Loop Industries, Inc. (LOOP) Q3 2025 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries' Third Quarter 2025 Corporate Update Call. [Operator Instructions] This conference is being recorded today, January 15, 2025, and the press release accompanying this conference call was issued last evening, January 14, 2025. On our call today is Loop Industries' Chief Executive Officer, Daniel Solomita; Fady Mansour, Chief Financial Officer; and Kevin O'Dowd, Investor Relations. I would now like to turn the conference over to Kevin to read the disclaimer about the 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 the securities laws. These forward-looking statements related 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 and related risks and uncertainties is contained in the Risk Factors and Forward-Looking Statements section of our annual report on Form 10-K and our quarterly report on Form 10-Q filed with the SEC yesterday and yesterday's press release. Copies of these statements 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.

Thanks, Kevin. Good morning, everyone. Thank you for attending our call. We had a significant obvious milestone that was accomplished in late December just before the quarter end, where we finalized the Reed transaction with Societe Generale. So that was a big milestone that we had been working on for many months to be able to complete it. The transaction is EUR 20 million financing to Loop, EUR 10 million in convertible preferred security, which converts into Loop shares at $4.75 a share 5 years from now, can be repaid in cash or in stock. The other part of the transaction, which is very significant, is we've sold the first license to our technology to Societe Generale, where Societe Generale will be able to now develop a project in Europe with Loop to be able to build an Infinite Loop manufacturing facility in the Continent of Europe. That's a very significant milestone. Our -- we -- our focus and our strategy has been to be able to license our technology into higher-cost manufacturing countries such as Europe, some parts of Asia. And we want to really deploy our capital into low-cost manufacturing countries such as our partnership with Ester in India. So that's a really key milestone that really accomplishes where we see the future of the company. Being able to license the technology to Societe Generale is a big milestone, EUR 10 million upfront payment. There's 2 other milestone payments as the project advances. And another big part of the revenue stream from this for Loop will be selling engineering packages and engineering services. So with every license that we sell, Loop's engineering services teams are obviously involved in doing all of the process engineering work that's needed to be able to build these facilities. That work starts right upfront before the actual construction even starts, all of the engineering packages that will be provided by Loop. So that's a very significant milestone. We've also entered a service agreement with our partners in India for the India JV. So our engineering teams are now going to start generating revenue back to Loop, providing all of the engineering services that are needed to be able to get these facilities built all the way through to construction and even through start-up and commissioning. So we'll -- that's going to be an interesting revenue stream for us going forward. So every project we build or every project we license will always be generating revenue from the engineering services department. And that's one area that we're going to be building up within the company to be able to handle all of the projects that are coming in. So that's going to be a growth engine for Loop. We are -- the responsibility of building the project is still shared between Societe Generale and Loop in Europe. So we're starting to work together on planning to see where Societe Generale would like to put this facility and working towards being able to build a facility in the short -- near term with Societe Generale to be able to supply European brand companies with top quality PET plastic. Licensing of the technology, key milestone, and we feel good about prospects about other licenses in other parts of the world as well. The India joint venture, which is our key project that we're working on right now with our partners at Ester is moving along well. We're finalizing the land acquisition. We have identified the plots. We're just going through all of the legal due diligence to be able to purchase it with our attorneys in India. The feedstock sourcing is primarily going to be polyester textile waste from the polyester textile industry, which is a key part of the India joint venture because textile to textile for the fashion companies is really top of mind right now, and that's a really driving force in the industry today. Fashion brands need to be able to have recycled solutions for their materials and for their end-of-life products. And so Loop's technology perfectly fits into this realm. And so circular fashion is really becoming very, very, very important. And India is perfectly situated to be able to deliver this because of the textile waste, low-cost manufacturing and close to the fashion company supply chain. So those are really important pieces to this. We've been doing a lot of work on the textile to textile industry. We launched a pair of running shoes made from 100% recycled polyester fiber with On shoes last year. We've done other similar product production with other fashion companies over the past year. So that's been a really big development for us. We've expanded our product offering to -- some customers have come to us and instead of selling them the polyester chip, they don't know how to buy chip or that's not what they're used to doing. So they'd like us to produce fiber for them so that we can actually spin the thread and sell fiber directly to the customers to become a Tier 3 supplier. And so we've been really working hard on building out that supply chain and building up these spinning partnerships that we have. So we have now -- we're looking at working with spinners in all parts of the world in Asia, North America and in Europe to be able to supply fashion companies with the material that they need for their textiles. And so Loop is now going to be selling the spun fiber to certain customers. So that's been a pretty big development for us as well. So everything is on track with the India project, and we're really excited to get started and break ground in construction in the second quarter of this year for the project in India. One other part in the financials is that we had a write-down of some polymerization equipment that we had purchased that we were going to use at the Ulsan project. That is purely an accounting rule that has nothing to do with real life. The equipment is in good standing. The equipment is going to be used in other projects. Part of it is going to be used in India, but the write-down had to come just because of an accounting principle. And the final part to touch on is we've canceled the joint venture with SK. It didn't fit into our overall strategy of investing in low-cost manufacturing countries. Korea is a very high-cost manufacturing country. We do not want to deploy significant amounts of capital into those regions. We would prefer licensing the technology in those regions. So if SK would still be interested in building a project, they would have to do it through a licensing deal, and we would not be investing our capital into the South Korean market. SK has gone through significant changes, significant reorganizations and part of those reorganizations, the Board member, Jonghyuk, who is on our Board of Loop, will be leaving -- has left the Board due to those reorganizations. They are maintaining their investment in Loop, but they have no intention right now to put a new Board member in. They do hold the right to put a Board member in, but at this time, they do not have one. At this time, I'll turn the call over to Fady to be able to give you the operating results.

Thank you, Daniel. Good morning, everybody. Please allow me to go through the financial results for the quarter. Obviously, the biggest transaction that happened -- didn't happen in the quarter, it was the financing that Daniel alluded to for USD 20.8 million. So obviously, that's not reflected in our Q3 financial statements. It will be reflected in our fourth quarter financial statements when we issue in 2025. The proceeds from the transactions provide us with liquidity for our upcoming equity contribution in India and for our head office spend into 2025. Going through our income statement. As you see, there's been a continued decrease in our expenses. Research and development costs totaled $1.38 million. That's a reduction of 25%. And that's really a natural evolution of the production facility. The production facility, we're not testing it anymore. It's prime for showtime. So we're not spending any of those costs that we did in the past. So we continue to have those reductions in spend. And obviously, as the production facility goes, our company goes. So we're just in a natural evolution of our life cycle. In G&A, the expense went to $2.15 million. That's a reduction of 13%. The biggest item, about 2/3 of those savings come from a reduced insurance claims that we have. And then looking forward to that, those numbers are going to continue to draw down looking into fiscal 2025. The cash burn rate for the third quarter was $2.8 million. So we're below our $1 million a month or $3 million per quarter. It was $2.9 million in the second quarter, and now it's $2.8 million. Just to define what we mean by cash burn expenses, it's really our cash expenses. So it doesn't include depreciation expense or stock-based comp, which are noncash, and it excludes project-related costs. Any contributions that we put into a venture or any legal things that we have with our growth strategy are excluded. It's really to entail what is our baseline head office expense. So given the experience that we have in the second and third quarter, we feel comfortable reducing our full year expense for the next calendar year to $10 million. I've guided previously that it was about $1 million a month or $12 million. And now given where we are in the evolution of the company, and Daniel alluded to our engineering function now be treated as a cost recovery/profit center, we feel comfortable with the $10 million as a high watermark for our head office spend. Looking forward to our -- looking to our balance sheet, obviously, the balance sheet reflects the impairment that Daniel alluded to earlier, but does not reflect the financing that happened that was -- that we received right before Christmas time, that's going to be in the fourth quarter. So that's pretty much it on the financial statements. Obviously, will reflect the Reed transaction in the upcoming quarter. We have liquidity for the first equity call in India and our back office spend for the foreseeable future. And now our run rate is expected to be about $900,000 per month in the fourth quarter. And then looking forward to fiscal 2025, it's going to be between $800,000 and $900,000 a month. With that, I'll turn the call over to the question-and-answer period. Thank you.

[Operator Instructions] Our first question today comes from the line of Nick Boychuk with Cormark Securities.

On the Reed financing, can you please remind us what the terms for the additional licensing payments are? What those milestones really are and when we should expect them to be hit?

Nick, so the milestone payments are related to customer contracts and other things that are normal for FID. So there's 2 very attainable milestone payments that are going to be available to Loop. The timing for those milestone payments are probably going to be in end of 2025, end of 2026, really depending on how fast Societe Generale moves on developing the project. We're in discussions with them on finding a location. So those 2 payments are probably going to be at the end of 2025, beginning of 2026. Engineering services would probably start a little bit earlier than that. As soon as the site is selected, then our engineers will start with a process design package, a PDP package for the project, which probably towards the end of '25 as well. But it really depends on the speed that Societe Generale is going to want to work at on the project. So we are beginning discussions with them. We have some interesting opportunities in Europe. And so those are going to be the key milestones there.

And sorry, on the engineering services, I think you've mentioned this before. But can you remind us, on a project like this, roughly, what that would quantify as now?

The engineering services on a project such as the one at Societe Generale would probably be about $10 million (sic) [ EUR 10 million ] coming back to Loop going through to the construction.

Okay. So recognized over a period of about 12 months?

Through construction, it's probably over 24 months. It takes about 18 months to build the facility. So the engineering services go through PDP package, which is the primary engineering package or process design package. Then you have your feasibility study, which is the second study. And then you have detailed engineering and construction. So through those 3 phases, you're talking about $10 million -- EUR 10 million, sorry. So each project...

Understood. Moving to -- okay. On the SKGC partnership, can you kind of provide a little bit more color, Daniel, on what read-through there might be from the Societe Generale building a project in France versus SKGC in South Korea. The fact that SKGC determined that it was unviable in South Korea, does that have any read-through to France? Or is the cost of developing a project in France so much different that Societe Generale likely is to not fall into a similar situation?

Well, the SK scenario was completely different because SK was trying to build this very large project, which they call the Ulsan ARC, which had 3 different companies, 3 different projects on 1 big site with the shared utilities, and SK canceled that project. So it wasn't only with Loop's project, it was with the other companies as well. And one of the big problems there is more SKGC's parent company, SK Innovation, which got into financial trouble because of the electric car battery market. So SK Innovation had invested heavily into the electric car battery business, which is very, very tough right now. And so there was a lot of financial strain put on the company. This is all public information. So there's nothing here that I'm telling you that you can't find on the Internet. SK Innovation has been bought by another SK company, their LNG division or their LNG company now bought SK Innovation to shore up the balance sheet. The management has been -- a complete change in the management. And therefore, their priority right now has been to focus more on shoring up the balance sheet and understanding what they need to do in the electric car battery business. So it's not a real reflection to our technology. It's an overall shift in strategy there. And so Loop, we own 49% of the joint venture. There's no way that I feel comfortable putting in 49% of a project that was hundreds of millions of dollars. We just didn't want to put that equity into that project. When you look at that versus a project in India, where a significant -- a fraction of the cost, you can build the same facility in India and lower cost manufacturing as well, not only the CapEx, but also on the OpEx side, it just -- for Loop, it didn't make sense for us to own 49% and invest capital into the joint venture in Korea. And so the decision for us was very easy. We have no interest in investing that kind of money. European market is very different than the South Korean market because in Europe, you have a lot of the big brands, the beverage brands that need recycled content because of regulations that are coming in, in Europe, more recycled content is going to be needed. And so in the European market, Societe Generale feels that there's still going to be a big need for top quality recycled material in Europe. And so we sold them a license. We got our upfront payment, which was different than SK. SK was -- there was no upfront payment for the license. It was only going to be royalty based on the back end. And so that's -- we learned from that and said anyone that wants a license now has to give us a significant upfront payment to be able to license the technology out. So yes, European market and the South Korean market are completely different. South Korean market is very heavily influenced by the Chinese market. Chinese market, they're flooding the world with cheap chemicals. And so the European market is quite different.

Our next question comes from Mahaut Arnaud with Bryan Garnier & Co.

Could you remind us what is the timeline for CapEx deployment for your different projects over the next month? And in particular, if you have any indications of CapEx deployment timing in India, that would be welcome.

I'm sorry, I didn't hear the second part of your question, the CapEx deployment...?

In India with Ester.

Yes, in India. So we're expected to break ground in the second quarter of 2025. So we've contributed capital to the joint venture to -- we've hired -- so the joint venture has hired Tata Engineers, a very large engineering firm based out of India, to do all of the local engineering work supported by Loop's engineering services team who handles all of the process side. So they've been hired. They're providing all of the information needed to break ground on the facility. We've also hired a big-4 accounting firm, KPMG, to handle the debt syndication to be able to go and get the debt for the project. And they're also doing the DPR, which is a detailed project report, which is needed for the Indian banking syndicate to provide the debt. So KPMG is hired for that and Tata is hired for the engineering side, supported by Loop's engineers. CapEx, the big CapEx spend, we'll start spending CapEx for the project in the second quarter of 2025 for our breaking ground the construction. As for Europe, Societe Generale, it's a license deal. So the licensing deal Societe Generale's responsibility for the equity position. Loop can. We own it -- we have a 10% ownership stake in the project development company. If we wish to invest more, we can increase that 10% up to 50% in the project company. But for right now, we see it as a licensing opportunity. The capital will be -- the CapEx will be -- Societe Generale would be the one responsible with their banking syndicates and their partners to be able to do the CapEx there. That would be simply a licensing revenue for Loop.

Our next question comes from Gerard Sweeney with ROTH Capital Partners.

Daniel and Fady, so when -- we talked a little bit about the engineering and some revenue coming back to Loop. When should we start to see this? I mean, especially it sounds like the India plant with Ester is moving in that direction?

Yes. So when you start seeing the revenue from engineering, you'll start seeing it in next quarter -- in the next quarter filing. So we're starting to receive that revenue now.

Got it. And then obviously, well, it sounded as though you're going to -- the plan is to break ground on the India plant with Ester sometime in 2Q. I mean what are some milestones between now and breaking ground and then post breaking ground that we should watch just to track the project?

Yes. So the completion of the engineering package by Tata and Loop's engineers, that's one key item. We hired KPMG for the debt syndication and for the DPR, which is this detailed project report that's needed for the Indian banks. So those are 2 milestones. Customer contracts, like I said, the circular fashion industry is really the focus of this facility because of the low-cost and plentiful availability of polyester fiber scrap that's available in India, which is going to be the primary feedstock for it. So it's really off cuts from the sewing factories that we're going to be using as our primary feedstock. So customer contracts are going to be a big important piece, you'll start -- we'll start finalizing those contracts within the next few months because those are obviously going to be important for the debt financing. And we've already started to securing the waste feedstock. So that's underway. And then also, probably you'll see some partnerships with these spinning partners that we've developed to be able to sell spun fiber now instead of actual chip. We're actually selling spools of fiber for certain customers who needed us to move up into the supply chain. So that's another development. So those are the big items that we're going to -- you're going to be seeing in the next few months.

That's very helpful. I really appreciate that, especially the detail. And then final question. Obviously, the Reed SG licensing is awesome, moves you down that path. And I don't want to get the cart before the horse, but obviously, the licensing is one of your key strategies going forward. I'm just curious if there is -- your thoughts on additional opportunities that may be potentially out there, maybe outside of Europe or what have you?

Yes, there's definitely opportunities for licensing. We are discussing with other potential partners on licensing outside of Europe. It would be more in higher-cost manufacturing countries in Asia. So those are opportunities as well. We're really happy that we sold our first license to Societe Generale for Europe because that's a really important market that we want to penetrate in to supply our customers with the materials. But there are other opportunities. We're working on them. The pace of these things, it's a little bit difficult to judge, but we do see opportunities in other high-cost countries in Asia.

The next question comes from Marvin Wolff with Paradigm Capital.

Congratulations on getting the Reed financing across the table. That was very, very important, obviously. My question surrounds the relationship you will have with the spinners. Is it going to be a tolling relationship? Or could you give us more color there?

Yes. It's going to be a tolling relationship where we'll send the chip from India to the spinner, they'll spin it into the fibers under the spec that's required for the customers. And then we'll sell that -- send that from the spinner to the customer. So we've qualified our material with all of the large spinners who already supply our customers with this material. So a lot of the big fashion brands, they all buy either spun fiber or they buy fabric or some of them just buy the garments already done. And that supply chain is mainly done in Asia. And so working with the customers, they've introduced -- the customers, the fashion companies have introduced Loop to their spinning partners and then Loop had to go out and develop the relationship with the spinning partners. We've tested our material, qualified the material, the material meets all of the qualifications that are needed, especially the quality, which is always Loop's hallmark, having the top quality material, which is needed for a lot of these big fashion brands and home goods brands that need quality materials coming from a recycled source, and that's what Loop can provide. A lot of the whites, white clothing or white curtains or white fabrics, you can't get that from recycled material. And so that's a big boom for what Loop can provide to these companies. And so we've gone out, we've now had to qualify the material. We've built those relationships with the spinners and it's going to be more of a tolling agreement. Some spinners are interested in buying material from us to sell it to some of their other customers. So that could be another opportunity having -- selling them material and they sell it to certain customers that we don't have relationships with. But this is really all came down from the customer side where some customers just said, we don't know how to buy chip we -- or the resin, we need to be able to buy fabric, so that our purchasing teams can buy the fabric from you. And so we've had to really develop that supply chain with our partners.

Okay. That sounds like a very interesting opportunity and one that could be potentially very high volume.

Yes, very high volume. These fast fashion and the fashion companies they use a tremendous amount of polyester fiber and that market is growing. Out of the entire PET market, if you take the entire market, which is about 90 million tons per year, over 66% of that is the textile industry and the fiber industry. There's no real viable solution to be able to recycle this material, which Loop has the best technology out there for this industry. And so it's a growing opportunity. And that's why the India joint venture is perfectly situated by using the waste scrap, turning it into new fibers for the customers. So that's definitely the growth engine on the customer side, it's coming from the circular fashion industry.

[Operator Instructions] At this time, we have no further questions registered. And so I will hand the call back to the management team for any closing comments.

Thank you very much for joining the call.

Have a nice day. If you have any questions, you can contact IR at Loop Industries. Have a nice day.

Thank you, everyone. Bye-bye.

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