Welcome to Loop Industries' second quarter 2024 corporate update call. If you would like to ask a question, please press star followed by one on your telephone keypad. This conference is being recorded today, October 16, 2023, and the press release accompanying this conference call was issued this morning, October 16, 2023. 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 the disclaimer about forward-looking statements.
Thank you, operator. Before we get started, let me remind you that today's meeting will include forward-looking statements within the meaning of securities laws. These forward-looking statements relate 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, and future activities and results may materially differ from these expectations. Additional information concerning these statements and related risks and uncertainties is contained in the risk factors and report on Form 10-Q, filed with the SEC today, and today'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.
Hi, good morning, everyone. Thanks for joining the call today. I'm Daniel Solomita, the founder and CEO of Loop Industries. Today, I'm excited to walk you through our recent development and what lies ahead for Loop. I think we'll start with obviously the most important project that we're working on right now, which is the project in partnership with SK Geo Centric, which is going to be built in Ulsan, South Korea, on SK's large industrial complex and petrochemical complex. So we're at the final stages of the development for the plant in Ulsan, South Korea. The engineers and the construction team are finalizing the packages to start the construction process. We have a really exciting groundbreaking ceremony for the Ulsan ARC in South Korea in Ulsan on November 9th. The Ulsan ARC is where Loop's technology will be housed.
This is a really exciting development for us, and it's on schedule as we had planned. There's going to be top executives from the SK Group will be there, so local government, federal officials will be there. Some of our customers will be there as well, media, environmental institutes and academic experts. So it's a really exciting project. The Ulsan ARC is where Loop's technology will be housed. It's a petrochemical complex. It has two other technologies for other types of recycling of plastics, but this is going to be the first facility with SK as a partnership in Ulsan. So it's very exciting for us. Customer demand, customer demand is very high for the products from Ulsan, especially from the fiber players in the textile industry.
Fiber-to-fiber recycling, which Loop's technology can handle, is really a very big advantage for us and really what the textile customers are looking for, being able to recycle old textile waste, old clothing, and turn that into brand-new clothing. And the quality, obviously, of what Loop produces is always, you know, top quality, and that's really important for the brands. So textile, because of the supply chain, mainly being in Asia, is going to be obviously a big component to the Ulsan customer base. We are in very advanced negotiations with a few strategic partners and government partners for the required equity funding for Ulsan. We've decided we're going to upsize the deal a little bit from where we initially were. The financing terms are very advantageous to the company, so we feel really good about that.
Customers, when we're tapping in strategic partners and government, sometimes takes a little bit longer, but at the end of the day, it's the best financing package for the company. We looked at all different options and really find that this is the best financing package for the company moving forward. We look forward to announcing our milestone on financing very soon. We have the structure of the deal has been agreed upon and is in place. It's just a matter of timing and execution. We don't need the funds until after breaking ground on the Infinite Loop Ulsan project, and that's on schedule for the end of this year.
Like I said, depending on the final investment costs on Ulsan, which is approximately $80 million-$100 million, we've decided to upsize the financing package, and the terms are very advantageous to Loop, so we're excited about that. And those are really the major points that we've accomplished for the Ulsan ARC. For our French project, we are in a public consultation, so the French project is moving forward with SK Geo Centric and SUEZ as partners. We're in the public consultation phase, where the public can comment and question the project. Everything, all the feedback so far has been very positive, so we're excited about that one. After the public consultation, then you go into a permitting process. So, the timeline for that project is still underway.
At this time, I'll turn it over to Fady, our CFO, to go through some of the financials.
Thank you very much, Daniel, and it's great to be here again. Totally concur with Daniel. We're at the latter stages of the final investment decision that leads to the construction of the facility.
... and the funding. We're also at the later stages of the funding requirement that we need. Those are obviously the home runs that we've been working on over the last couple of months, and they've been, you know, the top priority. While those are the home runs, we've been looking at base hits as well, and we have a lot of successful endeavors that we have there, which we'd love to communicate to you. If you have the analyst package in front of you, I'd love for you to turn to the P&L, which is page 2 of the document. There you'll look at the results for the quarter. Ordinarily, negatives are mean, not good news, but not in our case, because the negatives are implying that the expenses are way down versus last year.
Not only are they way down, they're way down across the board. Every single caption has a negative. You know, the only one that doesn't is foreign exchange, which we can't control foreign exchange, the gyrations between the Canadian and US dollar. So expense reductions across the board. And not only expense reductions, significant ones. And we're talking, I mean, in the R&D function, we're talking about reductions to the tune of 46%, almost... Just, just under the 50% threshold. On the G&A, we're talking about a 30% reduction in expenses, largely driven by lower professional fees. Half the amount comes from lower professional fees. So we've looked in concert with other department heads, we've looked at every item where we can streamline operations, where we can improve productivity, really looking at what is discretionary and what is necessary.
I'm very, very proud that overall, our expenses have come down to the tune of 40% this quarter over last quarter. So that's good. And another testament to a lot of the finance things that we've been working on is, you see this one line, interest income, where last quarter, you know, we had $10,000, and now we've got $219,000. So we're not resting on our laurels by having a significant cash position. We're deploying it in highly liquid market instruments and actually benefiting from inverted yield curve. An inverted yield curve benefits savers on the short end and borrowers on the long end. We happen to be door number one, so we're coming about it at all angles.
What I guided the market, if you guys remember correctly last quarter, was a cash burn rate, which I define as, you know, look at our cash burn rate from our P&L. Exclude stock-based compensation because it's non-cash. Exclude depreciation on property, plant, and equipment because it's not cash. Same thing with the intangible assets. And then back out the items that are gonna be recoverable from the joint venture. We've been spending a lot of time, money, equipment, internal costs, external costs, and we shoulder them on our financial statements, but we are gonna get them back. And the cash run rate for the current quarter is $4.1 million, which amounts to about $1.36 million per month.
Proceeding from here, and given all of the streamlining opportunities that we have and we're confident to deliver, our run rate for the balance of 2024 is gonna be between $1 million and $1.2 million. So I still feel very comfortable. I was guiding towards a $50 million run rate for fiscal 2024. I think we're actually gonna get there for full year 2024, not, not land at there, because just the $1 million-$1.2 million is implying, you know, kind of $6 million-$7.5 million of back office expenses. So we are really, really in good stead of controlling costs, being smart about it, continuing to feed our innovation pipeline, and making sure that we have the liquidity that we need to get to the operation of the Ulsan plant.
If we turn to the balance sheet, which is two pages later, you see we've got, we've got $13.4 million of cash and another $1 million of restricted cash, so let's call it $14 million. If I can pander to the accounting gods, I would have had a receivable of about $16 million from the joint venture from SK, which we expect to be recoverable in the next fiscal cycle, sometime in 2024. So between the sixteen million and the fourteen, we've got $30 million of liquidity that we can use in the service of, paying our fixed office expenses until such time that we got the plant in Ulsan running, we'll be able to get some royalties, with a little luck, some dividend, and then we'll be pretty much self-sufficient. So we're well advanced on our path towards self-sufficiency.
And right now, with the cash on hand, with the recoverable from the joint venture, from the JV, Asia JV, we have about three years of liquidity on hand, which is exactly the same timeframe that we need to generate funds and return on investments from the plant. So we are in really, really good financial stead. We are in good liquidity stead. We are never gonna stop looking at ways that we can work better. That's something that's in our DNA. And, but for right now, I just wanted to communicate to everybody that the financial streamlining of the expenses is largely done and will continues to be done, and we're in really good financial stead from a liquidity perspective. With that, I'll turn it over to questions.
Thank you. If you would like to ask a question today, please press star followed by one on your telephone keypad. If you choose to retract your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. ... Our first question today goes to Gerry Sweeney of Roth Capital. Gerry, please go ahead. Your line is open.
Good morning, Daniel Solomita. Thanks for taking my call.
Hi. Good morning.
Good morning. I wanted to see if, Daniel, could you guys just remind us or update us on the full timeline or the build-out of Ulsan? It sounds as though obviously you have the ceremony on November 9th. I believe you said breaking ground by the end of the year or even maybe early next year, but then the timeline after that process.
Yeah, we're aiming for 22 months of construction and to be up and up, you know, up and producing the first material within 24-26 months. So we're... The timeline is still for, to have material from the facility by the end of 2025, beginning of 2026.
Okay, perfect. So-
The only thing we see-
22 months, construction, 24 months. Yep.
Yeah. It's the ramp-up time is obviously we can't control the ramp-up time, how fast it would take, but, you know, having it built on SK site-
Sure.
We feel that's gonna minimize any risks in startup and delays. And also, obviously, because we have the operational plant here in Quebec, that we continue to run all of the learnings that we have for the operations already, because we've been running this plant for three years, is gonna, you know, help us in the startup and the ramp-up and commissioning of the plant there.
Sure. I no doubt I think being co-located with SK and Ulsan is a definite positive.
Yeah, de-risk-
I want to go through the financing.
The de-risk-
I believe you said... Sorry.
Sorry. I was just gonna say, you know, having the plant built on SK site, having SK being in charge of the day-to-day operations and the construction, you know, completely de-risks a lot of this for us, and that's really important. I would say the only thing that, you know, we see out there is there's a very large, petrochemical complex being built next, near in Ulsan by Saudi Aramco. So we see a lot of, there's a lot of the labor pool is very tight because of this very large project from Saudi Aramco. I believe it's an $8 billion project. So we see that there's a lot of, you know, resources going towards that project. So that's the only thing that we see out there that could affect any of this.
But, you know, SK is doing a good job of mitigating any risks with that.
Got it. That's helpful. And then could you just discuss financing? I believe you said $80 million-$100 million, but I just want to confirm that. And then, if possible, any details, a little bit further details on the financing package, where you're looking at equity debt or how that's gonna work out? As much as you can at this stage, obviously.
It's a really great, it's a great financing package. You know, we looked at all different options. We obviously, issuing equity at a very low price is the last thing we wanna do at this stage, because, you know, this is the financing that's gonna affect our future, you know, valuations for the future. So we want to, you know, take our time and make sure we have the best package possible. Which is why, as I've done many times in the past, working with strategics, I find there's more value there for the company, because strategics look at this not only as an investment, but as something more for the future. So we're dealing with strategics and a government partner that, that see the long-term benefits of working with us. We've been negotiating the package for a while.
It's been agreed upon. Now it's just, you know, getting everybody on the same page to sign off and to get the timing right. You know, sometimes one of the players take a little bit longer than the others to get through their internal processes, but we would have loved to have had the financing completed for this call, but it's gonna, you know, slip a little bit.
Mm-hmm.
But, you know, the package, once we talk, you know, once we go out with the package, I think people will understand why we waited and why it's better in our scenario today to do this with strategics.
Got it. That, that's fair. And is it... Could you just remind us of the cost of the facility and walk us through what Loop is responsible for?
Yeah. So Loop is responsible for the 49% of the equity portion. So the way we have it built out is, of the total project, SK is responsible for bringing in the project finance. So that's 60% debt or higher. 60% is the minimum threshold or higher. Probably looking to use, you know, something closer to 65% or 70%, debt on the facility.
Okay.
5% comes from equipment, so 5% comes from the equipment financing. So a lot of the equipment that we buy in Germany is eligible for the equipment financing from the German authorities. So we're working with that as well to increase the debt another 5% there. So Loop is responsible for 49% of the equity portion. So if we're, you know, let's say it's 65% debt, 35% equity, then Loop is responsible for approximately 17% of the total project cost. So really, SK, you know, provides the bulk of the financing. So all of the project finance and debt is SK is arranging that on their own. Loop has no involvement there whatsoever.
Which, for me, was very important when I did the negotiations for the joint venture. You know, Loop being a smaller company, having SK's balance sheet helping on this project and all of the other projects with SK all follow the same path. So that was really important for us, which is why we gave SK the 51%, and we kept 49%. That 1% was because of the project finance and the debt agreeing upon that. The total investment cost we had guided at $400 million. Right now, we're working—like I said, there's that big project at Saudi Aramco. We're seeing labor costs increasing a little bit. The $400 million was always a ±10%-15%.
So, we'll probably guide to that little bit of that higher number because of the Saudi Aramco, but it doesn't really materially affect us that much because, again, we're only responsible for 17% of any increase. So we're very comfortable with where we are.
Got it. And final question, just, maybe on customers. So just curious if you're running any... You know, in the past, you've done some runs for, like, Evian and I think, some other customers. Just curious how the customer side of the business is coming in, and if you're gonna do any other, maybe some short, short-term runs of product for customers out of the Quebec facility.
Yeah. So we're always doing customer runs out of Quebec, so that's constant. So we're producing material every day for different customers. So, you know, customers, again, from the textile industry, the fiber side. Fiber-to-fiber is really important. So a lot of the fiber and big textile and clothing companies, they'll send us, you know, 10 tons of material, 20 tons of material. We process it for them at the facility with them on site, get it repolymerized, and turn that back into either clothing or running shoes or whatever product they're looking for to add this in. And this all comes with, you know, eventually having the contract for Ulsan or another facility. So we've been doing a lot of work.
You'll see something next year that we've been working on with one of the big apparel companies on putting out a line of something in the apparel industry. So that's gonna be a really exciting launch for us next year, which was, again, fiber-to-fiber. So fully active with all the different customers. Really, the, you know, the uniqueness of Loop's technology and the quality of our output is really what gives these customers what, you know, a big advantage, what they're looking for. Fiber-to-fiber is really the holy grail for any of these textile companies. Today, they use a lot of, let's say, mechanical recycling, where they'll take the water bottles and turn that into a fiber.
And even at that, the quality of that material, starting off with, you know, food-grade, FDA-approved water bottles to make a fiber, they still can't get the quality right, even by doing that. And so that's where customers come to us. Especially with white clothing, you really have a big challenge using mechanical recycling for white clothing, which that challenge doesn't exist when you're using Loop's material. So fiber-to-fiber going back in is really important for, for these textile companies, and we've seen a lot of activity with the textile companies. So that's really a, an exciting growing market because 66% of the global PET polyester market is textiles. So us having the technology able to do fiber-to-fiber and leading that space is really exciting for, for the future.
Got it. Super helpful. I appreciate it. I'll jump back in the queue. Thank you.
Thanks, Gerry.
Thank you. And as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. We'll pause for just a moment. As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. Thank you. It appears we have no further questions. This now concludes today's call. Thank you all for joining. You may now disconnect your line.