Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries' third quarter 2024 corporate update call. During today's presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. This conference is being recorded today, January 17, 2024, and the press release accompanying this conference call was issued last evening, January 16, 2024. On our call today is Loop Industries' Chief Executive Officer, Daniel Solomita, Fady Mansour, Chief Financial Officer, and Kevin O'Dowd, VP of Communications and Investor Relations. I would now like to turn the conference over to Kevin to read a disclaimer about the forward-looking statements. Kevin, over to you.
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 positions. 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 latest annual report Form 10-K, our quarterly report on the 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.
Good morning, everyone. Thank you for joining us today for Loop Industries' earnings call for the third quarter of fiscal 2024. I'm Daniel Solomita, the founder and CEO of Loop Industries. I appreciate your presence. We had an interesting quarter, several highlights to go through. I'll start in chronological order, I guess. The highlight was a groundbreaking ceremony that took place at the Ulsan ARC on November 15, 2024, in South Korea. It was an honor to be there and to be able to present our Infinite Loop technology at the event. The event, it was attended by several senior members of the SK Corporation, SK Innovation, SKGC, as well as the Prime Minister of South Korea, Han Duck-soo.
It was a groundbreaking ceremony for the Ulsan ARC facility, where Loop's technology will be a part of the Ulsan ARC in Ulsan. It was well attended. A lot of customers were there as well, very interested in purchasing PET resin and polyester fiber made through Loop's technology. The event marks a significant milestone for the Infinite Loop Ulsan project, anticipated to start in the first half of 2024 and to be completed in 2026. I guess one of the biggest milestones was what in our announcement yesterday was the strategic partnership with Reed Management, a French fund manager, for $66 million of non-dilutive capital for Loop. Of the $66 million, $33 million comes directly to Loop Industries. That $33 million of non-dilutive capital comes in three separate tranches.
The first tranche is eleven million dollars, which is non-refundable. That non-refundable portion is to allow Reed to co-invest with us in Europe. The second and third tranches are eleven million dollars each for a total of twenty-two million dollars, which is a loan to Loop Industries to be repaid in 3 years at a 10% interest rate. That's for the first thirty-three million dollar tranche, which comes to Loop Industries, for we will use that money towards our commercialization plans, for our technology globally rollout—for the global rollout of our technology. This thirty-three million dollars of non-dilutive capital, I can't stress that word enough. The non-dilutive capital portion is really key for us. That's always been something that we've been striving for.
You know, with the markets the way they are today, raising capital is a little bit more difficult, but being able to raise capital, which is non-dilutive, not diluting the current shareholders, is extremely important. This is a foundational part of our financing package. This is the beginning of the financing package. We have, as we have said in the past, we have ongoing discussions with other entities for additional capital, but this is really a foundational part of it. The other really exciting part of this is that, we also have an additional $33 million through this partnership with Reed, which will be creating a joint venture in Europe, which will be called Loop Europe, and it will be a 50/50 joint venture between Loop Industries and Reed Management.
This joint venture company is set up in Europe to be able to develop and finance additional projects across Europe using Loop's technology. There's been a huge demand for Loop technology in Europe. Europe, because of government regulations, is really leading the way on sustainable packaging and sustainable plastics and the recycling of plastics. And so that's a huge growth engine for the company. And, you know, having a partner such as Reed to co-invest alongside with us reduces the amount of equity that Loop needs to put into every one of these plants. Again, this protects shareholder value at Loop Industries, the parent company, so we don't have to continually dilute the shareholders to be able to build all of these projects we have coming up in Europe.
So bringing in Reed, they co-invest with us, so 50% of the equity needed comes from Reed. They also bring in all of their banking relationships that they have. Their management team has extensive experience in developing and financing infrastructure projects across Europe. And so having that relationship is really crucial for us moving forward. All of the engineering fees, all of the licensing and annual royalty fees that come from the projects, come back to Loop Industries, the parent company. So they do not go into Loop Europe, they come back to Loop, the parent company. So that's a huge advantage for Loop Industries shareholders, moving to more of an asset-light type of model in Europe, where we still have some investment, but much less investment at the plant level.
But, you know, we get all the royalty streams coming up to the top, which is hugely beneficial to the Loop shareholders. So we think this partnership creates a tremendous amount of value for Loop shareholders, non-dilutive capital, partnership in Europe, and allows us to expand much quicker into the European market. Like I said, we have a project in France that we've already discussed, but there are several other projects in Europe where we've continually getting more increased demand from customers for our products across Europe and different countries in Europe. So it's very exciting for us. That was, you know, obviously the key development, and like I said, that's the foundational part of our financing package. This is the start.
We've already spoken in the past about other strategic partners and customers that we're in advanced discussions for rounding out the financing package. Those discussions are going very well, and we expect to have those finalized very soon as well. So, I think everyone's very excited about this Reed Management partnership and what it brings to Loop. Another milestone, a little bit of a smaller milestone, but Loop's PET resin was certified for European pharmaceutical standards, which is another increasingly interesting market for our products. Pharmaceutical packaging, the stringent requirements to be able to have recycled content into pharmaceutical packaging, you know, really showcases Loop's technology and what it brings to the table. So that's another interesting piece that happened this quarter.
We've seen increased demand globally, not only for PET resin and polyester fiber, but also for our monomers. So there's a huge demand right now. There's a shortage in the world of DMT, dimethyl terephthalate, and MEG, monoethylene glycol. Those are the two products that Loop produces. The DMT shortage today is a very interesting possibility for Loop to be able to move forward and, you know, start selling our monomers as well as selling the PET. So this just brings another dimension to Loop's ability to build more facilities and generate more revenue. So that's another exciting development. So we're seeing tremendous demand globally for all of our different products.
I think with that, I'll hand it over to Fady to go through the numbers, the in-depth overview of the financials for the quarter.
Oh, thank you very much, Dan. Yes, I echo your comments. We're thrilled with the announcement, hot off the press, excited about the partner, the amount, and the flexibility of the financing raise. So, there's more to come, but this was clearly the foundational element that we so needed. Going through the financial information for the quarter, we've posted the presentation to the website, if you have that open. If not, please let me lead you through that discussion. On the P&L for the three months ended November 30, a significant drop in operating expenses. The company's exceeded my targets for reducing costs, but smartly reducing costs. We're not just going at it with guns blazing. We're being very methodical in how we reduce costs.
So if you take them caption by caption, we've seen a 60% reduction in the R&D bucket. We've seen a 25% reduction in the G&A bucket, and obviously, the corresponding quarter of Q3 2023 had a one-time accounting gain on the disposal of lime for Bécancour. If you strip away that one-time gain, our operating expenses went down to the tune of 45%. So that exceeded my internal targets. I'm thrilled with the team who have, you know, been focused on smartly reducing costs, but also preserving the integrity of the product that we offer. So in terms of the P&L, our run rate right now, remember, I guided towards the cash burn rate.
If you take the total expenses of about $4.3 million, subtract the non-cash of stock-based comp, which is about $400,000 for the quarter, depreciation is another $131,000, and then amounts that we spent for the Ulsan project, which we did expense in our P&L, but will be recoverable when we settle what we refer to as a statement of account, once we pass the FID to the tune of $300,000, our net run rate was about $3.5 million—our net cash run rate was $3.5 million for the quarter. So that averages to be about $1.2 million per month. Exactly in line with the forecast that I provided to you all last quarter. In terms of the statement of cash flows, nothing in line with our P&L.
Obviously, our cash burn rate was a little higher early on in the year, but now given our focus on streamlining productivity and looking at the core expenses, we're now dovetailing towards that, you know, $1 million-$1.2 million cash burn rate by month.
... on the balance sheet right now, we have about $10.4 million of cash. That's gonna suffice for the next 12 months. Obviously, we look to collect the statement of accounts once the FID goes through, but we have liquidity right now is not an issue for us. We have plenty of cash to get through the short while, and the most important thing is we continue to build upon the success of yesterday's announcement and attracting the stakeholders which were in the deep throes within the negotiation to finalize the financing over the next little while. So it's all locking in from a liquidity perspective, both from the equity funding perspective, both from the back office perspective. I call this holding down the fort while we build the castle, and so far, we've exceeded my expectations.
Looking forward, I would say that the cash burn rate is still gonna be between $1 and $1.2 million. Obviously, it could get lumpy by month. We do have legal claims, and we have, you know, accruals to do, but if you look at the benefit of a three- and six-month, and twelve-month horizon, you know, $1-$1.2 million run rate is what we're gonna be running at. So we've reflected all of the productivity initiatives and rightsizing of expenses. I never call it downsizing. We rightsize expenses. We're right where we need to be, and that's gonna give us enough liquidity to bring us to over two years. So we're good till early 2026. With that, I'll turn it over to questions and answers. To questions. Kevin?
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. That's star one on your telephone keypad. To withdraw your question, star followed by two, and please also remember to unlock your mic, to unmute your microphone when it is your turn to speak. Okay, we do have our first question. Comes from Gerry Sweeney from Roth Capital Partners. Gerry, your line is now open.
Good morning, Daniel and Fady. Thanks for taking my call.
Hey. Hi, Gerry.
Hi, Gerry.
Just wanted to, if you don't mind, a couple of questions around the Reed JV, which, you know, obviously, congratulations. It's a nice, nice win for you guys. With this investment, the way I'm reading it, you're creating a JV, so Loop, you're 50/50 with Reed. My understanding is they're gonna handle 100% of the investment, the equity requirements for facilities in Europe. Is that or-
No, so that would be-
Do you have the ability to invest as well? Yeah. Sorry, again.
Yeah. So the Loop Europe company will be owning 100% of the equity of the projects we build within Europe. That's a 50/50 split between the two companies. So the Loop Europe is gonna be the one that owns the equity in the plants, of which Loop Industries owns 50%, Reed owns 50%. They're putting in the first $33 million for us to be able to execute on projects, paying for, you know, permitting, licensing, you know, whatever we need to get the projects off the ground. Any cash contributions after the 33 would be done 50/50.
I got you. So just to making up a number, if a plant was, let's say, $100 million, let's just say equity contribution was $100 million, Loop and Reed would each contribute $50 million, if, if that was the requirement for the JV, correct? I know there is because-
Correct.
With other JVs, potentially. So, yeah.
Yeah. After the $33 million is exhausted, everything else is 50/50.
Yeah.
All of the royalty fees, all of the engineering fees, everything, everything that comes from the project goes to Loop Industries, the parent company. You know, royalty fees are, you know, roughly between $6 million-$10 million a year in licensing fees that comes back to Loop Industries, the parent company, not the European partnership.
Got it. Yeah, they don't have any claims on that, yeah.
No, none whatsoever.
Now, will Reed have any ability to, you know, in terms of input on negotiations, timing, size of plants, or costs, or are they sort of a quiet partner in the, in that regard?
Yeah, Loop is gonna be leading the way on all of the... Obviously, it's our technology, the size of the plants and everything else. We expect a good working relationship with Reed, obviously, but, you know, we'll take the lead there. We obviously, we're planning to have, you know, a CEO of the partnership that's gonna be nominated by Loop to the project, to head up the Loop European company. So, you know, most of the directive comes from Loop. We have all the relationships in the marketplace, but Reed does bring a tremendous amount of experience on developing and financing large infrastructure projects in Europe. The principal of Reed was on the board of Suez for many years, our partner in France. That's how he learned from the company. That's how he learned about Loop, learned about our technology.
I've had a relationship with him for many years. He's been a big believer in Loop's technology for many, many years. They are gonna bring an element of experience, especially on the waste management side and the waste collection side. That's where Reed's team can be tremendously valuable to our partnership.
... Got it. And that was sort of my next question, was just Reed's experience in making investments in these type of sort of, I'm gonna call it infrastructure projects, for lack of a better term, as well as I was just also curious as to the size of the current—the size of the fund.
Yeah, the fund, I think it's closing out at EUR 1.5 billion. They have experience, the management team has experience with infrastructure projects in Europe. The principal was formerly with Meridiam, it was a large... I think it's a $10 billion, infrastructure manager in Europe. I think the, the cost of SUEZ was a multibillion-dollar acquisition of SUEZ from Veolia. So, you know, they're used to financing large infrastructure projects. They also bring all of their banking relationships to the table with us in Europe, which is, you know, hugely important for, debt financing, project finance-
Yeah.
And things of that nature. So yeah, it's gonna be very, very helpful for us. You know, Loop has great technology. We have. I'm not trying to say it, we have the best technology in the world in what we do. Our, our, you know, we've always had the banking side, and the financing side has always been where we need to catch up to the technology side. And we think that this partnership with Reed, not only the $33 million of non-dilutive capital, but also the banking relationships and everything else they bring to the table in Europe, is gonna be tremendously helpful to us.
Got it. Yeah, couldn't agree more. And then what are the hurdles for closing? It sounds like you're sort of in the ninth inning, but just want to see a little bit more due diligence or any major, any higher hurdles, but well.
Yeah, No, we're very comfortable on the closing. That's why we felt comfortable enough to put the document out there and announce the partnership at this step. The teams are already working on all of the closing documents. You have to set up a joint venture. You have to set up a company in Europe. So all of those are the steps that have to happen. That's why we think it would take approximately till March, you know, middle of March is when the closing date is expected. But, you know, we have to incorporate a company in Europe, partner there. So there's quite a bit of work to do on that end, but no hurdles that we feel are insurmountable, and both companies have a great working relationship.
This is something that we both want to do together. Yeah, we're really excited about the partnership and about who we're working with.
Got it. Just switching gears, want to ask a couple quick questions on the SK plant. Just want to get an update. You know, it looks like the timing maybe is pushed back a little bit. And then I'm also curious, you know, just if project costs are finalized, and then obviously there are some cost, some investment you had to make on this front, which the Reed side certainly helps, but want to get some more clarity on that, and then that'll be everything.
Yes. So the Reed is the foundational part of our financing package. It's not the entire financing package, but it's the foundational part of our financing package. I believe last quarter we said in our filing that we're working with a strategic partner, which is Reed. We're working with the government and some customers. So the first part is done with the Reed and the strategic partner. Now we're finalizing, we're in advanced discussions to finalize the rest of the financing package with the governments and the customers. So, you know, our goal was always to be able to-
Got it.
Yeah, to do customers, government, so really strategic partners of Loop rather than tapping the equity markets and, you know, raising capital at a low valuation, which we'd be—I'd be a little bit uncomfortable doing. And so we're executing on our plan. As we said, this is the first step of that, you know, multi-strategic partner plan, but we're well underway to execute on what we said. You know, time is always a little bit against us. Being a public company is always, you always have that clock that's, you know, three months, you got to report something.
Mm-hmm.
In our case, you know, public company, that plays against us. But, you know, we're very confident in being able to execute on our financing package for the facility, moving forward. Second part, I guess, was the cost in Ulsan for the project. Yeah, the project costs are crystallizing. You know, we've seen a little bit of an increase in cost, mainly due to labor costs in Ulsan, South Korea. So, Ulsan right now is a hotbed of activity, so there's a lot of projects being built in Ulsan. I believe Hyundai is building the largest electric car battery factory in the world, in Ulsan. In our industry, Saudi Aramco is building a $7 billion petrochemical complex in Ulsan, and so manpower and resources are more expensive because of the amount of projects being built.
It also plays a little bit on the timing because, you know, when you're planning out these construction projects, when you're fighting for labor, it could, you know, challenge the time schedules a little bit. But, you know, nothing that we can't manage. I think it's also important to remind people that SK covers, you know, over 80% of the cost of the facility. So any of the over, you know, projected overruns of the project are absorbed, 80% of it is absorbed by SK. So Loop's, you know, responsible for less than 20% of any of those increases. So those are the main drivers for the increases. We haven't seen any increases on, you know, our technology side or any of our proprietary equipment. It's really labor related in Korea.
Got it. I will, I'll jump back to you. Thanks for taking my questions.
Thanks, sir.
As a reminder, to ask a question, please press star one on your telephone keypad. That's star one on your telephone keypad.... Our next question comes from Mark, Mark Reichman from Noble Capital Markets. Mark, your line's now open.
Thank you very much. Starting with Ulsan, you know, the question I have is, when you look, you know, at your strategic plan to develop, you know, 10 additional facilities, is Ulsan pretty much the template going forward? I mean, in terms of a 60/40 financing and a 51/49 split and the, you know, the licensing agreement, et cetera. And then, like with Reed, you know, you're kind of satisfying your equity portion. Do you expect that, kind of, that template to change at all as you develop future projects?
So, you know, the way we've built it, these are large infrastructure projects. You know, these are plants that are gonna be around for the next 25, 30 years. You know, for us, being a smaller technology provider, we're trying to, you know, be in a mix between owning equity in the plants, creating value there, but also bringing, you know, by bringing in partners that have experience that complement our core competencies, which our core competencies are the technology, partnerships and customer relationships. We bring in partners that can complement that, such as SK, who brings in the construction experience, the operating of chemical plants experience. So that's where they complement us tremendously. Reed obviously complements us on the financing side, being able to bring in the capital.
And then we bring in partners such as SUEZ, where they can bring in waste plastic, so that's another complementary. And all of Loop, the parent company, becomes more of the licensing, revenue generating revenue through licensing fees and our core development fees, that we charge to the projects. It's gonna be the template, specifically, the 60/40 split and the 51/49 is definitely the template for Asia with SK. So, you know, SK has SK and Loop together, the partnership, has a plan to build out multiple of these facilities all across Asia. You know, we've talked about South Korea and Ulsan. We've talked about China. We've talked about Japan as well. Vietnam is very interesting. So I believe Asia's well covered with the SK partnership. In Europe, you know, we have this one partnership with...
Obviously, the Reed partnership will be co-investing with us. We have demands for multiple facilities in Europe, but always having Reed as a partner. And then, you know, the rest of the world, we take it, you know, case by case. There could be opportunities in some lower cost countries, where we would feel more comfortable, owning more of the equity. But really, what we wanna do is make sure all of that licensing revenue, that $6 million-$10 million per year, per plant, is flowing back to Loop Industries, the parent company.
Okay. So, like for example, you've got the debt partner with SK, and then you have, you know, the equity portion. Would you expect-- I mean, could you have multiple equity partners, or, I mean, do you-- how much do you... Or do you think that, like, some of these companies that are taking up the debt portion, do you see them participating? You know, having a kind of partner that participates on the debt side and on multiple projects, or how are you kind of thinking about that? Or do you think that, each country will kind of have their own set of investors?
So in Asia, with SK, SK provides all of the debt financing for all of the projects across Asia. So if it's in Japan, China, Korea, SK puts their-
Okay.
You know, corporate guarantee on the debt. So Loop is not responsible for any of the debt for anything in Asia. In, let's say, Europe, we have Reed. Reed also brings in their deep relationships with different banks across the world. So they'll be instrumental in helping any debt financing needed for projects. But there, we bring in other equity. We can bring in other equity shareholders that can bring other strategic value, either a petrochemical company, a waste management company, that brings in, you know, the petrochemical side or the access to waste plastic. So there's more of a combination there.
I would say, you know, part of the financing as well, that increasing, and we see it in France already in our project in France, is, you know, governments are very active in helping to finance these infrastructure projects, creating good-paying jobs, and also to help the plastic recycling and sustainability aspects of it. So, you know, we, in our French project, we have discussed and are negotiating with the French government for significant amount of grants to be able to, you know, help finance these facilities. So governments are gonna play a very strategic role moving forward in the financing packages.
Okay, and then just the second part of my question is, so you're getting that 3% of revenues in licensing fees, but when you look at kind of the plant operating cost structure, where it's 40% feedstock and 30% fixed cost and 30% variable cost, how does that vary by country? Does it vary too much? And yeah.
Yeah, it does vary a little bit by country. I could say that CapEx varies by country because of labor rates, mainly. So if you're building something in Ulsan, which is Korea, which is, you know, quite high as far as labor rates, versus, let's say, building something in China, which is much lower labor rate, so CapEx will change. The energy costs-
Mm-hmm.
You know, the variable costs are mainly energy. So-
Mm-hmm
depending on, you know, the cost of energy in that country, that will affect the variable cost. Fixed costs are mainly labor again, so if you're going to a country where labor is much cheaper than your fixed costs will be much cheaper. So the region that you're choosing does play a significant, does impact the finances of the facilities.
Right. So that has an impact on the plant operating costs, but how much, and how much impact does it have on the top line revenue, on the price that you're getting for the product? So in other words, there's going to be variability between, yeah.
Yeah. So the top line, you know, you're selling the product internationally. So, because the product is produced, let's say, in South Korea, doesn't mean that it's going to be sold into South Korea. You know, we're expecting that to be sold-
Right.
to global CPG companies in other countries.
Right.
So we always look to have, you know, the best model is to have the lowest operating costs and selling it to the highest price market.
Right.
Which would be today, would be Europe.
You've got a global price. You've got kind of a global price stack, and then, but your costs are gonna be a little more localized, right?
Exactly. And so, you know-
Okay.
one of the best models would be to produce these material in lower cost countries and then selling it in
Right
... to the global markets, or let's say, where markets where regulation is driving the price. So Europe is the leading-
Mm-hmm.
If you take that example, Europe is really leading the way. Because of all of the regulation in Europe in 2025, brands have to be using a certain percentage recycled content in their packaging, or else they're paying taxes. Certain countries in Europe are taxing virgin petroleum-based plastics, and so all of those things drive the price of plastics up in Europe. And so, you know, producing in a low-cost country, selling it into Europe, would be the best for the top line of these facilities and the profitability at the plant level.
No, that's great. Thank you very much. That's been very helpful.
Thank you.
We currently have no further questions registered, so I would like to hand the call back to Kevin for closing remarks. Kevin, over to you.
Thank you for your participation today in today's conference. If you have any questions, you can follow up with me and our team here at Loop. We appreciate your time. You may now disconnect.
Thank you, everybody. Have a great day.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.