Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended November 30, 2019. Amounts are in U.S. dollars unless otherwise noted. Loop is a pre-revenue technology company developing processes to convert waste PET plastic and polyester into virgin-quality recycled resin and fiber.
Financial performance and liquidity
| Metric | Three months ended Nov. 30, 2019 | Three months ended Nov. 30, 2018 | Nine months ended Nov. 30, 2019 | Nine months ended Nov. 30, 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1.28 million | $0.79 million | $3.25 million | $2.92 million |
| General and administrative | $1.83 million | $1.97 million | $5.45 million | $6.72 million |
| Interest and other finance costs | $0.69 million | $0.01 million | $1.82 million | $0.04 million |
| Net loss | $3.85 million | $2.91 million | $10.75 million | $9.98 million |
| Basic and diluted loss per share | $0.10 | $0.09 | $0.29 | $0.30 |
Gross margin is not applicable because the company reported no revenue. As of November 30, 2019, cash was $35.49 million, current assets $36.30 million, current liabilities $6.63 million, and working capital approximately $29.67 million. Total liabilities were $7.53 million, including $4.93 million of convertible notes and $0.96 million of long-term debt. The company reported compliance with its long-term debt covenants.
For the nine months, operating cash use was $6.82 million, investing cash use $2.59 million, and financing cash provided $39.13 million. Capital spending on property, plant and equipment was $1.65 million, and the company contributed $850,000 to its Indorama joint venture. Cash rose from $5.83 million at February 28, 2019 to $35.49 million, primarily reflecting equity financing.
Changes versus prior comparable periods
- Quarterly net loss increased $0.94 million year over year; nine-month net loss increased $0.77 million.
- Higher finance costs were the largest pressure on results: nine-month costs increased $1.78 million, principally from debt accretion, convertible-note interest and deferred financing-cost amortization.
- Nine-month R&D costs rose $0.32 million, while G&A fell $1.27 million, mainly due to lower legal and professional fees and stock-based compensation.
- Operating cash use increased by $1.36 million year over year, while investing cash use increased by $1.07 million.
- The company raised approximately $39.2 million net through common-stock sales during the nine-month period. Shares outstanding increased from 33.81 million at February 28 to 39.23 million at November 30.
Outlook, developments and risks
- Management described the company as pre-revenue and dependent on equity and debt financing to fund operations. No revenue or profitability guidance was provided.
- The Indorama joint venture’s planned Spartanburg facility was expanded from 20,700 to 40,000 metric tons per year. Engineering enhancements were underway; management anticipated completion by the end of the calendar quarter and commissioning in the third quarter of calendar 2021. The initial 20,700 metric tons of expected output were contracted, with discussions underway for additional volume.
- The company announced an expanded L’OCCITANE supply arrangement, with supply expected from the Spartanburg joint venture. It also continued development of its “Infinite Loop” facility model with thyssenkrupp Industrial Solutions.
- A June 2019 registered direct offering raised $35.0 million gross from 4,093,567 shares. Related options to purchase up to 4,093,567 additional shares at $11 each vested December 15, 2019 and could generate approximately $45 million in net proceeds if exercised. The filing also describes a January 2019 convertible-note issuance with $8.10 conversion pricing and a January 2020 maturity; accrued interest may be paid in cash or stock.
- Key risks include commercialization and construction execution, securing feedstock and permits, obtaining further funding, customer and partner performance, competition and PET/crude-oil pricing, raw-material availability and cost, and Canadian-dollar/U.S.-dollar fluctuations. The company reported no material change to the risk factors in its latest Form 10-K and no pending legal matter it believed would have a material adverse effect.
- One Series A preferred share held by the CEO carried majority voting power while he met the stated ownership condition; the filing reported his voting control at 78.1%. The filing also reported 4.22 million outstanding restricted stock units and 5.04 million warrants, relevant to potential dilution.
Important facts for investors to verify
- Whether the Spartanburg facility’s engineering, construction, commissioning timetable and 40,000-ton capacity remain achievable, and whether additional capacity is contracted.
- Whether the initial customer commitments and feedstock supply arrangements are binding, adequate and economically viable.
- The January 2020 convertible-note conversion and resulting share issuance, plus whether the offering-related options were exercised and what proceeds were received.
- Cash burn and funding needs relative to the $35.49 million cash balance and planned joint-venture start-up spending; the filing does not provide a clear cash-runway estimate.
- Potential dilution from outstanding warrants and restricted stock units, and the implications of the CEO’s preferred-stock voting control.