Loop Industries, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Quarter and six months ended August 31, 2020. Amounts are in U.S. dollars. Loop is a development-stage technology company seeking to convert waste PET and polyester into virgin-quality recycled resin and fiber; it reported no revenue in either 2020 or the comparable 2019 periods.
Financial performance and position
| Metric | Three months ended August 31, 2020 | Six months ended August 31, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net loss | $5.13 million | $8.98 million | $3.34 million and $6.90 million |
| Loss per share, basic and diluted | $0.13 | $0.22 | $0.09 and $0.19 |
| Research and development expense | $2.75 million | $4.23 million | $0.97 million and $1.97 million |
| General and administrative expense | $2.05 million | $4.00 million | $1.72 million and $3.62 million |
Gross profit and operating margins are not meaningful because the company had no revenue. Six-month operating cash use was $7.46 million; investing cash use was $3.23 million, including pilot-plant investment, equipment deposits, intellectual property spending and a joint-venture contribution. Financing cash use was $0.03 million. Cash declined $10.59 million to $23.13 million from February 29, 2020.
At August 31, 2020, current assets were $25.93 million and current liabilities $2.15 million, implying working capital of approximately $23.78 million. Total liabilities were $4.47 million. Debt comprised $53,673 current and $2.32 million long term, or approximately $2.37 million combined carrying value. Stockholders’ equity was $31.59 million.
Changes versus prior period
- Quarterly net loss increased $1.79 million year over year; the six-month loss increased $2.08 million. Higher R&D, general and administrative costs, depreciation, and foreign-exchange losses were partly offset by lower financing expense.
- Six-month R&D spending more than doubled, primarily reflecting engineering work, pilot-plant and laboratory costs, employee compensation, and lower R&D tax credits.
- Operating cash use rose by $2.22 million year over year, reflecting higher R&D spending and prepaid costs, including directors’ and officers’ insurance.
- Cash was substantially lower than at February 29, 2020, while property, plant and equipment increased to $8.29 million from $7.26 million.
Outlook, developments and risks
- Commercialization: The planned Indorama joint-venture facility in Spartanburg was expanded from 20,700 to a planned 40,000 metric tons per year. Loop said the initial 20,700 metric tons of expected output had been contracted, while it continued discussions for additional volume. The joint venture had no operations as of August 31, 2020.
- Timing and financing: Management said COVID-19 border closures and quarantine requirements disrupted the Spartanburg timetable and that commissioning would be delayed. A revised date had not been established. Loop and Indorama were discussing joint-venture structure and financing, including possible increased Loop participation; the filing does not specify final terms.
- New partnerships: Subsequent to quarter-end, Loop signed a Chemtex engineering and know-how agreement representing a $4.3 million commitment for two planned Infinite Loop facilities; $0.5 million was paid in September. It also announced a SUEZ partnership to pursue a European facility, with no current funding commitment by either party.
- Funding: Management believed available resources were sufficient for at least 12 months from issuance of the interim statements, but cautioned that future financing was not assured. On September 21, 2020, the company completed a common-stock offering and exercised over-allotment sales, reporting approximately $25.09 million in net proceeds. This post-period financing increased cash resources and diluted shareholders.
- Key risks: The company remains pre-revenue and depends on successful technology commercialization, construction and financing of facilities, partner execution, feedstock supply, permits, and additional capital. COVID-19 could cause further delays or supply and operating disruptions. Foreign-exchange exposure and competition with lower-cost virgin PET linked to oil prices may affect costs and demand. The company stated that it does not currently hedge all currency exposure.
- Other matters: The company reported effective disclosure controls as of August 31, 2020, no material change in internal control over financial reporting, and no pending legal proceeding it believed was likely to have a material adverse effect. It reported compliance with debt covenants.
Important facts for investors to verify
- Whether Spartanburg’s commissioning schedule, construction budget, funding arrangements, and planned 40,000-ton capacity are finalized, and whether customer supply contracts are binding and cover the intended output.
- Evidence that the GEN II process can reliably achieve commercial-scale yields, product quality, and projected capital and operating costs; these remain forward-looking company claims.
- Whether feedstock supply agreements, permits, and the Chemtex and SUEZ project plans advance, including the funding and obligations attached to each.
- Cash burn and financing needs relative to the company’s runway estimate, including the effect of the September offering and subsequent project commitments.
- Potential dilution from the offering and outstanding equity awards. The filing’s note disclosures show differing counts for outstanding options; investors should reconcile the figures in the detailed filing.