Loop Industries, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended November 30, 2021. Amounts are in U.S. dollars unless noted. The filing was signed January 11, 2022.
Business context
Loop is a development-stage technology company seeking to depolymerize waste PET and polyester into monomers for recycled, food-grade PET resin and fiber. It reported no revenue and had not begun commercial operations. Its plans include a wholly owned commercial facility in Bécancour, Québec, projects with strategic partners, and a 50/50 Indorama joint venture for retrofits.
Financial results and liquidity
| Metric | Three months ended Nov. 30 | Nine months ended Nov. 30 |
|---|---|---|
| Revenue | $0 in 2021 and 2020 | $0 in 2021 and 2020 |
| Research and development expense | $6.84m vs. $6.27m | $20.76m vs. $10.50m |
| General and administrative expense | $3.09m vs. $2.72m | $9.37m vs. $6.73m |
| Net loss | $10.10m vs. $14.17m | $30.65m vs. $23.15m |
| Basic and diluted loss per share | $0.21 vs. $0.34 | $0.69 vs. $0.57 |
| Operating cash used | Not separately reported for the quarter | $32.83m vs. $14.54m |
At November 30, 2021, cash and cash equivalents were $54.86m, total current assets $61.04m, total assets $69.16m, total liabilities $9.63m, and stockholders’ equity $59.53m. Reported debt carrying value was $4.20m, including $0.89m current debt. The company reported no revenue, so operating margins are not meaningful. Management stated it expected available resources to cover committed operating and capital expenditures and working-capital needs for at least 12 months from issuance of the financial statements.
For the nine months, investing cash outflow was $5.37m and financing cash inflow was $57.92m; cash increased $19.64m. Financing included approximately $56.1m net proceeds from the SK strategic investment and $1.87m from Investissement Québec.
Material changes versus prior comparable periods
- Quarterly net loss narrowed by $4.07m, principally because the prior-year quarter included a $5.03m impairment/write-down of property and equipment. R&D and G&A expenses increased in the 2021 quarter.
- Nine-month net loss increased by $7.50m as R&D rose $10.25m and G&A rose $2.64m; the absence of the prior-year $5.04m impairment partly offset those increases.
- Nine-month operating cash use more than doubled, from $14.54m to $32.83m, reflecting increased development spending, lower accounts payable and accrued liabilities, and higher D&O insurance payments.
- Cash rose from $35.22m at February 28, 2021, primarily following the SK investment. Common shares outstanding increased from 42.41m to 47.39m by November 30, 2021.
Outlook, commentary, risks and unusual items
- Loop began site preparation at Bécancour and reported $0.90m of civil construction costs during the quarter. The planned facility’s initial target capacity is up to 70,000 metric tons annually; capacity, timing, permitting and project economics remain subject to change.
- In December 2021, after quarter-end, Loop agreed to purchase up to $8.55m of long-lead equipment over 13 months and paid a $2.14m deposit. The company said it expected additional project commitments and was exploring financing options.
- Loop remains pre-revenue and dependent on external financing; management cautioned that additional financing may not be available or on acceptable terms. No specific revenue, earnings or commercial-start guidance was provided.
- Commercialization depends on scaling the technology, completing engineering and construction, obtaining permits, securing feedstock and customer contracts, and executing partnerships. COVID-related disruption, foreign-exchange movements, raw-material availability and PET/crude-oil price competition are cited risks.
- The SEC investigation into technology testing and partnerships remained unresolved. U.S. securities class actions were consolidated, with a motion to dismiss pending; a Québec class-action authorization hearing was scheduled for February 24, 2022. Management said it believed the cases lacked merit; no liability provision was recorded.
- The filing reported FDA and EU food-contact testing compliance and a Health Canada no-objection letter. These regulatory milestones do not establish commercial-scale performance.
- Disclosure controls and procedures were assessed as effective at November 30, 2021; the filing reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether commercial-scale technology performance, facility cost, schedule and capacity can be demonstrated at Bécancour and partner sites.
- How much additional capital will be required, what financing sources are available, and the resulting dilution or debt burden.
- Progress on definitive offtake agreements, feedstock supply, permitting and project financing; distinguish announced plans from binding commitments.
- Cash burn, equipment commitments and the adequacy of liquidity as construction spending increases.
- Developments and potential financial effects of the SEC investigation and securities litigation.