Loop Industries Inc (LOOP) 2027 Q1 法說會逐字稿

(audio in progress) on the SEC's website at www.sec.gov and on our Investor Relations section in our website. With that, I'll turn the call over to Founder and Chief Executive Officer Daniel Salameter.

Daniel.

Good morning, everyone. Thank you for taking the call or being on the call. We had our Q4 results not too long ago, so we'll give all updates we can on the Q1.

Release. We continue to make meaningful progress on our Infinite Loop India project with our joint venture partner, Esther Industries.

As we've said in the past, the JVA hired KPMG to arrange the project debt for the joint venture.

That process is going extremely well. We have received additional term sheets from new lenders.

The consortium of debt lenders are now beginning the next phase of the debt process, which includes the technical due diligence. So the debt is well underway and very confident that we'll be able to conclude the debt financing in the allotted time.

We continue to advance on customer contracts. We have signed an LOI for 15,000 tons at a fixed price. The customer is a leading textile apparel brand company.

They do not sign forward contracts.

They're more spot buyers and maybe six-month contracts. They just do not sign long-term supply agreements. But they have agreed to sign a.

LOI with us to show support for the project and their intent to buy from material from the project.

Their total appetite is 90,000 KTA per year. This is an LOI for 15,000 at a fixed price.

Like I said, they want to be helpful to the project and therefore they have.

Even said that they are willing to talk to lenders if needed for the debt to help people understand their position and why they are signing an LOI rather than a full-blown offtake agreement. But we fully expect them to be a very meaningful customer for the project in the long-term and to grow their volume larger over time.

We are very confident in being able to execute additional customer contracts in the time required to complete debt financing.

Our engineering is very far advanced.

We recently have applied for subsidies from the state of Gujarat. The state of Gujarat just announced subsidies for clean technology projects in the area.

So we have applied for the subsidy program and our project would be eligible for approximately $28 million.

To be returned to the joint venture by the State of Gujarat over an eight-year period.

So, that just further enhances the financial viability and the financial returns for the project. So, very encouraging sign for the project being able to secure the subsidies from the State of Gujarat.

As far as our other project with the Reed Associate General Group licensing project.

As as we have mentioned in the past, Associate General has chosen a site in Schweitzer, Germany, which is owned by BASF. That's where they will be implementing the first Infinite Loop Europe project.

We are currently in final negotiations with SocGen for the first phase of the engineering contract, which is scheduled to begin. In September of this year, Loop's engineering team will deliver a pre-feed engineering package for a 70,000-ton infinite loop plant built with modular construction. This is our first modular construction project, but this is definitely the roadmap for the future on how we bring low-cost.

Manufacturing to the rest of the world. So what we've learned from our Indian project, how to bring down costs, we're going to be doing that in modular construction by building these plants in modules from India and then ship them on site to different regions of the world, which minimizes local labor rates.

The engineering contract, this engineering contract, and the next phase of engineering, which would follow in the middle of 2027, will provide sufficient cash flow to fund Loop's back-office expenses for the foreseeable future.

We are continuing to evaluate options for the financing of Loops Equity for the Indian Joint Venture. As always, we prioritize capital, which is non-dilutive in nature, and we aim to have this financing completed in the next few months in line with closing the debt financing.

With that, I'll turn it over to Spencer Hart.

Thanks, Daniel. On the expense side, we've continued to make good progress at lowering our cash overhead.

So it's now running at approximately CAD500,000 per month. Two of the areas that the savings have come from are a reduction in employee compensation and lower insurance costs.

We've also benefited from the funding that we received from the National Research Council of Canada, which is approximately CAD2.9 million in aggregate, and which began funding on a monthly basis earlier this year.

As of the end of the quarter, May 31, we had approximately CAD6 million of liquidity, which includes our credit facility. As Daniel discussed, we're focused on various approaches towards raising capital, and we will provide additional information as soon as there is a material update.

Now, I'll pass it back to Daniel to make some closing remarks, followed by Q&A.

Thank you, Spencer. Yeah, we continue to make meaningful progress in all projects, the project in Europe and the project in India.

So we're very optimistic and looking forward to getting this project built. I'll turn it over to questions now.

Thank you. We will now begin the question-and-answer session. If you'd like to ask a question, please press 1 in your telephone keypad. If you'd like to withdraw your question, simply press 1 again.

Your first question today comes from the line of Jerry Sweeney from Roth Capital. Your line is open.

Good morning, Daniel. Spencer, thanks for taking my call.

Hey, Jerry.

Thank you.

Good morning. I've got good morning. Two questions. The first question really is around the debt financing. What are the major steps remaining? Is it just the technology due diligence? And then so what are the major steps remaining and what can you remind us of the timeline to close the debt facility as well as this still remains a sort of a 70/30, 80/20 sort of debt to equity opportunity with the package?

Yeah, thanks, Jerry. So the term sheets that we've received from multiple international and local Indian lenders have all harmonized the terms. The terms are going to be 70/30.

Debt to equity split of which you know loop is responsible for 15% because you know our joint venture partner Esther has 15% and then we have 15% So that's the major terms is sulfur plus approximately 3% That's kind of what we're looking at. So very very fair interest rate so those are the major those are like the major terms of the debt and. As far as next steps, there's the technical due diligence. The consortium is being formed. The technical due diligence is being done, which, we've done countless amount of technical due diligence, independent technical due diligence at our facility in Montreal, Canada, most recently by Association General. They hired a third-party specialist engineering firm.

To do a full due diligence on loose technology prior to purchasing the first license for a down payment of eur10 milliono, plus the investment of eur10 milliono.

So that was done.

Obviously, SK Global Chemical did a full technical due diligence as well on the technology. So we have no concerns whatsoever on the technical viability of the technology. We also have commercial products for sale, such as... Our shoes with on shoes and Evian water bottles. So we're very confident in that process. Once that is done, then it's final negotiations on all of the different terms and then closing of the debt. The timing is going to be in the fall of this year, which falls in line with the project breaking ground. So those are really the next steps. Obviously, the customer contracts is a piece of the debt, so that lenders want to see visibility and come. That the customer contracts will be there and so far we are making good progress. We have customer contracts obviously with Nike and Toweroplast. Now we have LOI with another leading firm on the textile side and more to come.

Got it. Actually, that was a good lead-in for my second question. I just wanted to get an update on the pipeline for the customers. Obviously, you've already sold some products, as you mentioned, on shoes, and you had Nike Power Class and then this new 15,000-ton LOI.

How much material or capacity is left to sell or put under LOIs, and what does that pipeline look like?

Yeah, we're in negotiations with several different leading brands on the textile side and on the consumer packaging side. And so we have, once we finalize those agreements, which are very well advanced, we will have the required amount of volume sold in either contracts or LOIs to begin construction.

We're doing very well just takes a little bit longer you know the real issue is that especially on the textile side it's a very complicated supply chain for the textile companies you know companies are used to buying either garments like you know you want to buy a thousand pairs of jeans they go to the manufacturer and they buy the jeans in a certain color with a certain style or they buy maybe rolls of fabric going back to buying PET polyester chips is a little bit foreign for some of these.

For some of these customers. They all want to buy the material once it's available and put it into their supply chain. The problem they have is trying to figure out if they sign a contract today, where are they going to send those chips? Who's going to spin the fiber for them? Who's going to take the fiber? So it complicates the supply chain, which is why it takes a little bit longer to sign these offtakes. The appetite for the material is there. Our pricing is very competitive because of the low-cost nature of India.

So with the customers that we are in. Associations with now, we'll have enough of the capacity sold to begin the project.

Great. I appreciate it. That's all for me. I appreciate the detail on the fabric side. It's interesting. So thank you.

Thanks, sir.

(Operator Instructions)

Marvin Wolff, Paradigm

Yes, good morning, Daniel. How are you this morning?

Very good, Marvin. How are you?

Yeah, I'm good too.

Look, that sounds like very good progress on the LOI side. So could you give us an idea of what percent of the 70,000 capacity of the plant is either covered under the Nike and LOI contracts, or if you want to make it wider even.

How much of the 70,000 times would be covered by all the contracts you're talking with at this time?

So, if we execute on the contracts that we have and the other contracts that we're in, let's say, final negotiations for...

We would have most of the facility locked in either, full contracts and LOIs. So that's our aim. A lot of our contracts always have an option for the customer to buy additional volumes.

So if you have a 15,000 ton contract, usually there's a provision in the contract. They have an option for an additional 15. So that's the way we structure most of our contracts. So far, they're all fixed pricing. On the consumer goods side, the packaging side, we use more of an index-based pricing model where we have like an ICI index pricing, so it's a little bit of volatility. There's always a floor pricing, a cap and a collar in there. So we're protected on the downside and the customer is protected on the upside. So that's the way those pricing contracts work.

We will have enough of the volume secured with the contracts that we have and the contracts that are being negotiated to be able to begin the construction.

And if I understood correctly, the LOI is kind of like a contract in this case. You're not going to continue negotiation to a final contract. Is that right?

Yeah, the final, once the plant is up and running, then the exit, the LOI can be converted into spot market buying. They don't, most of these companies and customers don't sign forward-looking contracts. They don't sign a contract for today that the plant is going to be built in, construction for 18 months and then start up and commissioning plus another three-year term on the contract. You're looking out, let's say four and a half, five years, which for most customers is. Too far over. The plastic and chemical industry is basically spot market or six months buy. So a lot of customers have just said to us, listen, when you guys have the material up and running, the price is good, quality is excellent, you want to buy the material.

And so that's why. So the LOI is not going to be renegotiated into a final contract. We have the volume, we have the price, and now it's going to be bought in the spot market for the plant once the plant is open.

They've already qualified our material. They've tested our material. They like the price. They like the quality. So everything is in line. Now they can start buying the material. They just need to have the plant up and running before they can actually start purchasing.

Okay, that's good.

If I heard you correctly, this particular customer on the LOI could take up to 90,000 tons a year in sort of the best case scenario. Is that correct?

Yeah, that's the total appetite over time, that the opportunity with this one customer is 90,000 tons.

So that would be the total opportunity. We do have a plan to build a second facility on the same site for 100,000 tons, maybe more. And therefore, having customers that have that type of appetite is fantastic.

No, that is. That's super.

That's super very good okay well congratulations on the progress made so far and it it sounds like things are moving along nicely yes.

Steady progress thanks Marvin.

Connor Norwood, Viking Capital

Good morning. Thank you for taking my questions. And I know you touched on this earlier, but just to clarify, how long is the new LOI expected to take to convert into a firm order, and does the banking syndicate for the India JV require that firm order to be in place to complete financing?

So, no, the banking syndicate does not require that to be. It's not going to be converted into a contract. It's going to be converted into a contract for spot buying once the plant is operational.

The LOI gives comfort to the debt lenders that the appetite is there and the customer has offered to speak to the debt lenders to give them comfort as well that they value the material. They value our proposition, which is best quality material at great pricing. And so that's why there's an. Actual fixed price in the LOI. So it's not going to be converted into a contract, and it's not going to be converted. It's going to be just spot buying once the plant is open.

Got it.

Thank you. And then my second question here is, can you walk us through how you plan to fund operating expenses and any remaining CapEx over the next 12 months, specifically the current cash runway, and to what extent the plan relies on additional equity or debt issuance?

So as far as our operating expenses at the back office with the liquidity we have on hand plus our engineering contracts that I mentioned during the call, we'll have sufficient cash for ongoing operations for the foreseeable future from those two sources, our existing liquidity plus the engineering contracts. There's also an additional eur10 milliono. Licensing payment that would be due to loop sometime at the end of 2027 from the Societe Generale Group when the next milestone is reached. So, those are all things that are going to be coming into place that is going to fund all the back office. We do have a remaining equity requirement for the Indian Joint Venture, which today we're evaluating different opportunities to fund that. As I mentioned, our priority is to do that in a.

Non-dilutive equity, not a dilutive equity issuance, but some type of a structured debt facility. And so that's what our priority is, and that's what we're working towards.

Got it. Okay.

Thank you. That's all for me.

Thank you.

Your next question comes from the line of J.P. Gagan from Global Value Investment Corporation. Your line is open.

Thank you, and good morning, gentlemen.

Most of my questions have been addressed thus far, but I'd like to revisit the topic of the conditions around the debt issuance with respect to off-take agreements and LOIs, and taken together, how...

Where does the bank stand in terms of checking that box that you have enough offtake or intention to offtake from this plan in order to extend the credit? Or how much longer do you have to go until that condition is satisfied?

Yeah, I believe with the customer, the visibility on the customer contracts that we have today under negotiation, that will get us to the target that's required. I mean, the banks would like to see the most. Material under contract as possible.

Having an LOI with a really big, respected company and the company is willing to speak to the debt lenders really helps the process, so it gives the debt lenders comfort.

We've continued to attract debt lenders to the project. We've received additional LOIs since our last call, I guess, six weeks ago.

For the project and we still expect additional LOIs to come in. So there's a significant amount of interest in the debt and we're very confident that we'll be able to get that debt secured and the customer contracts in line for that to happen in the time this fall when we're going to be breaking ground.

Got it. Thank you. And so if you break ground in the fall, walk us through the additional steps to get to the point where you're actually constructing the plan.

Yeah, it's an 18-month construction period.

And then you have a startup and commissioning phase, which there's no real hard science on how long it takes to do the startup and commissioning.

But, we'll be.

We'll have the plant up in operational in 2028.

Okay, thank you. And same question, but with respect to the Europe plant, and I realize the dynamics there are somewhat different, but what should our expectation be on timing and milestones?

For the European plant.

Correct.

Yeah, so that's a completely different, that's just a licensing agreement, right?

We're not expecting to put any capital into the project, so we're not going to be injecting any money to get any equity in the project at this time. So for us, the roadmap there is we've received the first eur10 milliono down payment from SocGen. We also received a eur10 milliono investment from them, which is a structured debt piece. Now the next phase is the pre-feed and the feed engineering. So those are two separate engineering packages that come from Loop's engineering team and our partners where we do the modularization from. So those two contracts, the first one starting in September of this year, that's about a six months contract. So, you could say by 2/1/2027, that contract is completed. Then in the middle of the year, we'll start the second contract, which is an additional six months of work, potentially eight months of work.

And then once that is completed, the expectation is at the end of 2027, beginning of 2028, FID happens for the project, at which time at FID, Loop receives an additional eur10 milliono licensing payment from the European partnership, from SoftGen and the consortium there.

Once that happens, then the modularization construction piece happens. So, we're working with our partners on doing the modularization and selling the modules to the project, for the project to be up and operational, let's say in 2030.

Okay, that timeline is helpful. But you get paid.

Yeah, Luke gets paid in advance, right? We get paid for engineering phase one, engineering phase two. The additional licensing payments on the milestones and then the sale of the modules. So that's how we generate cash from this project. So, we're making money throughout the entire process.

So there's really three separate revenue streams here. One is the licensing revenue, two is the engineering packages, and then three would be the economic. Benefit you derive from selling of the modularized structures. Can you talk a little bit about that third bucket?

Yeah, the third bucket is still something that we're finalizing. Obviously, we put a lot of work into the modules.

It's all our equipment, all our design, so that's part of our business model.

So, yeah, that's something that we're still working out, but the full entire packages, that funds all of our cash needs for the foreseeable future. And, potentially also the repayment of the structured debt to SOCGEN when it comes to...

Great. All right.

Thank you very much.

Thanks.

Your next question comes from the line of Vera Kutnik from Divide Capital Partners. Your line is open.

Hi, Daniel. Hey, Spencer. Thanks for taking the question.

I wanted to jump in and I'm doing well. Thanks, guys. What is the total available liquidity today if we include undrawn lines of credit along with cash balance?

You want it in like a timeline.

No, today, like what is the line of credit all U.S. Dollars.

Yeah, we have additional liquidity to the end of the year.

Right, but without the engineering thing, I'm just trying to get an idea.

Yeah, that's without the engineering contract through the end of the year, the end of the calendar year.

And then the engineering contract is going to begin in September, of which we're going to be generating significant revenue and profitability from it.

Okay.

That's all I had. Most of my questions were answered. So good luck with everything, guys.

Appreciate it.

The liquidity side for the back office, that's something that, we fully expect to be funded through the engineering contracts and our available liquidity.

Cool. All right. Thanks.

Good luck, guys.

Thank you very much.

Thank you.

And there are no further questions at this time. I will now turn the call back over to Daniel Solomita for some final closing comments.

Thank you, everybody, for assisting the call. Like I said, we're making significant progress and meaningful progress on all fronts, and really looking forward to getting the engineering contracts done and the project in India breaking ground.

Thank you very much.

This concludes today's conference call.

Thank you for your participation. You may now disconnect.