Loop Industries, Inc. (LOOP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thanks for standing by. Welcome to Loop Industries' Corporate Update Call. [Operator Instructions] This conference is being recorded today, December 13, 2024. The press release accompanying this conference call was issued yesterday, December 12, 2024. On our call today are Loop Industries' Chief Executive Officer, Daniel Solomita; and Kevin O'Dowd, Head of Investor Relations. I would now like to turn the call over to Kevin.

Thank you, operator. Before we get started, let me remind you that today's call 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 statement involves risks and uncertainties, and future activities, and results may differ materially from these expectations. Additional information concerning these statements and related risks and uncertainties are contained in the risk factors and forward-looking statements section of our latest report Form 10-K and our quarterly report 10-Q filed with the SEC yesterday and yesterday's press release. Copies of the documents are available at sec.gov or from our Investor Relations department. At this time, I'd like to turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries. Please go ahead, Daniel.

Thank you very much, Kevin. Thank you very much, everyone, for joining us. Really excited about this announcement that we announced last night. Obviously, it's a significant milestone for Loop in our commercialization strategy, having -- finalizing the financing with a great partner in Reed Societe Generale Group for a EUR 10 million convertible preferred security, which converts into Loop stock at $4.75 a share, as well as forming a partnership with Reed Societe Generale in Europe to deploy our technology through a licensing arrangement and selling our first license for the European market to Reed Societe Generale Group, which is a huge milestone for us. And it's really in line with our strategy to invest our capital into low-cost manufacturing countries such as India and to license our technology in higher-cost manufacturing countries such as Europe and other parts of the world where we see licensing as a more significant way to roll out the technology. Being able to sell the licensing -- to sell a license to our technology at this stage is really a testament to the quality of our facility in Terrebonne, which I don't think gets enough credit for Loop's success. The Terrebonne facility that we've built over the years, we've been operating the facility for 4 years. In its current state, having all of the learnings, the nameplate capacity of the facility is over 2 million pounds per year capacity from this facility. And we supply global consumer brand companies on the packaging side and as well on the textile side with our material. And we've been doing that for the past 4 years. So I think that anybody that does significant due diligence on the technology, or comes and visit our facility, understands the quality of the build of the technology, the quality of the build of the plant and how great our team is here at the operations, and the learnings. So to be able to sell the first license to the technology really is a testament to that because licensing it at this stage is a huge milestone for us. We see significant opportunities to license the technology to other large, well-funded, reliable partners around the world. So that's really an exciting opportunity for us. Licensing is definitely an important part of our growth plan. The world has a plastic waste crisis issue. And being able to expand our technology to be able to solve that is key. And we won't be able to build, own and operate every facility around the world, but bringing in strategic partners that are well-funded, well-structured, to be able to license the technology is just going to expand the broad strokes for Loop's technology to be able to help tackle this crisis for the PET plastic and the polyester fiber. So it's really, the EUR 20 million coming into Loop is tremendous on the licensing side. It's an initial EUR 10 million downpayment or initial payment, and then future payments to come with some milestones of the project about getting the project, selecting the location. There's a lot that has to get into building the projects, so selecting their location, signing contracts and such. As well as engineering services. So we'll be supporting all of these build with our engineering packages, so additional revenue coming from the engineering side. So those are really significant milestones for Loop. The EUR 10 million investment as well, it's a fantastic deal for Loop, 13% interest rate, 5-year term, converts into Loop common stock at $4.75 a share. We could redeem that in cash as well. So there's a mechanism between either us or Societe Generale to redeem it in cash, which 5 years from now, once we're generating significant cash flow from our operations in India, receiving royalty revenue from our partnership in India and others, that's definitely a possibility to be able to redeem it in cash in the future if needed, to pay that in cash. So we have a tremendous partner in Societe Generale Reed, and we've been working with them for quite a while. Reed now is -- Societe Generale has acquired 75% of Reed, so now it's majority owned by Societe Generale. They have all of their approvals. They're fully financed. And this transaction will close within the next 7 days. The only item left for closing is the finalization of the European partnership company, which is going to be called Infinite Loop Europe, and that is already underway. So we are expecting that to be completed next week. At this time, I guess I'll turn it over to questions.

[Operator Instructions] And the first question goes to Gerry Sweeney of ROTH Capital.

So you sort of, I guess, hinted at it a little bit on your prepared remarks. EUR 10 million was the initial licensing fee, but it sounds as though there is more money behind that when you hit specific milestones. So what would be the total licensing fee for -- paid to Loop from Reed for this project? And what are those milestones for payments?

Yes, I don't want to get into all the specifics because that's a little bit of -- those are not trade secrets, but as we're looking to license the technology to others, each deal is a little bit bespoke and it's going to be a little bit changing from different regions, and we are actively discussing other licensing deals with other potential customers. But it's customary things that milestones that are associated to a project's development, such as signing customer contracts or -- as the project develops, you get an upfront fee, but then you get through the gating items to actually have the end of the line, the plant being built and operational. So I would say that the entire funding from the license, from the initial EUR 10 million, all the way through to the completion of the project, would be roughly somewhere between EUR 30 million to EUR 35 million, including engineering services that will be provided to the joint venture. Loop's engineering team is going to now become a revenue-generating center from this deal, but also from the India project. All of the process engineering, all of the process design package, basic engineering, Loop's engineers are going to be providing the service to these partnerships. So we'll start generating significant revenue from the engineering for all of these projects now. So like I said, for this specific project, also the reason why it's a little bit complicated is some of it could be upfront payment, some of it could also be residual to a percentage of sales or a percentage of revenue on the back end. So these deals are structured in a certain way that, as long as the milestones are hit, Loop will be getting the payments. So it's a really exciting opportunity for us with the licensing because these bring in significant amount of revenue and profitability to the company.

Got it. Second question, funds that you received, obviously, EUR 10 million was -- the convert EUR 10 million was the licensing fee. Any restrictions on any of that cash, i.e. maybe the EUR 10 million on the licensing fee? Is that open ended for your use, or would that be -- any restriction specifically for the use around the European plant?

No. No restrictions whatsoever on that EUR 20 million -- yes, sorry. No restriction whatsoever. That money comes to Loop to be used for whatever we need for the project in India, cash burn, whatever.

Got it. And then my third question, I'll jump back on the line, right there with India. Just maybe a quick update on what's happening on the India project?

On the India project, so we've narrowed it down to 2 sites in the Gujarat province, near Surat, which is key for us because that's where all of the textile industry exists. So being able to recycle waste textile for circular fashion for the big apparel companies, we need to start the process by depolymerizing the waste polyester fiber. So we've narrowed it down to 2 sites. Now we'll be selecting the final sites in the coming weeks. We've hired Tata Engineering, the large Indian engineering firm, to do all of the engineering packages. So our team is working on that with the engineering teams there. So the project is going well. We're meeting all of our CapEx estimates. So it's not -- right now, we see nothing as far as the budgeting. $165 million for the project looks to be very reasonable. So we're really excited about the opportunity. Customer engagement is really strong for this. Really the circular fashion, the textile-to-textile, is a tremendous opportunity. And Loop provides a very unique solution to these customers, having the ability to start with polyester fiber and come out with a new polyester fiber of virgin quality. We've been working with spinners all across the world. So these companies, once you buy the chip, you have to spin it into a fiber, then the fiber goes into a textile, then the textile gets turned into a garment or a running shoe. And so we've been really working on that in a supply chain. So we're going to be able to offer our customers polyester fiber as well and not just the chips for the plastics. So we're moving up the supply chain to be able to offer more products to our customers. And that's really been a big difference maker for us because, now working with these companies, we can actually offer them polyester fiber spun rather than just the PET chips, which makes it easier for them to buy from us. So the customer demand is really strong, especially on the polyester fiber side because of the textile-to-textile. Being in India is the perfect location for that because of the entire textile industry being in Asia: India, Bangladesh. So those are really the areas of the world where a lot of these garments and textiles are being manufactured. So being close to that supply chain is really key. So we see a huge opportunity with the textile-to-textile in India and beyond. So the project is on time, on budget, and really excited because customer demand is very strong.

The next question goes to Nick Boychuk of Cormark.

Coming back to Gerry's question on the milestones quickly. Can you expand a little bit, are you guys in control of that process? I'm kind of wondering if you're driving the boat in terms of site location, customers, offtake, et cetera. I appreciate that the Loop -- I guess, the Reed Societe Generale entity owns 90%. But how much control do you have on the direction, the timing and when those things could kind of start to hit?

So we'll work together. The reason that we are taking a smaller equity stake at that project level is because we don't want to put a lot of cash into the development of these projects. So we'd rather -- how that's developed is the Societe Generale Reed partnership, it's a 90-10 split. So 90% of all of the expenses on the development side is being paid for by Societe Generale and then we'll substitute that with 10. But driving the projects forward, at the end of the day, we know all the players in the industry, we know all the customers, we know all the other petrochemical companies, so we're in constant contact with all of these companies. So it's going to be built with a really partnership-like driving force between the 2 of us. I would say Loop is going to be driving the projects forward and bringing projects to the table for the group, but Societe Generale can definitely do that as well on their end. They're very active in Europe with the European regulations. So they're already starting to work with certain groups on potential opportunities for feedstock sourcing and site location. So I would say, listen, it's a 90-10, but it's really a 50-50 on developing the projects together. And so Societe Generale wants to develop these projects as quickly as possible, so they want to get moving and get this first plant built. And we definitely want to move as quickly as possible as well because we want to hit the milestone payments, and we want to start generating significant amount of revenue from the engineering services that we'll be providing. So it's a win-win for both companies. And the plan is not to just build one of these facilities, but we'd like to build multiple of these facilities across Europe. Having Societe Generale's balance sheet behind this project and their name in Europe is going to be a tremendous opportunity for us. And Loop has the opportunity to invest at the project co-level. So the 90-10 split, that's at the project level, but then the actual ownership of the plants, we can invest additionally if we want to. If we feel like it's a great opportunity and we want to go in there, we can invest up to 50% at the project level. So when you're talking about the project level, we can go up to 50% if we want to. So it's an incentive for us to be developing projects more quickly with them.

Understood. Okay. And on the timing, can you share at all what your expectations are of when the facility is going to be more rounded out, you'll have a site potentially breaking ground at operational?

I think it's a little bit too early for that in Europe right now. We're fully focused on getting that -- the India project executed, up running. We'll start working on that. Like I said, we've already had multiple discussions with different opportunities across Europe. As you know, we had an opportunity in France. So these are all things that now, with this new partnership, we'll start evaluating in the new year, in the beginning of 2025, and really saying, "Okay, well, where do we want to do this?" We've already had multiple discussions with different third-party partners on feedstock or potential partners on the manufacturing side. And so those are things that we're going to start working on. But we want to start getting these projects built as soon as possible, especially if we don't need to put in tremendous amount of capital, those are wins for us. The more licensing revenue we could sell, the more engineering services we could sell, that's huge for Loop in being able to generate a significant amount of cash flow, but also to become cash flow positive. That's going to be really important for us. So yes, new year, we're going to be full steam ahead on working on those projects to try to develop them. We already have a strong customer base in Europe. We've done stuff with Danone Group with the Evian. We've done stuff with L'Oreal. We've done stuff with On shoes. We have L'Occitane as well. So we have a lot of customer base in Europe. Everyone needs the quality of our material because it's really a distinctive factor. There's 3 pillars to our material. One definitely is the quality. Second is the environmental footprint, so our LCA and the carbon savings that are achieved by this packaging. So quality, the CO2 savings and then the price competitiveness in the market for the quality, we're delivering 100% recycled content, our quality is -- our cost basis is really good. So customers are really excited about working with us.

Okay. Great. And then last for me. There was also an expectation, I think, following the refinancing closing that there was going to be some sort of government financing, Province of Quebec [indiscernible] Quebec. Can you give us any update on any other sources of funding that might now come in now that the refinancing is officially closed?

Yes, we have a good opportunity with the government financing. That happens at the time of breaking ground for the India project. So that's something that will be announced as when the full project is ready to be breaking ground. So we fully expect that to happen. And we have a bunch of other opportunities for other capital infusion or capital raising on our side with strategic large companies that are looking to have access to our technology, either through licensing the technology for another part of the world where it would be more high cost that we're not as interested in developing or also as an investment into Loop, because two-pronged. You invest into Loop as a top company because you want to have access to our technology and have access to our portfolio. So we do have a couple of those discussions going on. So really excited about 2025. I think it's going to be a fantastic year for us as far as customer engagement, as far as partnerships and as far as getting this India project underway. And now building a great project with Societe Generale in Europe.

[Operator Instructions] And the next question goes to Marvin Wolff of Paradigm Capital.

Congratulations. This is certainly a big milestone in the Loop development as we move ahead. I just have a question, looking into the future. Let's say it's 2028. How many plants do you have in your vision operating at that point in time?

Well, certainly, India will be up and running and operational. We're fully expecting this project in Europe with Societe Generale to be either finalizing construction or operational as well, that opportunity. We want to move quickly with a second facility in India because of the strong demand on the textile-to-textile. Circular fashion is really a driving factor. There's a ton of demand from customers, and Loop can deliver the quality that I don't think -- personally, I don't think anybody else can deliver the quality that Loop is delivering for these customers. The feedback we've been getting from all of the different spinning companies and the textile and apparel companies is the quality is second to none. So we want to move as quickly as possible building out a second facility in India. The timing of that, I would say once we stabilize operations within the first 6 months of the India facility being up and running, we're already planning to build the second facility, which will be much larger on the same site. So we're buying enough land on site to be able to build a second facility of at least 100,000 tonnes coming right after this one of 70,000 tonnes. It's tough to say, Marvin. We live in a world that changes dramatically. But I'd like to see, hopefully, to get 1 between the -- for sure, the India project, and at least 1 or 2 more of those. But it's really tough to tell because these are still petrochemical plants, permitting, construction times, it takes a while to build these things out. But licensing revenue really helps, right, because we don't have to be the ones owning and operating the plant. So the more you license, the more you'd be able to build out these facilities through the licensing. If we do license another technology in 2025, that's great. And then that company, it's their responsibility to get the facility up and running and built in their country. So you could easily see 3 projects built by then, but it really is going to be on the cadence of the licenser of the technology, because they're going to be the ones responsible for the construction and, ultimately, the site location and the permitting for the projects.

Yes. No, fully understood, but we have to have some vision of the future, and I think you outlined that pretty good. Because we're always dealing with the unknown in the future, aren't we?

Yes. Licensing allows us to build more facilities quickly with strong partners. Someone wants to build a facility in, choose a part of the world, where it's higher cost manufacturing where we don't want to invest our dollars, but they have a local need for it, well, then that makes a great case for this. So we have tons of opportunities. We're talking to a bunch of different companies and governments about different opportunities. So some of them are going to be Loop-owned, operated through partnerships. Some of them are going to be pure licensing deals. I think one thing that's important that maybe I didn't stress on, this is -- the license for Societe Generale is just for 1 facility at this time. A second facility would come with a second license that would have to be renegotiated. So every time we do a new licensing deal, this would be a new licensing fee generated by Loop. So you could see a path, if you can get a licensing, 1 or 2 of these things done a year, you could see a path to having -- being tremendously cash flow positive and not needing to be able to raise any capital from external sources to be able to build our facilities in the low-cost manufacturing countries. So these are all things that we're working on. So it's tough to give you a perfect answer, Marvin. But with licensing opportunities, that number can go much quicker in building more facilities.

And in all of these facilities, the structural arrangement around the royalty is you still will receive a royalty on the total volume produced out of the plant, right?

Yes, there's different metrics. So when you get upfront payment, that's always really helpful in the licensing because, during the lifetime of a project, things can change, things can happen. So at least securing that upfront payment gives us that base. Then all of the engineering costs to start building a project, you have the process design package, which is your first engineering package, then you have your feed basic engineering package, detailed engineering. All of those are additional revenue generators for Loop through that engineering process with a local engineering firm. And then you have the milestone payments that are gating items through the life of the project. And then it could be upfront payments, it could also be annual, yearly revenue. So it really depends. Like I said, each one is a little bit specific. But getting a significant upfront payment is always very beneficial when you're licensing these type of technologies.

Definitely. Okay. That's all for me this morning. Congratulations again.

The next question goes to [ Barrett Kutnick ] of [ Divide ] Capital Partners.

Congratulations on the news. I wanted to get a little bit more color on the confidence you have in the customer demand. Obviously, inventory build will be a little bit of an issue here. But maybe give me some color on that.

Yes, customer demand is, like I said, very, very strong, because of the -- so there's 2 markets for our material, right? There's actually 3 markets for our material. One is the monomers, so selling off the chemicals, the DMT and the [ ABG ] on their own. That's one market. Second market is the packaging market. So with Europe coming in in 2025 with more regulations around sustainability and recycled content in packaging, packaging being water bottles, soda bottles, that type of material, government regulations coming in in 2025 are going to start driving up the price of the PET and the demand. Now the big advantage Loop has on the customer side is the quality of our material. I can't stress that point enough. Because if you look at the mechanical recycled material or what's available there today, you'll see the bottles are gray or blue and they have to be dyed blue. That's because they're trying to mask the impurities. And everybody we talk to in the industry, all of the customers, as this demand for recycled content goes up, the quality is going down because there's more and more people trying to get into the market. And the quality of the feedstock, don't forget we're dealing with waste plastic, so the quality of the feedstock is getting worse. And so on the packaging side, you see the quality of the bottles going down. And that's really a big problem that's coming after 2025 with the increase of recycled content, increase of demand, with the quality going down. So you're going to see a lot more problems coming in the packaging side, especially in Europe, which our technology brings virgin quality, exactly the same quality as the petrochemical industry. And that's a big, big driving factor for brands. So brands that really care about the quality and brands that really care about even product safety when you're drinking the water or the beverage, that's a big driver. Those are Loop's customers, the guys that really care about their product and care about safety. And then third, which I see as the biggest driving market for the customers in the future, is the circular fashion, the textile-to-textile industry. Not many people out there can do textile-to-textile. Right now, the only textiles, when you see sustainable material on textile, it's because they're taking a water bottle and turning that into a fiber. So that's like down-cycling. You're taking the highest-quality plastic and turning it into a very low-quality plastic for the textile industry, because no one's eating textiles. But in Loop's case, we could start with that textile. Take a running shoe going back into a new running shoe, like we did with On shoes. Those things today, that's the big holy grail for all of these different apparel companies. And we see the demand on that side from the large sportswear companies, the large fast-fashion companies, the large fashion companies, even the large home goods companies. Those are huge opportunities for us on the textile-to-textile industry, which is why that India, that part of the world is the perfect location for that textile-to-textile. So we see demand very, very strong. And the other thing is that Loop's technology is probably the most efficient technology on the market in chemical recycling. So it allows us to be very cost competitive. So we don't have to ask for these outrageous type of premiums to the market price, which is very, very big. In a world where inflation was very big after COVID, all these brand companies were looking to cut costs. So if you have to pay just a little bit of a premium to get a great product, that's doable. But if you're asking for these most dream projects or sustainability-linked projects, always have to have a very high premium to make the economics work, that's not our case. We're very cost competitive, and that's what the customers really attract themselves to Loop's technology. So I see 2025 and beyond a huge customer demand for Loop's products.

Understood. And then if we could zoom in a little bit on the textile piece. How different is the output in material from a brand like On versus H&M? And how quickly can you adjust to that?

So polyester fiber is polyester fiber. So there's 2...

It's no different than any of the -- sorry, keep going.

No. Polyester fiber for a running shoe, so the netting of the shoe, it's the top of the shoe, the fiber, or a pair of shorts for like a fashion brand, like a sportswear company, it's the same polyester fiber. Now what happens to that fiber, we make the chip. So we make the resin. That's the quality of polyester fiber to chip. Now that chip gets spun into a fiber, then that fiber gets made into a textile, and then that textile gets turned into a fabric and then turned into a finished product. So we're at the front end of that chain. If we're selling the chip, then the chip goes to the spinner and it goes into the customer supply chain. We are moving up 1 level for certain customers because they need us to move up to making a fiber. So we take the specification of their fiber, so they give us the spec, and we have a fiber spinner who will spin the fiber for us to make the customer specification. But polyester fiber is polyester fiber. They give us a specification, we could spin it, or they buy the chip and they spin it themselves. So really no difference for us.

Thank you. We have no further questions. I'll hand the call back over to Daniel for any closing comments.

So thank you very much, everyone, for attending the call. Like I said, it's a fantastic milestone getting the first license done. Having a strategic partner and financial partner in Reed Societe Generale is a fantastic opportunity. Really looking forward to working with Julien's team in developing these projects all across Europe. And 2025 is going to be a fantastic year for Loop with the advancements of our project in India, customer relations and future licensing deals. So thank you very much, and we'll speak in January on our next quarterly call.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.