Loop Industries, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Three and nine months ended November 30, 2022; filed January 12, 2023. Amounts are U.S. dollars unless stated otherwise.
Business context
Loop is a development-stage technology company seeking to depolymerize waste PET plastic and polyester fiber into materials for virgin-quality recycled PET. Commercial-scale manufacturing has not begun, and revenue remains very limited. The company reported initial sales of PET resin produced at its Terrebonne facility.
Financial performance and liquidity
| Metric | Three months ended Nov. 30 | Nine months ended Nov. 30 |
|---|---|---|
| Revenue | $24,924; prior year $0 | $160,352; prior year $0 |
| Research and development expense | $4.58 million; prior year $6.84 million | $15.13 million; prior year $20.76 million |
| General and administrative expense | $3.18 million; prior year $3.09 million | $18.23 million; prior year $9.37 million |
| Net loss | $1.01 million; prior-year loss $10.10 million | $26.72 million; prior-year loss $30.65 million |
| Basic and diluted loss per share | $0.02 | $0.56 |
| Operating cash flow | Not separately reported for the quarter | Cash used: $26.28 million; prior year $32.83 million |
Gross margin is not separately presented in the filing. The lower reported net loss primarily reflects a $6.70 million gain on sale of land and reduced R&D spending; it does not indicate operating profitability.
- At November 30, cash and cash equivalents were $21.52 million, with a further $4.10 million classified as restricted cash. The filing describes available liquidity of $24.11 million: cash plus a $2.59 million undrawn bank facility.
- Current assets were $35.47 million and current liabilities $8.02 million. Total liabilities were $11.26 million; long-term debt, net of current portion, was $3.24 million.
- Nine-month investing cash flow was positive $8.27 million, including $8.56 million proceeds from the partial sale of Bécancour land. No financing cash flow was reported for the period.
- Stock-based compensation was $9.97 million for the nine months, including $7.74 million for a CEO performance-milestone award. This materially increased year-over-year G&A expense.
Material changes and unusual items
- In September 2022, Loop sold approximately two-thirds of its Bécancour land for $8.56 million, recognizing a $6.70 million gain.
- On December 21, 2022, after quarter-end, Loop agreed to sell its remaining Bécancour land for $13.70 million (CDN $18.50 million), subject to due diligence and customary closing conditions. Closing was expected by February 24, 2023.
- Loop said it would focus commercialization on planned joint-venture projects with SK geo centric in Asia and Europe, rather than proceeding with the Bécancour facility as contemplated. Final agreements for the proposed SKGC joint ventures had not been completed as of the filing.
- A $1.00 million customer capacity-reservation deposit is restricted and recorded as a liability; it is refundable if the Bécancour facility is not constructed.
- On December 22, 2022, Loop announced reduced operating hours at Terrebonne to conserve liquidity, while stating it would fulfill existing sales contracts.
Outlook, risks and contingencies
Management stated that it expected available resources to fund operations for at least 12 months from issuance of the financial statements. However, commercial-scale facilities require substantial additional financing. Loop is pursuing financing with partners and may seek debt, equity, government incentives or strategic arrangements; there is no assurance that funding will be available on acceptable terms. The planned first Asian facility in Ulsan was expected to break ground in 2023, subject to financing and project progress. The filing provides no quantified revenue or earnings guidance.
- Operating risks include commercialization and scale-up, construction and permitting, customer offtake, feedstock availability, supply-chain disruption, inflation, and the need for additional capital.
- The company continued to face an SEC investigation. The SEC complaint filed in September 2022 named other defendants and identified CEO Daniel Solomita as a relief defendant; the filing states it did not allege wrongdoing by Loop or Solomita.
- The U.S. securities class-action settlement required a $3.10 million payment. Loop placed that amount in escrow in October 2022 and reported insurance proceeds and a receivable; final court approval occurred January 5, 2023, after the reporting date. A related proposed Quebec class action was dismissed, and the appeal period expired.
- Management cited ongoing effects from COVID-19, supply-chain and geopolitical disruption, inflation, and rising interest rates. It reported disclosure controls and procedures were effective as of November 30, 2022.
Important facts for investors to verify
- Whether the remaining Bécancour land sale closed, on what terms, and how proceeds were used.
- Progress toward definitive SKGC joint-venture agreements, financing, site approvals, and the Ulsan project timetable.
- Cash burn and runway, including the distinction between unrestricted and restricted cash and the availability and covenant terms of the bank facility.
- Whether the customer deposit becomes refundable and the status of existing customer supply commitments following the Bécancour strategy change.
- Resolution of the SEC investigation and completion of the U.S. settlement, including final insurance recoveries.
- Whether pilot-facility sales can grow into recurring commercial revenue; nine-month revenue was only $160,352.