Loop Industries, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended November 30, 2020. Amounts are in U.S. dollars unless stated otherwise. Loop is a development-stage technology company developing processes to convert waste PET and polyester into purified building blocks for virgin-quality PET resin. It reported no revenue in either comparable period.
Financial performance and liquidity
- Revenue: $0 for the quarter and nine-month period, unchanged from 2019. With no sales, operating margins are not meaningful.
- Net loss: $14.17 million for the quarter, versus $3.85 million in 2019; $23.15 million for nine months, versus $10.75 million. Basic and diluted loss per share was $0.34 for the quarter and $0.57 for nine months, compared with $0.10 and $0.29, respectively.
- Expenses: Quarterly R&D was $6.27 million (prior year $1.28 million); nine-month R&D was $10.50 million (prior year $3.25 million). G&A was $2.72 million for the quarter and $6.73 million for nine months. The quarterly and nine-month results include a $5.03 million impairment/write-off of pilot-plant machinery and equipment.
- Cash flows: Operating cash use was $14.54 million for nine months, versus $6.82 million in 2019. Investing cash use was $2.39 million, versus $2.59 million. Financing provided $26.62 million, chiefly from a $25.00 million net stock offering and $1.65 million from warrant exercises.
- Cash and liquidity: Cash and equivalents were $43.61 million at November 30, 2020, up from $33.72 million at February 29, 2020. Current assets were $46.03 million and current liabilities $4.14 million. Management said available resources were sufficient for planned operating, capital and working-capital needs for at least 12 months from issuance of the financial statements, while cautioning that future financing is not assured.
- Debt: Balance-sheet debt was approximately $2.39 million, including $53,992 current and $2.34 million long term. The company also had up to approximately $1.84 million remaining available under its Investissement Québec facility, subject to its terms.
- Equity and dilution: 42.41 million common shares were outstanding at November 30, 2020, up from 39.91 million at February 29, 2020. A registered offering of 2.087 million shares at $12.75 per share generated $25.00 million net proceeds.
Material changes and business progress
- The increased quarterly loss mainly reflected higher R&D spending, the $5.03 million equipment write-off and increased G&A. For nine months, the loss increase also reflected higher R&D and G&A, partly offset by lower interest and other finance expense.
- Management redirected the pilot plant to a demonstration and training facility for future Infinite Loop facilities. Because machinery and equipment was dedicated to R&D with no alternative future use, it was written off; qualifying future facility costs and certain equipment purchases will be expensed as incurred.
- The company reported that Kemitek verified production of DMT and MEG monomers within its purity specifications at mini-pilot and pilot scale. It also reported European REACH registrations for MEG and DMT. These do not establish commercial-scale performance.
- The 50/50 Indorama joint venture had made no expenditures since pausing its Spartanburg project because of COVID-19. The planned facility was sized at 40,000 metric tons annually; Loop said it had contracted approximately 15,000 metric tons of expected output. The venture planned to gradually resume some project activity in the first quarter of calendar 2021, and Loop was exploring financing and joint-venture structures.
- Loop entered a $4.3 million Chemtex engineering and know-how agreement covering two planned Infinite Loop facilities and paid $500,000 by quarter-end. After quarter-end, it entered a separate $4.2 million agreement for polymerization equipment for the demonstration plant. The company expected the demonstration project to be largely completed by the third quarter of calendar 2021.
Outlook, risks and unusual items
- No numerical revenue, earnings or cash-flow guidance was provided. The business remains pre-commercial and relies on equity and debt financing to fund operations and commercialization.
- COVID-19 restrictions and cross-border travel and quarantine requirements disrupted the Spartanburg schedule; further effects on development, commercialization, permits, suppliers and cash flows remain uncertain.
- On October 29, 2020, Coca-Cola’s Cross Enterprise Procurement Group advised it intended to terminate the supply agreement because Loop had not met the first production milestone by July 2020. It expressed interest in exploring a new framework, but no replacement agreement was assured.
- The SEC subpoenaed Loop in October 2020 for information concerning testing and results from its GEN I and GEN II technologies and certain partnerships and agreements. The filing states the investigation does not mean the SEC concluded that anyone violated the law; its outcome and timing are unknown.
- The company disclosed proposed securities class actions in the United States and Québec alleging misleading statements and seeking unspecified damages. The two U.S. actions were consolidated in January 2021. Management said it intended to defend the matters; no provision was recorded.
- Other risks include commercial-scale technology execution, partner or customer termination rights, permitting, feedstock access and cost, PET and crude-oil price competition, foreign-exchange exposure, and the possibility of needing additional capital. The filing reported effective disclosure controls as of November 30, 2020.
Important facts for investors to verify
- Whether GEN II can operate reliably and economically at commercial scale, and whether independent verification extends beyond pilot-scale monomer purity.
- Progress, revised timing, funding arrangements and partner commitments for the paused Spartanburg joint venture and planned European and Québec projects.
- Whether Loop secures replacement or new customer agreements, particularly following Coca-Cola’s notice, and whether contracted volumes and milestone conditions remain valid.
- Actual cash burn against management’s stated minimum 12-month liquidity outlook, future financing needs, and the terms and availability of remaining debt-facility proceeds.
- Developments in the SEC investigation and securities litigation, including any financial, operational or disclosure consequences.