Loop Industries Q1 2024 Earnings Call Transcript

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Provided by Quartr
July 13, 2023

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Loop Industries First Quarter 2024 Corporate Update Call. During today's presentation, all parties will be in a listen only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, July 13, 2023, and the press release accompanying this conference call was issued after market closed yesterday, July 12, 2023.

Operator

On our call today is Loop Industries' Chief Executive Officer, Daniel Solomita Fadi 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 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 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 differ materially from these expectations. Additional information concerning these statements Related risks and uncertainties is contained in the Risk Factors and Forward Looking Statements section of our latest annual report on Form 10 ks, our quarterly report on Form 10 Q filed with the SEC yesterday and yesterday's press release.

Speaker 1

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 Sala Mehta, Chief Executive Officer of Loop Industries. Please go ahead, Daniel.

Speaker 2

Good morning, everyone. Thank you for joining us today at Loop Industries Q1 conference call. I'm Daniel Soleimeta, the CEO And founder of Loop Industries. I'd like to extend a warm welcome to all of you. We're excited to share our updates on our first commercialization Project in Asia in our partnership with SK Global Chemical or SK Geocentric.

Speaker 2

Excuse me, they changed their name recently. The project in Ulsan, South Korea is on schedule as planned on and the costs are coming in on budget as well. So that's The two most important factors, we're scheduled to break ground on the project later on this year as we had previously announced. Teams are working together on finalizing all of the engineering packages in preparation for the construction. So we've hired SK SK Eco Engineering, an in house SK's in house EPC contractor, who is finalizing all of the engineering packages and who will be leading all of the construction.

Speaker 2

On Loop's side, we're working with all of our proprietary equipment suppliers to supply the Equipment packages needed for the Olsan project. So we've begun spending some additional capital on the engineering fees for that And ordering some long lead time equipment. So breaking ground is as planned, as scheduled for the end of this year. So that's really good For our first Asian project, customer demand for the Olsson project is at an all time high. The ability to recycle fiber to fiber, so polyester fiber to polyester fiber recycling is really important for the Asian market.

Speaker 2

All of the supply chain for polyester fiber is in Asia. So all of the big textile and fast fashion companies, Everything today, most of our clothing and running shoes are made in Asia. So it's a tremendous opportunity for us with our technology to be Really the only technology able to fully complete the circularity for the textile industry. That's driven demand with all of the large textile So demand is extremely high and that we always have our stable customers that have been with us throughout the years. All the customers for Olsan are today buying from our manufacturing facility in Terban.

Speaker 2

So they're very familiar with Loop's technology, very The quality of our output and the ability of our technology to recycle material that cannot be recycled today. So that's Really important. So strong very, very strong customer demand. Loop and SKGC's teams are working together on all aspects. So feedstock sourcing, which we expect majority of the feedstock for the Alsan facility to be coming from waste textile.

Speaker 2

So that's a key differentiator for us over other people in the recycling industry. So that's material that cannot be recycled today. Then you have your customer side and all of the engineering and construction. So project is moving really well. In Q1 as well, We signed our first LOI for the Allsan facility with On Shoes.

Speaker 2

The Swiss shoe company makes their cloud shoes. So again, that's the ability for us to go fiber to fiber is really what all of the textile and clothing industry wants, and we're able to deliver that for them. So that was a really interesting partnership and we've been working with Anshoom for many years. They've been a customer of our facility here in Turban. As far as the French project, the French project is moving really well.

Speaker 2

We have a lot of obviously customer demand in France through our large partnerships with companies like Danone, L'Oreal, L'Occitane. So they're all very supportive of the French project and they're all really behind the French project because they'd like the waste in France coming into their packaging. That's our Loop SKGC and SUEZ partnership. So it's a 3 company partnership. Each company brings in their area of expertise, SUEZ the waste plastic, Loop Technology and customers and SKGC, the engineering and construction piece.

Speaker 2

So all 3 CEOs, myself, Mr. Na from SK and Sabrina Sousan from SUEZ, we're recently with the French government in France. We have full support of the French government for the project. We hosted Frank Leroy, who is the President of the Grand Est region at our offices about a month ago. They were extremely excited and impressed by the technology, what they saw, our ability to co market and co brand with the customers, Being able to get Loop's logo on the packaging was something that was really impressive for them, and it really shows the dedication of the customers to our very unique product.

Speaker 2

We continue to execute at our head office here. Fadi will get into the numbers a little bit more, but our cost reduction Efforts have been working very well. So that's something that we've been very cautious with, protecting our cash, and we're doing a really good job of that. When we start the breaking ground of the facility in Ulsan later on this year, the joint venture will be repaying us certain expenses. So we've already started charging expenses With that, I'll pass it over to Fadi, so that he can go through the numbers in more depth with you.

Speaker 3

Thank you, Dan. It's

Speaker 4

good to present to you guys again. I felt like we do it not that long ago. It was May 19. So we're 7 weeks older and 7 weeks wiser in our evolution. Dan gave a really thorough description of where we are with the projects.

Speaker 4

At the same time, we are managing our day to day expenses. And you will see the results. We have a financial presentation that's now on our website, so it gives you some detail on the financials that have transpired over the last 3 months. So I'm thrilled with the results for the 3 months ended May 31, Compared to the equivalent period of last year, you see R and D is down to the tune of 35% From $6,800,000 to $4,500,000 G and A is down by 25% if you Exclude the one time RSU milestone achieved in the Q1 of last year, So 35% in R and D, 25% reduction in G and A and total expenses are down 30%. Again, if you The one time RSU milestone last year.

Speaker 4

So really, really thrilled that we're able to show that meaningful of a reduction. I wanted to walk you through a little bit about the results for the current quarter. Dollars 7,000,000 of expenses is high Given the guidance that I gave 7 weeks ago of our cash burn rate being in the vicinity of kind of $15,000,000 per annum in This fiscal year and diving to $12,000,000 in the next fiscal year. So $7,000,000 does appear, but allow me to explain why that is. In the R and D caption, there's 2 items, which are exactly what Dan alluded to.

Speaker 4

They're project costs that we spend And accounting rules don't allow us to capitalize that on our balance sheet, so we expense it. But later on in the year, we're going to get a massive And from the joint venture in OSAN for these type of costs. So there's going to be some lumpiness in our results. That's why when I'm guiding you towards the $15,000,000 $12,000,000 that's an annualized amount. Intra quarter, there is going There could be some lumpiness.

Speaker 4

So there's $1,200,000 related to our polymerization equipment that we accrued for in the current quarter. There's about $900,000 of project costs related to Alsan, which are going to be part of the receivable that Dan mentioned. So That's about $2,200,000 that we're going to get reimbursed later in the year. And then if you back out stock based compensation,

Speaker 3

which we all know is non cash and

Speaker 4

depreciation expense, which we all know is non cash and depreciation expense, our cash burn rate for the current quarter Was $4,000,000 So right in line with the $16,000,000 We have other initiatives that we're going to Ignite in the next quarter or 2 to reduce cost savings. So all those things are in flight. We have Perfect alignment between all the department heads that we need to be responsible for our cash spend. We're not going to be short term Focused on that. Anything that feeds the long term innovation pipeline of Loop, that's something that we want to spend.

Speaker 4

So it's not about optimizing around the current year results, But it's about protecting the liquidity that we have on hand and the receivables, the future liquidity that we're going to get To make sure that we build the bridge between 2023 2026 when Ozan is operational. So I feel good about the liquidity. I feel good about the run rate. It is going to be lumpy. I will ask that you leave that with me and I will explain the details every single quarter so you can model that up.

Speaker 4

So we have plenty of dry powder to get us through to that. And I feel good with where we are on the cost control side. But we look forward that's all I have for today. And I'm happy to answer any questions. If you guys have a chance look at the presentation and you have other questions, I'll ask that you direct them to Kevin and myself and we'll be happy to answer them.

Speaker 4

Thank you.

Speaker 1

Okay, operator. We will take questions now.

Operator

Thank Our first question today comes from the line of David Quezada with Raymond James. David, please go ahead. Your line is open.

Speaker 5

Thanks. Good morning, everyone. My first question here, I guess, maybe we'll start with Olson. Just curious if you could just remind us If there are any meaningful hurdles left to breaking ground there. And I guess maybe a related question, when it comes to The equity contribution you'll be putting into that facility, does that need to happen prior to groundbreaking or could that be something that happens during the construction process?

Speaker 2

Hi, David. Thank you very much for the question. So hurdles for Olsson, we're finalizing all of the SK's engineering team is finalizing all of the Information packages and construction packages to break ground later on this year. We're planning a ceremony in Ulfand For the groundbreaking later on this year. So as far as hurdles, there's not much.

Speaker 2

Everyone's very dedicated to the facility, but The engineering has to be completed. The construction packages have to be completed. We'll be starting to finalize all of the customer contracts for the facility. So we're planning on Selling out about 50,000 of the 70,000 tonnes locked in long term supply contracts and leaving 20,000 tonnes for the spot market. We believe that in 2025 and beyond, the price of our material will be meaningfully higher Because of more government regulations coming in and the need for brands to have more recycled content and especially recycled content of the quality that Loop can supply, which is really in demand because as these targets get put in, the mechanical recycling industry is really suffering because the quality of the mechanical recycled product It's getting worse and worse, and the quality of the packaging is becoming worse and worse.

Speaker 2

And so that's really a big concern for the CPG companies. So having the quality that obviously the virgin quality that Loop can provide to the marketplace is in very, very high demand because The brands don't want to have these gray or really charcoal looking bottles. They really want the quality that we can provide. Think you guys saw we sent in this quarter we launched the product with L'Oreal in the U. S.

Speaker 2

In the Ulta stores. It's a Mercilla water package and the quality is just Christine, so that's really what the customers are looking for. So that's one thing that you'll see from now to breaking ground is all of The 50,000 tonnes being signed up and locked into long term supply agreements with certain customers. As far as the financing, To answer your question, we're finalizing the financing with our partners. So we're looking we're working with our customers, partners and strategic On helping with the financing for the facility, the facility actually the Spend is so 20% at groundbreaking, 40% 6 months later and 40% 6 months after that.

Speaker 2

So that's the way the cash So it's not everything upfront from day 1, but it is over a year that the cash has to be put into the project. So that answers, I think, that question.

Speaker 5

Excellent. That's great Color. Thanks for that, Daniel. And then maybe just in France, I know at the site there, I think you're working on permitting Offtake agreements and financing. Maybe with permitting specifically, could you just is there any update you implied on Where you are there, what significant permits do you still need and any other details you can share on where that Project stands.

Speaker 2

Yes. So the project is very important for everybody involved. It's the customers Mostly, I think, for the customers in Europe to really have a facility in France, supplying them with the packaging is hugely important. So Strong support from all of our French brands. The French government is fully supportive of the project with providing a significant amount Of capital to the project in the form of subsidies, so the local government and the federal government there as well as well as The EU.

Speaker 2

So we're in the public consultation phase where you present the project and the public has a certain amount of days to be able To comment on the project, ask questions on the project. So those are all the things we're going through right now. The plant is being built on an existing Petrochemical Complex. So as far as regulations are permitting, we're well within all of the different requirements for that Chemical Park, so we don't see foresee too many challenges on the permitting. The French government has actually put an initiative in to start reducing the Permitting time, so they're trying to go from 18 months to 12 months.

Speaker 2

So we're in the middle of all of this. So we're working very closely with the governments seeing how they can reduce timing for the permitting. But yes, all three companies are really on board with the project. I said, we all met in Paris not too long ago with the French government, with Macron, and we're all pulling towards making that project a huge success As our first of many possible projects in Europe as this 3 company partnership.

Speaker 5

Okay. Excellent. Thanks for that, Daniel. And then maybe just going back to your comments Around contracting for Olsson and the 50,000 of the 70,000 tonnes getting contracted. Do you see that like do you feel like you have line of sight on that happening, I guess, by the end of this year?

Speaker 5

And is there any Update you can provide just on how far towards that 50,000 tonne target you are? Yes.

Speaker 2

So we have the 50,000 target is going to be purchased by 4 customers. So we're just finalizing the contracts with the 4 customers. There are 4 customers that were that have been working with us for many years. So it's just about finalizing the details on the All SAN contracts. But yes, we'll have 4 main customers taking down 50,000.

Speaker 5

Okay, excellent. Thanks for that.

Speaker 4

Yes, that will be all

Speaker 2

the contract sorry, just to clarify, those will all be

Speaker 5

And then maybe just one last one for me. Just with respect to I mean, certainly on cost reduction, I think you've made some really good progress. I appreciate the comments that Fady made about The proportion that can be clawed back, is that or I guess, I don't know if clawed back is the right word, but just, I guess, charged back from the projects. And just to confirm from a modeling perspective, do you expect that to happen in the Q4?

Speaker 2

Yes. So in the Q4, so Long lead time equipment, from even from the long lead time equipment we had orders from Beck Concours that we said we were going to be using for oil sand. So that's A project charge that's going to be sent back to us at the breaking

Speaker 3

Actually seeing as much detail as you can give. I understand that some of it is not completed or not in a position to discuss. Thank you.

Speaker 2

Yes. So as far as the CapEx of the project, our estimate was always approximately $400,000,000 So that's We're in that range of $400,000,000 We'll have a final number later on towards the end of the summer, beginning of the fall, Once SK E and E finishes all of their EPC work that's needed, so that's where we are on the CapEx. Both companies are working really hard to be able to reduce CapEx numbers. So that's another thing that SKE and E and SKGC and Loop are all working together on those Things, labor costs in Korea and things of that nature. And then as far as project finance, that's really SK's Responsibility, so within our joint venture, SK is responsible for all of the project finance, all of the debt for the projects.

Speaker 2

So they're responsible and guarantee 60% of the debt. So Loop has really no recourse to Loop. So we're not really involved in those discussions. SK has their banking syndicate lined up for all of the debt needed for the facility. Above the 60% we bring in for all of the projects all of the proprietary equipment such as the polymerization, All of the other reactors and all of the other proprietary equipment, that's where we work with the finance equipment financing to go above the 50% debt and use all of the equipment financing as extra Debt onto the project, so roughly another 5%.

Speaker 3

Got it. Understood. And then just One question on the feedstock. Obviously, you're looking at the textile market and polyester. Is this waste polyester coming out of The waste streams or is it sort of excess or used up or low quality polyester coming out of the like sort of post industrial waste

Speaker 2

So it's a little bit of everything, to be honest with you, Jerry. There's going to be post industrial waste from sewing Therese from big clothing companies. There's going to be waste polyester post Consumer stuff as well, waste polyester there. And then you're going to have also some rigid packaging. So our bottle customers want would prefer the Feedstock coming from packaging.

Speaker 2

So you'll have in Korea, they have brown beer bottles that have a barrier layer within them. So again, that's a feedstock only. Loop technology can break down. So that's going to be an important feedstock. Then there's all of the trays, which is when you go to the store and you buy, let's say, a bucket of strawberries or blueberries, that type of material, which again can't be recycled by mechanical recyclers.

Speaker 2

So that's another great feedstock for us. The collection of that in Korea today is not organized. So SKGC is starting to organize that collection with the Korean government. So other materials such as PET mix with PVC, again, that cannot be recycled. But because of our low temperature technology, We break down the polyester and PET and all of the PVC comes out of the stream.

Speaker 2

So we have all those different feedstocks. Again, the feedstock is Mainly SK's responsibility because they're local, they have the people on the ground, but we support them in all of the testing. So all of the qualification before signing a With feedstock suppliers, we get material here at our Terbun facility. We test it. We make sure we give the data back and check the P and P percentage, make sure that What we're paying for the material is worth it.

Speaker 2

So we're working and collaborating together. But I think over 70% of the feedstock for the facility is already locked up In agreements.

Speaker 3

Got you. That's super helpful. It's like the same big diverse market And inputs for the feedback.

Speaker 2

Polyester fiber is one that's really we're really going to take advantage on the polyester fiber side because the fibers come with many different colorings and dyes. If you use any type of technology that has any type of heat in it, you can't use that You can't remove those dyes and those colorants. So that's where MOOF's technology has a huge advantage because of that those dyes that get put into the textile industry that we can remove.

Speaker 3

Got you. And then one last question. I'm assuming the All Sand facility, you will receive a royalty off the top, correct?

Speaker 2

Yes. So we own 49% of the equity in the project, so 49% of the profits. And we also have a royalty fee that's paid back to us, Which is a percentage of top line revenue.

Speaker 3

Got you. All right. Thanks a lot. I really appreciate it. You're welcome.

Speaker 2

And all the material from Wolfson is sold under our brand, so it's a Loop branded product to our customers.

Speaker 3

Got it. Thanks again, Tana.

Speaker 2

My pleasure. Thanks, Jerry.

Operator

At this time, we have no the management team for any further remarks.

Speaker 2

No, I guess that's it. Thank you very much for dialing in and We'll have an exciting few months here before we talk again in October. Like I said, customer contracts should all be finalized and announced by then. We'll have our financing in place. So Everything is on schedule and on budget, so we're really excited.

Speaker 2

Thank you.

Speaker 3

Thank you. Thank you for your time. Have a great day.

Operator

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

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