Loop Industries, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended May 31, 2022; filed July 13, 2022. The unaudited statements are presented in U.S. dollars. Loop develops technology to recycle waste PET and polyester into virgin-quality material, but remains in the development stage with no revenue.
Financial performance and position
| Metric | Q1 ended May 31, 2022 | Prior-year quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $6.80 million | $8.64 million |
| General and administrative expense | $11.04 million | $3.16 million |
| Net loss | $18.01 million | $12.16 million |
| Operating cash used | $11.58 million | $12.41 million |
| Cash and cash equivalents at period-end | $32.40 million | $18.04 million |
- Gross margin and operating margin are not meaningful because the company reported no revenue.
- Total assets were $47.73 million and stockholders’ equity was $36.45 million at May 31, 2022. Current assets were $40.70 million versus current liabilities of $7.98 million.
- Debt had a carrying amount of $3.43 million, including $129,889 current and $3.30 million long-term. The debt is an Investissement Québec facility; no financing cash inflow was reported in the quarter.
- Cash declined $11.66 million during the quarter. Investing cash use was $69,247, primarily for intangible assets.
Changes and unusual items
- Net loss increased $5.85 million year over year. G&A rose $7.88 million, largely because of $8.15 million in RSU compensation expense, partly offset by lower R&D expense and professional fees.
- A $7.74 million stock-compensation charge followed achievement of a CEO performance milestone tied to signing a customer supply agreement; 1 million performance RSUs were earned. This noncash item materially affected reported loss.
- R&D expense fell $1.84 million, mainly as external engineering for the commercial-facility basic design package and Terrebonne equipment spending declined. Management said the basic design package was completed during the quarter.
- The company recorded a $2.23 million accrual at May 31 for its proposed U.S. securities class-action settlement, down from $2.52 million at February 28 after legal costs. The proposed $3.1 million settlement remains subject to court approval; the company estimates its combined cash contribution and related legal fees at about $2.52 million, with the remainder covered by D&O insurers.
Business outlook, risks and contingencies
- Management said it believes existing liquidity is sufficient for at least 12 months from issuance of the financial statements. However, the company expects further losses and negative operating cash flow and says substantial additional capital is needed to build planned commercial facilities.
- Loop is exploring equity, debt, government incentives and strategic or joint-venture financing for its projects. It cautions that funding may not be available, or available on favorable terms; failure to obtain it could impair its plans.
- The Bécancour, Québec facility is planned, not operating commercially. A long-lead equipment agreement is for up to $8.55 million, subject to terms including project financing; a $2.14 million deposit had been paid. Further commitments may be made if funding is secured.
- A multi-year Danone supply agreement was announced May 16, 2022 for resin intended to come from the planned Bécancour facility. Existing agreements with PepsiCo, L’Occitane and L’Oréal also concern future planned production. These agreements had not generated reported revenue in the quarter.
- The company reported that an independent third-party technology due-diligence report was communicated in May 2022 and, in management’s view, validated technology quality, effectiveness and scalability. Commercial-scale execution, customer demand, construction, permitting, feedstock supply, costs and financing remain significant uncertainties.
- The proposed European project’s partners were reevaluating its location. A proposed Asian joint venture with SK geo centric remained without final JV agreements as of the filing. The Indorama retrofit project remained delayed, with no joint-venture expenditures since 2020.
- The SEC investigation continued; the company received an additional subpoena in March 2022 and said it could not predict the outcome or timing. A separate Québec securities class-action authorization matter was under advisement; management said it intended to defend the claim and had not accrued an amount for it.
- Management cited COVID-19, supply-chain and geopolitical disruption as factors that may affect development and commercialization. It reported disclosure controls and procedures effective as of May 31, 2022 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the Danone and other customer arrangements translate into binding, financeable offtake volumes, timing and economics.
- Whether Loop secures sufficient project financing and funding on acceptable terms, and how this affects construction timing and cash runway.
- Progress on Bécancour equipment commitments, permitting, construction, and planned sale of excess land.
- Commercial-scale performance and economics of the technology, including the independent due-diligence findings and operational results from Terrebonne.
- Court approval and final payment allocation for the U.S. settlement, plus developments in the Québec action and SEC investigation.
- Future cash burn and stock-based compensation, particularly the effect of milestone awards on reported expenses and share dilution.