Q3 2023 Loop Industries Inc Earnings Call
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Good morning, ladies and gentlemen, thank you for standing by welcome Sleep Industries second quarter 2023, corporate update call. During today's presentation. All parties will be in a listen only mode. Following the presentation. The conference will be open for questions.
This conference is being recorded today op type of 13th 2022 in the press release accompanying this conference call was issued after market close yesterday October 12 2022.
On our call today is loop industries, Chief Executive Officer, Daniel Southern Nature, Chief Finance that Kevin No doubt VP Communications Investor Relations I'll now turn the conference over to Kevin to read a disclaimer about forward looking statements.
Thank you operator before we get started let 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 include.
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 risk factors in <unk>.
<unk> section of our latest annual report on Form 10-K, our quarterly report on Form 10-Q filed with the FCC yesterday and Yesterdays press release copies of these documents are available at the SEC Gov or from our Investor Relations Department.
At this time I'd like to turn the call over to Daniel saw a meter.
<unk> Executive officer of loop industry. Daniel Please go ahead.
Thanks, Kevin.
Welcome to our Q3 earnings call.
I'll just start with the you know the main headlines of what what is it on.
Down in the last quarter are first the sale of the London back on core.
Just a really solid business decision the value of that land has increased over 500% in the two years since we bought the land.
So that the value of the lines has exploded and there was a lot of people that we're looking for a landed back encore and that was the main motivation behind selling the land value have increased significantly and for us that was just a really solid business decision selling the land plus our cost reduction initiatives gives us three years of cash on hand.
You know without having any raising capital dilution.
That is more than enough to get us through this you know.
Current global slowdown that we're experiencing.
Back into Canadian project is still really important for us.
Important projects for loop and supporting for for Canada to be able to get.
Two there are 2030 goals of eliminating plastic waste, we're continuing to be engaged with the Canadian government and the Quebec government we've already.
Looked for other land available in Quebec and outside of Quebec in other parts of Canada, There's plenty of land available that's much cheaper than the land that we had it like encore.
And so when the macro environment improves we'll be ready to begin the project.
So it's still very it's still a very important project for us and it's definitely still in our cards for the future.
Projects that were going to develop.
With these you know uncertain.
Macro economic times, it's important for us to make sure that the projects that we do focus on do we do builds are the ones that have the least amount of risk and the highest amount of success.
And that's what leads us to the projects that we're working with our partners at SK Global chemicals, SK global chemicals, a large petrochemical company.
You know very deep resources, our project in <unk>, South Korea has been going on for quite a while it's not like it's a new projects that we're just starting we've been working with SK hand in hand, you know teams from Loopnet scare working on a daily basis together.
To execute on the old Sun project since we announced our partnership with SK became a 10% owner equity ownership stake in loop in 'twenty 'twenty. One so the companies have been working really closely together and we have multiple projects with SK that we're working on first one being the project and also in South Korea.
That is scheduled to break ground in this year in 2020 three are.
Really important project for us having that foothold in Asia is hugely important for some of our customers, especially on the fiber side. So all of the polyester fiber supply chains for the clothing and textile industry. So.
That's a really.
Really important area for us.
S. K G C brings in a wealth of experience obviously, they do all of the operation of the plants. So they have a experienced operations team. We're building the plant on one of their existing petrochemical sites. So they already have a lot of the infrastructure for the site available.
We're working together with S. K E N E equal engineering, who was the SK division of their in house EPC contractor very large organization. They build petrochemical plants all around the world and they have a huge a wealth of knowledge in this experience and building it could not only on the engineering, but on the construction.
These facilities so the LP for providing all of the construction and engineering services for the projects.
S E. G. C. Also provides the majority of the capital for the projects, which is obviously very important for loop.
I said, they're an experienced operator eschewed you see also is in charge of all of the feedstock sourcing looping in S. E. G. C. Working together on the customers. So loop brings into global customers that we have for other projects and S. K G. She works mainly on the local customers.
So it's really a tremendous partnership between both companies.
These are projects are really the ones that are the easiest to execute the least amount of risk because of having a partner such as SK G. C. And so you know in these more uncertain economic times and the macro environment out there. We think it's the best decision for them.
Look to be executing on the projects with the least amount of risk in the easiest are easiest to execute on our we have plenty of projects in the pipeline there's tons of interest for the technology in other parts of the World I mean Asia as well Asia, obviously with SK G. C. We have a plan to build multiple plants with them over the coming years.
We also have multiple projects in Europe , we have a project in France, but we are also looking at other projects in Europe as well with the same consortium of partners and we have other projects in other parts of the world. So there's no shortage of demand for the technology or for the final product, but you know in today's world, we have to be looking at which projects.
The easiest to execute on with the least amount of risk and the highest return on capital and so that's where.
We see huge benefits in working with our partners at SK G C.
That's all I have so we can open the call up for questions now.
Thank you if you wish to submit your question. Please press star followed by one on your telephone keypad now.
Its mysteries Julie a question. Please press star followed by two when asking a question. Please ensure you're on mute locally as a reminder, that star followed by one on your telephone keypad now.
Our first question comes from Gerry Sweeney of Roth Capital Jerry Your line is open. Please go ahead.
Good morning, Daniel Thanks for taking my call.
Hi, Jerry.
<unk>.
We're hoping that maybe you could discuss maybe the best that you're permitted to maybe some of the critical next steps with FK.
I believe you're looking at.
There's a bunch of scenarios I think maybe determining structure of the JV.
As well as the financing of the project on a go forward basis, and maybe any other items.
And secondarily, maybe timing our target timing on sort of hitting these milestones I know things are in flux, but wanted to get an understanding of.
What steps are out there and potentially when we can see some resolution on those steps.
Yeah. Thanks for the question Gerry So what SK GC, if things are not in flux. It's you know been very organized and structured our work that we're working with them. So there's the finalization of all of the joint venture agreements that's something.
Something that we are at the final stages of completing with them. So that's that's one part of it.
And then you know our engineering teams are already working together on the on the final engineering and construction like I said, we've engaged with SK <unk> in either equal engineering, which is a division of SK.
SK, Inc. The broader company. So S. T E N E will be providing all of the engineering and construction for the facility were scheduled to break ground on the facility in Q3.
Of 2023, so that's the goal of SK GC has been very vocal about the project and their intentions are.
Or that has been the Korean and Asian media. So it doesn't really come to the Canadian or the U S media very much.
But you can look through it the Korea times and things like that so they are very vocal about the project and the timing and the importance of this because SK GC really wants to.
You know be seen as the largest recycling company in the world and really moving sustainability to the front of their agenda. So I would say you know signing of the joint venture which were at the final stages of and then breaking ground in Q3 of this year as far as the financing. We are discussing you know S. E. G. C. N D partnership eschew Juicy provides 80% of the.
Capital for the projects group is responsible for 20% of the capital for our equity portion and that's the portion that we're discussing with SK GC on.
Providing the capital that Luc needs for the for our equity position in the project.
Got it.
That is it for me I appreciate it thank you.
Thanks Jerry.
Thank you as a reminder, if you wish to submit a question. Please press star followed by one on your telephone keypad now.
Yeah.
Our next question comes from David <unk> of Raymond James David Your line is open. Please proceed.
Yeah.
Thanks morning, everyone. Daniela My first question here, just just kind of a follow up on what's happening.
With the oil Sands project.
Like are you able to comment on them, whether or not the long lead time pieces of equipment have been ordered and any any.
Gotcha Okay.
Contact surround.
How those timelines are shaping up relative to expectations.
If cost for that facility overall or still shaping up in line with your expectations.
Yeah. Thanks, David Nice to hear from you. Thanks for the question. So long lead time equipment. So the two reactors the polymerization reactors that loop had ordered for the Becker group project will be transferred over to this project. So that long lead time equipment will just be shifted over because those are staggered pieces of equipment. So they can they can go to.
He ever projects as far as long lead time equipment for this project right now like I said, we're scheduled to break ground in Q3 of 2023 so the long lead time order equipment needs to be ordered later on during the year. So theres nothing that needs to be orders today costs are in line with expectations are you know we already have our first cost us.
It's you know internally for the project they've been approved so where we're in line we don't see a.
We've built all of this through this crazy inflationary environment. So we don't see foresee any you know changes coming up.
In the cost of the facilities going forward you know hopefully we'll start seeing some reduction in costs as we start seeing you know the world's economies cooling off a little bit in supply chain easing up hopefully.
With China's decision.
To forgo their zero Covid policy so.
The projects in a really great space right now and you know both parties are very dedicated and very motivated to get this project built as soon as possible.
Excellent excellent thanks for that Daniel and then maybe maybe on feedstock for the society is it are there are agreements in place for a certain volume of feedstock and are you able to Cogs.
Do you have any color you can provide on if any of that has been sourced so far.
Yes, so theres quite a bit of feedstock. That's been were starting like loop has been testing the feedstock from different Korea suppliers. So we're doing a lot of that work together with SK GC. So theres a lot of you know the typical feedstocks that we use in our process, which as you know the waste P. T fines from the mechanical recycling industry P.
E T trays are big thing in Asia is going to be the polyester fiber waste coming from all of the polyester fiber clothing supply chains. So that's going to be a feedstock that's important for the for the Asian expansion. So.
S. P. G. C is primarily responsible for the feedstock we do we support them with all of the testing and all of the qualification, but its really eschewed she sees role in the joint venture to be able to source the local feedstock.
Yeah.
Okay.
Okay perfect. That's great and then maybe maybe on the sales side of things I guess.
U N S. K are kind of working together on lining up new customers is there is there a target you guys had in terms of the proportion of volumes from the all time facility that you'd like to have contracted and do you anticipate those contracts happening or clothing prior to groundbreaking or or would you break ground in Denmark.
That.
Contract whatever whatever volumes you would you're targeting.
No. We always look to have a certain volume work capacities of the volume sold or reserved in some type of either a firm contract or LOI with customers before the breaking ground on the facility. So yeah. We're definitely we're starting to engage with the customers on on which customers will be taking volumes.
From the Asian facilities, focusing on some Asian customers, but you know.
We can also shifting material from Korea anywhere in the world, but the Asian supply chains like I said in the polyester fiber space are extremely interesting because a lot of the polyester fiber clothing companies need more sustainability, they need more recycled content into their into their vipers into their clothing and into their products.
And today, you know the mechanical recycling industry is the only way for them to do that so taking water bottles and turning that into fibers.
So the ability to get fibers back into fibers or something of huge interest to them and that that's obviously loops technology can provide that to them.
So there's a strong interest there not only to sell them. The final material, but also to be able to recycle the waste that generated at their facilities.
So you know we anticipate to have quite a few fiber customers from the facility. But then there's also the bottle great customers that we work with around the world that don't have needs in Asia as well so.
But we do anticipate having.
I'd say the majority of the volume already contracted before breaking ground.
Okay.
Okay excellent and then maybe just one more for me if I could.
You know your R&D expenses were down in the quarter.
It's consistent with your plan to reduce the burn rate but.
Could you comment on just our most of our R&D activities that get you there.
That you need to undertake for you at upcoming projects, mostly complete at this point or I think you mentioned, you're still doing some R&D or some testing.
The feedstock in Korea, just wondering you know how how do you expect that R&D expense to trend going forward.
So the biggest you know in our cost cutting and our cost reduction the biggest thing that we've done is we've just reduced the hours of operation for from the production facility and talking about the production facility in turbo. The nameplate capacity is 1000 tons. A year you know roughly $2 2 million pounds a year of capacity is what we can produce.
At the turn of bunch facility. The facility was never built to generate profits, but it's built to be able to showcase the technology at a commercial scale and supply customers with commercial volumes and we've been successful in doing that so that the plant worked well we built it up to a scale that anybody can come in and see and our partners can do due diligence or customers are.
You know companies like SK global chemicals can do it you know full due diligence on the technology and so that's been completed so by reducing the hours of operation. Instead of you know running the facility 24, seven slowing down you know having full night shifts having four shifts of workers I mean, that's a very big expense.
And you can't generate a profit because the volumes are too small and so really it's just about reducing the hours of operation. So we're still producing material, we're honoring all of our existing customer contracts with onshore.
We had some material with other brand owners and we have some upcoming events as well with other brand owners coming up so we still have the operation and those that R&D expenses really do you. The operation is running at the plant. So we will always keep the facility open to be able to test feedstocks. That's always really important that's an important part of the business so being able to qualify.
Any feedstocks that come in from Korea, or any other part of the world that needs to be.
Characterized so we'd do it first at our you know a lab scale than we do it at the production facility in a.
A few tons at a time, so the R&D and production expenses kind of mixed together in there, but you need to keep this facility open to be able to produce material for the customers. So your mix in the customers with the R&D because we're testing feedstocks. So.
It all blends and really well together, but there's there is there's no need for us to be running. This this facility at full capacity producing a thousand times and trying to get it out there today in the world. We live in today. Its cost cutting is a is an important measure and I think it makes it better the customer the company leaner and keeps people motivated so I think it's been a.
But overall, it's been a success.
Excellent I appreciate the color thanks, Danielle I'll turn it over.
Yeah.
Thank you at this time. This concludes our Q&A session I'd now like to turn the call back over to Mr. Mr. Tom <unk> for his closing remarks.
Thank you very much operator, so I guess this concludes our Q3 earnings call like I said, the company's made it just made really smart business decisions selling the land and back Encore was a really smart business decision as it had depreciated over 500% in two years focusing on the projects that are the easiest to execute odd with the least there.
Not a risk with S. P. G. C is obviously a in my mind and in management's mind. The best course of action. So really excited about 2023 breaking ground on our first facility and then many more to come. So thank you very much for your time.
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Ladies and gentlemen. This concludes today's call you may now disconnect your lines.
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