Loop Industries Q2 2024 Earnings Call Transcript

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October 16, 2023

There are 6 speakers on the call.

Operator

Welcome to Loop Industries' 2nd Quarter 20 24 Corporate Update Call. This conference is being recorded today, October 16, 2023, and the press release accompanying this conference call was issued this morning, October 16, On our call today is Loop Industries' Chief Executive Officer, Daniel Solomita Bady Mansour, Chief Financial Officer and Kevin O'Dowd, VP of Communications and Investor Relations. Would now like to turn the conference over to Kevin to read the disclaimer about forward looking statements.

Speaker 1

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 security 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 in Today's press release, copy of these documents are available at sec.gov or from our Investor Relations department.

Speaker 1

At this time, I'd like to turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries. Please go ahead, Daniel.

Speaker 2

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 with in partnership with SK Geocentric, Which is going to be built in Ulsan, South Korea on SK's large industrial complex and petrochemical complex.

Speaker 2

So we're at the final stages of the development for the plant in Olsan, 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 9, 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, local government, federal officials will be there.

Speaker 2

Some of our customers will be there as well, media, environmental So it's a really exciting project. The Olsan Arc is where Hoops technology will be housed. It's a petrochemical complex. It has 2 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.

Speaker 2

Customer demand is very high for the products from Ulsan, from the fiber players in the textile industry, fiber to fiber recycling, which loops technology can handle This 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 Luke produces is always 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 all sand customer base. We are in very advanced negotiations with a few strategic partners and government partners for the required equity funding for all And 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.

Speaker 2

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.

Speaker 2

We don't need the funds until after Breaking ground on the Infinite Loop Olsson project and that's scheduled that's on schedule for the end of this year. Like I said, depending on the final investment costs on Allside, which is approximately $80,000,000 to $100,000,000 we've decided to up we upsized 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 Olsan Arc. For our French project, We are in a public consultation.

Speaker 2

So the French project is moving forward with SK Global SK Geocentric 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 Fadi, our CFO to go through some of the financials.

Speaker 3

Thank you very much, Daniel, and it's great to be here again. Totally concur with Daniel. We're at the Later stages of the final investment decision that leads to the construction of the facility and 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 the top priorities. 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.

Speaker 3

If you have the analyst package in front of you, I'd love for you to turn to The P and L, which is Page 2 of the document. And there you'll look at the results for the quarter. Ordinarily, negatives Are mean not good use, 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.

Speaker 3

The only one that doesn't is foreign exchange, which We can't control foreign exchange gyrations between the Canadian U. S. Dollar. So expense reductions across the board and not only expense reductions, Significant ones. And we're talking I mean, in the R and D function, we're talking about reductions to the tune of 46%, Almost just under the 50% threshold.

Speaker 3

On the G and 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. And I'm very, very proud that overall, our The finance things that we've been working on is you see just one line interest income where last quarter we had $10,000 and now we've got $219,000 So 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.

Speaker 3

And inverted yield curve benefits savers on the short end and borrowers of the long end. We happen to be Door number 1. 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 Look at our cash burn rate from our P and 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 going to be recoverable from the joint venture.

Speaker 3

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 going to get them back. And the cash run rate for the current quarter is $4,100,000 which amounts to about $1,360,000 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 going to be between $1,000,000 $1,200,000 So I still feel very comfortable. I was guiding towards a $50,000,000 run rate for fiscal 2024. I think we're actually going to get there for full year 2024, Not land out there because just the $1,000,000 to $1,200,000 is implying kind of $6,000,000 to $7,500,000 of back office expenses.

Speaker 3

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 Othman plant. If we turn to the balance sheet, which is 2 pages later, you see we've got $13,400,000 of cash and another $1,000,000 of restricted cash. So let's call it $14,000,000 If I can pander The cash, let's call it $14,000,000 If I can pander to the accounting gods, I would have had a receivable of About $16,000,000 from the joint venture from SK, which we expect to be recoverable in the next fiscal cycle sometime in 2024. So between the $16,000,000 and the $14,000,000 we've got $30,000,000 of liquidity that we can use In the service of paying our fixed office expenses until such time that we got the plans in OSAN running, We'll be able to get some royalties with a little Luxembourg 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 3 years of liquidity on hand, which is exactly the same timeframe that we To generate funds and return on investments from the plan.

Speaker 3

So we are in really, really good financial stead. We are in good liquidity stead. We are never going to 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 continues to be done.

Speaker 3

And we're in really good financial stead from a liquidity perspective. With that, I'll turn it over to questions.

Operator

And our first question today goes to Gerry Sweeney of Roth Capital. Jerry, please go ahead. Your line is open.

Speaker 4

Good morning, Daniel Fadi. Thanks for taking my call.

Speaker 3

Hi, good morning. Good morning.

Speaker 4

I wanted to see if Daniel, could you go just Remind us or update us on the full timeline of the build out of Olsan. It sounds as though Obviously, you have the ceremony on November 9. 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?

Speaker 2

Yes. We're aiming for a 22 months of construction And to be up and up and producing the 1st material within 24 to 26 months. So The timeline is still for to have material from the facility by the end of 2025 beginning of 2026.

Speaker 4

Okay, perfect. So The only thing we see

Speaker 5

The only thing we see The only thing we see The only thing we see The only thing we see The only thing we see The only thing we see The only thing we see The only thing we see The

Speaker 4

only thing we see The only thing The only thing we see The only thing The only thing Yes.

Speaker 2

It's the ramp up time is obviously we can't control the ramp up time how fast it would take, but having it built on SK site, we think that's going to Minimize any risks in start up 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 3 years is going to help us In the start up and the ramp up and commissioning of the plant there.

Speaker 4

Sure. I no doubt I think being Co located with SK and Ollsanta, it's a definite positive. Yes, de risk, I believe you said Sorry.

Speaker 2

So I was just going to say having the plant built on SK site, having SK being in charge of the day to day operations and the construction Completely derisks a lot of this for us and that's really important. I would say the only thing that we see out there There's a very large petrochemical complex being built next near in Olsan 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 $8,000,000,000 project. So So we see that there's a lot of resources going towards that project.

Speaker 2

So that's the only thing that we see out there that could affect any of this. But SK is doing a good job of mitigating any risks with that.

Speaker 4

Got it. That's helpful. And then could you just Discuss financing, I believe you said $80,000,000 to $100,000,000 but I just want to confirm that. And then If possible, any details, a little bit further details on the financing package, whether you're looking at Equity debt or how that's going to work out as much as you can at this stage, obviously?

Speaker 2

Yes. I Vivek, it's a really great it's a great financing package. We looked at all different options. We obviously issuing equity at a very low price is the last thing we want to do at this stage Because this is the financing that's going to affect our future valuations for the future. So we want to be take our time and make sure we have 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 and the government partners that see the long term benefits of working with us.

Speaker 2

We've been negotiating the package for a while. It's been agreed upon. Now it's just Getting everybody on the same page to sign off and get the timing right. 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 going to slip a little bit. But the package, Once we talk 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.

Speaker 4

Got it. 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?

Speaker 2

Yes. 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 Something closer to 65% or 70% debt on the facility. 5% comes from equipment.

Speaker 2

So, 5 comes from the equipment financing. So a lot of the equipment that we buy in Germany It's 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, let's say, 65% debt, 35% equity then Loop is responsible for approximately 17% of the total project cost.

Speaker 2

So really SK provides The bulk of the financing, so all of the project finance and debt is SK is arranging that on their own, Luke Has no involvement there whatsoever, which for me was very important when I did the negotiations for the joint venture, 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 $400,000,000 Right now, we're working like I said, there's a big project in Saudi Aramco. We're seeing labor costs increasing a little bit.

Speaker 2

The $400,000,000 was always a plus or minus 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 Surely affect us that much because again we're only responsible for 17% of any increase. So we're very comfortable with where we are.

Speaker 4

Got it. And final question just maybe on customers. So just curious if you're running any In the past, you've done some runs for like Avion and I think some other customers. Just curious how the customer side of the business is coming and if you're going to do any other maybe some short term runs of products for customers out of the Quebec facility?

Speaker 2

Yes. 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 customers again from the textile industry, the fiber side, fiber to fiber is really important.

Speaker 2

So a lot of the fiber and big Textile and clothing companies, they'll send us 10 tons of material, 20 tons of material. We process it for them at the facility with them on-site, Get it re polymerized and turn that back into either clothing or running shoes or whatever products they're looking for to add this in. And this all comes with Eventually having the contract for all sand or another facility. So we've been doing a lot of work. You'll see something next Something in the apparel industry.

Speaker 2

So that's going to be a really exciting launch for us next year, which was again fiber to fiber. So fully active with all the different Really the uniqueness of Loop's technology and the quality of our output is really what gives these customers 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 or it'll take the water bottles and turn that into a fiber. And even at that, the quality of that material starting off with food grade FDA approved water bottles to make a fiber, they still can't get the quality right even by doing that.

Speaker 2

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 loops material. So fiber to fiber going back in is really important for these Textile companies and we've seen a lot of activity with the textile companies. So that's really 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

Speaker 4

the future. Got it. Super helpful. I appreciate it. I'll jump back in queue.

Speaker 4

Thank you.

Operator

Thank you. It appears we have no further questions. This now concludes today's call. Thank you for joining. You may now disconnect your line.

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Loop Industries Q2 2024
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