Loop Industries - Q1 2025

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries' First Quarter 2025 Corporate Update Call. This conference is being recorded today, July 15, 2024, and the press release accompanying this conference call was issued last evening, July 15, 2024. On our call today is Loop Industries' Chief Executive Officer, Daniel Solomita, Fady Mansour, Chief Financial Officer, and Kevin O'Dowd, Head of Investor Relations. I will now like to turn the conference over to Kevin to read a disclaimer about forward-looking statements. Kevin, please go ahead.

Kevin O'Dowd (Head of Investor Relations)

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 securities laws. These forward-looking statements related 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 in 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 Statement section of our latest annual report on Form 10-K, our quarterly report on Form 10-Q filed with the SEC yesterday, and 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. Please go ahead, Daniel.

Daniel Solomita (CEO)

Hi, good morning, everybody. Thank you for joining our call, our Quarter 1 call. It's a short quarter because we had our year-end call about a month ago. So I'll go through the most important items, which is our Reed financing. At the end of last quarter, we concluded a two-part agreement with Reed. One is for a joint venture, so we created a joint venture with Reed, a French private equity firm, to be able to work together in developing Loop's technology across Europe. The joint venture is a 50/50 joint venture, whereby in Europe, we see Europe as a higher cost manufacturing countries.

In those type of environments, we prefer to work with a partner to be able to lessen the equity commitment that Loop needs to put into this to build these plants, and rely more on licensing fees and royalty fees coming on an annual basis from the facilities. So that's why the partnership with Reed makes so much sense for us. Less CapEx, less equity commitment for Loop and relying more on our engineering and yearly royalty fees. So that's a key theme throughout the entire company. So whatever we're doing in higher cost manufacturing countries, we'll definitely be looking for partners to take on a part of the equity stake and rely mostly on the licensing side.

We will be deploying our capital in lower cost manufacturing countries such as India, where much more attractive economics, lower CapEx, and we'll get to that at a second step when I speak about the partnership with Ester. The other part of the partnership with Reed is also providing Loop financing to fund our first commercial facility in India, in partnership with Ester. So besides this joint venture, we have the financing package. It's taken longer than we had expected to close the Reed deal. There's been some delays on Reed's side, not related to Loop. As you saw, we have all of the agreements and everything have been finalized. The details of the delays will be communicated very soon, once they're publicly available. So once those delays are publicly available...

And at the end of the day, it's something that was a little bit out of our control, but it's, at the end of the day, it's very beneficial to us. So as soon as those delays are gonna be publicly available, we'll communicate that to all of our shareholders. We're very confident in being able to close the transaction this quarter, as we've stated. So things are progressing really well on that front, and we'll provide an updated timeline, like I said, once the delays have been communicated publicly, and then we'll update the market as to the timeline to closing. I just want to run through the financing package, because this is a really good financing package for Loop.

So, I'll convert euros into US dollars at a you know, 10%, just to make it easier for the call. So the financing package is $11 million, $11 million to Loop. It's in a convertible preferred security, 13% interest rate, and converts at $4.75 per share in five years from now. So a 13% interest rate in today's environment is very reasonable, converting at $4.75 into Loop stock five years from now. So that's for $11 million. That capital can be used at our head office. It gives us about one year of cash burn at our office at current run rates. And then there's a second tranche, which is $15 million, which is straight debt at a 15 percent.

Thirty, sorry, 13% interest rate, which is to be used for the CapEx requirements in India. Today, that CapEx requirement is $25 million. Loop's equity share would be $25 million, and so 15 out of the 25 would be coming from the 13% interest rate, and it is payable in three years. So it gives us two years to build the facility, you know, two years to have the facility up and running, and then you have an extra year of runway before we have to repay this, this loan with the interest rate. So it's a really great financing package for Loop, to get that first facility up and running. So, you know, we're really excited about the, about the terms of the financing.

Then we also have a government, our government partner, who is financing an additional 30% of the Indian CapEx, up to $10 million. So between the second tranche of Reed's financing and the money coming from our government partner, it covers almost the entire, you know, pretty much the entire equity check that Loop needs to issue for the our 50% ownership of the Ester JV. And the Quebec, the government entity, follows the same terms as the Reed convertible preferred security. So 13% interest converting at Loop stock at $4.75 per share in 5 years. So at the end of the day, it's a really great financing package. All of this combined together gives us approximately about a year of cash burn, plus the money we need for our equity commitment in India.

So yes, it took a little bit longer. It was delayed. It's a little bit painful, but at the end of the day, it's a great financing package for us, and we've the entire financing needed for our first facility in India with our partner with our partnership with Ester. We do have a couple of options, if needed, for some bridge financing, so we're evaluating those options right now. If we did need to bring in a little cash as a bridge, we have a few different options that we're exploring right now. So that's something that we're monitoring to see if we wanna do that or not. But it is available for us to do that.

So that's pretty much, you know, the update on the financing side, like the Reed partnership, the joint venture, and the financing. So really, the financing packages are good financing package for Loop, and it gives us all the financing we need to have our first facility up and running. Next would be the partnership with Ester, the Indian partnership. So we're making good advancements with our partner, Ester, on the facility. So we've begun securing waste polyester fiber feedstocks for the facility. There's a region in India, Surat area, which is where all of the textile manufacturing is done. So there's an abundance of waste polyester fiber, textile scrap available that today does not have any type of use for it, and so it's plentifully available. We've tested the material at our facility in Montreal.

Quality meets our standards, so good quality material, an abundance of it. So we've been able to secure almost, you know, more material than we need for the first facility and have, you know, plans to do a second facility eventually, because that's the abundance of waste polyester fiber feedstock in that area. We'll be locating our facility somewhere in that area as well. We're looking at a few different sites. We've hired a British engineering firm to locate a site for us. The main points for the site criteria, close to the waste feedstock, so close to this Surat area. Close to the port, because we'll be mostly exporting all of the finished product from the facility. And then clean energy is very important for us.

So there's an abundance of clean energy options in India, using biomass as a primary energy source. And so that's another very important criteria, for our customers, you know, to make sure we have the lowest carbon, PET polyester, DMT, and MEG on the market. So having that clean energy, renewable energy source is very important for us. On the electrical grid as well, we're looking for as much wind and solar as possible. CapEx estimate is still at $165 million for the entire facility. Like I said earlier, Loop's equity commitment would be $25 million. Ester would be $25 million as well, and about $110 million of project finance, which we've begun working with the banking, Ester's banking syndicate in India, on providing that financing for the project.

Stock availability is plentiful. Customer demand is very strong, so we've been reaching out to all of our global customers. Like I said, most of the material will be exported, going into either PET plastic for bottles, polyester fiber for the textile industry, which India is the perfect place for that, where most of our customer base in the textile manufacturing has some manufacturing in India or very near India and Bangladesh and other countries. And so it makes perfect sense to cut down on logistics costs and be close to the supply chain for our customers. And then there's the DMT and MEG sales. So being able to sell DMT into the marketplace, where it's really an underserved market. There's a tremendous demand for DMT for all types of different specialty products.

So we've had our material being tested by all the different various customers for DMT and MEG. Quality is virgin-like quality, so all of the feedback on the testing has been super positive. So we're excited about, you know, providing this offering of DMT, MEG, as well as the PET and polyester fiber. And then we have our partner at Ester, so, you know, we have very like-minded companies. Ester's been in the PET business for since 1985. They have three plants running in India right now, so. And we've been working with them for five years. So we've had a great relationship with them for five years, where Loop, at our facility in Canada, we produce the DMT and the MEG.

We send it to India, they polymerize it for us, and then we send it to our customers. So we have a long-standing relationship, very like-minded company. So, that's, on that side, it's a very positive joint venture. That's it for me. Those are really the two major updates that I had to speak about today. I'll turn the call over to our CFO, Fady, at this time.

Fady Mansour (CFO)

Thank you very much, Daniel. So the first quarter is always a little quiet from a financial reporting perspective. As Daniel alluded to, we just had our year-end call for the twelve months ended February 28, 2024, like 45 days ago, so I will be brief on this call. Obviously, it's been a quiet quarter from a financial reporting perspective, but there's been no shortage of business developments, namely the Ester and Reed announcements that came to finality in the first quarter, which we've already disclosed in prior documents. Just looking at our P&L, our total expenses for the quarter were $5.2 million. That appears to be higher than what I've guided to in the past, but there were two specific items which contributed to the increase versus our run rate.

One of them is obviously getting Ester and Reed, the documents final required significant legal expenses, where we've obviously hired third-party lawyers to do that, to the tune of about $800,000. And we had some project expenses for $600,000. So those are included in our expenses. And then when you back out non-cash expenses, which are depreciation expense and stock-based comp, which is also a non-cash expenses, we get to the $3.2 million of total cash expenses, which is in line with the $1 million per month that I've been guiding to. So it's just some quarters are gonna be lumpy. Obviously, we had a lot of positive business development, and the price of success is you gotta pay some outside advisors for that.

So we're happy to pay those expenses to further our strategic agenda. Going through the details of our P&L, research and development is down by a whopping 50% over the respective first quarter of 2023. Obviously, we had a $1.2 million purchase of some equipment last year, which did not transpire this year. And there's just been reductions across the board, whether it's headcount, whether it's the pilot running, you know, more 40 hours a week rather than 24/7. There's been a deliberate and conscientious effort to lower our run rate from an R&D perspective, and it's been reaping fruit. On the G&A perspective, expenses are actually up 20% versus the prior quarter.

Again, it's the legal expenses of $800,000. If it wasn't for that item, the 20% increase in G&A expenses would have been a 20% decrease in G&A expenses. So I feel very, very confident that our run rate of about $1 million a month prospectively, appreciating that there will be some lumpiness in the quarters depending on business development issues, but over the long run, $1 million a month is our cash expense run rate. And the first quarter was no different from that. From a balance sheet perspective, we have $5.3 million of liquidity.

That's enough to get us through till November, so that should give us sufficient time for the Reed transaction that Daniel alluded to, to close, and we can have long-term financing, so we can use that for working capital and deployment of equity in our facility for India. So that's it for the quarter. It was a pretty quiet quarter. I'm reiterating our cash burn rate of about $1 million a month, and happy to answer any questions if you have any. Thank you.

Operator (participant)

Thank you, Fady. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. If you change your mind, please press star two. We currently have no further questions, so I will hand back to Daniel Solomita to conclude.

Daniel Solomita (CEO)

Thank you very much, everyone for attending the call.

Operator (participant)

This concludes today's call. Thank you for joining. You may now disconnect your lines.