Q2 2023 Loop Industries Inc Earnings Call
Thank you for your patience everyone. The leaf industries Q4 earnings call will begin shortly during the presentation you have the opportunity to ask a question by pressing star followed by one on your telephone keypad.
[music].
Good morning, ladies and gentlemen, thank you for standing by welcome to today's late in the second quarter 'twenty twenty-three corporate update call. During today's presentation. All parties will be in a listen only mode. Following the presentation at the conference will be opened for question.
If you would like to ask a question today. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by Chi. This conference is being recorded today October 13th 2022, and the press release accompanying this conference call. It was issued after market close yesterday I'll tell you with 12 'twenty to 'twenty two.
Cool today is leap industries, Chief Executive Officer.
Lisa Daniel So Lamesa, Chief Financial Officer Drew Hickey I'm, 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.
Thank you operator before we get started let me remind you that today's meeting will include forward looking statements within the meaning of 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.
Getting 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 and related risks and uncertainties is contained in the risk factors and forward looking statements section of our annual 10-Q filed with the.
C C yesterday in 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 solid meter Chief Executive Officer of Loop Industries. Daniel. Please go ahead.
Thank you Kevin Good morning, Thank you to everyone joining us I'm very pleased to share it loops progress and our financial update with you today.
You made the big the big item is the beginning of revenue from our turbine facility. We've spent the past seven years perfecting our technology from lab scale to pilot scale demonstration scale and now having a production facility in <unk>, where we're producing.
Five days a week, we run 24, 724 or five so 24 hours a day getting all of the learnings and all of the data from the plant.
It goes a long way into ensuring a very successful scale up for our larger facilities and the scale up it is at a very reasonable size scale up. So we're really pleased with that the amount of learnings and the data we've been able to achieve from our facility here has been tremendous.
So first revenues was modest at $135000 of revenue.
And that went to supply you know, leading our global brand companies such as on a G. A Swiss running shoe company with 100% recycled Virgin quality P. T resin that was spun into polyester fiber for their brand.
Yesterday, we announced another product with luxury townhome protocols are the French.
Cosmetics and soap company. So very proud of this package that we did with lucky time.
We have other programs coming up with other customers over the course of the year or so.
That's really a true testament to all of the employees here at loop the operators the engineers on getting that plant up and generating revenue for so for US that's been a really big a really big milestone for the company.
You know, we're going to continue to produce material for other customers that we have either for this facility or it's also segways into contracts for the larger facilities.
Still use the facility here in Terrebonne for some training and R&D activities. So when a customer asks us to do something special for them with a certain type of feedstock or our partners that Suez or SK global chemical wanted tests. Some type of feedstocks you know they'll regularly send us a few containers full of material test up material here. So it's <unk>.
<unk> plant, but we still use it it's very flexible we still use it for any type of R&D or training facilities that any of our partners such as S. K oar Suez need.
So you know the guys here that are working are doing a tremendous job. So we're really happy with that.
Initial volumes you know, we'll be seeing at the beginning it's not going to be the volumes are going to be a little bit uneven initially until we start ramping up the production.
So I'm looking forward to two increased volumes coming in the next years.
So again the turbine upgrades are complete now Capex is completed here we've done a we've done everything so now at this point you know we're proving that the technology can work at scale running continuously 24 hours a day. So that's.
That's really been a huge milestone for us as.
As far as our projects advancing.
Obviously, we have the project in France, with Lupin Suez know SK geocentric, our partners in Korea have become an equal partner and the European facility. So all three companies are working together well.
We're evaluating the optimal location for the European facility.
Each company brings their own specialty to the table, so Suez waste feedstock SK engineering and operations of the plants loop brings in the technology and our customer base.
As far as the Korean facility, where we can good progress with our partners in Korea on adopting the engineering for the Korean market.
So the old Sun project is moving forward very well and we're still scheduled to break ground on that facility next year are we continue to evaluate.
All of the financing options available for these facilities, obviously, that's a really important thing that we're working on so working for all of our projects on the government financing.
I'm working with investment banks on an answer on being able to finance the facilities.
Trying to get as much non dilutive capital through government customers partners as possible. So that's that's advancing well.
Quebec, we still we have the supply agreements with certain companies that we've announced for the Quebec project, we're still discussing.
Discussing finalizing discussions with the Canadian and Quebec governments for the financing there so.
So that's that's moving along well.
Government regulations is still playing a big part in the pricing power. So you see the European regulations, where the price of recycled.
P E T and RPT is remaining high and staying very high and projected to remain very very high.
Canada's putting those same type of targets, 50% recycled content by 2030, California's doing something very similar so we continue to see governments, playing a big role.
And the prices and the and the pricing power of our products again.
A very unique product to the customers the Virgin qualities of the look of the plastic is exactly you know dropped in supplements for the the Virgin material, but coming from a 100% recycled recycled content. So that's.
So that's the value proposition to all of their customers and that plays into the brands commitments for more recycled packaging.
So obviously, the higher prices and our ability to take very low quality and low cost feedstocks continue to have a positive impact on our target project economics and returns for our projects.
With that I'll hand, it over to drew.
Thank you Daniel on the financial side.
In the second quarter ended August 31st Loop recorded first revenues as Daniel mentioned of one 4 million from the sale of a 100% recycled loop P T resin.
Producer monomers manufactured at the terrible in Quebec facility.
Our revenues involves sales to several global consumer brands.
The net loss for the second quarter decreased <unk> 7 million to $7 7 million as compared to $8 4 million for the same period in 2021.
The decrease is primarily due to reduced R&D expenses of $1 5 million.
Partially offset by increased G&A expenses of <unk> 9 million.
R&D expense reduction in the quarter was primarily a true attributable to.
A $1 3 million decrease in purchases of machinery and equipment at the terrible and facility.
It's been substantially completed.
<unk> 7 million increase in tax credits recorded as a reduction of R&D expenses and a <unk> 1 million decrease in plant and laboratory operating expenses.
These decreases were partially offset by a <unk> 7 million increase in employee compensation expenses related to increased head count in our in house engineering and commercial project teams.
For the six months period ended August 31, 2022, the net loss increased by $5 2 million to $25 7 million as a pair as compared to $20 6 million for the same six month period in 2021.
The increase was primarily due to increased G&A expenses of $8 8 million.
Of those G&A expenses, they were primarily attributable to an increased stock based compensation expense of eight and a half million.
Of which $7 7 million was related to the achievement of a performance milestone for a million restricted stock units. The R. S use which are non cash expense will vest in equal amounts over a five year time period.
Excluding the one time performance milestone for the RF skews, the first half loss would be $18 million.
The sale of excess land there back in court in September added $8 7 million of cash the loops quarter end cash balance of $23 million.
And a $2 7 million Undrawn loan facility.
Combined new pad approximately $34 4 million of liquidity near the quarter end Danny.
Daniel.
Hum.
I'll continue are terrible in production and revenues are advancing our customer partnerships and our financing plans and the increasing pressure from government regulatory requirements for recycled plastics continues to support strong demand for recycled P E T.
We're excited to be commercializing, our technology with our strategic partners to address the global challenges surrounding plastic waste and global warming by bringing a circular solution to our customers the.
The progress we have made along with the support of our strategic partners positions <unk> well to proceed with the commercialization of our technology on a global scale.
I'd now like to open the call to questions for our listeners operator.
Sorry, I was on mute when I was when I was talking on mute thanks for jumping in drew.
No problem.
Thank you we will now begin our question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by <unk>.
First question today is from David because he died from Raymond James Your line is now open.
Hey, Thanks, good morning, everyone.
My first question is just on the on the the new bottle with a law and there is certainly an exciting development there I'm just curious.
How you expect that relationship to develop and do you think that could it could ultimately be a supply contract for the Bacon court facility or would that most likely would they most likely wait until you had a facility in France.
So we actually we already have a supplier. Thanks for the question, we already have a supply agreement with luxury time, there whenever our customers. So we're under contract with them and we'd be able to supply the material from the.
The backup care facility.
Yeah.
Okay excellent and then just.
Turning to financing them and I appreciate the comments that things are still moving forward with them.
With the government I'm just curious.
Daniel if you could provide some more color on are you.
What kind of contingencies do you have in place you know if if it if it's delayed a little bit would you consider potentially looking at a a strictly a licensing model.
So I guess, maybe buy you some time lets say wondering if one of your partners were to move forward with the facility could it be a licensing situation just any and it curious about any thoughts about how how you proceed from here.
So I guess you would discuss at your you would be you would be talking more about the Korean project Thats scheduled to break ground in May of next year, Yeah exactly yeah.
Yeah. So obviously you know S case, a very important customer of ours, there are 10% shareholder of loop.
So they bought 10% last year at $12 a share we have a fantastic relationship with SK, they're very very motivated to build out the first plant and also South Korea, but also expand the technology to other countries in Asia. So art technologies like a center piece of that strategy that they have about you know.
Being a leader in plastic recycling all across Asia with their cluster technology that they've been pretty vocal about in the Korean newspapers. So obviously ask is is there they're the.
Our technology being a centerpiece allows it.
It gives us a lot of flexibility in their willingness to support us so they understand the markets and the condition of the markets. Today. So I would say that all options are on the table a license. It's a licensing only option you know would be available if that's what we choose to do for.
For the Korean project, having S. K as you know a.
Partner, there and really laying off all of the operations to them in the building of the plants is really all of their responsibility. The feedstock is also their responsibility. It's co located on their existing site. So we feel that that project is is if if we want to contribute to capital.
That project is very bankable, so you don't get it.
The ability to borrow money for that project.
It's probably the easiest project finance because of the partnership.
But any any option is available to us and if we if that's something we choose to do and doing a license only then that's definitely a possibility.
Okay Awesome. That's that's great color appreciate that Daniel and then maybe maybe just one more for me on a.
From a higher industry kind of level.
And I certainly appreciate that you can't talk about kind of supply contracts until they happen, but I.
Just wondering if you could talk about the tenor of your conversations with potential buyers. If there are any sort.
Sort of sub industries that theme you know, particularly.
Hum.
It doesn't are gaining momentum and then maybe just.
I know 2025 is a big year for a lot of recycled content in target when does when do these are you know brands. These global brands need to really start getting serious about recycled.
Recycle.
Materials in order to meet those 'twenty 'twenty five targets.
I see Europe as being you know right now Europe is already leading the way. So all brand owners that sell packaging into Europe have that pressure. The 2025 is a huge pressure dates for those brands in Europe .
And so we see that the European market is continuing to lead the world in in pricing. There. That's a very very strong market because the need is definitely there in North America right now until the legislation comes in in Canada, which is obviously a smaller population, California.
That's gonna put more pressure on the north American brands to be more committed to recycled content no matter what the economic environment is like we see a lot of headwinds in the fiber space. So a lot of interest from the fiber companies do get more recycled content into their fibers because of loops technology.
Now you can get.
Any type of fibers that you can get the finer fibers that would not be available through let's say a mechanical recycling and so we see a lot more activity there on the fiber side with those brands be coming much more active not only for the final product, but also the ability to recycle their waste either industrial waste from their scrap which is.
Mainly located in Asia, because most of the supply chain for polyester fiber is in Asia. So the ability to take industrial waste from the manufacturing process and turned that into a new fiber or the take back programs, where more and more brand companies on the fiber space or looking at taking back garments once you've used them you get it.
In store credit and then that gets put into the recycling system. So so that's a pretty unique opportunity that loops technology allows for those fibers to be recycled because you.
You don't typical garments, if you think about them theres, a polyester in cotton and polyester and nylon theres buttons and zippers all these different materials and construction. It makes it really complicated to recycle because anyone using any type of high heat or pressure to break apart the plastic or does simply melted down into a new process to a new shapes such as mechanical recycling.
Has to remove all of those other particles before trying to recycle it than that.
Virtually impossible, so loops low low temperature technology allows for the button zippers the nylon the costs into Allstate hole and then we could simply filtered out out of the process. So that's that's a huge part of the supply chain, especially for our Asian plants all of our plants will be working with fibers, but so we see a lot of headwinds coming from that industry.
[laughter].
Okay excellent. Thank you for that I'll turn it over.
Our next question today comes from Gerry Sweeney from Roth Capital. Your line is now open.
Good morning, Daniel to Kevin Thanks for taking my call.
It's a pleasure.
Hum.
Well first of all congratulations on the on.
On the revenue side and shipping the material from the term loan facility.
Thank you.
Digging a little deeper on that side obviously.
That facility has been up and running you had been doing batches, but now we're starting to see it in the products. They AVR.
<unk> loss.
The loss of time.
Upcoming product have you gotten any feedback on not just the material, but the quality of the processing how it's.
Acting throughout the supply chain because obviously that's.
Theres, a certain level of comfort I think that would come.
Come with that when from some of these off take agreements in the future, especially on the larger facilities.
Yeah. So definitely you know before we actually generate the revenue with these customers. We've had long standing relationships. So we've sun tons of material to them more in an R&D a world and not so much as far as selling them a product we would use it as before instead of booking it as revenue we were booking it is less.
Less losses on the R&D side, because the material was used in the more of an R&D function. So the testing of the material getting the customers into converters comfortable with the material you know, making sure that it's a drop in supplement for Virgin P. T that there's no difference in in anything that they need to do so all of that work was done you know over the past few years.
Ours are with all of these different customers. So it takes about I'd say 18 to 24 months to qualify a customer you know generally couple of site visits sending material smaller samples you know maybe 250 K G. Maybe a ton than sending larger samples for production purposes. So.
So yeah, we have a lot of you know obviously, great feedback on the quality of the product. If you look at let's say a virgin quality materials. So it made from the petroleum industry a bottle made from loop and then a bottle lets say with mechanically recycled material you can see a distinct difference in the quality that you between the mechanical recycling, what we provide the customers.
And you know loops material versus the other.
For the petroleum industry is in basically indistinguishable. So yeah. There's a lot of work that goes into getting that up to the production because customers really want to understand the product understand especially on the feedstock side. So linking what feedstock was made for these bottles right carpets.
Carpet fibers all of this waste that no one else can recycle so some customers even go through the pain of sending us feedstock and then we use that feedstock to produce a product for them because they wanted coming from a specific type of feedstock. So yeah. It's been years of work to get to this point because the customers want to you know make sure of every step of the.
LCA is very important for the customers as well so they'll spend a lot of time looking at the lifecycle assessment, making sure that the lifecycle assessment is better than the other alternatives out there as far as the environmental footprint. So that's.
That's a it's a very long process. So yeah, we're excited to get to the next step and actually selling the material to people.
Got it and then shifting gears, obviously you did mention the efforts to continue to finance specifically the back back in core facility. Just curious obviously the the world is changing quite quickly in terms of interest rates.
Is have you seen and any material.
And demand or are people backing off and then secondarily.
I would expect some higher interest rates coming through on some of these facilities do they does that change any.
Margins assumptions on on a go forward basis.
Obviously, the interest rates are going to be higher than they were let's say two years ago. So I mean, that's a given yeah. So that that's going to be something.
That has to be monitored but it kind of all gets offset by the higher price price that we're selling the material for so so that's so that kind of offsets there as far as the negotiations you know go back with the governments, we don't see any change. We're still you know are working through the the the.
Government financing process, which is normal.
Perhaps a little bit longer than traditional financing, but you know the government has provided a tremendous advantage there for.
For the backhaul core facility like I said for the Korean facility, the French facility those projects because of the partnerships because of the companies that we're working with and especially in Korea. All of the project finance our debt project debt financing for the facility as escape responsibility.
You know it makes those facilities much easier to finance.
If you break ground next year on the F K facility.
That means obviously the facility, but that facility would be yet.
Completed or find whatever term you want to use.
When.
When would you make them, obviously, you would make an announcement about that but I mean as S. K currently working on that and and.
And when you know if the current timing of the.
So we can sort of put it out there as a miles yeah. I think there was you know SK has been pretty S. K has been pretty vocal in the Korean newspapers about the project and breaking ground and timelines and so.
I think there was an article published this week and the Korea times about the projects. So we're working on the engineering and providing all of the engineering updates with S. Kay's team with the local engineering firm. So like I said the site has been purchased the site preparation has been done so the flattening of the land. So all of those things are starting to we've already.
To activate on them loops engineering team is now working with SK Engineering company. If you start putting all of the packages together for what are adopting the base engineering package to the Korean.
To the Korean projects, you've got we're gonna have regular updates on the Korean project, Oh, as we get closer to the breaking ground on the facility.
Got it okay I appreciate it thanks for your time.
Thanks Jerry.
Just to remind everyone. If you would like to ask a question today. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by.
Our next question today comes from Amit Dayal from H C. Wainwright. Your line is now open.
Thank you good morning, everyone just to begin with with respect to you know the fairborn facility now ramping up can you maybe give us.
Some idea about you know available capacity and what revenue levels, you know that our capacity could bring in over the next thing.
Both the 18 months.
This is the capacity of the facility the nameplate of the capacity of the facility is.
1000 ton per year, so roughly $2 2 million pounds per year.
So you look at you know.
You would probably be able to generate that's if you were running 24, seven we don't run 24, seven because we went five days a week here or we do still do some R&D activities. So I'd say on an annual basis you'd be able to generate about $2 million of revenue from the facility. If we would you know.
Focus on right on on the production depending on how much R&D projects getting there as well because obviously when we're doing some R&D stuff for partners like SK or Suez or one of our customers were not producing and we're doing limited stuff for for that so roughly I would say in about a 12 year 12 month period, we could generate about 2 million.
Dollars of revenue.
Understood. Thank you for that that's helpful.
Is this going to you know like you know concentrated group of customers right now or are you still sort of you know obviously you might be supplying some of it too.
Our folks in the pipeline.
Wondering you know switching to this recycling offerings.
Any color on you know who is getting the bulk of this from you guys on this one.
Yeah.
I think we've been pretty vocal about it that owns receive material pretty of young brand.
Send material to companies like L'oreal Luxe a ton.
On huge we do a lot of material for other fiber players every one that we use every one that we are selling these mature this material for is really because we're gonna have contracts with them later on for our large production facilities.
If it's an R&D samples so if you're sending like you know a 250 kilogram to accompany for sampling that doesn't get booked as revenue that still is in R&D.
<unk> there so anything that we're selling here is because we have the relationship to signed contracts for the larger facilities.
Understood and to support the sort of the pipeline build up have you added resources movies salesperson them or anybody you sort of you know heading that effort.
Yes, so we have our VP of of sales Giovanni who's been with us from the very beginning of the company.
We've added a second person to help support him.
You know now dealing with the global brand companies, there's usually one centralized purchasing team for a global brand company and then they work in Asian markets European markets, and North American markets and so it's always you know dealing with these concentrated few obviously, what our partners like got S. K, let's say in the Asian market, if Theres Korean companies or age.
And company specific than U S cases definitely involved in the conversation as well as far as the sales team. So we work very well with all of our partners on the sales are in the different regions. So in France, you know Suez.
How is the sales team there. So we work with closely with them are approaching the customers. So it's really a concentrated effort between loop in house people, but also working with our partners in the various regions.
Understood.
Moving onto the Bakken core opportunity is that facility or any movement with respect to government financing et cetera dependent on any offtake agreements coming into place prior to any sort of you know.
Approvals et cetera that you may need just trying to understand how that process is.
Going through what the bottlenecks could be in regards to you know I'm getting financing organized for that project.
Project.
Yeah, I'd say, we have approximately.
Close to 50%, maybe 40% of the of the facility contracted right now with what we've announced so far in the marketplace. We haven't announced all of our contracts, but you know we have about 40% I'd say roughly 40% of the facility contracted or at least under reservation contracts. So reserving because some customers you know they don't sign off take.
When could still you know a couple of years out, but they'll sign a contract reservation, so they'll reserve the material so.
So we do have about 40% either under contract or under a contract reservation.
And you know we're discussing with all of the different companies as we move closer to the final date. Then you know we'll have more contract signed there's always we always want to leave some material opened for the spot market to take advantage of spot pricing, which.
Which we think as we get closer to the 2025 date, there's going to be more pressure on brands to put in more recycled content. So.
Having some available material for spot pricing is going to be important but definitely you know if it's a requirement for the financing we will we will get the contracts we need.
To be able to have the financing in place you know that's really the main goal is to have everything locked in so that the financing is relatively easy.
And just one last one for me Daniel.
In terms of you know at scale. Obviously noted this morning, but at scale you know what's sort of the premium.
Your customers really painful.
Luke recycled offering versus say virgin material or other competitive.
Options that are available to these customers.
What's sort of the timeline in which potentially you could.
Be much more competitive I guess was as you know.
The early stages of getting all of these commercialized.
Yes, so virgin material is obviously directly correlated to the price of crude oil and natural gas because the M. T. N N mid year produced through natural gas and crude oil and so it fluctuate directly with oil prices, so higher oil prices related to higher PMT prices and we've seen that as oil went up to 100.
10, or $112 a barrel you saw the price of P. T jump.
Jump higher there's also the regional parts in play. So you know Europe right now has higher energy cost because of our because of the energy crisis that they're they're going through some prices are higher there versus other parts of the world. So different geographical areas have different pricing for the Virgin P. T. We kind of decoupled, our pricing completely from Virgin P. T. So.
We will use either to bail index. So what the price of waste plastic goes for so it's kind of a hedge in our feedstock feedstock price goes up our sales price goes up or.
Or we use like in our pet index. So if theres a reliable index for mechanical recycled material, we can use that as a pricing formula and then have let's say generally you know a 10% premium above the mechanical recycling industry and a 10% premium is really for the quality of our material versus.
The quality of our mechanical recycled material you could see a very distinct difference between loops material versus the mechanical recycling industry.
And so that's what customers pay for they pay for that quality.
Understood. That's all I have guys. Thank you so much.
Thank you.
Yes.
At this time that does conclude our question and answer session I'd now like to turn the call back over to Daniel So let me pause for his closing remarks.
So thank you very much thanks, everyone for listening to the call and we'll continue to supply updates to the market in a timely fashion as we move forward with our with our manufacturing capabilities.
Capabilities and our progress on our various projects. So thank you very much.
This concludes today's corporate update call. Thank you for your participation participation you may now disconnect your line.