Loop Industries - Earnings Call - Q4 2025
May 30, 2025
Transcript
Operator (participant)
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries' fourth quarter 2024 corporate update call. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. This conference is being recorded today, Friday, May 30th, 2025. The earnings release accompanying this call was issued after the market closed yesterday, Thursday, May 29th, 2025. On our call today are Loop Industries' Chief Executive Officer, Daniel Solomita, Nic Lafond, Interim Chief Financial Officer, and Kevin O'Dowd, Head of Investor Relations. I would now like to turn the conference over to Kevin to read a disclaimer regarding forward-looking statements.
Kevin O'Dowd (Head of Investor Relations)
Thank you, Operator. Before we begin, please note that this morning's discussion will include forward-looking statements within the meaning of U.S. securities laws. These statements relate to our expectations, beliefs, projections, future plans and strategies, anticipated events, and other future performance matters. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially. For more complete discussion of these risks and uncertainties, please refer to the risks and factors in forward-looking statement sections and our most recent annual report on Form 10-K filed yesterday with the SEC and our press release issued yesterday. These documents are available at www.sec.gov or from our Investor Relations team. With that, I'll now turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries.
Daniel Solomita (CEO)
Thank you, Kevin. Good morning, everyone. I'm pleased to report several positive developments as we continue to progress towards commercialization of our unique technology and the construction of our manufacturing facilities in India in partnership with Esther Industries and in Europe with our partnership with Reed - Societe Generale Group. Q4 was an important milestone quarter for Loop. It marks our first quarter of reporting material revenues due mostly to the sale of our first technology license to Reed - Societe Generale Group for $10.4 million. We also executed an engineering services agreement with our India joint venture, ELITe, for $600,000 to support the FEED engineering study, which was concluded by Tata Consulting Engineers. We expect to generate an additional $750,000 in engineering revenue to the end of the year. In Q4, we also closed the $10.4 million financing from Reed - Societe Generale Group.
It's a convertible debt instrument that converts into Loop shares at $4.75 a share in 2030 to 13% interest. Pick interest. Updating now on the Infinite Loop India. Tata Consulting Engineers completed the FEED engineering study confirming the initial CapEx estimate. The CapEx came in slightly below the original estimate, which further validates our strategy of manufacturing in low-cost countries. We decided to add a continuous polymerization line, which further reduces OpEx and allows us to offer highly competitive pricing to our customers while maintaining robust financial profitability for the joint venture. The conclusion of the FEED study from Tata really confirmed and crystallized what we thought about moving into a low-cost manufacturing country where you see the CapEx significantly lower than if you were building the same project in other parts of the world. We are really excited and happy with the outcome.
Being able to come in a little bit below the original estimate is really a testament to our team, our engineering team, Tata, and our partners at Esther Industries. The Infinite Loop India facility will output both virgin-quality polyester fiber-grade PET, a sustainable solution for apparel and home furnishing industries, enabling textile-to-textile recycling and circular fashion. It will also produce virgin-quality bottle-grade PET resin for packaging applications. The ability for Loop's technology to offer virgin-quality textile-to-textile fiber-grade and bottle-grade resin provides significant customer and segment diversification. We are able to produce the polyester fiber, textile-to-textile, and the bottle-grade material for our customers. We really work in all of the different spaces in the polyester industry. As different sectors have different needs, our facilities and our technology are able to respond to both of those needs.
For the Infinite Loop facility in India, we are currently in advanced discussions with several brand companies to secure offtake supply agreements for the India facility. The customer contracts are required for KPMG to complete the debt syndication for the project. Executing customer contracts are the key for the timing of the groundbreaking, which is scheduled for the second half of this year. On to our partnership with Reed - Societe Generale Group. The timeline for executing this project in Europe has advanced significantly as Societe Generale Group has moved up the timeline to be able to execute the project earlier and get product to the markets in Europe earlier.
The companies are currently focusing on site selection for the inaugural European facility, where Loop is playing more of a supporting role to Societe Generale as they're looking across Europe for different site locations, dealing with different governments, incentive programs, and seeing where is the best fit for the project. We are starting to kick off the required engineering studies, of which Loop will be heading that activity to be able to provide the engineering for this European facility. Loop will be executing the engineering for this project as its first using modular construction, which will reduce overall CapEx and shorten construction timelines. The standardized modules will be built in a low-cost manufacturing country and then shipped and assembled on-site. This is really, for us, a key focus moving forward is being able to deliver these plants in modular form.
Building in low-cost countries, as we saw with the CapEx estimate completed by Tata in India, the reduction in CapEx is significant, mainly due to labor costs. Being able to build these modules in low-cost manufacturing, ship them on-site to different countries around the world, and assemble them there really reduces the CapEx and reduces the time to build these facilities. Those are two really important factors for us to be able to execute on these projects quicker and build them around the world and have better overall performance and IRR for the projects. Some of the main advantages of building Loop's technology in the modules are taking advantage of the reduced labor cost of low-cost manufacturing company, better cost predictability, because once you have the modules done, it's like an EPC contract.
You have a fixed price for the modules, so there's no surprises on-site. Minimized waste and lower indirect costs because everything is done in a fabrication shop, no weather to deal with. It's all done indoors. It is much more predictable and shorter schedules and faster timeline to market because you do not have to wait, let's say, for the civil work to be done, where in a typical construction, you have to wait for the foundations to be done, site work to be done, and then you can start erecting the structures. Here, both can be done in parallel. As you are doing the civil work, you can be building your modules. It is a really exciting opportunity for us, and this is really the future of building up these facilities anywhere in the world, starting with these modules in a low-cost manufacturing country.
With that, I'll pass the call over to Nic for the financial results.
Nic Lafond (Interim CFO)
Thank you, Daniel. My name is Nic Lafond, and I'm very pleased to have the opportunity to support Daniel and our leadership team in the role of Interim CFO. There are three items that I'd like to highlight in our financial statements filed last night. Firstly, as mentioned by Daniel, this was the first quarter in which we reported material income on the revenue line. We recorded $10.8 million in revenue in the quarter as we recognized the upfront royalty payment from Reed - Societe Generale Group of $10.4 million, as well as $0.4 million in engineering revenue from services related to the India JV. Secondly, we significantly reduced our operating expenses and cash burn compared to the fourth quarter of last year. Cash operating expenses were $2.6 million for the quarter, a decrease of $2.1 million over 44% year-over-year.
This reduction is in part because we're using the [Telbunt] production facility to qualify waste PET and polyester fiber feedstock suppliers in India. Rather than 24/7 operation, the [Telbunt] facility has fulfilled its purpose of establishing that we can scale up our technology, and we've produced first-quality products for our customers here. Thirdly, in Q4, we enhanced our liquidity position as a result of receiving initial proceeds of $20.8 million from the transaction with Reed - Societe Generale Group, in which we sold our first license and issued $10.4 million of convertible preferred stock. Our main uses of cash in the quarter were the repayment of our credit facility for $2.4 million, $1.9 million in equity contributions to the India JV, and cash operating expenses of $2.6 million, resulting in a cash balance of approximately $13 million at quarter's end.
In addition, our line of credit of $2.4 million remains available and undrawn. I'll now return the call to Daniel for his closing remarks before going to Q&A.
Daniel Solomita (CEO)
Thank you very much, Nic. In conclusion, before the questions, we are really excited about the future. For the first time ever, we have a project that fits the financial metrics to be successful, delivering top-quality material to our customers at a super competitive price to the market, as well as maintaining robust profitability for the joint venture and Loop's licensing revenue that comes from the joint venture as well. All of this project in India really fits the mold of what we need to do and executing on our low-cost manufacturing strategy. The modularization is really going to be benefiting projects around the world, building in Europe with Reed - Societe Generale Group, having those modules built, bringing down the CapEx, bringing the cost in line will allow us to accelerate construction in that region as well. With that, I'll open up the call to questions.
Operator (participant)
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 your question, please ensure that your device is unmuted locally. Our first question comes from the line of Gerry Sweeney of ROTH Capital. Please go ahead.
Brandon Rogers (Equity Research Associate)
Hello, this is Brandon Rogers on for Gerry Sweeney. Thanks for taking my question.
Daniel Solomita (CEO)
Hi, how are you?
Brandon Rogers (Equity Research Associate)
Hi, how's it going? I just had a few questions. One pertains to the India JV execution timeline. Can you walk us through the latest timeline for the India JV? Do you have any binding offtake agreements that have been finalized yet? What are the key risks that could delay your 2027 target for commercial operations? Thank you.
Daniel Solomita (CEO)
The timing for the facility is to break ground in the second half of this year. The gating item, like now we have all of the engineering is complete. We have the feedstock sourced. We have all of the land selection finalized. Now it's really the gating item would be the securing of the offtake agreements, which allows us to go and have the debt syndication piece done for the project finance. We do not have any binding agreements today. We have several LOIs that we are converting into binding agreements, and that's going to be really the gating item there. There is no danger in the 2027 operation date, so we fully expect to be able to respect that date.
Brandon Rogers (Equity Research Associate)
Thank you. And then one more question. Just on cash burn and liquidity outlook, you had $2.6 million in the quarter. You've indicated $8 million-$9 million in annual cash burn. How many quarters of runway do you currently have? And then what portion of your Québec government financing is still untapped and what's the trigger for access? Will you need to raise any incremental capital to fund your $25 million equity commitment to the India JV?
Daniel Solomita (CEO)
We have, I guess, five quarters or six quarters of liquidity on hand today, as we'll be further reducing our cash burn in the second half of this year. No liquidity concerns at this time whatsoever. The Québec facility is available to us at the time of the equity commitment checks. For them, once the debt piece is in place and the entire project is wrapped, that's when the financing comes in. We do have a little bit of a financing gap that we are looking to close. We're discussing with several strategic partners on filling that financing gap.
Brandon Rogers (Equity Research Associate)
Awesome. Thank you for taking my questions. I'll hop back and see you.
Daniel Solomita (CEO)
Thank you.
Operator (participant)
We have a question from Nic Boychuk of Cormark Securities. Please go ahead.
Nic Boychuk (Equity Research Analyst)
Thanks. Good morning, guys. Can you comment a little bit on the land selection process and whether or not that actually has been finalized and determined and everything you've agreed to? Do you own the land? Is it being leased? That seems like a big gating item before you're able to start construction.
Daniel Solomita (CEO)
Land selection in the province of Gujarat. We have the land selected. The land is available to us. It is really not the gating item for construction because of the way the India facility can be built, all of the engineering being completed and such. We do not really have to have the land finalized, but the land can be finalized at any time for us. It is just to have the final contracts done to be able to secure the purchase of the land. I would say the gating item is really the customer contracts to be able to access the debt financing for it. There are several parcels of land that we were looking at. We have narrowed it down to one piece of land, and now we are finalizing the negotiations with the owners of the land. It is a government project, government land.
Nic Boychuk (Equity Research Analyst)
Sorry.
Okay. No, that makes sense. So it's government land, and so you're currently negotiating with the local government to purchase it?
Daniel Solomita (CEO)
Yeah. The government has these special economic or industrial zones in India where they have several parcels of land. It fits with the type of industry that we are in. We are just choosing the right parcel. Now we have the parcel. Now it is about finalizing the contract with the government. The government is very supportive of us. They really like the project. India is very focused on textile recycling and bringing that polyester fiber waste to now be recycled is an important step for them as well. The project's well accepted in India.
Nic Boychuk (Equity Research Analyst)
Okay. That makes sense. Thanks, Daniel. When we're looking at Europe, can you comment at all about how the process is going with Reed in terms of you guys finding new land packages, what it is exactly you're looking for, countries of focus, areas, and timelines of when we could think that some of those agreements might be announced with Reed?
Daniel Solomita (CEO)
Yeah. Reed has started advancing their circular plastic strategy, of which Loop's technology is the centerpiece. They have hired a CEO for this plastics company, and he's mandated with getting this project moving quickly. We have regular meetings with Reed. Right now, site selection on their side is the gate, is an important step for them. They'd like to be able to have a site selected, I would say, in the third quarter, maybe beginning of the fourth quarter of this year to have the site selected. It's really looking all across Europe. I would say there's no country that's being excluded. Obviously, government incentives could be very helpful as Europe leads the way in regulations on plastics for consumer good companies. There are a lot of countries that offer different regulations. Sorry, a lot of different countries. Europe has the regulations.
A lot of different countries offer subsidies for these types of projects. That is one interesting aspect to actually bring down, enhance returns on the project is to have subsidies for the different governments. Site location and other gating item now that we are looking at more of the modular construction being close to a seaport to be able to transport the modules. That is another important item. They are going through the checklist. We have identified probably five different countries and different sites. The work is being done now to be able to locate that site. I think, like I said, by late third quarter, early fourth quarter, we will have the site selected. In the meantime, now Loop is going to start executing on the engineering studies. Doing a PDP package and then a FEED study for the modular construction.
That will be bringing pretty significant additional licensing revenue to Loop by providing those studies to the partnership in Europe.
Nic Boychuk (Equity Research Analyst)
Okay. That's awesome. My last question was on that incremental engineering and service revenue that you'll be earning while you're doing these projects. Can you remind us again from an annual expectation how we should be thinking of the magnitude of what that looks like? How much could you be earning this year, next year, kind of thing?
Daniel Solomita (CEO)
For the coming year, we have, like we said, we executed a $600,000 contract. We have about another approximately another $750,000 coming in from the India joint venture where we're more playing a support role where Tata is doing all of the heavy lifting. For the European partnership, Loop will be doing more of the core engineering because it's being done in the modular fashion. I would expect something in the magnitude of $5 million-$10 million of additional licensing revenue next year.
Nic Boychuk (Equity Research Analyst)
Okay. That's great. Thank you, Daniel.
Daniel Solomita (CEO)
Thanks, Nic.
Operator (participant)
We have a question from Marvin Wolff of Paradigm Capital. Please go ahead.
Marvin Wolff (Partner)
Yeah. Good morning, guys, and congratulations on getting the Reed technology license across the line. It's nice to see a number like $10 million on the revenue hit for the quarter. That's great. Just had a couple of questions. Number one, remind us again of what the CapEx has come in at under the Tata engineering study for the India plant.
Daniel Solomita (CEO)
The complete CapEx, so we've added the polymerization section. Initially, it was just going to be a depoly plant. We've added the polymerization section because we saw the cost was coming in under our initial estimates, so it gave us a little bit more flexibility on the overall CapEx. We added a significant portion to be able to do the continuous polymerization rather than using a batch asset. That brings down the overall OpEx, which allows us to be super competitive on pricing. The overall CapEx for the India project is $176 million.
Marvin Wolff (Partner)
Okay. You're still looking at a $730 million net equity?
Daniel Solomita (CEO)
Yeah. So that's including all total install costs, so the entire plant installed. That includes the land. That includes all financing costs, the interest on the debt during construction. That's an all-in. Complete package is $176 million.
Marvin Wolff (Partner)
Okay. Thanks a lot. What about the 70? Okay. You're still looking at 730. Okay. And so what would the output be per year for the India plant now? Is it still 70,000 tons?
Daniel Solomita (CEO)
70,000 tons. That's correct.
Marvin Wolff (Partner)
Okay. You're saying.
Daniel Solomita (CEO)
27.
Marvin Wolff (Partner)
Okay. Would you get to full output capacity in 2027, or will that be a 2028 kind of thing?
Daniel Solomita (CEO)
For full ramp-up, I would say it's probably going to be early 2028 for full ramp-up.
Marvin Wolff (Partner)
Right. Okay.
Daniel Solomita (CEO)
Yeah. You take it.
Marvin Wolff (Partner)
Very good. Thanks a lot. Congratulations again.
Thank you very much.
Daniel Solomita (CEO)
Yeah. No, for sure.
Marvin Wolff (Partner)
Yeah. Thanks, Daniel. Very good.
Daniel Solomita (CEO)
Thank you.
Operator (participant)
As a reminder, to ask a question, please press star followed by one on your telephone keypad. We have a question from Varyk Kutnick of DIVYDE Capital Partners. Please go ahead.
Varyk Kutnick (General Partner and Portfolio Manager)
Hey, Daniel. Can you hear me?
Daniel Solomita (CEO)
Yes. I can hear you, Varyk. How are you?
Varyk Kutnick (General Partner and Portfolio Manager)
Yeah. Nice job with everything. Exciting to see the progress here. Can you remind us again what the CapEx would have been in some of the earlier site selections?
Daniel Solomita (CEO)
Yeah. The reduction is pretty staggering. If I would have taken, let's say I could take the Korean project in Ulsan, which was the most recent project prior to India. If you want to compare just total install costs without the financing costs, without the interest and financing and everything, you're comparing $115 million in India to $575 million in Korea. It is very significant. It's like an 80% reduction in CapEx.
Varyk Kutnick (General Partner and Portfolio Manager)
Pretty amazing to see that. Obviously, good on you guys for not jumping at the first thing that came your way and being patient. I would obviously go to the next piece right here. We've talked a little bit about you said in your prepared comments, KPMG was looking at the structure of offtake agreements. Could you maybe describe those and how they're going to be structured, whether they're fixed, volume-dependent, and then maybe some of the unit economics of the pricing versus maybe conventional? How competitive are you in a world where things continue to get cheaper or more expensive?
Daniel Solomita (CEO)
Yeah. The good news on the competitive side is having, let's say, an 80% reduction in CapEx allows us to be very competitive to the marketplace, right? When you're stuck with a very high CapEx and you need to generate that return, you have to sell this product at an extremely high price. Today, in the market we are, we can really compete with even, let's say, the mechanical recycling industry, which provides a much lower quality product, usually not even 100% recycled content, but we can provide competitive pricing to that, but also having the quality that our customers need. They are virgin quality material. We've seen that time and time again. If it's on the packaging side with customers like Evian, L'Oreal, L'Occitane, the packaging side, we always have the top quality. There's no coloration issues, no quality issues whatsoever.
We see the same thing on the fiber side. When you're dealing, let's say, with the mechanical recycling industry for fibers, where they take water bottles and turn that into fibers, through all of the testing we've done with all of these different brands, we've tested our material with dozens and dozens of the apparel brands and home furnishing brands. Everyone tells us the quality of our material is second to none. All of the applications that they're going into is the high-quality material, the high-tensile strength material. They actually see even a 30% increase in the spinability of our material where mechanical recycling, you have a lot of breakage and color defects. Our material is perfect. We can compete with the mechanical recycling industry on price, but we're providing a superior quality to our customers. Those are really interesting for us.
As far as customer contracts, they're guaranteed volume, so a set volume, set price. Most of them have a take-or-pay feature. If the customer doesn't take the material, they still have to pay us a certain amount. Let's say if it would be 40%, they would pay us 40% of the value of the contract even if they wouldn't take the material. We're making sure that the contracts are very bankable for us to be able to achieve that 70% debt. That's the key for us, having these contracts be bankable for the debt piece.
Varyk Kutnick (General Partner and Portfolio Manager)
That's really helpful, Daniel. Thank you for all that. I guess my last piece would be, obviously, this is far still, we're talking 2027 here, but what do you guys, knowing what you know now, what do you expect the margins on from an EBITDA or cash flow standpoint to be from day one on this? And will they, is this something that you expect to grow over time, or are we going to see kind of margins from day one where we want them to be?
Daniel Solomita (CEO)
I think we're going to see margins from day one that are robust for the joint venture. Don't forget, the joint venture, we also get a 5% licensing fee off the top. Loop gets a 5% licensing fee for the sales piece and for delivering the technology. That comes right off the top to us. Minus that 5% royalty, which comes to Loop, that 5% pays for more than 100% of all of our back office expenses. We will go from right now losing money to being profitable at Loop, the head office, just with the licensing fee. Bringing in the robust profitability for the joint venture, that equity pickup just further enhances the cash flow to the joint venture and then coming back to Loop. We would be able to reinvest all of that money into future facilities.
Once this facility is up off the ground, we do not expect to ever have to—we will be using that cash flow to be able to cover all of our expenses plus reinvest into more facilities. I would say that the modular construction is going to be probably the biggest opportunity for us outside of low-cost manufacturing in our licensing model. When you are licensing, let's say, the Societe Generale Group, who wants to build many of these facilities across Europe in partnership with us, by being able to deliver these modules and bringing down the cost of those plants, that is going to be huge. That is going to be a huge thing for the future because we are able to build the plants quicker, be more cost-effective, and, again, being able to bring tremendous value to the customers, high quality, and competitive pricing, no matter where we are in the world.
Varyk Kutnick (General Partner and Portfolio Manager)
Okay. Then quick math here. I'm just writing this down. Tell me if I'm wrong on this. But based off of the equity in the India facility from you guys, call it $25 million-$30 million, your payback should be between 1.5 and 2.5 years based off a 50/50 split, not including the licensing stuff. Is that correct?
Daniel Solomita (CEO)
That's correct.
Varyk Kutnick (General Partner and Portfolio Manager)
Okay. Thanks for it, Daniel. Appreciate the time. I'll follow up at a later time. Good luck with everything.
Daniel Solomita (CEO)
Thank you very much. Thank you.
Operator (participant)
Appreciate if you have no further questions. I will hand back to Daniel Solomita for closing remarks.
Daniel Solomita (CEO)
Yeah, in closing, thank you very much, everyone, for joining. Super excited about the projects. It's coming in line to schedule and really the cost. We couldn't be happier right now with the status of everything. Thank you very much.
Operator (participant)
This concludes today's call. Thank you all for joining. You may now disconnect your line.