Loop Industries Inc (LOOP) 2023 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries' first-quarter 2023 corporate update call. (Operator Instructions) This conference is being recorded today, July 14, 2022, and the press release accompanying this conference call will be issued after market close yesterday, July 13, 2022.

On our call today is Loop Industries' Chief Executive Officer, Daniel Solomita; Chief Financial Officer, Drew Hickey; and Kevin O'Dowd, Vice Principal Communications and Investor Relations (sic - "Vice-President Communications and Investor Relations").

I would now like to turn the conference call over to Kevin to read the disclaimer about the forward-looking statements.

Thank you, operator. Before we get started, let me remind you that today's meeting will include forward-looking statements within the meaning of the Security Laws. These forward-looking statements relate to, among other things, current plans, expectations, events, and industry trends that may affect the company's future operating results and financial position. Such statements involve risks and uncertainties and future activities. And results may differ materially from these expectations.

Additional information concerning these statements and related risks and uncertainties is contained in the risk factors and forward-looking statements section of our annual 10-K filed with the SEC yesterday in yesterday's press release. Copies of these documents are available at sec.gov or from our Investor Relations department.

At this time, I'd like to turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries. Daniel, please go ahead.

Thank you, Kevin. And good morning and thank you to everyone for joining us. Very pleased to share Loop's progress on our financial update with you today.

One of the major items that happened recently in our quarter is on June 16, 2022, for our French project or European project in partnership with SUEZ. We announced that SK Geo Centric will become an equal partner in that strategic partnership, which was formed to build the first Infinite Loop manufacturing facility in Europe. So having SK Geo Centric bring their experience on the petrochemical manufacturing, complements SUEZ's ability on -- SUEZ's expertise on feedstock sourcing and Loop's technology part and the marketing and branding of the Loop branded resin.

So the three companies together are really complementing each other. So that's a fantastic addition to that partnership. Things on that partnership are moving well. We're scheduled to break ground in 2023 for that project. Right now, we're going through all of the permitting necessary to build something in Europe.

We've seen an uptick in the customer side recently with much more demand. I think that government regulations are really driving customers towards more recycled content for packaging, tight supply chains as well. So they're companies are really looking to make a change to find new sources of recycled PET. And obviously, Loop's PET provides them with the virgin quality material, exactly the same quality as the petrochemical industry, but coming from 100% recycled content. So we've really seen an important uptick in customer activation.

We recently signed a five-year anchor agreement with Danone for our Becancour facility. Also with Danone, we're launching the Evian Loop bottle in South Korea, which will be the first chemically recycled, 100% recycled content packaging that's going to be sold in stores in South Korea. So that's an exciting launch for us.

We also supply -- we also entered into a supply agreement with an exciting Swiss shoe manufacturer On AG, to provide them with 100% recycled polyester resin to be used in a polyester fiber application with On AG. So that's another exciting one.

Moving onto the fiber space, we've seen a lot of more interest from the fiber companies. So the large apparel companies and fiber players have really become more active in the sustainability source. A huge part about what they want to do is the fiber-to-fiber. So be able to take the waste fiber and recycle it into a brand-new fiber, which Loop's technology is perfectly suited to do, removing all the coloring, the dyes, and all of the additives. So that's really an exciting opportunity for us.

So On AG provide -- will be supplied resin from our manufacturing facility in Terrebonne. But the big thing is that we've completed all of the upgrades in Terrebonne. And now, we're really focusing on production and selling the material in our facility here to be able to generate first revenues and also sets us apart from anyone else in the world by being able to supply these types of volumes to the customers.

Our North American project in Becancour is advancing well, starting with the detailed engineering, financing plans for the project are advancing well as well. So discussions with the governments and other financial partners. Our target there is to break ground later this year. And that's -- really the major item for us is the financing part, to be able to advance our financing plans to start building our international projects.

The South Korean project with Ulsan is moving well -- with SK Geo Centric in Ulsan is moving well. Land has been purchased. They started to do all of the site preparation as well. So that's another really exciting project for us.

And to be able to have manufacturing facilities in North America, Asia, and Europe, we really provide comfort to all of our customers and our potential customers that knowing that they'll be able to get the exact same Loop resin or polyester fiber from any facility anywhere in the world, on any continent, that's really something that's really important for the customers. And so, that's something that we're working really hard on.

Drew, I'll turn it over to you now for the financials.

Thanks, Daniel. On the financial side for the quarter, the net loss for the first quarter ended May 31, 2022, increased $5.8 million to $18 million, as compared to a net loss for the first quarter ended May 31, 2021, which was $12.2 million. The change is primarily due to increased G&A expenses of $7.9 million, partially offset by lower R&D expenses of $1.84 million.

The increase in G&A expenses for the first quarter ended May 31, 2022, was primarily attributable to increased stock-based compensation expense of $8.4 million, of which $7.74 million was related to the achievement of a performance milestone for 1 million restricted stock units. The RSUs, which are a non-cash expense will vest in equal amounts over a five-year time period. Excluding the one-time performance milestone for RSUs, the first quarter loss would be a loss of $10.3 million.

There was a $1.8 million decrease in R&D expenses in the quarter, which was primarily attributable to a $1.3 million decrease in external engineering expenses for our basic design package for the Infinite Loop full-scale manufacturing facilities, which was completed in the first quarter, and a $0.73 million decrease in the purchases of machinery and equipment at the Terrebonne facility following its completion and the transition to increasing production volumes.

At the quarter end, Loop's cash balance is $32.4 million. Daniel?

Thanks, Drew. We are well positioned in advancing our financing plans. The increased pressure from government regulatory requirements for recycled plastics continued to support demand for recycled PET and polyester fiber.

We are excited to be commercializing our technology with our strategic partners to address the global and growing challenges surrounding plastic waste and global warming by bringing a circular solution to our customers that helps them meet their sustainability commitment.

The progress we have made, along with the support from our strategic partners positions Loop well to proceed with the commercialization of our breakthrough technology on a global scale.

I would like to now open the call up to question from listeners. Operator?

(Operator Instructions) David Quezada, Raymond James.

Thanks. Good morning, everyone. Daniel, maybe a first question here, just starting with Becancour and the key developments you see coming up here. Just wondering if you could just walk through how you see the progression from detailed engineering? How many more customer offtake agreements you'd like to see? And whether or not, I guess the financing sources that you're speaking to would like to see the detailed engineering and more customer offtake agreements. Maybe just walk us through what the key milestones are to watch out further.

Yes. So the detailed engineering is just a function of -- we don't need to have the detailed engineering completed at a higher level before fully breaking ground on the project. So we're just advancing the detailed engineering because it's keeping us ahead of our time schedule for breaking ground later on this year. So that's just moving on as scheduled.

And the big thing there is to deal with the key equipment suppliers for them to have all of their detailed drawings and engineering before the fabrication. So it's just a normal course of evolution of the project.

On the customer side, yes, we're working diligently to sign up. We'll probably have 100% of the facility contracted before breaking ground this fall on the facility. So just working with all the different key customers on finalizing the agreements, getting them all papered and signed off. So we expect to have between, I would say, six and eight customers for the entire capacity of the facility. So sales are really strong.

We're starting to negotiate contracts as well for customers for the other facilities. So more active on the French facility, contracting from all the European brands and especially the strong French partners that we have, as well as starting to have contract discussions for the Asian facility in South Korea.

So Loop always leads all of the customer negotiations contracts and marketing. We bring in our partners. We value our partners' opinions. But really because of the facility we have here in Terrebonne and most customers spend -- want to come here, want to see the technology, some of them have their own independent due diligence done. So we have a very close relationship with the customers. So that's where Loop always brings in those -- the leading side on the marketing and the customer activations.

So definitely, we'll be signing up in, like I said, another five to seven more contracts to be able to sell out 100% of the Becancour facility in the coming months before breaking ground. And on the government financing, things are moving really well. We're in good discussions with both federal and provincial governments for the financing. Also looking at bringing in the rest the financing package. So things I would say are moving really well.

That's great color. Thanks, Daniel. And then maybe just with respect to feedstock, just curious if -- how you start planning about feedstock. Are there any agreements that you can enter into in any of your jurisdictions ahead of building your plans to kind of, I guess, I don't know if derisk is the right word, but to just secure some feedstock or even stockpile it before you start to move to commercial operations?

Yes, it's a great question. So I guess each project and each region has their own feedstock strategy. And so, on the European side, our partners at SUEZ are one of the largest waste management companies in France. And so, a lot of the feedstock will be coming from their network. Also working with the French government to secure feedstock, which they own in the project.

So that's moving forward for the French project. We have a really good visibility on feedstock in Europe because of all the work we've done in our partnerships there in Europe.

North America, we have contracts in place with some suppliers for material. We're already stockpiling material for the facility. Feedstock is really the key advantage to Loop's technologies. That's really what sets us apart is, because of our low temperature depolymerization, it allows us to utilize feedstock that nobody else can handle. Because the amount of contamination that we can have getting into our reactor, we typically use the 85% to 90% PET.

So we're getting about 10% to 15% non-PET getting into the reactors, which allows us to really use a wide variety of feedstock that no one else can process. So all of the feedstocks that we're using today are ending up either in incineration, in landfills, or they leak into our natural environment. So we're sourcing feedstock and we have a very wide pool. We've certified over 200 different feedstock suppliers in North America for the Becancour facility.

So yes, as we get closer to the date of commissioning of the facility, we'll be ramping up. But like I said, we're already stockpiling material because a lot of the suppliers have no alternative for the material except landfilling. And so, in those instances, we'll start stockpiling to build the relationship with them.

Excellent. That's great. Thank you for that. And Daniel, maybe just one more for me. You mentioned that you're moving through the permitting process in Europe. Are there any milestones that we should look out for there? Any of key permits that you're looking for in the next three to six months.

As far as milestones on the permitting, I don't think there's really milestones. It's just the process that we have to go through for the permitting and for the government subsidies for the project. And so, teams from SUEZ, SK, and Loop now -- SK has just joined. So SK now, in this part, we are all involved in working on that process together. In SUEZ, it's more just you know administrative work that's needed to get done to be able to break ground on the construction of that facility.

I just want to mention one other thing. I guess on the feedstock side, one of the -- I didn't talk about the Korean project. But one of the main sources of feedstock for the Korean project is going to be polyester fiber. So no surprise, most of our running shoes and clothing are made in Asia.

And so, there's a tremendous amount of polyester fiber waste in Asia that ends up in our -- in the oceans, in landfills, and incineration. And so, that's a huge amount of feedstock for us. So we're expecting to have the bulk of the feedstock for the Asian facility coming from waste polyester fiber, industrial waste, and post-consumer waste.

That's great additional color. Thanks for that, Daniel. I'll hop back in the queue for now.

Thank you.

Gerry Sweeney, ROTH Capital.

Hey, good morning, Daniel and Drew. Thanks for taking my call.

Hi, Gerry.

Could you guys hear me? Okay. I just want to say --

Yes. We can hear you, Gerry.

Okay. Just staying with Becancour and the financing for a moment. Do you have a timeline on completing that -- the financing? And does the current environment materially changed some of the assumptions that you had previously?

So the current plan is still in place to be able to break ground fully on the facility by this fall. And so, we think that's a really realistic timeline for the project. Our discussions with -- on the financing side haven't changed dramatically even in the downturn in the market. There's still a lot of demand for this type of material for sustainability and for PET plastics in general.

I would say the economic outlook for the project has never been stronger, even though we are in an inflationary environment. So CapEx is more expensive due to the prices of commodities, transportation, stainless steel being up. But the sales price of PET is materially higher as well. And we're signing -- that's reflected in the contracts that we're signing with the brand.

And so, we see a tremendous amount of demand for the product from global brand owners, like I said, either from the fiber space or from the packaging space and bottle space. And so, economics have never been better. So we don't see any huge material change in the financing plan.

Got it. That's helpful. And this was, I think, asked in the previous question, but just wanted to get any a little bit more clarity. Are there any deliverables that some of your potential financing partners are looking for before sort of getting that across the finish line? Or is this just the process of -- negotiation process?

Well. So basically, for the financing, the plan, the engineering, and feasibility report has to be completed, which that is completed. So that's a key third party due diligence on the technology that's been completed. That's another key milestone. Customer agreement, the more of the customer agreements you have in place for long-term supply agreements the better. And so, that's where we're working on, finalizing, and signing up all of those contracts.

I don't think there's not much as way of doubt about selling out the material because it's so much in demand. But finalizing those agreements before finalizing the financing is important. So I would say it's more now, at this point about just negotiating the terms to try to get the best terms for Loop.

Got it. Super helpful and I appreciate that. The other question, and this is about Terrebonne. And I know it's --the facility is up and running. And I know it's not -- it's more of a batch facility, et cetera. But how much visibility does Terrebonne give you in terms of projecting some of your estimates to Becancour?

You have input materials, you have reactions, you have mass balances, you have the energy consumption. How much visibility or confidence does Terrebonne give you for your projections on Becancour? I believe that makes sense and you understand what I'm getting at. But --

Yes. No, I understand completely. And obviously, having the Terrebonne facility up and operational. So Terrebonne facility is not a batch facility, only the reactor section is batch. And that's even for the large commercial facilities. The reactors, so where we input the waste plastic and we do the depolymerization. That always happens in a batch, Terrebonne and also that way in the larger facilities.

And then that feeds into a continuous process, which here at Terrebonne, now we have that continuous operation where we operate the facility for continuously 24/7 for a number of days during the week to be able to run campaigns. So it provides us with all of the data needed to be able to validate the different data points or the assumptions made. So that's where you get your information for the amount of energy you need, the amount of catalyst you need, all of them are different drivers for the facility. That's really where you get your data points from.

So building this facility up to the scale we have it today, which is a scale that is on unmatched industry is really, really important for us because having those data points, having the customers and our partners, that's what gives them the confidence, not only in the technology, the quality, the ability for us to execute, but also the scale-up.

So having the facility built to a scale, we are on an equipment size. You're less than five times scale up on equipment dimensions. That really gives our partners the comfort that these can be built at a larger capacity. And so, having this, with all of the exact equipment in place that are going to be at the larger facility provides that comfort on the scale-up as well. So this is where we get all of our data points. So the accuracy of our numbers really come from here.

Got it. And then one more question. You mentioned the SK Geo Centric, SUEZ, and the European partnership that SK came into. Can you give any details? Is that a third, a third, a third? And will they -- will you need to put as much equity in, or there are some types of mechanism that since you own the technology, you can develop a partnership where you have a less of a sort of equity upfront investment from that perspective?

Yes. Listen, for the equity upfront, the difference you would be giving away licensing fee. I think that's the negotiation. If you wanted to have a negotiation, you say, you know what, I'll forgive the licensing fee that we're going to get over the next 20 years that comes back to us as a percentage of topline revenue from the facility or less equity and the front end.

That's something that we can always discuss. But we're assuming it's going to be one-third, one-third, one-third, in France as well. We're working with the European governments on the subsidies for the facility. So that's going very well. The project is very well received within the government. So I think that opportunity exists, but it's probably not something that we would we cherish that licensing fee over the next 20 years. So it's probably not something that we'd be willing to give up.

Got it. That's helpful. Okay. That's it for me. I appreciate it.

Thanks, Gerry.

Sameer Joshi, Wainwright.

Yes, thanks. Good morning. Thanks for taking my questions. The first question is the products that you're sending to prospective customers that is being produced at Terrebonne, are you getting any remuneration for that? Are you getting any revenues for that? And if you are, are you netting them in the R&D line? Just wanted to -- curious about that.

Yes. So we are selling the material. So in the past, whenever we sold material for R&D purposes, it was netting it in the R&D line. Now, so if you're sending -- the difference in the accounting the way I understand it, if you're sending them material for R&D purposes or trial purposes, then it's netted in the R&D expense. If it's actually being used for a product that's going to be sold, which we have the launch with Evian in this fall in South Korea.

So all of those bottles, hundreds of thousands of bottles that were produced that are going to be sold online, that will be booked as revenue. We have other activations with other products that are going to be sold in the marketplace coming later this year and next year. So all of those will be revenue. So it really depends what the end purpose is. If the end versus purpose is for sale, for selling the product, yes. If it's more for R&D trials than we book it under the R&D line.

Got it. Understood. So maybe we can expect something in the second quarter or third fiscal quarter from the South Korean sales, maybe?

Not only South Korean sales, but other products as well.

Understood.

Yes, primarily other products, Sameer.

Okay.

I don't think you'll see revenues from South Korea, specifically that specific program, but other new introductions.

But we're not selling yet. So I think the one thing to make sure is we're not selling the Evian bottles. Evian is selling their own bottles, so we don't sell the final product. We're just the packaging for bottle players. So it's not our sales that are coming out of South Korea, that's an Evian sale.

Understood. Thanks for that. So over the next few quarters, what are the expense at the operating level expected to be? And also, what are the contributions that you -- equity contributions that you would be making over the next few quarters? I think in the last, last quarter, two quarters ago, you had a separate line item that showed your investment. I just wanted to see what to expect over the next few quarters.

So the operating expenses now are going to be coming down because they were going to be generating more revenue from the facility here. So that's going to offset some of the costs that we've been incurring today on the pilot plant -- sorry, the production facility in Terrebonne.

Secondly, all of the engineering teams and the operation -- and the part of the chemistry teams are now going to be transferred -- their expenses are going to be transferred over to the projects. So all of the engineering fees in a normal process, once you kick off the actual breaking ground of the project, then all of those expenses for the engineering teams get put into the actual building as part of the CapEx built into the CapEx number for the facility. So that's going to be -- we're going to be charging back all of our engineering costs, our employees' cost into the project. So that will [traditionally decrease] the burn at Loop itself.

So that's something that for the future for all of the projects, we always get charge for our engineering work. So that's good. We'll also be getting revenue from selling the engineering packages that when we build a project, again, a part of the CapEx is engineers and engineering line.

And all the CapEx and part of that engineering line comes back to Loop for the engineering that we've paid for today. So all of the engineering costs that we've incurred today get distributed to the different projects we develop. So that's another revenue line that we would be getting as the projects move towards breaking ground on construction and have them fully financed because that's a part of the CapEx.

As far as the next quarters for the equity, it would be the equity investments at the plant level, and that's something that we're still working out. Obviously, we're looking at the -- we were trying to finance these facilities with the least amount of dilutive equity. So looking out to see how we can bring in the capital needed to have our equity position funded without having dilutive equity issues.

Yes. Actually, thanks for that. That was going to be my next question, with around $32 million in cash and excluding non-cash items or one-time non-cash items, your OpEx are around $8-ish million per quarter. How do you see over the next few quarters bringing in more money?

Yes. For us, we're looking at, like I said, non-dilutive ways to get financing for the company. Part of that could be tapping in -- potentially tapping into customers for prepayments on material or things of that nature. So we're -- that's a part of our financing plan, and that's what we're working on.

Got it. Thanks a lot.

Sameer, if I can add. Tying in with Daniel's comments, last year, we spent quite a bit of money on machinery and equipment at Terrebonne. So that, as Daniel mentioned, that's done, and it's now in more of a production type mode. So there will be significant reductions in the machinery and equipment expense.

Daniel also identified that the engineering design package is completed. We spent -- invested a lot of money in engineering last year. That will be coming down as well in addition to the other comments that Daniel made. And so, we are targeting a lower quarterly cost more in the range of $5 million to $6 million and not more in that range.

Yes. Yes, Drew. So we're expecting that to happen this quarter or maybe in the second quarter -- fiscal quarter. But I do understand, you have indeed in the past manage our expectations along those lines. So thanks for that. Thank you.

Yes. So you're seeing the tail end some of those expenditures in this quarter. So it doesn't just switch off completely, it tails off.

Yes, yes. Got it. Thanks. Thanks for that. That's [awesome].

Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the conference call back over to Mr. Daniel Solomita for closing remarks.

Solomita. Yes, thank you very much. Thank everybody for participating. And looking forward to updating you the next quarter. Thank you.

This concludes today's corporate update call. Thank you for your participation. You might now disconnect your lines.