Loop Industries, Inc. (LOOP) Q4 2025 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries Fourth Quarter 2024 (sic) [ 2025 ] Corporate Update Call. [Operator Instructions] This conference is being recorded today, Friday, May 30, 2025. The earnings release accompanying this call was issued after the market closed yesterday, Thursday, May 29, 2025. On our call today are Loop Industries Chief Executive Officer, Daniel Solomita; Nick Lafond, Interim Chief Financial Officer; and Kevin O'Dowd, Head of Investor Relations. I would now like to turn the conference over to Kevin to read a disclaimer regarding forward-looking statements.

Thank you, operator. Before we begin, please note that this morning's discussion will include forward-looking statements within the meaning of U.S. securities laws. These statements relate to our expectations, beliefs, projections, future plans and strategies, anticipated events and other future performance matters. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially. For a more complete discussion of these risks and uncertainties, please refer to the Risks and Factors in Forward-Looking Statements sections in our most recent annual report on Form 10-K filed yesterday with the SEC and our press release issued yesterday. These documents are available at www.sec.gov or from our Investor Relations team. With that, I'll now turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries.

Thank you, Kevin. Good morning, everyone. I'm pleased to report several positive developments as we continue to progress towards commercialization of our unique technology and the construction of our manufacturing facilities in India in partnership with Ester Industries and in Europe with our partnership with Reed Societe Generale Group. Q4 was an important milestone quarter for Loop. It marks our first quarter of reporting material revenues due mostly to the sale of our first technology license to Reed Societe Generale Group for $10.4 million. We also executed an engineering services agreement with our India joint venture, ELITe, for $600,000 to support the FEED engineering study, which was concluded by TATA Engineering Consultants. We expect to generate an additional $750,000 in engineering revenue to the end of the year. In Q4, we also closed a $10.4 million financing from Reed Societe Generale Group. It's a convertible debt instrument that converts into Loop shares at $4.75 a share in 2030. It's a 13% interest -- [ PIK ] interest. Updating now on the Infinite Loop India. TATA Consulting Engineers completed the FEED engineering study, confirming the initial CapEx estimates. The CapEx came in slightly below the original estimate, which further validates our strategy of manufacturing in low-cost countries. We decided to add a continuous polymerization line, which further reduces OpEx and allows us to offer highly competitive pricing to our customers while maintaining robust financial profitability for the joint venture. The conclusion of the FEED study from TATA really confirmed and crystallized what we thought about moving into a low-cost manufacturing country, where you see the CapEx significantly lower than if you would be building the same project in other parts of the world. So we're really excited and happy with the outcome. Being to come in a little bit below the original estimate is really a testament to our team, our engineering team, TATA and our partners at Ester Industries. The Infinite Loop India facility will output both virgin quality polyester fiber-grade PET, a sustainable solution for apparel and home furnishing industries, enabling textile-to-textile recycling and circular fashion. It will also produce virgin quality bottle-grade PET resin for packaging applications. The ability for Loop's technology to offer virgin quality textile-to-textile fiber grade and bottle-grade resin provides significant customer and segment diversification. So we're able to produce the polyester fiber, textile to textile and the bottle-grade material for our customers. So we really work in all of the different spaces in the polyester industry. So as different sectors have different needs, our facilities and our technology is able to respond to both of those needs. For the Infinite Loop facility in India, we are currently in advanced discussions with several brand companies to secure offtake supply agreements for the Indian facility. The customer contracts are required for KPMG to complete the debt syndication for the project. Executing customer contracts are the key for the timing of the groundbreaking, which is scheduled for the second half of this year. On to our partnership with Reed Societe Generale Group. The time line for executing this project in Europe has advanced significantly as Societe Generale Group has moved up the time line to be able to execute the project earlier and get product to the markets in Europe earlier. The companies are currently focusing on site selection for the inaugural European facility, where Loop is playing more of a supporting role to Societe Generale as they're looking across Europe for different site locations, dealing with different governments, incentive programs and seeing where is the best fit for the project. And we are starting to kick off the required engineering studies, of which Loop will be heading that activity to be able to provide the engineering for this European facility. Loop will be executing the engineering for this project at its first using modular construction, which will reduce overall CapEx and shorten construction time lines. The standardized modules will be built in a low-cost manufacturing country and then shipped and assembled on site. This is really, for us, a key focus moving forward is being able to deliver these plants in modular form. Building in low-cost countries as we saw with the CapEx estimate completed by TATA in India, the reduction in CapEx is significant, mainly due to labor costs. And so being able to build these modules in low-cost manufacturing, ship them on site to different countries around the world and assemble them there, really reduces the CapEx and reduces the time to build these facilities. And so those are 2 really important factors for us to be able to execute on these projects quicker and build them around the world and have better overall performance and IRR for the projects. So some of the main advantages of building Loop's technology in the modules are taking advantage of the reduced labor cost and low-cost manufacturing company, their cost predictability because once you have the modules done, it's like an EPC contract, you have a fixed price for the modules. So there's no surprises on site, minimized waste and lower indirect costs because everything is done in a fabrication shop, no weather to deal with. It's all done indoors. So it's very -- much more predictable and shorter schedules and faster time line to market because you don't have to wait, let's say, for the civil work to be done, where in a typical construction, you have to wait for the foundations to be done, site work to be done and then you can start erecting the structures. Well, here, both can be done in parallel as you're doing the civil work, you can be building your modules. So it's a really exciting opportunity for us, and this is really the future of building up these facilities anywhere in the world and starting with these modules in a low-cost manufacturing country. With that, I'll pass the call over to Nick for the financial results.

Thank you, Daniel. My name is Nick Lafond, and I'm very pleased to have the opportunity to support Daniel and our leadership team in the role of Interim CFO. There are 3 items that I'd like to highlight in our financial statements filed last night. Firstly, as mentioned by Daniel, this was the first quarter in which we reported material income on the revenue line. We recorded $10.8 million in revenue in the quarter as we recognized the upfront royalty payment from Reed Societe Generale Group of $10.4 million as well as $0.4 million in engineering revenue from services related to the India JV. Secondly, we significantly reduced our operating expenses and cash burn compared to fourth quarter of last year. Cash operating expenses were $2.6 million for the quarter, a decrease of $2.1 million over -- or 44% year-over-year. This reduction is in part because we're using the Terrebonne production facility to qualify waste PET and polyester fiber feedstock suppliers in India rather than 24% -- 24/7 operation. The Terrebonne facility has fulfilled its purpose of establishing that we can scale up our technology, and we've produced first quality products for our customers here. Thirdly, in Q4, we enhanced our liquidity position as a result of receiving initial proceeds of $20.8 million from the transaction with Reed Societe Generale Group, in which we sold our first license and issued $10.4 million of convertible preferred stock. Our main uses of cash in the quarter were the repayment of our credit facility for $2.4 million, $1.9 million in equity contribution to the India JV and cash operating expenses of $2.6 million, resulting in a cash balance of approximately $13 million at quarter's end. In addition, our line of credit of $2.4 million remains available and undrawn. I'll now return the call to Daniel for his closing remarks before going to Q&A.

Thank you very much, Nick. In conclusion, before the questions, we are really excited about the future. For the first time ever, we have a project that fits the financial metrics to be successful, delivering top quality material to our customers at a super competitive price to the market as well as maintaining robust profitability for the joint venture and Loop's licensing revenue that comes from the joint venture as well. So all of these -- this project in India really fits the mold of what we need to do and executing on our low-cost manufacturing strategy. And the modularization is really going to be benefiting projects around the world, building in Europe with Reed Societe Generale Group, having those modules built, bringing down the CapEx, bringing the cost in line will allow us to accelerate construction in that region as well. So with that, I'll open up the call to questions.

[Operator Instructions] Our first question comes from the line of Gerry Sweeney of ROTH Capital.

This is Brandon Rogers on for Gerry Sweeney. I just had a few questions. One pertains to the India JV execution time line. Can you walk us through the latest time line for the India JV? And then do you have any binding offtake agreements that have been finalized yet? And also, what are the key risks that could delay your 2027 target for commercial operations?

So the timing for the facility is to break ground in the second half of this year. The gating item like now we have all of the engineering is complete. We have the feedstock sourced. We have all of the land selection finalized. Now it's really the gating item would be the securing of the offtake agreements, which allows us to go and have the debt syndication piece done for the project finance. So we don't have any binding agreements today. We have several LOIs that we are converting into binding agreements, and that's going to be really the gating item there. There's no danger in the 2027 operation date. So we fully expect to be able to respect that date.

And then one more question. Just on cash burn and liquidity outlook, you had $2.6 million in the quarter. You've indicated $8 million to $9 million in annual cash burn. How many quarters of runway do you currently have? And then what portion of your Quebec government financing is still untapped? And what's the trigger for access? Will you need to raise any incremental capital to fund your $25 million equity commitment to the India JV?

So we have, I guess, 5 quarters of -- 5 or 6 quarters of liquidity on hand today as we'll be further reducing our cash burn in the second half of this year. So no liquidity concerns at this time whatsoever. The Quebec facility is available to us at the time of the equity commitment check. So for them, once the debt syndication -- once the debt piece is in place and the entire project is wrapped, that's when the financing comes in. We do have a little bit of a financing gap that we are looking to close. So we're discussing with several strategic partners on filling that financing gap.

We have a question from Nick Boychuk of Cormark Securities.

Can you comment a little bit on the land selection process and whether or not that actually has been finalized and the terms and everything have agreed to? Do you own the land? Is it being leased? That seems like a big gating item before you're able to start construction.

Land selection in the province of Gujarat. So we have the land selected. The land is available to us. It's really not the gating item for construction because of the way the India -- can be built, all of the engineering being completed and such. So we don't really have to have the land finalized, but the land can be finalized at any time for us. It's just to have the final contracts done to be able to secure the purchase of the land. I would say the gating item is really the customer contracts to be able to access the debt financing for it. So there are several parcels of land that we were looking at. We've narrowed it down to one piece of land, and now we're finalizing the negotiations with the owners of the land. It's a government project -- government land, so -- sorry, go ahead.

Okay. No, that makes sense. It's government land and so you're currently negotiating with the local government to purchase it?

Yes. So the government has these like special economic or industrial zones in India, where they have several parcels of land. So it fits with the type of industry that we're -- this type of industry that we are in. And so we're just choosing the right parcel. Now we have the parcel. Now it's about finalizing the contract with the government. The government is very supportive of us. They really like the project. India is very focused on the textile recycling and bringing that polyester fiber waste to now be recycled is an important step for them as well. So the project is well accepted in India.

Okay. That makes sense. And when we're looking at Europe, can you comment at all about how the process is going with Reed in terms of you guys finding new land packages, what it is exactly you're looking for, countries of focus, areas and time lines of when we could think that some of those agreements might be announced with Reed?

Yes. So Reed has started advancing their circular plastic strategy, of which Loop's technology is the centerpiece. And so they have hired a CEO for this plastics company, and he's mandated with getting this project moving quickly. And so we have regular meetings with Reed. Right now, site selection on their side is the gate is an important step for them. So they'd like to be able to have a site selected, I would say, in the third quarter, maybe beginning of the fourth quarter of this year to have the site selected. It's really looking all across Europe. I would say there's no country that's being excluded. Obviously, government incentives could be very helpful as Europe leads the way in regulations on plastics for consumer goods companies. So there's a lot of companies -- countries that offer different regulations -- sorry, a lot of different countries. Europe has the regulations. A lot of different countries offer subsidies for these type of projects. So that's one interesting aspect to actually bring down enhance returns on the project is to have subsidies for the different governments. Site location, another gating item now that we're looking at more of the modular construction being close to a seaport to be able to transport the modules. That's another important item. So they're going through the checklist. We've identified probably 5 different countries and different sites. So the work is being done now to be able to locate that site. So I think by like I said, by early -- late third quarter, early fourth quarter, we'll have the site selected. And in the meantime, now Loop is going to start executing on the engineering studies. So doing a PDP package and then a FEED study for the modular construction. So that will be bringing pretty significant additional licensing revenue to Loop by providing those studies to the partnership in Europe.

Okay. That's awesome. And my last question was on that incremental engineering and service revenue that you'll be earning while you're doing these projects. Can you remind us again from an annual expectation, how we should be thinking of the magnitude of what that looks like? Like how much could you be earning this year, next year kind of thing?

For the coming year, we have -- like we said, we executed a $600,000 contract. We have about another -- approximately another $750,000 coming in from the India joint venture where we're more playing a support role, where TATA is doing all of the heavy lifting. For the European partnership, Loop will be doing more of the core engineering because it's being done in the modular fashion. So I would expect something in the magnitude of $5 million to $10 million of additional licensing revenue next year.

We have a question from Marvin Wolff of Paradigm Capital.

Congratulations on getting the Reed technology license across the line. It's nice to see a number like $10 million on the revenue hit for the quarter. That's great. Just had a couple of questions. Number one, remind us again of what the CapEx has come in at under the TATA engineering study for the India plant?

So the complete CapEx, so we've added the polymerization section. So initially, it was just going to be a de poly plant. We've added the polymerization section, a, because we saw the cost was coming in under our initial estimate. So it gave us a little bit more flexibility on the overall CapEx. So we added a significant portion to be able to do the continuous polymerization rather than using a batch asset. And that brings down the overall OpEx, which allows us to be super competitive on pricing. So the overall CapEx for the India project is $176 million.

You're still looking at a [ 730 ] debt equity?

So that's including all total installed costs. So the entire plant installed that also -- that includes the land, that includes all financing costs, the interest on the debt during construction. So that's all-in, complete package is $176 million.

What about the -- okay. You're still looking at [ 730 ]. Okay. And so what would the output be per year for the India plant now? Is it still 70,000 tonnes?

70,000 tonnes, that's correct.

Okay. And you're saying -- okay. And so would you get to full output capacity in '27? Or will that be a '28 kind of thing?

For full ramp-up, I would say it's probably going to be early ' 28 for full ramp-up.

[Operator Instructions] We have a question from Varyk Kutnick of DIVYDE Capital Partners.

Daniel, can you hear me?

Yes I can hear you, Varyk.

Nice job with everything. Exciting to see the progress here. Can you remind us again what the CapEx would have been in some of the earlier site selections?

Yes. Well, the reduction is pretty staggering. So if I would have taken -- let's say, I could take the Korean project in Ulsan, which was the most recent project prior to India. So if you want to compare just total installed cost without the financing costs, without the interest and financing and everything, you're comparing $115 million in India to $575 million in Korea. So it's a very significant. It's like an 80% reduction in CapEx.

Pretty amazing to see that. And obviously, good on you guys for not jumping at the first thing that came your way and being patient. Then I would obviously go to the next piece right here. We've talked a little bit about -- you said in your prepared comments, KPMG was looking at the structure of offtake agreements. Could you maybe describe those and how they're going to be structured, whether they're fixed, volume dependent? And then maybe some of the unit economics of the pricing versus maybe conventional? How competitive are you in a world where things continue to get cheaper or more expensive?

Yes. Well, the good news on the competitive side is having, let's say, an 80% reduction in CapEx allows us to be very competitive to the marketplace, right? When you're stuck with a very high CapEx and you need to generate that return, you have to sell this product at extremely high price. Today, in the market we are, we can really compete with even, let's say, the mechanical recycling industry, which provides a much lower quality product, usually not even 100% recycled content, but we can provide that type of -- we can provide competitive pricing to that, but also having the quality that our customers need, so the virgin quality material. And we've seen that time and time again, if it's on the packaging side with customers like Evian, L'Oréal, L'OCCITANE, the packaging side, we always have the top quality. There's no coloration issues, no quality issues whatsoever. And we see the same thing on the fiber side. When you're dealing, let's say, with the mechanical recycling industry for fibers where they take water bottles and turn that into fibers, through all of the testing we've done with all of these different brands. We've tested our material with dozens and dozens of apparel brands and home furnishing brands. And everyone tells us the quality of our material is second to none. So all of the applications that you're going into is the high-quality material, the high tensile strength material. They actually see even a 30% increase in the spinnability of our material where mechanical recycling, you have a lot of breakage and color defects. Our material is perfect. So we can compete with the mechanical recycling industry on price, but we're providing a superior quality to our customers. So those are really interesting for us. As far as customer contracts, they're guaranteed volume, so a set volume, set price. Most of them have a take-or-pay feature. So if the customer doesn't pay us, they still have -- the customer doesn't take the material. They still have to pay us a certain amount. So let's say, if it would be a 40%. So they would pay us 40% of the value of the contract even if they wouldn't take the material. So we're making sure that the contracts are very bankable for us to be able to achieve that 70% debt. So that's the key for us. Having these contracts be bankable for the debt piece.

That's really helpful, Daniel. I guess my last piece would be, obviously, this is far still -- we're talking 2027 here. But what are you guys -- knowing what you know now, what do you expect the margins on from an EBITDA or cash flow standpoint to be from day 1 on this? And will they -- is this something that you expect to grow over time? Or are we going to see kind of margins from day 1 where we want them to be?

I think we're going to see margins from day 1 that are robust for the joint venture. Don't forget the joint venture, we also get a 5% licensing fee off the top. So Loop gets a 5% licensing fee for the sales piece and for delivering the technology. So that comes right off the top to us. And minus that 5% royalty, which comes to Loop, that 5% pays for more than 100% of all of our back-office expenses. So we'll go from right now losing money to being profitable at Loop to head office just with the licensing fee. And then bringing in the robust profitability for the joint venture, that equity pickup just further enhances the cash flow to the joint venture and then coming back to Loop. So we would be able to reinvest all of that money into future facilities. So once this facility is up off the ground, we don't expect to ever have to -- we'll be using that cash flow to be able to cover all of our expenses plus reinvest into more facilities. I would say that the modular construction is going to be probably the biggest opportunity for us outside of low-cost manufacturing in our licensing model. So when you're licensing, let's say, to Societe Generale Group, who wants to build many of these facilities across Europe in partnership with us by being able to deliver these modules and bringing down the cost of those plants, that's going to be a huge thing for the future because we're able to build the plants quicker. Be more cost effective and like, again, being able to bring tremendous value to the customers, high quality and competitive pricing no matter where we are in the world.

Okay. And then quick math here. I'm just writing, so tell me if I'm wrong on this. But based off of the equity in the India facility from you guys, call it, $25 million to $30 million, your payback should be between 1.5 and 2.5 years based off a 50-50 split, not including the licensing stuff. Is that correct?

That's correct.

We currently have no further questions. So I will hand back to Daniel Solomita for closing remarks.

So yes, in closing, thank you very much, everyone, for joining. Super excited about the projects. It's coming in line with the schedule and really the cost. So we couldn't be happier right now with the status of everything. Thank you very much.

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