Hello, everyone. Thank you for joining us, and welcome to Loop Industries Q2 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Kevin O'Dowd, Head of Investor Relations. Kevin, please go ahead.
Thank you, operator. Before we begin, please note that today's discussion will include forward-looking statements within the meaning of U.S. securities laws. These statements relate to our expectations, projections, beliefs, future plans and strategies, anticipated events, and other performance matters. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied.
For a complete discussion of these risks and uncertainties, please refer to risk factors and forward-looking statement sections in our most recent Form 10-K and Form 10-Q and other filings within the Securities and Exchange Commission. These documents, along with yesterday's earnings release, are available on the SEC's website and through investor relations section of the Loop Industries website. The company undertakes no obligation to update or revise any forward-looking statements except as required by law. With that, I would like to now turn the call over to Loop Industries Founder and Chief Executive Officer, Daniel Solomita. Daniel, please go ahead.
My name is Daniel Solomita. I am the Founder and CEO of Loop Industries. I will cover the continuing progress of our major commercialization project in India, and our CFO, Spencer Hart, will provide an update to the company's liquidity, financing situation, and the activities of the recently formed special committee. Our Indian joint venture with Ester Industries has made the decision to reduce the capacity of the first facility in India from 70,000 kilotonnes per annum to 45,000 kilotonnes per annum.
This change will significantly lower the capital cost of the facility and the resulting debt and equity financing needs. Toyo Engineering is currently completing its detailed work to finalize the new cost estimate. The change will also allow for a faster construction timeline. If we are successful in raising our capital, we would expect to begin construction in Q1 calendar of 2027 and complete construction by the end of 2028.
The smaller facility is expected to provide attractive economic returns due to the advantages of Loop's low temperature and no pressure added technology, which produces virgin quality PET resin and polyester fiber at very low operating costs, together with being located in a low-cost environment in India, which also offers access to plentiful textile waste. The Indian facility is still contemplated to be the first of two facilities on the same site.
The second facility is planned to be substantially larger than the first one and would follow after a successful start-up of the first facility. We are engaged in positive discussions with a major bank in India, which is a long-term relationship of our Indian joint venture partner regarding the project debt facility. These discussions are progressing well. The team from the bank in India started the TDD study, which is the technical due diligence portion.
There was a team from India that came to visit our facility in Montreal a few weeks ago. We successfully completed the technology assessment of the TDD study, and that will be used by the debt lender as documentation for their loan for the debt piece in India. We are fortunate that our strategic partners in India and Europe are committed to their relationships with Loop and to the success of our commercialization projects in their respective geographical areas. I will now hand over to Spencer and then revert with a closing comment.
Thanks, Daniel. We have maintained a strong focus on cost control, and that's allowed us to reduce our overhead. Our cash operating expenses for the quarter were $1.6 million, a year-over-year reduction of $800,000. Our run rate has continued to decline into the third quarter. These savings reflect targeted reductions in personnel, insurance, and other operating expenses, as well as the waiver of cash compensation by our outside directors.
As of August 31st, we reported total available liquidity of $1.9 million. To address our capital needs and secure funding for Loop's equity contribution to our India joint venture, our board formed a special committee in September of 2026. The committee is actively working with advisors to evaluate a full range of financing alternatives, including equity, debt, and non-dilutive options.
Importantly, rescaling our first commercial facility in India will reduce the project's overall capital requirements, directly lowering our required equity contribution. All key elements of the project in India are in place, including an experienced joint venture partner, secured land, advanced engineering designs, reliable feedstock sourcing, and strong customer demand.
The final step before reaching the construction stage is securing the financing. Together with the equity contribution from Ester, our 50/50 joint venture partner, and the project debt currently being syndicated, we are actively working towards fully funding the facility. With that, I'll turn the call back to Daniel for closing remarks.
Thank you, Spencer. I would like to close by saying, notwithstanding the current low stock price and our efforts on raising the capital required for the facility, both our management team, board of directors, and partners continue to strongly believe in Loop's potential for significant long-term value creation based on our technology, our commercialization projects in India and Europe, and the needs of the apparel and global consumer packaging good brands' consumers for high-quality recycled product at a competitive price. With that, we will open the call to questions.
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jon Hickman with Ladenburg Thalmann. Jon, your line is now open. Please go ahead.
Hi. Thanks for taking my questions. Could you give us an estimate for the revised total cost of the project at the new level and what the new equity contribution is? I think before you were looking at about $20 million of equity. Could you update us on that?
The Toyo Engineering group that has been hired to complete the final cost estimate will be completing that in the coming weeks. We don't have the final number yet, but as soon as we do have the final number, we'll be able to share that. But it will be significantly lower than the 70,000 metric tons plant that we had initially-
Okay
designed.
Okay. You think you can get the funding put together, start construction, and have construction complete by the end of 2029. Did I hear that accurately?
The time for construction, startup, and commissioning is a total of 20 months. Therefore, if the funding is secured and we start the project in beginning of 2027 calendar year, we would have the plant up and running commercially producing material by the end of 2028.
Of 2028. Yeah. Okay.
Calendar years.
Okay. Yeah, calendar years. Okay. Could you give us some estimate of your confidence in being able to come up with a new kind of lower equity component so you can get this started?
Are you asking the confidence that the number will be lower? That the cost will be lower?
No. Just your ability to come up with the lower number.
The ability to raise the financing?
Yeah. Have you talked to interested parties already? Could you give us any sense of where you are in that process?
Spencer, are you like-
I know you just did the special committee, but could you elaborate at all on that?
Sure. It's Spencer. Maybe I'll address that. Let me clarify one thing. We feel like, in the area of $20 million is the total amount that we would be requiring for our portion of the equity contribution to the JV, as you had kind of mentioned. I will tell you that the special committee is very focused on this. We're engaged with advisors and actively working in discussions.
As you can probably imagine, we can't promise anything until it's done. You never know until it's done. That is a very primary focus. The project's very attractive. The economics of the unit are attractive, the returns are good, and the opportunity to invest in Loop to fund that promises really attractive returns to investors. We've had a lot of interest from investors that we've been engaged with.
Okay. Thank you. I appreciate your comments.
Your next question comes from the line of Gerry Sweeney with ROTH Capital . Gerry, your line is now open. Please go ahead.
Good morning, guys. I apologize. I had some technical difficulties getting on earlier. I got dropped, so I missed a lot of the commentary. I just wanted to dig in a little further with everything that's going on. Obviously, a little bit of friction here, I think securing some financing for the facility. As you downscale this initial facility, does this impact anything around the debt financing that you're looking for in India? Is there any carryover? Is there anything we should be looking at on that front?
I would say to that, Gerry, that it is only viewed as a positive by the debt lenders. Obviously, the amount of debt needed for the project is lower. We're very confident with the LOIs and the contracts that we have from Nike, Taro Plast, which are signed contracts, and then we have LOIs, that we'll meet the requirement that the debt lenders will be satisfied with our commitments. Overall, in speaking with the debt lenders, it was a very positive discussion. The resizing of the facility was extremely well received.
Got it. As you go through this process, obviously, equity is a component, but are there any other areas that you are pursuing alternatively that you can drive some of the financing to support the project?
I can take that. Hey, Gerry. I guess, we are very flexible in terms of the form of the capital that we are raising. I think it is highly likely that there will be an equity component, whether it is straight equity or some kind of convertible instrument. We are flexible and open to working with investors to find something that works for both sides. Our goal is to get the capital, fund that first facility. As you can probably imagine, this will be the hardest financing that we will ever have to do, and subsequent financings, people will be, I think, very excited to provide capital to the extent that we will need it.
Yeah. No, I absolutely agree. Listen, I think you know my stance. I think the technology works. I think it is just getting financing across the goal line here and getting some of the shovels in the ground and getting this started. All right. Do you have any timelines when you think. Obviously, it sounds like this is forefront, and I know it is hard to give some definitive answers on this front, but I would expect, is this something that is imminent within the next couple of weeks? What should we be thinking about on that front, if you can discuss in this environment?
Timelines for the financing, is that what you are asking?
Yes. I'm sorry. Yeah.
Yeah, look, one thing that we're just not going to do is predict exactly how much or when or what it's going to look like, because you just don't know until it's done.
That's fair.
We're working really hard on that. Our goal is, as Daniel said, in order to break ground in the first quarter of next year, we'd have to have the financing in place in advance of that. That's probably the best way to think about what our goal for timing. With, of course, the understanding that sooner is better, we're certainly not going to delay anything, and our goal is to bring it in and secure it as quickly as we can.
Okay. And that's fair, and I understand. All right. Spencer, Daniel, thanks for taking my questions.
Thank you.
Thank you.
Your next question comes from the line of Marvin Wolff with Paradigm Capital. Marvin, your line is open. Please go ahead.
Good morning, guys. Can you hear me okay?
Yes, we can.
Yes, perfect.
Okay, good. On this downsized or right-sized 45,000 metric ton size for the output, what percent of that do you have contracted out?
We haven't given exact volumes for all of our contracts, but between the LOIs that we have signed and the contracts that we have signed and the commitments we have today, we are over a threshold of 50% of the facility sold.
60% of the 45?
Over 50%, I said.
Oh, 50%.
Committed in LOIs or contracts.
Right. Of the 45 size.
Yes. Of the 45,000 size. Yes
Okay.
Yes.
Now, with a smaller first plant, does that imply a larger second plant? Because weren't we talking about the second plant being maybe 100,000 tons?
Yeah. So we'll have the flexibility to increase the size of the second plant as well, because the gating item on the size of the facilities is more about the feedstock availability. So we're very comfortable that there's enough feedstock for a total of at least 170,000 tons in the area. So we would be able to grow the second facility to 125,000 tons.
Right.
The total output of the two facilities would remain the same.
Right. Okay. Well, that's good. Yeah. It's always interesting when something's downsized because people assume maybe it's not as profitable, but I think with your technology-t he downsized amount can be just as profitable. Is that correct?
Yeah. In a chemical plant, the scale cost factor. It's one-to-one kind of on the chemistry. The chemistry costs don't change because the amount of catalyst you use or the amount of energy used is kind of directly proportional to the amount of feedstock you're processing and the amount of output. Those things don't change. It's more of your fixed cost that would go up.
Thankfully, in India, the low-cost environment and the low cost of labor in India allow for the economics to still be very attractive, because usually it's the labor cost that bites you, because you'll need the same amount of people running the facility. But in our case, because of the low-cost nature of India, it doesn't impact our financials dramatically. It's still very profitable.
Okay, one last question. When do you expect the detailed engineering guys to have their stuff all done and have a number that you can talk about?
I would expect that in the coming weeks.
So definitely before year-end. Calendar year-end.
Yeah. Yes.
Okay. Very good. Thank you very much.
Thank you.
Your next question comes from the line of Varyk Kutnick with DIVYDE Capital Partners . Varyk, your line is now open. Please go ahead.
Hey, guys. Good morning.
Good morning.
Good morning.
[inaudible]. I just want to make sure I understand. If the original equity piece that was required on your end for the factory was 70,000 metric tons or whatever it was, your equity contribution was $20 million. Now that has been haircut by 42%, shouldn't your equity contribution be somewhere near like $12 million now? Or does it not scale like that or proportional?
You want me to take that, Daniel?
Sure.
Here's how to think about the equity contribution. The banks that we've been working with, and again, nothing's finalized, but it seems realistic to think that they'll finance 70% of the project. The remaining 30% is going to be equity, and that's going to be split evenly between Loop and Ester, who's our JV partner.
Right.
When you think about it like that, our portion is about 15% of the total project cost, right? When it was 70,000 and we talked about $165 million - $170 million for the facility, 15% of that would have been more like $25 million or $25 million- $30 million, in that range. I know you said that the old amount was $20 million, but it was probably a little more than that. Now
Right. If we say $30 million and we cut it by 42%, the equity piece should be then around $15 million or $16 million that you guys need then, correct?
Yeah. That's basically how the math works. Right.
Got it.
The cost may not come down by 40% just because there are some It just doesn't exactly work like that, but it will come down, and our equity component will come down. I think that'll be the methodology we just discussed is the right way to think about what the amount of our equity contribution will be. Keep in mind that we have made a portion already of that contribution. Over time-
How much have you made?
we've contributed to the JV. It's in the kind of $3 million - $5 million range.
Got you. If the total amount is 20 that you guys need to contribute
Probably the lower end of that. Yeah.
Got you. If we were to say that you've already contributed $2 million or $3 million, you guys really only need to contribute $18 million or $17 million to make this over the line, correct?
That's the way to think about it. Yeah.
Okay. That's helpful. Appreciate the color, guys. Good luck.
Sure thing.
We have reached the end of the Q&A session. I will now turn the call back to Daniel Solomita for closing remarks.
Thank you very much, everyone, for attending the call and for the questions, and we'll keep you posted as to the developments of the company.
This concludes today's call. Thank you for attending. You may now disconnect.