DocumentLI-CYCLE HOLDINGS CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations (“MD&A”) is dated June 14, 2022 and provides information which the management of Li-Cycle Holdings Corp. (“Li-Cycle”) believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of Li-Cycle for the three and six months ended April 30, 2022 and 2021. This MD&A should be read together with Li-Cycle’s condensed consolidated interim financial statements and related notes for the three and six months ended April 30, 2022 and 2021. Li-Cycle’s audited consolidated financial statements and management’s discussion and analysis for the year ended October 31, 2021 are included in our annual report on Form 20-F for the year ended October 31, 2021 (the "Annual Report"). In addition to historical financial information, this MD&A contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. For more information about forward-looking statements, see the section entitled “Cautionary Note Regarding Forward-Looking Statements”. Actual results and timing of selected events may differ materially from those anticipated by these forward-looking statements as a result of various factors, including those set forth under the section entitled “Key Factors Affecting Li-Cycle’s Performance” and under “Item 3. Key Information—D. Risk Factors” included in our Annual Report. References in this section to “we,” “us,” "the Company", or “Li-Cycle” refer to Li-Cycle Corp. and its subsidiaries prior to the consummation of the business combination we completed with Peridot Acquisition Corp. on August 10, 2021 (the "Business Combination") and Li-Cycle Holdings Corp. and its subsidiaries subsequent to the Business Combination, unless the context otherwise requires or indicates otherwise.
Li-Cycle’s annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Standards Board ("IASB"). Li-Cycle’s condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting”. This MD&A should be read in conjunction with Li-Cycle’s annual consolidated financial statements as at and for the fiscal year ended October 31, 2021 and the related MD&A. All amounts are in U.S. dollars except as otherwise indicated. For more information about the basis of presentation of Li-Cycle’s financial statements, see the section entitled "Components of Results of Operations—Basis of Presentation."
Certain figures, such as interest rates and other percentages included in this discussion and analysis, have been rounded for ease of presentation. Percentage figures included in this discussion and analysis have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this discussion and analysis may vary slightly from those obtained by performing the same calculations using the figures in Li-Cycle’s financial statements or in the associated text. Certain other amounts that appear in this MD&A may similarly not sum due to rounding.
Company Overview
Li-Cycle is an industry leader in lithium-ion battery resource recovery and a leading lithium-ion battery recycler in North America. When we refer to ourselves as a leading lithium-ion battery recycler in North America, we are referring to our status based on installed permitted capacity for lithium-ion battery recycling measured in tonnes per year. Our proprietary “Spoke & Hub” recycling and resource recovery process is designed (a) at our Spokes, to process battery manufacturing scrap and end-of-life batteries to produce “black mass” and other intermediate products, and (b) at our Hubs, to process black mass to produce critical battery materials, including nickel sulphate, cobalt sulphate, and lithium carbonate. We have a market-leading position in North America through our two operational Spokes in Kingston, Ontario (the "Ontario Spoke") and Rochester, New York (the "New York Spoke"), respectively. A third Spoke in Gilbert, Arizona opened on May 17, 2022 (the "Arizona Spoke"). We are currently developing our first commercial-scale Hub in Rochester, New York (the "Rochester Hub"). We have also announced the development and construction of an additional Spoke near Tuscaloosa, Alabama (the "Alabama Spoke"). Further, we have announced the development of a co-located Spoke with a strategic industry partner in Warren, Ohio (the "Ohio Spoke") and our first two European Spokes in Norway (the "Norway Spoke") and Germany (the "Germany Spoke"). For ease of presentation, the four Spokes in development and construction as well as our recently opened Arizona Spoke are collectively referred to in this MD&A as the "Spoke Capital Projects."
For the three and six months ended April 30, 2022, Li-Cycle’s revenue was $8.7 million and $12.5 million, respectively (three and six months ended April 30, 2021: $0.3 million and $1.3 million). For the three and six
months ended April 30, 2022, Li-Cycle recorded a net loss of $20.6 million and net profit of $7.9 million, respectively (three and six months ended April 30, 2021: net loss of $7.8 million and $14.7 million). For the three and six months ended April 30, 2022, Li-Cycle recorded an Adjusted EBITDA1 loss of $19.5 million and $36.4 million, respectively (three and six months ended April 30, 2021: $5.1 million and $9.1 million).
Current Situation with Respect to COVID-19
The ongoing COVID-19 pandemic has resulted in significant supply chain disruptions globally and continues to affect Li-Cycle's business.
Li-Cycle’s operations have been impacted by the COVID-19 pandemic. Li-Cycle’s operations have been considered an essential service in both Canada and the United States and, as a result, Li-Cycle’s plants have continued operations during the COVID-19 pandemic, albeit with the implementation of appropriate measures to ensure employee safety. Li-Cycle’s operations were however impacted by the COVID-19 pandemic in the form of operational slow-downs and interruptions caused by employee absences and mandatory quarantines resulting from actual or suspected exposure to COVID-19.
Li-Cycle shut down its commercial headquarters in March 2020 and enforced a work-from-home mandate. The company has, at times, experienced slow-downs and interruptions in its battery supply chain. Li-Cycle re-opened its office facilities in November 2021. A second temporary closure of Li-Cycle's commercial headquarters occurred in January 2022 related to the Omicron variant and the commercial headquarters has since re-opened in February 2022.
Li-Cycle cannot currently predict the duration of the impact of the COVID-19 pandemic on its operations. Continuing effects of the COVID-19 pandemic, including the emergence of new strains such as the Omicron or Delta variant may cause governments to impose new restrictive measures, result in employee absences from work or result in negative economic effects, which in each case could have a material adverse impact on Li-Cycle’s operations, development and construction activities and financial condition.
Comparability of Financial Information
Li-Cycle’s future results of operations and financial position may not be comparable to historical results as a result of the Business Combination and the factors described below, among other things.
Li-Cycle included certain projected financial information in the proxy statement/prospectus on Form F-4 dated July 15, 2021 and filed with the U.S. Securities and Exchange Commission (the “SEC”) in connection with the Business Combination (as amended, the “Proxy/Registration Statement”), which information was also incorporated by reference in Li-Cycle’s non-offering final prospectus dated August 10, 2021 filed with the Ontario Securities Commission (the “Canadian Prospectus”) and Shell Company Report on Form 20-F filed with the SEC.
As a result of the developments described below, the assumptions underlying the projected financial information included in the Proxy/Registration Statement and the Canadian Prospectus, including a number of assumptions regarding capital expenditures and the timing of the roll-out of new operational facilities, no longer reflect a reasonable basis on which to project our future results, and therefore such projections should not be relied on as indicative of future results. Demand for lithium-ion battery recycling has continued to exceed our internal projections and, in order to meet this growing demand, we have decided to increase and accelerate our investment in the build-out of our recycling capacity in certain respects. For example, since the date of effectiveness of the Proxy/Registration Statement and the date of the Canadian Prospectus, respectively, we have, among other things, announced the development of the Spoke Capital Projects, increasing our processing capacity beyond that of our previous plans and projections. We have also announced the increase of expected processing capacity and development costs at our Rochester Hub. Our actual results could differ substantially from the projected financial information contained in the Proxy/Registration Statement and the Canadian Prospectus.
1 Adjusted EBITDA is a non-IFRS financial measure and does not have a standardized meaning under IFRS. See “Non-IFRS Measures” in this MD&A for more details, including a reconciliation to the most comparable IFRS financial measure.
Key Factors Affecting Li-Cycle’s Performance
We believe that Li-Cycle’s performance and future success is dependent on multiple factors that present significant opportunities for Li-Cycle, but also pose significant risks and challenges, including those discussed below and in the section of the Annual Report entitled “Item 3. Key Information—D. Risk Factors.”
Availability of Lithium-Ion Battery Materials for Recycling
Li-Cycle is reliant on obtaining lithium-ion batteries and battery manufacturing scrap for recycling through its contracts with suppliers. The Company maintains commercial contracts with leaders in the electric vehicle and lithium-ion battery ecosystem, including consumer electronics, manufacturing scrap, energy storage, and auto OEMs and transportation companies. Li-Cycle currently has over 100 suppliers of end-of-life lithium-ion batteries and battery manufacturing scrap and we expect Li-Cycle to attract new suppliers by differentiating itself based on the sustainability of its process and the robustness of its technology, which in turn will enable Li-Cycle to offer competitive terms to suppliers. We expect Li-Cycle’s supply pipeline to grow as suppliers grow volumes of batteries and manufacturing scrap available for recycling due to the continuing trend toward EVs, and as Li-Cycle continues to source additional supplier relationships. However, there can be no assurance that Li-Cycle will attract new suppliers or expand its supply pipeline from existing suppliers, and any decline in supply volume from existing suppliers or an inability to source new supplier relationships could have a negative impact on Li-Cycle’s results of operations and financial condition. See the section titled “Recent Developments” below.
On May 11, 2021, Li-Cycle announced its entry into an agreement with Ultium Cells LLC (“Ultium”), a joint venture between General Motors and LG Energy Solution, Ltd. (“LGES”), pursuant to which Ultium will supply to Li-Cycle, and Li-Cycle will purchase and recycle, up to 100% of the scrap generated by battery cell manufacturing at Ultium’s Warren, Ohio mega-factory. On January 27, 2022, Li-Cycle announced the development of a co-located Spoke in Warren, Ohio to enhance its ability to service Ultium's recycling needs.
Customer Demand for Recycled Raw Materials
Li-Cycle relies on a limited number of customers from whom we generate most of our revenue. Li-Cycle has entered into two agreements with Traxys North America LLC ("Traxys") covering off-take from its Spokes and Hubs. See the section titled “Item 4. Information on the Company—B. Business Overview —Our Commercial Contracts — Advanced Material Spoke and Hub Offtake with Traxys” in the Annual Report. Li-Cycle has also entered into additional off-take agreements with Glencore Ltd., covering substantially all of our Spoke and Hub products. See the section titled “Recent Developments” below. If our offtake partners are unwilling or unable to fulfill their contractual obligations to us, if either party fails to perform under the relevant contract, or if these partners otherwise terminate such agreements prior to their expiration, our business could suffer and we may not be able to find a similar offtake partners or end customers on similar or favourable terms, which could have a material adverse effect on our business, financial conditions or results of operations.
Our commercial agreements with Glencore also provide for the procurement of feedstock for our Spoke facilities, and procurement of black mass for our future Hub facilities, to supplement the volumes we are currently either independently sourcing or producing. Although these agreements are not exclusive for either party, they also do not commit either party to a specific performance threshold, and therefore a substantial reduction in Glencore’s supply of either product or an unwillingness or inability to fulfill its contractual obligations to us could have a material adverse effect on our business, financial condition or results of operations.
Ability to Build Out Additional Facilities
Li-Cycle is confident in its ability to scale the business as currently planned. Li-Cycle has a market-leading position in North America through its operational commercial Spokes in Kingston, Ontario, Rochester, New York, and Gilbert, Arizona and Li-Cycle has announced additional Spokes under development in Tuscaloosa, Alabama and Warren, Ohio. Li-Cycle is also advancing the construction of its first commercial Hub, in Rochester, New York. Li-Cycle has also announced its first European Spokes, in Norway and Germany, and is evaluating additional opportunities to scale its operations with a range of potential partners and expansion opportunities that may include acquisitions, joint ventures or other commercial arrangements in North America, Europe, and Asia Pacific. Li-
Cycle’s continued growth and results of operations will be negatively impacted if it is unable to continue to scale its operations.
Russia’s invasion of Ukraine has and may continue to further exacerbate disruptions in the global supply chain. Shortages, price increases and/or delays in shipments of supplies, equipment and raw materials have occurred and may continue to occur in the future which may result in operational or construction slowdowns, which may in turn have a material adverse effect on Li-Cycle’s operations, development and construction activities and financial condition.
International operations are subject to certain risks inherent in doing business abroad, including:
•political, civil and economic instability;
•risks of war and other hostilities;
•corruption risks;
•trade, customs and tax risks;
•currency exchange rates and currency controls;
•limitations on the repatriation of funds;
•insufficient infrastructure;
•restrictions on exports, imports and foreign investment;
•economic sanctions;
•increases in working capital requirements related to long supply chains;
•changes in labor laws and regimes and disagreements with the labor force;
•difficulty in protecting intellectual property rights; and
•different and less established legal systems.
Expanding our business in international markets, including the construction and operation of the Norway Spoke and Germany Spoke, is an important element of our strategy and, as a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential effects on our business and results of operations will vary from country to country and are unpredictable, but could have an adverse effect on our ability to execute our strategy and accordingly on our results of operations.
Commodity and Specialty Prices
Li-Cycle currently recognizes revenue from, among other things, sales of three intermediate products produced at Li-Cycle's Spokes: black mass; mixed copper and aluminum shred; and mixed plastics. Li-Cycle expects to recognize revenue from sales of end products, including nickel sulphate, cobalt sulphate and lithium carbonate, after its first Hub becomes operational.
The price Li-Cycle can charge for its end products is tied to commodity and specialty pricing for nickel, cobalt, and lithium, among others. This can lead to variability in revenues, but we believe the wide range of materials Li-Cycle produces results in a diversification effect that provides it with a natural hedge against significant variations in the commodity pricing related to a single product.
Research and Development
Li-Cycle continues to conduct research and development ("R&D") centered on various aspects of its business. R&D work is ongoing in support of its Spoke operations and its Rochester Hub project, specifically focused on continuous optimization of operating parameters and preparing for operations. Li-Cycle also continues to develop and evaluate new concepts with an eye to the future, including solid-state battery processing and others related to its Spoke & Hub Technologies™.
Components of Results of Operations
Basis of Presentation
Li-Cycle’s condensed consolidated interim financial statements have been prepared in accordance with IFRS. All amounts are in U.S. dollars except otherwise indicated. Currently, Li-Cycle conducts business through one operating segment. Li-Cycle was a pre-revenue company with no commercial operations until 2020. For more information about Li-Cycle’s significant accounting policies, refer to Note 2 in the accompanying consolidated financial statements of Li-Cycle for the years ended October 31, 2021 and 2021. Li-Cycle’s fiscal year end is October 31.
Revenue
Li-Cycle recognizes revenue from: (i) sales of intermediate products from Li-Cycle's Spokes, being black mass, mixed copper and aluminum shred and mixed plastics; and (ii) providing services relating to recycling of lithium-ion batteries, which includes coordination of logistics and destruction of batteries. Li-Cycle expects to recognize revenue from sales of end products, including nickel sulphate, cobalt sulphate and lithium carbonate, after its first Hub becomes operational.
We expect Li-Cycle’s sales of products to increase as a percentage of overall revenue as more Spokes, the Rochester Hub and additional Hubs become operational over time.
For product sales, revenue is recognized when control of the goods has been transferred, meaning when the goods have been picked up by the customer or shipped to the customer’s location (delivery). A receivable is recognized by Li-Cycle at the point of delivery, as this represents the point in time at which the right to consideration becomes unconditional, as passage of time is the only condition to payment becoming due. For more information about the basis of presentation of Li-Cycle’s financial statements, see the section entitled "Critical Accounting Policies and Estimates. "
Service revenue is recognized upon completion of each service. Prices for services are separately identifiable within each contract. A receivable is recognized by Li-Cycle when the services are completed as this represents the point in time at which the right to consideration becomes unconditional, as passage of time is the only condition to payment becoming due.
Operating expenses
Primary expense categories for Li-Cycle include employee salaries and benefits, raw materials and supplies, professional fees (which include consulting and other advisor fees), share-based compensation, R&D and depreciation. As Li-Cycle continues to grow and expand internationally, we expect to incur additional expenses in connection with acquisitions, joint ventures and/or other commercial or contractual arrangements. Additional personnel expenses are also anticipated. The amount of consulting and professional fees Li-Cycle expects to incur is commensurate with the engineering requirements associated with its Rochester Hub project and its Spoke Capital Projects, as well as requisite expenses for legal and audit as Li-Cycle funds its operations and scales its internal systems and processes. R&D expenses reflect ongoing efforts by Li-Cycle to develop and expand its technology, and such costs are offset by any government funding for government funded projects.
Other Income and Expense
Other income and expense consists of foreign exchange gain and loss, interest income and expense, fair value gain and loss on financial instruments. Financing costs are typically applied against the gross proceeds of any capital raised, and in the case of debt, amortized over the term of such debt. Interest expense represents the actual cash interest costs incurred plus any accrued interest payable at a future date.
Results of Operations
Comparison of the three and six months ended April 30, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | $ | % | Six months ended | $ | % |
| April 30, | Change | Change | April 30, | Change | Change |
| 2022 | 2021 | 2022 | 2021 |
| (amounts in thousands, except per share data) |
| |
| Revenues | 8,653 | 257 | 8,396 | 3262% | 12,491 | 1,275 | 11,217 | 880% |
| Product sales | 8,291 | 176 | 8,115 | 4608% | 11,914 | 1,089 | 10,825 | 994% |
| Recycling Services | 362 | 81 | 281 | 345% | 578 | 186 | 392 | 211% |
| | | | | | | | |
| Operating expenses | 29,978 | 5,578 | 24,399 | 437% | 52,548 | 12,799 | 39,749 | 311% |
| Employee salaries and benefits | 11,329 | 2,547 | 8,782 | 345% | 19,108 | 4,245 | 14,862 | 350% |
| Professional fees | 3,560 | 568 | 2,992 | 527% | 6,434 | 3,002 | 3,432 | 114% |
| Share-based compensation | 4,477 | 263 | 4,214 | 1601% | 9,676 | 1,009 | 8,667 | 859% |
| Raw materials and supplies | 1,817 | 480 | 1,336 | 278% | 3,230 | 894 | 2,336 | 261% |
| Office, administrative and travel | 3,149 | 318 | 2,831 | 891% | 5,993 | 622 | 5,371 | 864% |
| Depreciation | 1,987 | 606 | 1,381 | 228% | 3,821 | 1,133 | 2,688 | 237% |
| Research and development | 528 | 825 | (297) | (36)% | 870 | 1,352 | (482) | (36)% |
| Freight and shipping | 587 | 141 | 446 | 315% | 798 | 432 | 365 | 84% |
| Plant facilities | 984 | 234 | 750 | 320% | 1,421 | 448 | 973 | 217% |
| Marketing | 748 | 163 | 584 | 358% | 1,197 | 305 | 892 | 293% |
| Change in Finished Goods Inventory | 812 | (567) | 1,380 | (243)% | 1 | (645) | 646 | (100)% |
| Other (income) expenses | (680) | 2,527 | (3,207) | (127)% | (47,958) | 3,169 | (51,128) | (1613)% |
| | | | | | | | |
| Fair value (gain) loss on financial instruments | (2,862) | 1,924 | (4,786) | (249)% | (53,733) | 1,924 | (55,657) | (2893)% |
| Interest expense | 2,451 | 245 | 2,207 | 902% | 6,193 | 495 | 5,697 | 1150% |
| Foreign exchange (gain) loss | 140 | 359 | (219) | (61)% | 129 | 751 | (622) | (83)% |
| Interest income | (409) | (1) | (409) | 80908% | (547) | (1) | (545) | 44636% |
| | | | | | | | |
| Net profit (loss) before taxes | (20,645) | (7,848) | (12,797) | 163% | 7,901 | (14,693) | 22,595 | (154)% |
| Income tax | 5 | — | 5 | 100% | 5 | — | 5 | 100% |
| Net profit (loss) and comprehensive income (loss) | (20,650) | (7,848) | (12,802) | 163% | 7,896 | (14,693) | 22,590 | (154)% |
| | | | | | | | |
| Net profit (loss) attributable to | | | | | | | | |
| Shareholders of Li-Cycle Holdings Corp. | (20,627) | (7,848) | (12,779) | 163% | 7,920 | (14,693) | 22,613 | (154)% |
| Non-controlling interest | (24) | — | (24) | 100% | (24) | — | (24) | 100% |
| Net profit (loss) and comprehensive income (loss) | (20,650) | (7,848) | (12,802) | 163% | 7,896 | (14,693) | 22,589 | (154)% |
| | | | | | | | |
| Earnings (loss) per common share - basic | (0.12) | (0.08) | (0.04) | 48% | 0.05 | (0.16) | 0.20 | (130)% |
| Earnings (loss) per common share - diluted | (0.12) | (0.08) | (0.04) | 48% | 0.05 | (0.16) | 0.21 | (131)% |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | 168,972 | 95,060 | 73,911 | 78% | 166,366 | 94,255 | 72,111 | 77% |
| Dilutive number of shares | 168,972 | 95,060 | 73,911 | 78% | 171,701 | 94,255 | 77,446 | 82% |
Revenue
For the three and six months ended April 30, 2022, Li-Cycle’s revenues increased to $8.7 million and $12.5 million, respectively, compared to $0.3 million and $1.3 million in the corresponding periods of 2021, respectively, a 3262% and 880% increase when compared to the corresponding prior periods. The revenue growth was mainly attributable to increases in product sales and commodity prices. In the three and six months ended April 30, 2022, the Ontario Spoke and the New York Spoke produced 723 tonnes and 1,422 tonnes of black mass, respectively, compared to 307 tonnes and 546 tonnes of black mass produced in the corresponding period of 2021 when the New York Spoke was in the early stage of ramping up. Revenues from product sales were approximately $8.3 million and $11.9 million, respectively, while revenues from recycling services were approximately $0.4 million and $0.6 million, for the three and six months ended April 30, 2022.
Operating expenses
For the three and six months ended April 30, 2022, operating expenses increased by 437% and 311%, respectively, compared to the corresponding periods of 2021, reflecting the continued expansion of Li-Cycle's operations. The increase in personnel costs of $8.8 million and $14.9 million for the three and six months ended April 30, 2022 compared to the corresponding periods in 2021 relates to the addition of operational, corporate, commercial, and engineering personnel as Li-Cycle continues to pursue its expansion plans. The professional fees incurred in the three and six months ended April 30, 2022 as compared to the prior periods reflect the addition of legal, audit and tax advisory services in support of the Company's growth plans and required services as a public company. The movements in share-based compensation in the three and six months ended April 30, 2022, are non-cash expenses consisting of Restricted Share Units ("RSU's") and stock options granted to employees. The increase in raw materials and supplies of $1.3 million and $2.3 million for the three and six months ended April 30, 2022 is mainly a result of increased sales volume and inventory production from Spoke operations. Office and administrative expenses increased in the three and six months ended April 30, 2022, mainly as a result of higher insurance premiums associated with being a public company.
Other (Income) Expenses
Other (income) expenses amounted to an expense of $0.7 million and income of $48.0 million in the three and six months ended April 30, 2022, compared to $2.5 million and $3.2 million of other expenses in the three and six months ended April 30, 2021. The change was primarily due to fair value gains on financial instruments in the three and six months ended April 30, 2022 which were driven by changes in the fair value of the conversion feature of convertible debt of $2.9 million and $17.6 million, respectively, and changes in the fair value of warrants of $36.2 million in the six months ended April 30, 2022, offset by interest expenses on convertible debt and lease liabilities.
Net profit (loss)
Net profit (loss) amounted to a net loss of $20.7 million and a net profit of $7.9 million in the three and six months ended April 30, 2022, compared to a net loss of $7.8 million and $14.7 million in the three and six months ended April 30, 2021. Net profit (loss) for both periods was driven by the factors discussed above. In addition, excluding fair value gains and other adjusted items, Adjusted EBITDA loss was $19.5 million and $36.4 million in the three and six months ended April 30, 2022, compared to $5.1 million and $9.1 million in the corresponding 2021 periods. This was largely driven by higher staffing and network development costs related to the growth and expansion of the business. A reconciliation of Adjusted EBITDA loss to Net profit (loss) is provided in the section “Non-IFRS Measures” below.
Comparison of Statement of Financial Position
| | | | | | | | |
| April 30, 2022 | October 31, 2021 |
| | | | | | | | |
| Assets | (amounts in thousands) |
| Cash and cash equivalents | 509,316 | | 596,858 | |
| Other current assets | 54,641 | | 14,891 | |
| Plant and equipment | 70,403 | | 26,389 | |
| Other non-current assets | 32,396 | | 27,010 | |
| Total Assets | 666,756 | | 665,148 | |
| Liabilities | | |
| Current liabilities | 50,025 | | 21,578 | |
| Convertible debt | 88,526 | | 100,878 | |
| Warrants | — | | 82,109 | |
| Other non-current liabilities | 30,580 | | 26,862 | |
| Total Liabilities | 169,131 | | 231,427 | |
| Shareholders' equity | 497,625 | | 433,721 | |
| Equity attributable to the Shareholders of Li-Cycle Holdings Corp. | 497,318 | | 433,721 | |
| Non-controlling interest | 306 | | — | |
| Total liabilities and shareholders' equity | 666,756 | | 665,148 | |
Assets
Cash and cash equivalents were $509.3 million as at April 30, 2022 compared to $596.9 million as at October 31, 2021. The decrease in cash was primarily driven by purchases of equipment for the Rochester Hub and Spoke Capital Projects and ongoing operating expenses. The increase in working capital requirements was driven by an increase in accounts receivable related to the Company's growth.
Property plant and equipment was $70.4 million as at April 30, 2022, compared to $26.4 million as at October 31, 2021. This increase was primarily driven by purchases for the construction of the Rochester Hub as well as the Arizona Spoke and Alabama Spoke.
Liabilities
Convertible debt, representing the 2021 Convertible Notes (as defined below), was $88.5 million as at April 30, 2022, compared to $100.9 million as at October 31, 2021. The decrease is primarily driven by a fair value gain on the embedded derivative and offset by accretion and accrued interest. Warrant liability was nil as at April 30, 2022 as of result of the redemption of all of Li-Cycle's outstanding warrants and the make-whole exercise as described in the notice of redemption dated December 27, 2021. The redemption of the warrants was completed as of January 31, 2022.
Summary of Quarterly Results
The table below sets forth certain summarized unaudited quarterly financial data for the six most
recently completed quarters. This quarterly information has been prepared in accordance with IFRS. The
operating results for any quarter are not necessarily indicative of the results to be expected for any future
period.
| | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| (amounts in thousands, except per share data) | April 30, 2022 | January 31, 2022 | October 31, 2021 | July 31, 2021 | April 30, 2021 | January 31, 2021 |
| Revenue | $ | 8,653 | | $ | 3,838 | | $ | 4,391 | | $ | 1,709 | | $ | 257 | | $ | 1,017 | |
| Net profit (loss) | $ | (20,650) | | $ | 28,547 | | $ | (204,969) | | $ | (6,897) | | $ | (7,848) | | $ | (6,845) | |
| Net profit (loss) attributable to: | | | | | | |
| Shareholders of Li-Cycle Holdings Corp. | $ | (20,627) | | $ | 28,547 | | $ | (204,969) | | $ | (6,897) | | $ | (7,848) | | $ | (6,845) | |
| Non-controlling interest | $ | (24) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| Earnings (loss) per share, basic | $ | (0.12) | | $ | 0.17 | | $ | (1.31) | | $ | (0.07) | | $ | (0.08) | | $ | (0.07) | |
| Earnings (loss) per share, diluted | $ | (0.12) | | $ | 0.17 | | $ | (1.31) | | $ | (0.07) | | $ | (0.08) | | $ | (0.07) | |
We became a reporting issuer for the purposes of Ontario securities laws on August 10, 2021. Over the last five quarters, our results were primarily impacted by the continued development, construction and commissioning of our Ontario and New York Spokes, the development and construction of the Spoke Capital Projects and the Rochester Hub, and costs and expenses incurred in connection with our growth plan, including personnel and facilities costs and legal, audit and tax advisory services in support of the Company's growth plans as a public company. Our results were also impacted by costs and expenses incurred in connection with the completion of the Business Combination in August 2021, including listing fee of $152.7 million in the three months ended October 31, 2021, and by fair value gain (loss) on financial instruments relating to warrants and convertible debt.
Non-IFRS Measures
The Company uses the non-IFRS measure of Adjusted EBITDA. Management believes that this non-IFRS measures provides useful information to investors in measuring the financial performance of the Company and is provided as additional information to complement IFRS measures by providing a further understanding of the Company’s results of operations from management’s perspective. These measures do not have a standardized meaning prescribed by IFRS and the term therefore may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. Accordingly, it should not be considered in isolation nor as a substitute for the analysis of the Company’s financial information reported under IFRS
Adjusted EBITDA is defined as earnings before depreciation and amortization, interest expense (income), income tax expense (recovery) adjusted for items that are not considered representative of ongoing operational activities of the business and items where the economic impact of the transactions will be reflected in earnings in future periods. These adjustment items include fair value (gain) loss on financial instruments, and non-recurring expenses such as forfeited SPAC transaction cost. The following table provides a reconciliation of net profit (loss) to Adjusted EBITDA loss.
| | | | | | | | | | | | | | | |
| Three months ended | Six months ended |
| April 30, | April 30, |
| 2022 | 2021 | 2022 | 2021 | |
| (dollar amounts in thousands) |
| Net profit (loss) | (20,650) | (7,848) | 7,896 | (14,693) | |
| Income Tax | 5 | — | 5 | — | |
| Depreciation | 1,987 | 606 | 3,821 | 1,133 | |
| Interest expense (income) | 2,042 | 244 | 5,646 | 494 | |
| EBITDA (loss) | (16,616) | (6,998) | 17,368 | (13,066) | |
| | | | | |
Fair value gain on financial instruments (1) | (2,862) | 1,924 | (53,733) | 1,924 | |
| | | | | |
| Forfeited SPAC transaction cost | — | — | — | 2,000 | |
| | | | | |
| Adjusted EBITDA loss | (19,478) | (5,074) | (36,365) | (9,142) | |
| | | | | | | | | | | | | | | | | |
| (1) Fair value gain on financial instruments relates to warrants, which were redeemed and no longer outstanding as of January 31, 2022, and convertible debt. |
|
Operational Developments
Spoke Capital Projects
In the three months ended April 30, 2022, we had three Spokes in development in North America, namely the Arizona Spoke, the Alabama Spoke and the Ohio Spoke, and two Spokes in development in Europe, namely the Norway Spoke and the Germany Spoke. The Arizona Spoke began operations on May 17, 2022. Collectively, our Spoke Capital Projects are expected to have a recycling capacity of 55,000 tonnes (11 GWh equivalent) per year, in addition to our existing operational Spoke capacity in Ontario and New York of 10,000 tonnes (2 GWh equivalent) per year.
Arizona Spoke
In March 2021, Li-Cycle announced the development and construction of the Arizona Spoke. The Phoenix metropolitan area is strategically proximate to Li-Cycle’s existing battery and battery scrap supply network, as well as being at the nexus of expected continued growth of lithium-ion batteries available for recycling due to the growing electric vehicle industry in Arizona, Nevada and other western U.S. States. The plant will have capacity to process up to 10,000 tonnes (2 GWh equivalent) per year. The Arizona Spoke began operations on May 17, 2022.
Alabama Spoke
On September 8, 2021, Li-Cycle announced the development and construction of the Alabama Spoke. The Alabama Spoke is located near Tuscaloosa, Alabama, in a region where we expect there will be continued growth of lithium-ion battery materials available for recycling due to the growing electric vehicle industry in Alabama and the U.S. Southeast. The plant will have capacity to process up to 10,000 tonnes (2 GWh equivalent) per year. The Alabama Spoke project is currently in the detailed engineering and facility construction stage. We expect the Alabama Spoke to be constructed, commissioned and operational in 2022.
Ohio Spoke
On January 27, 2022, Li-Cycle announced the development of the Ohio Spoke on site at the Ultium Cells LLC ("Ultium") battery cell manufacturing mega-factory in Warren, Ohio. Ultium plans to construct a new building for the Ohio Spoke, where Li-Cycle expects to install and operate its proprietary Spoke technology and equipment after construction is complete. The Ohio Spoke is expected to have a recycling capacity of 15,000 tonnes (3 GWh equivalent) per year, and is expected to be operational by early 2023. The Ohio Spoke will enhance Li-Cycle’s
ability to serve Ultium's recycling needs by providing on-site conversion of battery manufacturing scrap to intermediate products. The Ohio Spoke will help Li-Cycle service the previously awarded contract for Li-Cycle to process battery manufacturing scrap from Ultium's Ohio mega-factory.
Norway Spoke
On January 26, 2022, Li-Cycle entered into a joint venture agreement with ECO STOR AS (“ECO STOR”) and Morrow Batteries AS (“Morrow”) to form Li-Cycle Norway AS through which it will construct a new commercial lithium-ion battery recycling facility in southern Norway. Li-Cycle is the majority owner of Li-Cycle Norway AS, with ECO STOR and Morrow being minority owners and Nordic-headquartered strategic partners. Once constructed, the Norway Spoke is expected to have a recycling capacity of 10,000 tonnes (2 GWh equivalent) of lithium-ion batteries per year, including battery manufacturing scrap, full electric vehicle packs, and energy storage systems. The facility is expected to be operational in early 2023.
Germany Spoke
On January 27, 2022, Li-Cycle announced the development of another European Spoke, in Germany. The Germany Spoke is expected to have a recycling capacity of at least 10,000 tonnes (2 GWh equivalent) per year, and is expected to be operational during 2023. Upon selecting a site for the Germany Spoke, Li-Cycle expects to incur expenses in connection with the site lease, detailed engineering, facility construction and local site plan and environmental permit approvals.
Capital Costs of the Spoke Capital Projects
We expect our total investment to construct, commission and commence operations for the Spoke Capital Projects to be approximately $60.0 million. As of April 30, 2022, we have spent approximately $16.4 million on detailed engineering, equipment procurement and facility-related expenditures in connection with the Spoke Capital Projects.
Additional Spokes
Li-Cycle plans to develop additional Spokes in North America, as well as Europe and the Asia Pacific region. In furtherance of these plans, Li-Cycle opened a new Spoke Fulfillment Centre in Kingston, Ontario in October 2021 where Li-Cycle plans to fabricate and assemble on a custom basis machinery and equipment for future Spoke recycling lines. These assembled lines will be modular and able to be shipped to, and installed at, any new Spoke site.
Hub Capital Projects
Rochester Hub
Li-Cycle’s first commercial Hub will be located in Rochester, New York, and is currently under construction. The location for the Rochester Hub was specifically selected due to the nature of the infrastructure available at the site, including utilities and road/rail networks. Li-Cycle’s Spoke facilities in North America will be the primary suppliers of feedstock known as black mass for the Rochester Hub. Li-Cycle expects that the Rochester Hub will result in over 200 additional employment positions at its operations.
Li-Cycle completed a definitive feasibility study for the Rochester Hub in December 2021. Based on the definitive feasibility study, Li-Cycle expects the Rochester Hub will have the nameplate input capacity to process 35,000 tonnes of black mass annually (equivalent to approximately 90,000 tonnes or 18 GWh of lithium-ion battery equivalent feed annually). This represents an increase in nameplate input processing capacity of approximately 40% compared to the pre-feasibility study completed by the Company in June 2020 in addition to up-sizing of nameplate output capacity, resulting in expected output capacity of approximately 42,000 to 48,000 tonnes per annum of nickel sulphate, 7,500 to 8,500 tonnes per annum of lithium carbonate and 6,500 to 7,500 tonnes per annum of cobalt sulphate (being 250% and 160% higher and approximately 65% lower, respectively, compared to the pre-feasibility study). With its increased capacity, the Rochester Hub will be able to process battery material that is equivalent to approximately 225,000 EVs per year. Key design and cost changes to the Rochester Hub relative to the June 2020 pre-feasibility study largely include, but are not limited to: (1) higher material costs due to increased size and supply
chain inflationary impacts; (2) scope alterations responding to contracted feed supplies and implementing best-in-class environmental practices; and (3) up-sizing of nameplate output capacity. Li-Cycle estimates that the Rochester Hub will require a total capital investment of approximately $485 million (+/-15%), based on the results of the definitive feasibility study, which can be funded from existing balance sheet cash and cash equivalents.
Li-Cycle has engaged Hatch Ltd. as its engineering and procurement contractor. Hatch is also providing select construction management services such as onsite field engineering support and overall project scheduling for the Hub project. Procurement activities have commenced on all equipment and select construction materials for the Rochester Hub. Li-Cycle commenced construction on the Rochester Hub site in January 2022 and has engaged Mastec Inc. as its general contractor. The Company expects the Rochester Hub to reach mechanical completion in 2023.
As of April 30, 2022, Li-Cycle had spent approximately $45.4 million on the engineering, construction and development of the Rochester Hub.
Li-Cycle has been granted a special permit, overall site plan approval, and a special use permit with an area variance for hazardous material storage tanks from the Town of Greece, New York, all subject to certain conditions. The New York State Environmental Quality Review Act (“SEQRA”) process was completed in November 2021. The New York State Department of Environmental Conservation (“NYSDEC”) issued a state facility air permit for the expected emissions from the Rochester Hub in March 2022, which is a key permitting step to advance the construction process from earthworks to the construction of permanent infrastructure.
The remaining anticipated regulatory and other approvals required to develop and construct the Rochester Hub consist of construction and building permits from the Town of Greece, as well as the monitoring of storm water discharge, chemical bulk storage registration, and petroleum bulk storage registration both granted by the NYSDEC.
Recent Developments
Strategic Investment and Agreements with LG Energy Solution, Ltd. and LG Chem, Ltd.
On April 20, 2022, a subsidiary of the Company entered into a scrap offer agreement with LGES pursuant to which the Company will have the opportunity to recycle nickel-bearing lithium-ion battery manufacturing scrap and other lithium-ion battery material from LGES’s North American manufacturing sites. On the same day, a subsidiary of the Company entered into nickel sulphate offtake agreements with each of LGES and LG Chem, Ltd. (“LGC”) pursuant to which the Company will allocate for sale, through its end-product offtake partner, Traxys, a combined initial allocation of 20,000 tonnes of nickel contained in nickel sulphate produced at Rochester Hub, to LGC and LGES over 10 years. These agreements will enable a closed-loop ecosystem for LGC and LGES for key materials in the lithium battery supply chain.
On May 11, 2022, Li-Cycle announced its entry into an agreement with Ultium, a joint venture between General Motors and LGES, pursuant to which Ultium will supply to Li-Cycle, and Li-Cycle will purchase and recycle, up to 100% of the scrap generated by battery cell manufacturing at Ultium’s Warren, Ohio mega-factory. This announcement followed Li-Cycle’s previous announcement on January 27, 2022 of the development of a co-located Spoke in Warren, Ohio to enhance its ability to service Ultium's recycling needs.
On May 12, 2022, Li-Cycle announced the successful completion of the previously announced $50 million aggregate investment in common shares of the Company by LGES and LGC.
Strategic Partnership with Glencore
On May 5, 2022, Li-Cycle announced a strategic partnership with Glencore plc (LON: GLEN) and entry into a note purchase agreement with Glencore Ltd. (“Glencore”) in connection with a proposed $200,000,000 investment by Glencore in the Company through the purchase of a five-year convertible note, subject to the parties entering into certain commercial agreements.
On May 31, 2022, Li-Cycle entered into certain long-term commercial agreements with Glencore (the “Commercial Agreements"). Subject to existing commitments of the Company and other exceptions (including materials required
for the Company’s operations), under the terms of the Commercial Agreements Glencore will source and supply lithium-ion battery manufacturing scrap and other lithium-ion battery materials to the Company for use at the Company’s Spokes; Glencore will source and supply black mass to the Company for use at the Company’s Hubs; Glencore will purchase, for its internal consumption or on-sale to third party end customers, black mass, battery-grade end products and certain by-products produced at the Company’s Spokes and Hubs; and Glencore will supply sulfuric acid for use at the Company’s Hubs. Pursuant to the Commercial Agreements, Glencore will earn (i) sourcing fees on all feed flowing into the Company’s Spokes; (ii) sourcing fees on all third-party black mass flowing into the Company’s Hubs; (iii) marketing fees on all black mass flowing out of the Company’s Spokes and not flowing into the Company’s Hubs; and (iv) marketing fees on all end products flowing out of the Company’s Hubs.
The term of the Amended and Restated Global Feed Sourcing Agreement commenced on May 4, 2022 and the term of the other Commercial Agreements will commence on August 1, 2022.
On May 31, 2022, pursuant to the note purchase agreement entered into by the Company and Glencore on May 4, 2022, the Company issued to Glencore an unsecured convertible note (the “Glencore Convertible Note”) in the aggregate principal amount of $200,000,000.
Liquidity and Capital Resources
Sources of Liquidity
We intend to meet our currently anticipated capital requirements through cash on hand. As a result of the Business Combination and related private placement of common shares (the "PIPE Financing") on August 10, 2021 and the 2021 Convertible Notes issued on September 29, 2021, we significantly de-levered our balance sheet and have no material debt maturities until September 29, 2026. As at April 30, 2022, we had $509.3 million of cash and cash equivalents on hand and convertible debt of $88.5 million.
Currently, our primary need for liquidity is to fund working capital requirements of our business, capital expenditures related to the development and construction of our Rochester Hub and new Spoke facilities, debt service obligations and general corporate purposes. Our primary source of liquidity is the funds raised from the Business Combination, the PIPE Financing, the 2021 Convertible Notes financing (as defined below) completed in September 2021, the LG Subscription and the Glencore Convertible Note financing, as well as funds generated by operating activities.
Our capital and operating expenditures have increased, and we expect will continue to increase, significantly in connection with our ongoing activities, as we: complete the development and construction of the Rochester Hub; complete the development and construction of the Spoke Capital Projects; expand globally with the deployment of additional Spokes and Hubs, including through acquisitions and/or through joint ventures or other contractual arrangements; continue to invest in our technology, R&D efforts and the expansion of our intellectual property portfolio; increase our investment in logistics infrastructure for the transportation of intermediate products from Spokes to Hubs; obtain, maintain and improve our operational, financial and management information systems; hire additional personnel; and operate as a public company.
Our ability to fund our capital and operating expenditures, make scheduled debt payments and repay or refinance indebtedness depends on our future operating performance and cash flows, which will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control, including COVID-19. Over the mid-to-longer term, we expect we will need to secure additional equity and debt financing to continue to fund our current growth strategy. Such additional funds may not be available when we need them on terms that are acceptable to us, or at all.
Debt Obligations
On September 29, 2021, the Company entered into a Note Purchase Agreement (the “KSP Note Purchase Agreement”) with Spring Creek Capital, LLC (“Spring Creek Capital”) (an affiliate of Koch Strategic Platforms, LLC, or "KSP") and issued to Spring Creek Capital an unsecured convertible note (the “KSP Note”) under the KSP Note Purchase Agreement in the principal amount of $100 million, in a transaction exempt from registration pursuant to Section 4(a)(2) of the U.S. Securities Act of 1933, as amended (the “Securities Act”). On December 31,
2021, the Company issued to Spring Creek Capital an additional convertible note in the amount of $1,827,778 (the “PIK Note” and, together with the KSP Note, the “2021 Convertible Notes”), in satisfaction of the interest due and payable on the KSP Note as of such date. On May 1, 2022, Spring Creek Capital assigned the KSP Note and the PIK Note to an affiliate, Wood River Capital, LLC (“Wood River Capital”) and each of Spring Creek Capital and Wood River Capital signed a joinder agreement under which Wood River Capital agreed to become a party to, to be bound by and to comply with the KSP Note Purchase Agreement and KSP Standstill Agreement (as defined below); provided, however, that such assignment did not relieve Spring Creek Capital of its obligations thereunder.
The 2021 Convertible Notes mature five years from the date of first issuance (September 29, 2026) and accrue interest from the date of issuance at the London Interbank Offer Rate (LIBOR) plus five percent (5%) per annum. Interest on the 2021 Convertible Notes is payable on a semi-annual basis, either in cash or by payment-in-kind (“PIK”), at the Company’s option, beginning on December 31, 2021. Interest on PIK amounts accrues at LIBOR plus six percent (6%) per annum. Under the terms of the investment, LIBOR has a floor of 1% and a cap of 2%. On March 5, 2021, The Financial Conduit Authority announced the retirement of the LIBOR rate, ceasing the publication of the LIBOR rate relevant to the 2021 Convertible Notes as of June 30, 2023. Once the LIBOR interest rate is no longer published, the interest rate will instead be based on the sum of the Secured Overnight Financing Rate ("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.
The principal and accrued interest owing under the 2021 Convertible Notes may be converted at any time by the holder into the Company’s common shares, at a per share price equal to $13.43 (the “Conversion Price”). If the closing price per share of the Company’s common shares on the New York Stock Exchange is above $17.46 for 20 consecutive trading days, the Company may elect to convert the principal and accrued interest owing under the 2021 Convertible Notes, plus a make-whole amount equal to the undiscounted interest payments that would have otherwise been payable through maturity (the “Make-Whole Amount”) into the Company’s common shares at the Conversion Price.
The Company may redeem the 2021 Convertible Notes at any time by payment in cash of an amount equal to 130% of the principal amount of the 2021 Convertible Notes and all accrued interest owing under the 2021 Convertible Notes, plus the Make-Whole Amount. Upon a change of control transaction, the Company will be required to redeem the 2021 Convertible Notes by payment in cash of an amount equal to the outstanding principal amount of the 2021 Convertible Notes and all accrued interest owing under the 2021 Convertible Notes, plus the Make-Whole Amount.
The 2021 Convertible Notes are subject to certain events of default, the occurrence of which would give the holder the right to require the Company to redeem the 2021 Convertible Notes by payment in cash of an amount equal to the outstanding principal amount of the 2021 Convertible Notes and all accrued interest owing thereunder the 2021 Convertible Notes, plus the Make-Whole Amount. The KSP Note Purchase Agreement contains certain customary representations, warranties and covenants by and for the benefit of the parties.
The Company granted certain registration rights to the holder of the 2021 Convertible Notes under the KSP Note Purchase Agreement. The Company has filed a registration statement for the benefit of the holder of the 2021 Convertible Notes in accordance with those registration rights and has agreed to keep the registration statement (or another shelf registration statement covering the common shares issued or issuable upon conversion of the 2021 Convertible Notes) effective until the earlier of (x) the third anniversary of the first issuance of the 2021 Convertible Notes or (y) the date on which the holder of the 2021 Convertible Notes ceases to hold any common shares issued or upon conversion of the 2021 Convertible Notes.
On September 29, 2021, in connection with the 2021 Convertible Notes investment, the Company, KSP and Spring Creek Capital entered into a Standstill Agreement (the “KSP Standstill Agreement”), which restricts KSP, Spring Creek Capital and their affiliates (including Wood River Capital) from taking certain actions until the later of the conversion of the 2021 Convertible Notes in full or twelve months from the first issuance of the 2021 Convertible Notes (the “KSP Standstill Period”). The actions that KSP, Spring Creek Capital and their affiliates (including Wood River Capital) are restricted from taking during the KSP Standstill Period include, among others, (A) the acquisition of additional voting securities of the Company if, after giving effect to such acquisition, KSP and its subsidiaries and affiliates would beneficially own or exercise control or direction over voting securities of the Company having aggregate voting rights equal to or greater than 9.9% of the aggregate voting power of the
Company (B) any tender or exchange offer, take-over bid, merger, business combination and certain other transactions involving the Company and its securities, (C) any solicitation of proxies or votes or other attempt to influence votes by any holder of the Company’s securities and (D) formation of a “group” (as defined under the U.S. Securities Exchange Act of 1934) with respect to the Company’s securities.
On May 5, 2022, Li-Cycle announced entry into a note purchase agreement with Glencore in connection with a proposed $200,000,000 investment by Glencore in the Company through the purchase of a five-year convertible note, subject to the parties entering into certain commercial agreements.
On May 5, 2022, the Company and Wood River Capital entered into a consent and amendment agreement pursuant to which Wood River Capital consented to the issuance of the Glencore Convertible Note and the parties amended certain investor consent-related provisions of the 2021 Convertible Notes.
On May 31, 2022, pursuant to the note purchase agreement entered into by the Company and Glencore on May 5, 2022, the Company issued to Glencore the Glencore Convertible Note in the aggregate principal amount of $200,000,000, in a transaction exempt from registration under the Securities Act. The Glencore Convertible Note matures five years from the date of issuance and interest on the Glencore Convertible Note is payable on a semi-annual basis, either in cash or by PIK, at the Company’s option, beginning on May 31, 2022. The Glencore Convertible Note accrues interest from the date of issuance at the forward-looking term rate based on SOFR for a tenor comparable to the relevant interest payment period plus 0.42826% (the “Floating Rate”) plus 5% per annum if interest is paid in cash and plus 6% per annum if interest is paid in PIK. The Floating Rate has a floor of 1% and a cap of 2%. The obligations of the Company to make any payment on account of the principal of and interest on the Glencore Convertible Note are subordinate and junior in right of payment and upon liquidation to the Company’s obligations to the holders of all current and future senior indebtedness of the Company.
The principal and accrued interest owing under the Glencore Convertible Note may be converted at any time by the holder into the Company’s common shares at a per share price equal to $9.95 (the “Conversion Price”), subject to adjustments. The Company may redeem the Glencore Convertible Note at any time by payment of an amount in cash equal to 100% of the outstanding principal amount of the Glencore Convertible Note and all accrued interest owing under the Glencore Convertible Note. In connection with any optional redemption and provided that the holder of the Glencore Convertible Note has not elected to convert the Glencore Convertible Note into common shares following receipt of notice of such optional redemption, the Company must issue warrants (the “Warrants”) to the holder of the Glencore Convertible Note on the optional redemption date that entitle the holder to acquire, until the maturity date of the 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. The initial exercise price of the Warrants will be equal to the Conversion Price as of the optional redemption date.
The Glencore Convertible Note is subject to certain events of default, the occurrence of which would give the holder the right to require the Company to redeem the Glencore Convertible Note by payment of an amount in cash equal to the outstanding principal amount of the Glencore Convertible Note and all accrued interest owing under the Glencore Convertible Note, plus a make-whole amount equal to the undiscounted interest payments that would have otherwise been payable through maturity (the “Make-Whole Amount”). In addition, the occurrence of certain bankruptcy-related events of default renders the outstanding principal amount of the Glencore Convertible Note, all accrued interest owing thereunder and the Make-Whole Amount immediately due and payable.
Upon a change of control transaction, the Company will be required to redeem the Glencore Convertible Note by payment of an amount in cash equal to the outstanding principal amount of the Glencore Convertible Note and all accrued interest owing under the Glencore Convertible Note, plus the Make-Whole Amount. Glencore has agreed to certain transfer restrictions with respect to the common shares issued or issuable upon conversion of the Glencore Convertible Note, including that Glencore will not transfer such common shares other than to permitted transferees until May 5, 2024. Subject to certain exceptions, limitations, and applicable law, Glencore will, pursuant to the Note Purchase Agreement, be entitled to nominate one individual to the Board of Directors of the Company. Pursuant to the exercise of that right, Kunal Sinha, Glencore’s Head of Recycling, has been appointed to the Company’s Board of Directors.
The Company granted certain registration rights to the holder of the Glencore Convertible under a registration rights agreement. Under the registration rights agreement, the Company is required to file a resale registration statement
covering the resale of the common shares issuable upon conversion of the Glencore Convertible Note and upon exercise of the Warrants within 45 days after notice of such request from the holder of the Glencore Convertible Note. The Company agreed to keep the registration statement (or another shelf registration statement covering the common shares issued or issuable upon conversion of the Glencore Convertible Note and upon exercise of the Warrants) effective until three years after the holder’s receipt of the common shares issued upon conversion of the Glencore Convertible Note or upon exercise of the Warrants, as applicable.
On May 31, 2022, in connection with the issuance of the Glencore Convertible Note, the Company, Glencore and Glencore plc (the “Glencore Parent”) entered into an amended and restated standstill agreement (the “Glencore Standstill Agreement”), which restricts Glencore, the Glencore Parent and their affiliates from taking certain actions until the five years from the date of the Glencore Standstill Agreement (the “Glencore Standstill Period”). The actions that Glencore, the Glencore Parent and their affiliates are restricted from taking during the Glencore Standstill Period include, among others, (A) the acquisition of additional voting securities or of any debt, material assets or material businesses of the Company, provided that Glencore and the Glencore Parent may acquire voting securities of the Company so long as the aggregate beneficial ownership of such securities does not exceed 5.0% of the then-outstanding voting securities of the Company ,(B) any tender or exchange offer, merger, business combination and certain other transactions involving the Company and its securities, (C) any solicitation of proxies or votes or other attempt to influence votes by any holder of the Company’s securities and (D) formation of a “group” (as defined under the Securities Exchange Act of 1934) with respect to the Company’s securities.
Cash Flows Summary
Presented below is a summary of Li-Cycle’s operating, investing, and financing cash flows for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Three months ended | Six months ended |
| April 30, | April 30, |
| 2022 | 2021 | 2022 | 2021 | 2020 |
| (in thousands) | (in thousands) |
| Cash flows used in operating activities | $ | (17,200) | $ | (5,694) | $ | (38,635) | $ | (12,622) | $ | (4,568) |
| Cash flows used in investing activities | (24,995) | (2,852) | (47,407) | (5,451) | (998) |
| Cash flows from financing activities | (731) | 1,059 | (1,500) | 23,736 | 7,164 |
| Net change in cash | $ | (42,927) | $ | (7,487) | $ | (87,543) | $ | 5,662 | $ | 1,598 |
Cash Flows Used in Operating Activities
For the three and six months ended April 30, 2022, cash flows used in operating activities were approximately $17.2 million and $38.6 million, respectively, and were primarily driven by the growth and expansion of Li-Cycle’s operations and commercial footprint. The period over period increase in cash flows used in operating activities for the three and six months ended April 30, 2022 were primarily the result of an increase in operating expenses of $24.4 million and $39.7 million, respectively, compared to the corresponding period in 2021.
Cash Flows Used in Investing Activities
For the three and six months ended April 30, 2022, cash flows used in investing activities were primarily driven by the acquisition of equipment and leasehold improvements for the Spoke Capital Projects and the Rochester Hub. For the three and six months ended April 30, 2021, cash flows used in investing activities were primarily driven by the acquisition of equipment and leasehold improvements for the Ontario Spoke and New York Spoke.
Cash Flows from Financing Activities
Cash flows used in financing activities in the three and six months ended April 30, 2022 related primarily to the repayment of lease liabilities whereas, in the three and six months ended April 30, 2021, cash flows from financing activities related to a private placement of 281,138 Class A shares of Li-Cycle Corp in November 2020.
Contractual Obligations and Commitments
The following table summarizes Li-Cycle’s contractual obligations and other commitments for cash expenditures as of April 30, 2022, and the years in which these obligations are due.
| | | | | | | | | | | | | | | | | |
| Payment due by period |
| (in thousands) |
| Contractual Obligations | Total | Less than | 1 - 3 years | 3 - 5 years | More than |
| 1 year | 5 years |
| Accounts payable and accrued liabilities | $ | 45,158 | $ | 45,158 | $ | — | $ | — | — |
| Lease liabilities | 46,929 | 6,807 | 10,113 | 8,579 | 21,430 |
| Loan payable | 41 | 7 | 15 | 15 | 3 |
| Restoration provisions | 302 | 85 | — | 55 | 163 |
| Convertible debt principal | 130,000 | — | — | 130,000 | — |
| Convertible debt interest | 15,245 | — | — | 15,245 | — |
| | | | | |
Total as of April 30, 2022 | 237,675 | 52,058 | 10,128 | 153,893 | 21,595 |
As of April 30, 2022, there were $176.7 million in committed purchase orders or agreements for equipment and services, compared to $6.9 million as of October 31, 2021.
We expect Li-Cycle to enter into premises leases for additional Spokes and/or Hubs in the fiscal year end ending October 31, 2022.
Related Party Transactions
Related-Party Lease
From January 1, 2019 to December 31, 2021, the Company leased certain office space from Ashlin BPG Marketing, which is controlled by certain members of the immediate family of the Company’s President and Chief Executive Officer. Under the terms of the lease, the Company was required to pay Cdn. $4,500 per month plus applicable taxes, subject to 60 days’ notice of termination. Li-Cycle terminated the lease, effective December 31, 2021. During the three and six months ended April 30, 2022, the Company incurred expenses of nil and $6,358 in relation to this vendor, compared to $11,155 and $17,353 for the three and six months ended April 30, 2021, respectively.
Related-Party Expenses
The Company has engaged Fade In Production Pty. Ltd., which is controlled by certain members of the immediate family of the Executive Chair of Li-Cycle, to provide it with corporate video production services since 2017. During the three and six months ended April 30, 2022, the Company incurred expenses of $105,372 and $107,472 in relation to this vendor, compared to $69,347 and $97,005 for the three and six months ended April 30, 2021, respectively.
The Company has engaged Ashlin BPG Marketing, a related party as described above, to provide it with Li-Cycle branded promotional products for both customers and employees since April 1, 2020. During the three and six months ended April 30, 2022, the Company incurred expenses of $11,486 and $45,265 attributable to this vendor, compared to $4,415 and $23,688 for the three and six months ended April 30, 2021, respectively.
The Company has 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 since September 1, 2020. During the three and six months ended April 30, 2022, the Company incurred expenses of $25,252 and $47,355 attributable to this vendor, compared to $22,153 and $58,279 for the three and six months ended April 30, 2021, respectively.
Consulting Agreements
On May 1, 2020, Li-Cycle entered into a consulting agreement with Atria Limited (“Atria”), an entity which beneficially owned more than 5% of the outstanding Li-Cycle Corp. common shares at that time, to agree upon and finalize the consideration for certain business development and marketing consulting services that were previously performed on behalf of Li-Cycle from 2018 through April 2020. The fees for such services were agreed at 12,000 common shares of Li-Cycle Corp., payable in installments of 1,000 shares per month. On January 25, 2021, Li-Cycle issued all of the 12,000 shares to Atria as full and final satisfaction of all obligations of Li-Cycle to Atria
under the consulting agreement. Atria also directed the issuance of such shares as follows: 8,000 Shares to Atria; 2,000 Shares to Pella Ventures (an affiliated company of Atria); and 2,000 Shares to a director of Li-Cycle Corp. at the time, who is not related to Atria.
Director Consulting Agreements
Under the terms of an agreement dated July 19, 2019 between Li-Cycle and Anthony Tse, Mr. Tse provided consulting services to Li-Cycle in relation to the proposed expansion of its operations in Asia and was entitled to a fee of $4,700 per month for such services. During the three and six months ended April 30, 2022, Mr. Tse was paid aggregate fees under this agreement of nil and $14,100, compared to $14,100 and $28,200 for the three and six months ended April 30, 2021. The consulting agreement was terminated on January 19, 2022.
Off-Balance Sheet Arrangements
During the periods presented, Li-Cycle did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Li-Cycle’s condensed consolidated interim financial statements for the three and six months ended April 30, 2022 and 2021 have been prepared in accordance with IFRS under International Accounting Standard (IAS) 34 using the significant accounting policies and measurement bases that are in effect as of April 30, 2022, as summarized in Note 2 to the condensed consolidated interim financial statements. These were used throughout all periods presented with any applicable changes noted in the condensed consolidated interim financial statements of Li-Cycle for the three and six months ended April 30, 2022 and 2021.
Revenue
Revenue is measured based on the consideration to which the Company expects to be entitled to in a contract with a customer. The Company recognizes revenue when it transfers control of a product or service to a customer. There are no significant financing components associated with the Company’s payment terms.
Recycling Services revenue is recognized at a point in time upon completion of the services. Prices for services are separately identifiable within each contract. A receivable is recognized by the Company when the services are completed as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due.
For sale of products, revenue is recognized when control of the goods has transferred, being when the goods have been shipped to the customer’s location (delivery). A receivable is recognised by the Company when the goods are delivered to the customer as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due. The initial revenue recognized is based on commodity prices at the time of delivery. The Company estimates the amount of consideration to which it expects to be entitled under provisional pricing arrangements. The amount of consideration for black mass and mixed copper and aluminum shred sales is based on the mathematical product of: (i) market prices of the constituent metals at the date of settlement, (ii) product weight, and (iii) assay results (ratio of the constituent metals initially estimated by management and subsequently trued up to customer confirmation). Certain adjustments like handling and refining charges are also made per contractual terms with customers. Depending on the contractual terms with customers, the payment of receivables may take up to 12 months from date of shipment. Product sales and the related trade accounts receivables are measured at fair value at initial recognition and are re-estimated at each reporting period end using the market prices of the constituent metals at the respective measurement dates. Changes in fair value are recognized as an adjustment to profit and loss and the related accounts receivable.
Given the significance of revenue and the level of judgment involved in the provisional pricing, revenue recognition is considered a critical accounting policy.
Convertible debt instruments
The components of convertible debt instruments issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. The debt element of the instruments is classified as a liability and recorded as the present value of the Company’s obligation to make future interest payments in cash and settle the redemption value of the instrument in cash. The carrying value of the debt element is accreted to the original face value of the instruments, over their life, using the effective interest method. If the conversion option is classified as equity, its value is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. If the conversion option is classified as a liability and requires bifurcation, it is bifurcated as an embedded derivative unless the issuer elects to apply the fair value option to the convertible debt. The embedded derivative liability is initially recognized at fair value and classified as derivatives in the statement of financial position. Changes in the fair value of the embedded derivative liability are subsequently accounted for directly through the income statement.
Outstanding Share Data
As of June 14, 2022, and including the results of the redemption of outstanding warrants to purchase common shares of the Company, Li-Cycle had the following issued and outstanding common shares, common shares issuable upon conversion of the convertible debt and upon exercise of stock options and restricted share units:
| | | | | |
| Number of common shares outstanding or issuable upon conversion or exercise |
| Common shares outstanding | 174,596,792 | |
| Convertible debt | 28,161,273 | |
| Stock options | 5,574,126 | |
| Restricted share units | 2,196,215 | |
On December 27, 2021, Li-Cycle issued a notice of redemption indicating that it would redeem on January 26, 2022 (the "Redemption Date"), all of its outstanding warrants. At any time prior to 5:00 p.m. New York City time on the Redemption Date, the warrants could have been: (i) exercised by holders, at an exercise price of $11.50 per common share; or (ii) surrendered by holders on a “cashless basis” (a “Make-Whole Exercise”), in which case the surrendering holder received a number of common shares determined in accordance with the terms of the Warrant Agreement. On January 11, 2022, Li-Cycle issued a notice indicating that holders who surrendered their warrants pursuant to the Make-Whole Exercise received 0.253 common shares per warrant. As of January 31, 2022, (i) 9,678 warrants were exercised at the exercise price of $11.50 per common share, and (ii) 22,540,651 warrants were surrendered by holders in a Make-Whole Exercise. The remaining 449,665 unexercised warrants were redeemed at $0.10 per warrant.
Disclosure Controls and Procedures
Li-Cycle maintains a set of disclosure controls and procedures (as defined in Multilateral Instrument 52-109) designed to provide reasonable assurance that information required to be disclosed in its public filings or otherwise under securities legislation is recorded, processed, summarized and reported on a timely basis and that such controls and procedures are designed to ensure that information required to be so disclosed is accumulated and communicated to its management, including its certifying officers, as appropriate to allow timely decisions regarding required disclosure. With the supervision and participation of Li-Cycle’s senior management team, the Chief Executive Officer of Li-Cycle (the “CEO”) and the Chief Financial Officer (“CFO”) of Li-Cycle have evaluated the effectiveness of the disclosure controls and procedures of Li-Cycle as of October 31, 2021. Based on that evaluation, those officers have concluded that, as of October 31, 2021, such disclosure controls and procedures were effective to provide reasonable assurance that (i) material information relating to Li-Cycle was made known to management, and (ii) information required to be disclosed by Li-Cycle in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation.
As of April 30, 2022, there have been no material changes to the Company's disclosure controls and procedures and their design remains effective.
Internal Control Over Financial Reporting
Management is responsible for establishing, maintaining and assessing the effectiveness of adequate internal control over financial reporting (“ICFR”). The Company’s ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Prior to August 10, 2021, Li-Cycle was a private company and addressed internal control over financial reporting with internal accounting and financial reporting personnel and other resources. In the course of preparing for the Business Combination with Peridot Acquisition Corp., Li-Cycle identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of Li-Cycle’s annual or interim condensed consolidated interim financial statements may not be prevented or detected on a timely basis.
For the fiscal year ended October 31, 2021, Li-Cycle did not have in place i) an effective control environment with formal processes and procedures and ii) an adequate number of accounting personnel with the appropriate technical training in, and experience with, IFRS to allow for a detailed review of complex accounting transactions, that would identify errors in a timely manner, including in areas such as revenue recognition, inventory, related party arrangements, financing transactions and business combination transactions. Li-Cycle did not design or maintain effective controls over the financial statement close and reporting process in order to ensure the accurate and timely preparation of financial statements in accordance with IFRS. In addition, information technology controls, including end user and privileged access rights and appropriate segregation of duties, including for certain users the ability to create and post journal entries, were not designed or operating effectively. As of April 30, 2022, these material weaknesses have not been remediated.
We have taken steps to address these material weaknesses and expect to continue to implement the remediation plan, which we believe will address the underlying causes. We have engaged external advisors with subject matter expertise and additional resources to provide assistance in assessing the control environment and expect to further engage these external advisors to provide assistance with all elements of the internal control over financial reporting program, including: performance of a risk assessment; documentation of process flows; design and remediation of internal controls; and evaluation of the design and operational effectiveness of our internal controls. We also expect to engage additional external advisors to provide assistance in the areas of information technology and financial accounting. We are evaluating the longer-term resource needs of our various financial functions. These remediation measures may be time consuming, costly, and might place significant demands on our financial and operational resources. We have made some upgrades to our enterprise resource planning (“ERP”) system and work on further upgrades is ongoing with the intent to further improve and enhance system functionality. Although we have made enhancements to our control procedures in this area, the material weaknesses will not be remediated until the necessary controls have been implemented and are operating effectively. We will provide an update on the progress of the remediation on a quarterly basis.
Quantitative and Qualitative Disclosures About Market Risk
Li-Cycle is exposed to various risks in relation to financial instruments. The main types of risks are currency risk and interest rate risk. While Li-Cycle may enter into hedging contracts from time to time, any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged. Furthermore, Li-Cycle does not have foreign-exchange hedging contracts in place with respect to all currencies in which it does business.
Currency Risk
It is management’s opinion that Li-Cycle is not exposed to significant currency risk as its cash is denominated in both Canadian and U.S. dollars and funds its operations accordingly. Up to October 31, 2020, most of Li-Cycle’s
transactions were in Canadian dollars. Effective November 1, 2020, Li-Cycle changed its functional currency to U.S. dollars, given the shift in currency of most of Li-Cycle’s transactions to U.S. dollars.
At April 30, 2022, the Company had Canadian dollar denominated cash of approximately Cdn. $4.1 million and Canadian dollar denominated net liabilities and loans payable of approximately Cdn. $24.8 million. The remaining amounts were denominated in U.S. dollars and immaterial amounts of other currencies. Gains and losses arising upon translation of these amounts into U.S. dollars for inclusion in the condensed consolidated interim financial statements are recorded in other income and expenses as foreign exchange. A 5% strengthening of the Canadian dollar versus the U.S. dollar, at April 30, 2022, would have increased the foreign exchange loss for the year by approximately $0.8 million while a 5% weakening of the Canadian dollar would have had approximately the equal but opposite effect. This analysis assumes that all other variables remain constant.
Interest Rate Risk
Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on the Company’s financial instruments. The Company is exposed to interest rate risk, as it has variable interest rate debt in the form of convertible debt that includes an interest rate floor and cap.
Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Substantially all of our cash and cash equivalents were deposited in accounts at one financial institution, and account balances may at times exceed federally insured limits. Management believes that we are not exposed to significant credit risk due to the financial strength of the depository institution in which the cash is held.
The Company's revenue and accounts receivable primarily come from two key customers. The Company manages this risk by engaging with reputable multi-national corporations in stable jurisdictions and performing a review of a potential customer's financial health prior to engaging in business.
Recently Issued Accounting Standards Not Yet Adopted
From time to time, new accounting standards, amendments to existing standards, and interpretations are issued by the IASB. Unless otherwise discussed, and as further highlighted in Note 2 to the fiscal April 30, 2022 condensed consolidated interim financial statements of Li-Cycle for the three and six months ended April 30, 2022 and 2021, Li-Cycle is in the process of assessing the impact of recently issued standards or amendments to existing standards that are not yet effective.
Change in Certifying Accountant
Our Audit Committee conducted a review process to consider the selection of the Company’s independent
registered public accounting firm for its 2022 fiscal year, which resulted in the selection of KPMG LLP
(“KPMG”) as the Company’s new external auditor.
Resignation/Dismissal of independent registered public accounting firm
On January 31, 2022, the Company, upon the recommendation of the Audit Committee and the approval of the Board, dismissed Deloitte LLP (“Deloitte”) as its independent registered public accounting firm. Deloitte’s resignation was subject to the completion of Deloitte’s audit of the Company’s financial statements for the fiscal year ended October 31, 2021, and filing of the Company’s Annual Report on January 31, 2022.
The reports of Deloitte on the Company’s consolidated financial statements for the past two fiscal years did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company’s financial statements for each of the two fiscal years ended October 31, 2021, and 2020, there were no disagreements with Deloitte on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Deloitte, would have caused Deloitte to make reference to the matter in their report and there were no reportable events.
Engagement of new independent public accounting firm
On January 31, 2022, the Board of Directors of Li-Cycle, acting on the recommendation of the Audit Committee, appointed KPMG as the Company’s external auditor for its 2022 fiscal year to replace Deloitte as the Company’s independent registered public accounting firm for the fiscal year ended October 31, 2022.
During the fiscal years ended October 31, 2021 and October 31, 2020 and through the date hereof, neither the Company nor anyone on its behalf has consulted with KPMG regarding: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; (ii) any matter that was the subject of a disagreement within the meaning of Item 16F(a)(1)(iv) of Form 20-F and the related instructions; or (iii) any reportable event within the meaning of Item 16F(a)(1)(v) of Form 20-F.
The appointment of KPMG was approved at the Company’s 2022 annual meeting of shareholders.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements in this MD&A constitute forward-looking statements that do not directly or exclusively relate to historical facts. You should not place undue reliance on such statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, among other things, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements are often, but not always, made through the use of words or phrases such as “believe,” “anticipate,” “could,” “may,” “would,” “should,” “intend,” “plan,” “potential,” “predict,” “forecast,” “will,” “expect,” “estimate,” “continue,” “project,” “positioned,” “strategy,” “outlook” and similar expressions. You should read statements that contain these words carefully because they:
•discuss future expectations;
•contain projections of future results of operations or financial condition; or
•state other “forward-looking” information.
All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. We believe it is important to communicate our expectations to our security holders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed in this MD&A 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:
•changes adversely affecting the industry in which we operate;
•our ability to achieve our business strategies or to manage our growth;
•general economic conditions;
•the effects of the COVID-19 pandemic on the global economy, on the markets in which we compete and on our business;
•our ability to maintain the listing of our securities on the New York Stock Exchange;
•our ability to retain our key employees;
•our ability to recognize the anticipated benefits of the Business Combination; and
•the outcome of any legal proceedings or arbitrations that may be instituted against us or in which we may be involved.
These and other factors are more fully discussed in the “Item 3. Key Information—D. Risk Factors” section of the Annual Report and elsewhere in this MD&A. These risks could cause actual results to differ materially from those implied by the forward-looking statements contained in this MD&A.
All forward-looking statements included herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this MD&A or to reflect the occurrence of unanticipated events.
