacy nickel smelting infrastructure. In the process, components like lithium and graphite are lost. The end products in this infrastructure are also nickel and cobalt metal, which are not the inputs to batteries.
In summary, the incumbent battery recycling supply chain has been a bit like a square peg in a round hole, non purpose built As well as being unoptimized from an economic and environmental perspective. Slide 10 summarizes Lifecycle's key competitive advantages. Lifecycle's moat is comprised of 2 key aspects, our patented and fit for purpose Spokenhub technology And sticky long term battery supply contracts and secured end product offtake. Lifecycle's core advantages are as follows. Firstly, high recovery rates and inherently low cost operations.
Our technology involves no discharging of batteries, Minimal to no dismantling and automated processing compared to labor intensive and potentially unsafe traditional preprocessing approaches. 2nd, non pyro technology protected by a robust IP mode. Thermal processing generates harmful fluorine bearing emissions, also known as forever chemicals that are being increasingly regulated. Lifecycle's patented portfolio of nonpyro technologies leaves us well positioned for future growth in a sustainable focused world. As a result of our patented non pyro technology, emissions are significantly reduced and our permitting can be completed on accelerated basis relative to the incumbent technologies.
3rd, our ability to scale efficiently with customers Through capital light and replicable spoke facilities, for example, co located on-site with battery manufacturers, Lifecycle's Spoke technology is capital light, has a low footprint in size and is replicable as Lifecycle's building in a modular, lego build fashion, thereby enabling Lifecycle to scale efficiently as the battery supply chain has grown congruently. 4th, we are agnostic to lithium ion battery type, including lithium iron phosphate batteries or LFP batteries, Future solid state batteries and much more. 5th, our recovery of battery grade products from the hub, including lithium. Lithium has historically been difficult or ignored for recovery by incumbent recyclers. For example, lithium is lost as part of the legacy nickel smelting Post processing approach and by comparison Lifecycle's hub technology recovers lithium economically and in battery grade form.
And last but not least, Lifecycle's SpokenHub technology has a minimal environmental footprint with negligible wastewater and air emissions With aggressive 0 landfill diversion focused operations. Slides 11 through 13 frame the tremendous opportunity we have in front of us And how it has accelerated rapidly in the past several months alone, given the amount of battery manufacturing capacity set to come online over the next few years and beyond. On Slide 11, you can see that the total addressable market projections in 2025 for the amount of lift line batteries available for recycling
Has accelerated
significantly in just the past 5 months. Growth forecast in North America, Europe and China have All increased by at least 50%. What stands out is also the pronounced 65% growth And the total lift line batteries available for recycling in North America relative to the total addressable market estimates from just 5 months ago. The key driver of this growth is new battery megafactory announcements far exceeding original expectations. This drives additional battery manufacturing scrap available for recycling in lockstep with battery manufacturing and not years from now.
On Slides 1213, you can see the amount of growth coming over the next few years with projects that have already been At 2025, we expect North American annual battery capacity to reach between 2 29 and 2 94 gigawatt hours from approximately 45 gigawatt hours today. Over the same period, we expect the amount of battery scrap to increase by approximately 4 to 6 times. Lifecycle is strategically positioning our footprint across key regions where we expect a significant amount of battery manufacturing capacity And projected battery scrap material to be produced alongside ramping end of lifecycle quantities. As is evident, there is a lot of opportunity ahead, well exceeding Lifecycle's original base case plans. For example, Our announced 2025 North America Spoke capacity would represent only 20% to 30% of the projected battery manufacturing scrap volume alone, which is only one segment of Lifecycle's total addressable market.
This should help to contextualize the Accelerating battery supply customer growth that is driving lifecycle to continue to accelerate its rollout within the company's 5 year strategic plan. Now I'll pass it over to Bruce McInnis to provide an operational and financial update as well as to discuss our outlook. Over to you, Bruce.
Thank you, Ajay. I will now provide some commentary on our Q3 results followed by a business outlook for the remainder of fiscal 2021. Starting on Slide 15, let me take you through some of the key highlights during the quarter. We are pleased with our fiscal Q3 performance and we remain on track With our original expectations as we continue to ramp production significantly during the second half of twenty twenty one. With the pace of deployment Our new battery mega factories are exceeding our initial expectations.
We also recently announced the addition of a 4th North America based spoke in Tuscaloosa, Alabama. The 4th spoke is tied to strategic anchor battery supply customers that are located near the facility as per yesterday's press release. Additionally, we expect construction of the Rochester Hub to begin in late 2021 with operations commencing in early 2023. We are excited to announce that we onboarded 14 new battery supply customers during the Q3, which demonstrates continued technical and commercial validation for Lifecycle alongside robust market acceleration. Finally, following fiscal Q3 2021, we closed our business combination with Peridot with minimal redemptions And our common shares began trading on the New York Stock Exchange under the ticker LICY on August 11, 2021.
Over to Slide 16. It is important to start with our commitment towards health, safety, environment and quality. We have successfully certified our Kingston and Rochester Spoke operations as well as our headquarters in accordance with ISO 9,001, ISO 14,001, ISO 45,001 and R2. These certifications are the culmination of leading Standards that Lifecycle upholds alongside being critical for Lifecycle's customers. This further bolsters Lifecycle's competitive advantage.
Turning to Slide 17. As mentioned, we successfully added 14 new battery supply customers during the 3rd quarter for a total of over 70. As part of this, we announced the foundational manufacturing scrap agreement with Altium Cells LLC. Altium Cells is a joint venture of General Motors and LG Energy Solutions. Bicycles' agreement with Altium is focused on recycling up to 100 of the manufacturing scrap generated at LCM's Ohio based battery cell plant.
When fully operational in 2022, The LTM plant in Ohio will have annual production capacity of approximately 35 gigawatt hours. Lifecycle will recover the raw materials During the Q3, we produced 5 24 tons of black mass material, which included 85 tons of lithium carbonate equivalent, 75 tons of nickel and 23 tons of cobalt, which were all in line with expectations. On Slide 18, we will review quarterly financials and key highlights. For the Q3, revenue reached $1,700,000 Which increased 8 40% from the year ago period, driven by increases in product sales and recycling services, Largely reflecting increased quantities of batteries and battery scrap processed at the Kingston and Rochester Spokes, also enabled by the continued onboarding of new battery Revenues from product sales were approximately $1,600,000 while revenues from recycling services were approximately 100,000 It is important to note that the Q3 2021 results are in line with the expected continued ramp up during the second half of twenty twenty one. Due to continued demand for specialty chemicals for the battery industry, we continue to see strong pricing for our key products.
The right of the slide provides a reconciliation between net revenue recordable under IFRS And gross revenue, which is a non IFRS measure. As shown, the net revenue reportable under IFRS includes the treatment, refining and possibly marketing charges that are incurred when Black Mass is sold to 3rd parties. For clarity, the gross revenue, again, a non IFRS measure, excludes the treatment, refining and marketing charges. Lifecycle will continue to report net revenue in accordance with IFRS within its financial statements. During the 3rd fiscal quarter, operating expenses were $7,900,000 compared to $1,900,000 during the prior period, Driven by increased personnel costs, a ramp up of operations at the Kingston and Rochester Spokes, increases in raw materials, Supplies and finished goods, increased R and D spending and nonrecurring expenses related to the business combination.
Net loss was approximately $6,900,000 compared to approximately $1,800,000 in the prior year period. Adjusted EBITDA loss was $5,200,000 compared to $1,300,000 for the prior year period. Turning to the balance sheet. Recall, upon closing of the business combination in August, Lifecycle received approximately $527,000,000 in net As of August 31, 2021, we had cash and cash equivalents of approximately 511,000,000 Shares outstanding as of August 31 were 163,000,000,179,553 common shares. Moving to Slide 19, let's discuss our fiscal year 2021 business outlook.
Lifecycle is reiterating the continued ramp up of the Kingston and Rochester Spokes during the second half of twenty twenty one in line with expectations. The Rochester Hub procurement will begin during fiscal year 2021, enabling Lifecycles to continue on track with project execution. The Arizona Spoke Procurement and Construction will continue. The Alabama Spoke Procurement and Execution will be kicked off. And lastly, fiscal year 2022 guidance will be provided in conjunction with reporting our fiscal year 2021 results.
Now, I'd like to turn it over to Tim to provide an update on our Spok expansion and the Rochester Hub.
Thank you, Bruce. I'll start off on Slide 20 to give an update on our Spok facilities. Our 1st commercial Spok is located in Kingston, Ontario and began operations in mid-twenty 20. STOKE 2, located in Rochester, New York, has been operational since late 2020. In April of 2021, we announced the development of a 3rd North American spoke in Gilbert, Arizona.
We're on track for completion of the first processing line In early 2022. We are further excited to have announced this week an additional spoke to be located in Alabama, which is on track for completion in mid-twenty 22. Moving to Slide 21, Our 4th commercial spoke facility will be located in Tuscaloosa, Alabama in the Southeast of the United States. This region is highly strategic located close to battery and auto manufacturing sites. This facility is incremental to our base case business plan Due to increased forecast demand for additional battery mega factories.
The Alabama Spoke 4 facility We'll initially have 5,000 tons per year of processing capacity with capability to be expanded to 10,000 tons per year Our lithium ion battery processing capacity. Similar to Arizona, we plan to leverage our full pack shredding technology, Increasing Lifecycle's total processing capacity in North America to 25,000 to 30,000 tons per year Turning to Slide 22. Very importantly, I'm pleased to report that our flagship Rochester Hub project is on track. In 2020, we began definitive engineering, permitting and infrastructure work And I'm pleased to report that definitive engineering work will be completed in 2021 to facilitate groundbreaking before the end of the year, allowing for the commissioning to begin in early 2023. The development of the hub has allowed Lifecycle to continue to And offtake for finished specialty chemicals.
We look forward to providing a more in-depth update on the Rochester Hub project following the completion of definitive engineering. Moving to Slide 23, I'm pleased to highlight that we will be hosting the Lifecycle Battery Recycling Day on October 6, 2021. This event will include a range of panels involving external guests covering key topics pertinent to Lifecycle's business. This includes vehicle electrification, sustainable critical materials, next generation batteries as well as environmental and community engagement. Save the date and stay tuned for registration details, which will be further communicated in the coming several weeks.
In addition, we are pleased to be participating in several upcoming investor conferences As noted on Slide 23. Finally, on Slide 24, We believe LifeCycle is the right solution for the recycling of all types of lithium ion batteries. Traditional smelting and refining techniques are less economically efficient and more harmful to the environment. We have a strong portfolio of patented technology Complemented with a strong network of commercial demand and battery supply contracts that have taken many years to develop. We are scaling with our customers as they grow and supporting increasingly stringent policy directives regarding battery materials and recycling.
Before I wrap it up, I would like to summarize why we are so excited about the opportunities we have ahead of us. 1, lifecycle is at the intersection of 3 broad and rapidly changing megatrends that are critical for the growth of a zero carbon economy. These include the electric vehicle revolution, sustainability with an emphasis on circular economy And the domestic supply of strategic materials. 2, we believe LifeCycle provides the leading fit for purpose solution for the recycling of all types of lithium ion batteries. Traditional smelting and refining techniques are more harmful to the environment and our technology has proven to be more efficient with higher yields and more recoverable material, Enabling robustly improves environmental and economic sustainability.
3, Lastly, LifeCycle is already a commercial business that has patented solutions operating today. Our long term competitive edge It's comprised of 2 key aspects: our patented fit for purpose SpokieHub Technologies And our sticky long term battery material supply contracts and associated anti product offtake agreements. Following the closing of the business combination, Lifecycle is well capitalized to execute on our business plan. Lifecycle is poised for rapid growth Thank you for your time today. We will now open the line up for questions.
Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from the line of Robin Seidler with BMO Capital Markets. Please proceed with your question.
Hey, good morning, guys. So my first question is on the Spok rollout in CapEx. So how should we think about the Spok expansion rollout going forward, Considering what I believe is about a 1 per quarter production capability right now, and when you think about other things like the time it takes to scout ideal locations And just to secure any necessary permits. And it seems like the next couple of spokes are expected
to be
about $10,000,000 in all in CapEx versus I think the $5,000,000 previously stated. So is $10,000,000 the spool CapEx run rate right now?
Yes. Thanks, Robin, and appreciate the question. I actually turn it over to Tim Johnson. He's going to ask the question.
Thank you, Ajay, and thank you, Robin. Excellent question. So first of all, let me start by saying Lifecycle has now established what we're calling a Spok Fulfillment Center. This is essentially a dedicated location Well, we've developed the capability to build Spok modules. For those of you who have seen the videos, you'll understand what I'm referring to there And be able to rollout Spok plants on a continuous basis.
So we
don't see any restrictions in our ability To fulfill the requirements of 1 spoke per quarter using your estimate there, Robin. What I would say is Part of the execution of the Spok programs is that because of the low environmental footprint associated with the Spok facility, They have been and they continue to be relatively simple to comment as well as because of the replicable Nature of the facility, they are able to be turned on and ramped up relatively quickly. In relation to the run rate costs, Robin, What we've allowed for is going forward, some facilities will have the ability to process full packs, Some facilities will have the ability to process up to modules. There is a flat incremental cost to that, but most of that incremental Cost is actually because our standard process is to allow for the duplication of the processing lines within the same facility. Ajay outlined in the presentation that we've seen a significant increase in the demand for recycling capacity.
And so in certain locations, as in Arizona and Alabama, we're actually starting with the footprint to be able to run up to 10,000 tons Per year. This is overall a lower capital intensity way to roll out spoked capacity and That's a way. So you should still consider 4,000, 5000 tonnes per year a run rate of roughly $5,000,000 per processing line.
Okay. And maybe just a follow-up on that. So Spok CapEx, we should think of it more like a range, maybe between 5 to 10, 10 being the ones that can process the full pack. And maybe with respect to, I I think the MD and A mentioned the beachhead spokes in both Europe and China would be closer The 10 as well. Is that because those are going to be full pack processing or because there's going to be maybe more upfront costs Associated with permitting and scouting that is actually embedded within that $10,000,000 number of calls.
There is a minor amount of additional engineering upfront engineering costs associated with bringing the Spoke design up to the European code requirements. But in general, and we'll be talking more about this in our full year guidance. But as we look across where we'll be placing spokes in the near future, the initial spoke capacity will likely be full pack Processing capacity is built in a similar fashion with expansion capability.
Okay. Thank you. And maybe just a second question. So at this stage, do you foresee an LFP hub as the most likely candidate for hub 2? Maybe you can just discuss the current expectations and sequencing and timing for the next hubs.
Yes. Not a problem, Roland. So, Crystal, we're really excited about the continued acceleration of the LFP battery market. And we have multiple paths currently underway, which will be able to provide an update as part of the coming quarters.
All right. Thank you.
Thank you, Robin.
Thank you. Our next question comes from the line of Daniel Ives with Wedbush Securities. Please proceed with your question.
Yes, thanks. Can you just talk about How are you thinking about the run rate for EBITDA in Q4 and just going forward? Appreciate it.
Yes. Hey, Dan, thanks so much for the question. Certainly. So I think just to reiterate, we continue to see volumes, tonnages, As well as, hence, revenues ramping in line with expectations. And just to be clear, I'm talking about the immediate future as it relates to fiscal Q4.
So you'll see that can continue to commence your rise in the tonnage and the revenue, but also an associated negative adjusted EBITDA. I think the second point around that is, we're pulling forward and continue to enhance the team with respect to personnel. And that's very important, of course, to enhance execution as we continue to accelerate our OLED. Of course, the near term immediate effect And adjusted EBITDA is more negative. Roughly speaking, you could probably take the Q3 numbers And incrementally add to that 50% to 100%, just a rough indication for the immediate fiscal Q4 adjusted EBITDA.
So the bottom line is
point 3 and final point is
that we're laser focused on execution. We're building our spokes as we continue to accelerate And locked up for their customers to be seen in this presentation. And we are of course gearing towards the execution of the hub, which as everybody Notes from the sell side community and for those that are new, that is a key financial inflection point for the company. So
Great, great. And then just given all the activity that we're Seeing in the market in terms of build out of battery technology, can you just talk about Maybe our conversations have changed with customers or potential customers, call it, like the last 6 months versus maybe If we went back a year, year and a half ago, just anecdotally. Thanks.
So anyway, thanks for the question. I mean, I'm going
to that sounds very helpful for Steve
And well, if you look in the North American context, I would say that as you've seen, I think we presented in the slides as well, Significant announcements of production capacity here in North America. So the opportunity is definitely increased. And there's definitely a projected, let's say, deficit in capacity or starting to become a deficit in capacity in North America As more of these Gigafactories, Megafactories come online. So I would say the opportunity is rapidly increased and there's a Strong demand for our services and also increased capacities, given the mega factory rollout.
Thanks.
Thank you. Our next question comes from the line of Jeff Osborne with Cowen and Company. Please proceed with your question.
Good morning, guys. This is Jeff Rossetti on for Jeff Osborne. Thanks for taking our questions. Just maybe if I could start, I know you disclosed that there was some COVID related impact in your 2Q And also this quarter. So I just wanted to see how that impacted operations as you spoke In Kingston, in Rochester, I also know that you said you were ramping up to up on your plan, but I just wanted to see where the utilization rates So there are 2 spokes in the quarter.
Yes, certainly. Hey, Betsy here. Thanks for the question, Jeff? Yes. So I can start and then Tim can add on here as needed.
The short answer is, yes, as we disclosed in the Q2 MD and A, there was a bit of a slower start to the year than we had originally anticipated. But that said, as we've reiterated on this call, for the immediate future for full For fiscal year 2021, we're very encouraged by the pickup and the continued ramp up, I'd say broadly in line with We're pleased to report within fiscal Q3 and fiscal Q4. So that's just from a rough guidance for the full year that should give you an indication. I'll turn it over to Tim who can talk a little bit more about the utilization aspect.
Yes, Jeff. And so just further building upon what Ajay, I would say the Kingston operation is now operating 20 fourseven. The biggest impact that we had in Rochester was the slightly slower hiring of the staff there. It took a little bit longer to get the staff than we had Initially anticipated, but we're now at 2 shifts going to 3 shifts actually next week And we'll be at 4 shifts, which is full utilization by the end of the year. So as Ajay said, the back half of this year It's the heavy ramp here and you'll continue to see that as part of next quarterly reporting.
Okay, great. And appreciate the update on fiscal guidance. I was wondering if there was any change to the calendar guidance that you provided And you're at F4.
Yes, I can take that. It's actually here again. So I think the short answer is, Again, reiterating that we're in line with the expected grant that the Kingston and Rochester spoke. You can extrapolate that to the full year, Calendar year, if you want to take that approach as well. Again, whoever just emphasized as we were talking about there with a question from Dan, Tonnage is in line, revenues in line where we see of course some adjusted EBITDA being more negative, you can probably tell from the results This quarter is frankly because we're hiring and we're pulling costs and execution forward.
So So accelerating some of that, which means it pronounced near term adjusted negative EBITDA. But of course, as folks know here, this is all gearing towards The ramp and the execution of the Spok's accounts, which we're laser focused on.
Okay, great. And if I could ask one more just on the 14 new supply customers, that's great. I just wanted to see, are you able Disclose it all now on where you stand in terms of your total lithium ion battery feed tonnage?
Thanks, Jeff. So I'll turn it and then Kanal can add on here. Look, I think as part of our full year fiscal 2022 guidance, we'll look to Continue to pride as transparently as we can color around that. I think folks can also see based on the ramp of the Alabama spoke.
And of course, just as
a broad comment here, what's very important, of course, is gearing all of the flat math ultimately towards filling the hub. So stay tuned for that. It's going to be a big focus as we talk about full year 2022 guidance. But I'll turn it over to Nicolas Conzen.
Yes. I think just on the comment of 14 new customers, we've seen accelerated growth in customer acquisition. At the beginning of the year, we had indicated around 40 customers. Now we have 70 plus and 14 of those coming in the last quarter and we will continue To increase that number and add new customers, which will of course drive volume into the plant.
Okay. Thanks. And I'm sorry if I could just get one more. Just on the Rochester Hub, Tim, I think you mentioned that you'll provide Additional detail once you finish the engineering phase. Just wanted to see how do you get to the lower end or the higher end of your About 30% range on the $175,000,000 cost number and whether or not you would See any change in the actual processing capability of the Rochester Hub as you finish the engineering phase?
Thanks, and I'll jump back in the queue.
Thanks, Jeff. I'll turn it over to Tim who can address that.
Yes. Thanks, Jeff. And so let me sort of start with answering the back end of the question first. So as discussed, we continue to benefit from market acceleration. As outlined in the presentation, we've seen an increase in 65% in demand or material available for the cycling for 2025 and just the past 5 months.
And so we continue to take that into our consideration as part of the Roll out of both the Spok and Hub facilities. We are in the final stages of the Fin de venturing and I'm looking forward to coming back to the market upon the completion of the Defender Engineering next quarter to provide a much deeper dive on the overall
Thanks.
Thank
you. Our next question comes from the line of P. J. Juvekar with Citi. Please proceed with your question.
J.
Juvekar:] Yes. Good morning, Ajay and Tim.
Good morning, P. J.
You talked about 5% to 10% battery Scrap in Manufacturing. Is it possible that as battery manufacturers go down the learning curve And become more efficient at 5% to 10% scrap rate could go down in the future?
Appreciate the question, P. J. And I can start here and Kanal can add on as needed. Yes, this is actually a common question, so I appreciate you asking it. So I think in the near term years of ramp, which is pertinent for a lot of the data that we showed around the market for North America and generally speaking for mega factories, It's actually quite common that you can have a much higher scrap rate than 5% to 10%.
In fact, it's public. It's out there for many of the mega factories In the past years, it could even be as high as 30 plus percent. Now people will take a step back just to play devil's advocate. People will say, well, why would that Obviously, folks are trying to minimize scrap rates. I would point you as well to the commensurate side of it, which is Regarding quality and trying to prevent recalls.
I'm not going to point to specific names or instances, but I think that's an important Aspect to point to regarding keeping an unwavering quality standard and that needs to be the approach in cell manufacturing. So Short answer, PJ, is 5% to 10% is more conservative. Now over time, 10, 20 years into the future, certainly, I think that's, of course, the objective of Our customers and we want them to succeed. We want to be collaborating with them. But again, for the near term, medium term, that's not a huge driver.
I'll get maybe perhaps send it out on a little bit as well.
Yes. One other factor just to consider in that as well, P. J, is that as cell formats get larger, There's a higher propensity for scrap. And the reason is that the potential of the defects from a probability perspective increases with the Size of the individual cell. So some of the trends that we're seeing in the auto industry is actually leading towards higher potentials for scrap as well.
Great. Good point on the safety side. Then you mentioned that 70% of your 2025 volumes would be from manufacturing scrap, which is interesting. What do you think? Is it the rest 30% post consumer battery recycling?
And how much of that do you think could be from EVs versus
Yes, great question. Vijay, can start again and then I'll connect on this needed. Yes, short answer is, It's interesting. We do see a rising quantity of larger format as we call it, so higher voltage driving from EV type batteries. So it's part of that 30% actually leads Are starting to see a more pronounced amount as part of our mix.
And that is, for example, did you say older hybrids, it could be What we call premature mortality, data is defective, recalled. So it's roughly good to assume that roughly 20% Of that residual in that sort of range, probably attributable to high voltage and then that latter 10% portable batteries, energy storage systems and the like. Last comment about it. It's interesting. If you can go 5 years further and beyond, we'll continue to see that mix change And EV batteries really equalize and then ultimately, of course, overtake this process.
Great. Thank you.
Thank you. Our next question comes from the line of Ben Kallo with Baird. Please proceed with your question.
Hey, good morning. Congrats on your first conference call and quarterly results. You added 14 new supply customers during the quarter. Could you talk maybe just about How the market is for adding new customers? And then when you add a new Sure.
How those contracts work with the customers, if it's similar to how it was last quarter, similar to how you started or if there's been any changes there And maybe you could just refresh us on how the terms of those contracts work.
Yes, good afternoon. I'll take my question. Yes, Kunal here. When we're adding customers, we're looking at a broad funnel Across different customer segments, so of course, automotive and transport, targeting those and Approaching the customers or the contacts that we've had for a number of years now to acquire those customers as they ramp up their electrification Strategies and production. So those tend to be longer term contracts.
When we get into on the opposite end, for example, when we had Groups in the post consumer, consumer electronics, that tends to be more regional. They have to go through compliance checks. So the R2 and So certifications we recently achieved in Rochester are significant milestones to help us to acquire those customers, but also Adding more regional business development capacity in line with the spoke capacity. So as we add Phoenix and Alabama bringing team members in those regions to chase The more regional customers as opposed to the, for example, automotive customers, more centralized approach in national Contract, so it's a, I guess, multi layered business development approach to acquire customers and can take 6 to 9 months to Go through their processes and compliance checks to add them on to our roster. Ajay, I think we'll add something on top of that.
Yes. And just quickly, what I wanted to say is, just as a broad comment, there continues to be, we see a deficit of recycling capacity relative to available material and hence from a terms, length, pricing, whatever the aspects of the contract are, they continue to be Favorable and in line and it's not frankly folks realizing from the customer community, from the battery supply That it is a pretty thin universe of companies that can deal with these issues soup to nuts. And so just to be clear, Terms continue to be the same as thought many times, first thing is deficit of recycling capacity relative to available material.
And just following along with that, when you have the Tuscaloosa announcement, how much do you, For lack of a better word, fill it
or have a line
of sight to fill it from I know that there's the Mercedes plant and then So, forward plan, but how do you have contracts structured to so that you can deploy that capital and know that you'll have no returns on Thank you.
And so how we assess That is really truthful. That's the immediate available market. And typically, what we're looking for is in the range of about 1,000 to 1200 tonnes per year of immediately available material, but more importantly is the strategic longer term view. A lot of how these customers will contract is not based on the future deployment of assets. It's the Capite's ability to process the material today and now.
And so as we look to Tuscaloosa and being strategically In the southeast of the United States, close to both battery and automotive manufacturing facilities, It's both an immediate need, but most importantly, it is a long term strategic opportunity for LASARCA.
Thanks, guys.
Thank you. Ladies and gentlemen, that concludes our question and answer session. And I'll turn the floor back to Mr. Kochar for any final comments.
Thanks very much. So to close out, I would like to thank all of our employees for their contributions to life cycle success, our shareholders for their support and our customers for their commitment. And we look forward to providing
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.