Loop Industries, Inc. — Q2 FY2020 Form 10-Q
Reporting period: Three and six months ended August 31, 2019; filed October 8, 2019. Amounts are in U.S. dollars unless noted.
Business context
Loop is a pre-revenue technology company developing processes to convert waste PET plastic and polyester into virgin-quality PET resin and fiber. Its commercialization strategy relies on a 50/50 joint venture with Indorama Ventures and prospective Waste-to-Resin facilities and licensing. The company reported no revenue in either the quarter or first six months.
Financial performance and position
| Metric | Three months ended Aug. 31, 2019 | Six months ended Aug. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net loss | $3.34 million | $6.90 million | $3.54 million; $7.07 million |
| Loss per share, basic and diluted | $0.09 | $0.19 | $0.10; $0.21 |
| Operating cash used | — | $5.24 million | $3.91 million |
| Investing cash used | — | $1.79 million | $1.10 million |
- Cash and cash equivalents were $37.93 million at August 31, up from $5.83 million at February 28, 2019. Current assets were $38.90 million and current liabilities $5.82 million.
- Total liabilities were $6.74 million, including $4.26 million in current convertible notes and $0.97 million in long-term debt, of which $0.05 million was current. The company reported compliance with debt covenants.
- Capital spending included $1.20 million for property, plant and equipment; the company also invested $0.50 million in the Indorama joint venture. No gross margin or operating margin is meaningful because revenue was zero.
Changes versus prior comparable periods
- Net loss declined by $0.20 million in Q2 and $0.17 million for the first six months. Lower R&D and general and administrative expenses, plus higher interest income, were partly offset by higher depreciation and financing costs.
- Six-month operating cash use increased to $5.24 million from $3.91 million, while investing cash use rose to $1.79 million from $1.10 million.
- Interest and other finance costs rose to $1.12 million for the first six months from $0.03 million, primarily reflecting convertible-note accretion and interest.
- Cash increased chiefly after common-stock offerings. The company issued 4,693,567 shares for cash during the six months; common shares outstanding rose to 39,032,528 from 33,805,706 at February 28.
Outlook, commentary and risks
- Management said the Indorama facility’s planned capacity increased from 20,700 to 40,000 metric tonnes. The initial 20,700 tonnes was fully subscribed by customers, including Danone, PepsiCo and Coca-Cola’s Cross Enterprise Procurement Group; commissioning was expected by the end of calendar 2020.
- The company also cited a multi-year supply agreement with L’Occitane tied to its first European production facility. It described a global alliance with thyssenkrupp to develop its Waste-to-Resin solution. These plans are prospective; the filing reports no commercial revenue.
- A financing agreement with Investissement Québec can cover 63.45% of eligible pilot-plant expansion expenses, up to a stated maximum of CDN$4.6 million. No funds had been drawn by August 31. The arrangement includes a 36-month repayment moratorium and warrants tied to disbursements.
- The June 2019 registered direct offering raised approximately $34.6 million net. Related options to buy up to 4,093,567 additional shares at $11 per share were to vest December 15, 2019 and could provide approximately $45 million net if exercised; those proceeds were not assured.
- Management identified commercialization, facility construction, customer and partner relationships, access to financing, permits, competition, feedstock availability and pricing, commodity prices, foreign-exchange movements, and intellectual-property protection as risks. The company said it had no currency hedges in place and no material changes to its previously disclosed risk factors.
- The CEO’s one Series A preferred share carried majority voting power while he held at least 7.5% of common shares; the filing reported his voting control at 78.0%. No pending legal matter was identified as likely to have a material adverse effect. Disclosure controls were assessed as effective at period-end.
Most important facts for investors to verify
- Whether the Indorama facility meets its commissioning timetable, reaches the planned 40,000-tonne capacity, and converts customer commitments into operating sales.
- How much cash the pre-revenue business consumes as pilot-plant and commercialization spending continues, and whether additional financing will be needed.
- The status and terms of the Investissement Québec facility and the contingent share options and warrants, including potential dilution.
- The full dilution picture: 4.42 million outstanding restricted stock units and 5.04 million warrants at August 31, alongside 39.03 million common shares outstanding.
- The commercial economics of Loop’s process, including production costs, feedstock supply, achievable pricing and margins; the filing provides no realized sales or commercial operating results.