Prepared remarks
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries Fourth Quarter 2025 Corporate Update Call. This conference is being recorded today, Friday, May 30, 2025. The earnings release accompanying this call was issued after the market closed yesterday, Thursday, May 29, 2025. On our call today are Loop Industries Chief Executive Officer, Daniel Solomita; Nick Lafond, Interim Chief Financial Officer; and Kevin O'Dowd, Head of Investor Relations. I would now like to turn the conference over to Kevin to read a disclaimer regarding forward-looking statements.
Thank you, operator. Before we begin, please note that this morning's discussion will include forward-looking statements within the meaning of U.S. securities laws. These statements relate to our expectations, beliefs, projections, future plans and strategies, anticipated events and other future performance matters. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially. For a more complete discussion of these risks and uncertainties, please refer to the Risks and Factors in Forward-Looking Statements sections in our most recent annual report on Form 10-K filed yesterday with the SEC and our press release issued yesterday. These documents are available at www.sec.gov or from our Investor Relations team. With that, I'll now turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries.
Thank you, Kevin. Good morning, everyone. I'm pleased to report several positive developments as we continue to progress towards commercialization of our unique technology and the construction of our manufacturing facilities in India in partnership with Ester Industries and in Europe with our partnership with Reed Societe Generale Group. Q4 was an important milestone quarter for Loop. It marks our first quarter of reporting material revenues due mostly to the sale of our first technology license to Reed Societe Generale Group for $10.4 million. We also executed an engineering services agreement with our India joint venture, ELITe, for $600,000 to support the FEED engineering study, which was concluded by TATA Engineering Consultants. We expect to generate an additional $750,000 in engineering revenue to the end of the year. In Q4, we also closed a $10.4 million financing from Reed Societe Generale Group.
It's a convertible debt instrument that converts into Loop shares at $4.75 a share in 2030. It's a 13% interest. Updating now on the Infinite Loop India. TATA Consulting Engineers completed the FEED engineering study, confirming the initial CapEx estimates. The CapEx came in slightly below the original estimate, which further validates our strategy of manufacturing in low-cost countries. We decided to add a continuous polymerization line, which further reduces OpEx and allows us to offer highly competitive pricing to our customers while maintaining robust financial profitability for the joint venture. The conclusion of the FEED study from TATA confirmed what we thought about moving into a low-cost manufacturing country, where you see the CapEx significantly lower than if you were building the same project in other parts of the world. So we're really excited and happy with the outcome. Being able to come in a little bit below the original estimate is a testament to our team, our engineering team, TATA and our partners at Ester Industries.
The Infinite Loop India facility will output both virgin quality polyester fiber-grade PET, a sustainable solution for apparel and home furnishing industries, enabling textile-to-textile recycling and circular fashion. It will also produce virgin quality bottle-grade PET resin for packaging applications. The ability for Loop's technology to offer virgin quality textile-to-textile fiber grade and bottle-grade resin provides significant customer and segment diversification. We work in all different spaces in the polyester industry, responding to different sectors' varying needs. For the Infinite Loop facility in India, we are currently in advanced discussions with several brand companies to secure offtake supply agreements for the Indian facility. The customer contracts are required for KPMG to complete the debt syndication for the project. Executing customer contracts is key for the timing of the groundbreaking, which is scheduled for the second half of this year.
Regarding our partnership with Reed Societe Generale Group, the timeline for executing this project in Europe has advanced significantly as Societe Generale Group has moved up the timeline to execute the project earlier and get product to market in Europe sooner. The companies are currently focusing on site selection for the inaugural European facility, where Loop is playing a supporting role to Societe Generale as they explore various site locations across Europe, dealing with different governments and incentive programs to find the best fit for the project. We are also starting to kick off the required engineering studies, and Loop will oversee that activity to provide the engineering for this European facility. Loop will execute the engineering for this project using modular construction, which will reduce overall CapEx and shorten construction timelines. The standardized modules will be built in a low-cost manufacturing country, then shipped and assembled on-site.
This modular approach is a key focus moving forward, enabling us to deliver these plants more efficiently and enhance the overall performance and IRR for the projects. Some major advantages of building Loop's technology in modules include reduced labor costs, cost predictability because of the fixed price for the modules, minimized waste, and lower indirect costs as everything is done indoors, avoiding weather-related delays. This leads to a much more predictable schedule and faster time to market. While the civil work and module construction can be done in parallel, this creates exciting opportunities for us, making modular construction the future of building facilities globally. With that, I'll pass the call over to Nick for the financial results.
Thank you, Daniel. My name is Nick Lafond, and I'm very pleased to have the opportunity to support Daniel and our leadership team in the role of Interim CFO. There are three items that I'd like to highlight in our financial statements filed last night. Firstly, as mentioned by Daniel, this was the first quarter in which we reported material income on the revenue line. We recorded $10.8 million in revenue in the quarter, acknowledging the upfront royalty payment from Reed Societe Generale Group of $10.4 million, as well as $0.4 million in engineering revenue from services related to the India joint venture. Secondly, we significantly reduced our operating expenses and cash burn compared to the fourth quarter of last year. Cash operating expenses were $2.6 million for the quarter, a decrease of $2.1 million or 44% year-over-year. This reduction is partly because we used the Terrebonne production facility to qualify waste PET and polyester fiber feedstock suppliers in India rather than operating 24/7.
The Terrebonne facility has accomplished its purpose of establishing that we can scale up our technology, and we've produced first-quality products for our customers here. Thirdly, in Q4, we enhanced our liquidity position by receiving initial proceeds of $20.8 million from the transaction with Reed Societe Generale Group, in which we sold our first license and issued $10.4 million of convertible preferred stock. Our primary cash uses in the quarter included the repayment of our credit facility for $2.4 million, $1.9 million in equity contribution to the India joint venture, and cash operating expenses of $2.6 million, resulting in a cash balance of approximately $13 million at the end of the quarter. In addition, our line of credit of $2.4 million remains available and undrawn. I'll now return the call to Daniel for his closing remarks before moving to Q&A.
Thank you very much, Nick. In conclusion, before the questions, we are really excited about the future. For the first time ever, we have a project that fits the financial metrics for success, delivering top-quality material to our customers at a super competitive price to the market, while maintaining robust profitability for the joint venture and Loop's licensing revenue that comes from the joint venture as well. All of this makes the India project really fit what we need to do and successfully execute our low-cost manufacturing strategy. The modularization will benefit projects around the world, such as our work in Europe with Reed Societe Generale Group. Building these modules will reduce CapEx, align costs, and allow us to speed up construction in that region as well. With that, I'll open up the call to questions.
Questions and answers
Our first question comes from the line of Gerry Sweeney of ROTH Capital.
This is Brandon Rogers on for Gerry Sweeney. I just had a few questions. One pertains to the India joint venture execution timeline. Can you walk us through the latest timeline for the India joint venture? And do you have any binding offtake agreements that have been finalized yet? Also, what are the key risks that could delay your 2027 target for commercial operations?
So the timing for the facility is to break ground in the second half of this year. The gating item right now is that we have all of the engineering complete. We've sourced the feedstock, and we have finalized land selection. The final gating item is securing offtake agreements, which will allow us to have the debt syndication piece completed for project financing. Currently, we don't have any binding agreements, but we have several LOIs that we are converting into binding agreements. This is the key gating item. There is no danger regarding the 2027 operation date; we fully expect to meet that timeline.
I have one more question. Regarding cash burn and liquidity outlook, you've indicated about $2.6 million in the quarter, with an indication of $8 million to $9 million in annual cash burn. How many quarters of runway do you currently have? Additionally, what portion of your Quebec government financing is still untapped? What triggers access to it? Will you need to raise any incremental capital to fund your $25 million equity commitment to the India joint venture?
We currently have around 5 to 6 quarters of liquidity on hand. We expect to further reduce our cash burn in the second half of the year, so there are no liquidity concerns right now. The Quebec facility is accessible to us at the time of the equity commitment check. Therefore, once the debt syndication is in place and the project is wrapped up, we will proceed with financing. We do have a slight financing gap that we are addressing with several strategic partners.
We have a question from Nick Boychuk of Cormark Securities.
Can you comment a little bit on the land selection process and whether it has been finalized? Additionally, do you own the land or is it being leased? That seems like a significant gating item before construction can begin.
The land selection for the project is in the province of Gujarat. We have the land selected and it's available to us. It is not a gating item for construction because of the way the India project can be built; all of the engineering is complete. We can finalize the land agreement at any time. The true gating item is really the customer contracts to access debt financing. We are negotiating with the owners of the land. It is government land, and the local government supports our project as it aligns with their focus on textile recycling.
That makes sense. You're negotiating with the local government to purchase it?
Yes, the government has special economic zones where several parcels of land are available, suitable for our industry. We're finalizing negotiations with the government. They are very supportive of us and appreciate the project's contribution to textile recycling.
When looking at Europe, could you share updates on the process with Reed in terms of site selection and the specific countries or areas you are focusing on?
Reed has advanced its circular plastic strategy, and they have hired a CEO with the mandate to expedite this project. We have regular meetings with Reed, and site selection is a critical step for them. They would like to have a site selected by late third quarter or early fourth quarter of this year. They are looking across Europe with no countries excluded. Government incentives could play a significant role as Europe implements new regulations on plastics. We are identifying about five different countries for potential sites, and we will also begin executing engineering studies for modular construction in the meantime, which will generate significant additional licensing revenue for Loop.
That's great. Can you clarify the expected earnings from incremental engineering and service revenue during these projects?
For the upcoming year, we executed a $600,000 contract, with approximately another $750,000 expected from the India joint venture as we play a supportive role while TATA handles much of the work. For the European partnership, Loop will engage more core engineering work, leading to an anticipated additional licensing revenue of $5 million to $10 million next year.
We have a question from Marvin Wolff of Paradigm Capital.
Congratulations on getting the Reed technology license across the line. It's great to see a revenue figure of $10 million for the quarter. I have a couple of questions. Firstly, can you remind us of the CapEx figures from the TATA engineering study for the India plant?
The complete CapEx, which includes the added polymerization section, is $176 million. This includes all total installed costs such as land acquisition, financing costs, and construction interests.
You're still looking at a 70% debt-to-equity ratio?
Yes, that is inclusive of all costs.
What will the output be per year for the India plant? Is it still 70,000 tonnes?
Yes, 70,000 tonnes is correct.
Will you achieve full output capacity in '27, or will that push to '28?
I anticipate full ramp-up by early '28.
We have a question from Varyk Kutnick of DIVYDE Capital Partners.
Daniel, can you hear me?
Yes, I can hear you, Varyk.
Nice job overall. It's exciting to see the progress. Can you share the CapEx from earlier site selections?
The CapEx is significantly reduced; to compare, the project in Korea was $575 million, while the India project's total installed cost is $115 million. This represents an approximately 80% reduction in CapEx.
That's impressive progress. Can you elaborate on the structure of the offtake agreements that KPMG is examining?
The good news about being competitive is that our 80% reduction in CapEx positions us well in the marketplace. Higher CapEx would require extremely high selling prices. In the current market context, we can compete with mechanical recycling, bringing high-quality product at competitive prices. We've tested our material with numerous top brands and received positive feedback on its quality. Customer contracts include guaranteed volume and pricing terms, with a take-or-pay feature ensuring bankability.
What do you expect the EBITDA or cash flow margins to be from day one?
We expect robust margins from day one for the joint venture. Loop receives a 5% licensing fee off the top, covering over 100% of our back-office expenses. Thus, we should transition from losses to profitability. This facility's cash flow will enable us to reinvest in future facilities, and modular construction will contribute to lowering costs and enhancing customer value.
Based on the equity commitment of $25 million to $30 million from the India facility, the payback should fall between 1.5 and 2.5 years, not including licensing opportunities; is that correct?
That is correct.
We currently have no further questions. I will hand back the call to Daniel Solomita for closing remarks.
In closing, thank you very much, everyone, for joining. We are super excited about the projects. They are progressing on schedule and within expected costs. We couldn't be happier with the current status. Thank you very much.
This concludes today's call. Thank you all for joining. You may now disconnect your lines.