Prepared remarks
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries First Quarter Fiscal 2026 Corporate Update Call. My name is Emily, and I'll be coordinating your call today. This conference is being recorded today, Wednesday, July 16, 2025. The earnings release accompanying this call was issued after the market close yesterday, Tuesday, July 15, 2025. On our call today are Loop Industries Chief Executive Officer, Daniel Solomita; Interim Chief Financial Officer, Nicolas Lafond; and Kevin O'Dowd, Head of Investor Relations. I would now like to turn the conference over to Kevin O'Dowd to read the disclaimer regarding forward-looking statements.
Thank you, operator. Before we begin, please note that today's discussion will include forward-looking statements within the meaning of U.S. security laws. These statements relate to our expectations, projections, beliefs, future plans and strategies, anticipated events and other performance matters. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. For a complete discussion of these risks and uncertainties, please refer to the risk factors and forward-looking statements sections in our most recent annual Form 10-K or our quarterly report and the 10-Q filed yesterday with the SEC in our earnings press release issued yesterday. These documents are available at www.sec.gov or directly from our Investor Relations team. With that, I'll now turn the call over to Daniel Solomita, Founder and Chief Executive Officer of Loop Industries.
Thank you very much, Kevin. Good morning, everyone. We continue to make steady progress toward groundbreaking of Infinite Loop manufacturing facilities in both India and Europe. Both regions are working with excellent local joint venture partners with whom we are fully aligned as we advance to the next stage of strategic development. Let's start with Infinite Loop India. Off-take discussions are progressing well with leading global apparel brands and consumer packaged goods brands. For the apparel company, we are offering a textile-to-textile solution, meaning we recycle waste textiles and turn that into brand-new polyester fiber, which they then incorporate into their clothing. Most of these apparel brands need a solution to be able to incorporate more sustainable materials into their clothing. Today, they're using mechanical recycling, which basically comes from water bottles and turns that into fibers, but that's the way of the past. Bottles need to stay within the bottles, and the textile companies recognize that they need a solution for textile-to-textile recycling. And that's where Loop comes in. The ability for us to recycle textile waste, removing all coloring dyes and all other types of impurities, and providing them with virgin quality polyester fiber is a huge advantage for the apparel brands. There's a plentiful amount of waste polyester fiber available in India for us to be processing at the facility due to India's textile industry. On the consumer packaged goods side, European beverage brands are in need of high-quality recycled PET. The quality of the mechanically recycled PET that they're using today is getting worse, and the quality is very low, affecting their packaging. They really need to find a solution for being able to incorporate more recycled material, but getting high-quality material. This is a trend that we're going to continue to see as more mechanical recycling comes on board; the quality of the RPET they are producing is getting worse, and eventually, because there's only a certain number of cycles that a bottle can go through until that bottle is no longer usable through mechanical recycling. That's where Loop's technology steps in. Our technology obviously provides virgin quality, top-quality PET resin from waste material. No matter what the incoming feedstock quality is, we always produce the top quality output. So many European beverage brands are looking to Loop to be able to provide that high-quality PET made from 100% recycled content. The advantage of India's low-cost structure is that it allows us to provide the highest quality PET made from 100% recycled content to our customers at very competitive prices while achieving attractive economic returns for Loop and generating strong cash flow to fund future capacity. These are really the key elements—providing the customers with the highest quality PET made from 100% recycled content. Today, because of this low-cost structure, we can provide them at a very competitive pricing. The $176 million CapEx was confirmed by TATA, the engineering firm who did the FEED study. That CapEx number includes a polymerization unit to recombine DMT and MEG into PET, land acquisition, and all financing costs through start-up. If we remove all of those costs, the total installed cost of Loop's technology is $95 million, which is by far the lowest cost in the industry. Site selection has been narrowed to 2 locations in Gujarat, and we'll be finalizing which land we'll be choosing very shortly. The economics for Loop on the project, in addition to the JV returns of which we own 50%, will be further enhanced by licensing fees. We receive a 5% licensing fee for technology and customer sales, as well as engineering fees. We signed a $1.5 million engineering contract with the Indian joint venture to provide engineering support for the next stage of engineering, detailed engineering, and construction. Infinite Loop in Europe, Societe Generale is seeking to advance the timing of the project under their newly appointed CEO of their circular economy initiative and their dedication to advancing the project. Right now, we are supporting them in site selection, which is the immediate focus. The site selection is focusing mainly on Western Europe. Our team is supporting them as we look through the different pieces of land to find the optimal location. Once that piece of land is identified, we'll start working on the engineering for the project and the modularization. The engineering is going to be done in a modular fashion where the modules are going to be built in India. So we are bringing India's low-cost manufacturing, low CapEx, and exporting that to other parts of the world. In this case, it's going to be Europe. We're working with a leading company in India for modularization with significant experience in the chemical industry. The modules for Loop's technology will be built in India and shipped to Europe or any other location in the world and assembled like LEGO blocks on site. This will significantly decrease CapEx for these projects for Loop's technology anywhere in the world. The initial estimate is that the CapEx would see a 50% reduction versus if we were to do it as a stick build. This is a significant savings. Once again, it perfectly positions Loop's technology to deliver the highest quality PET resin or polyester fiber to the customers at extremely competitive prices. I couldn't be more pleased with the modularization progress that's going on right now. In addition to the shared project economics in Europe, we will generate additional revenues from providing the modular solutions, engineering services, and other milestone payments coming from that first European facility. With that, I'll turn it over to Nicolas Lafond for some updates on the financials.
Thank you, Daniel. There are two key items I'd like to highlight from our Q1 fiscal 2026 financial results filed last evening. First, we continued our disciplined approach to managing expenses and preserving cash. Cash operating expenses for the quarter were $2.6 million, representing a reduction of $2.2 million or 46% compared to the same quarter last year. Cash used in operating activities for the quarter was $3.1 million, including working capital outflows of $0.8 million. These outflows reflect the timing of certain payments early in the fiscal year from which we will benefit later on. Second, we ended the quarter with available liquidity of $12.3 million. Our objective is to secure sufficient financing to fund Loop's equity contribution for India at our operating cash burn through to the start-up of the Indian facility. Anticipated sources include government funding and engineering revenues in addition to new capital. I'll now return the call to Daniel for his closing remarks before we open the line for questions.
Thank you, Nick. In conclusion, we're in an excellent position to move to the next stage of strategic development of the Infinite Loop manufacturing facilities. The first facility in India has, by far, the most attractive economics of any project that we've considered, and we have a great joint venture partner. The modularization brings a differentiating factor. Because of the lower cost CapEx, we can see an acceleration of the number of projects that can be built because we can offer really competitive prices while maintaining high returns, which is key to all of these projects. We have a great partner and a strong relationship with our European partners, advancing together in lockstep. The long-term vision is to drive significant shareholder value creation by continuing to roll out these manufacturing facilities. As we said, we have licensing revenue, engineering revenue, modularization revenue, and, of course, a share in the project economics. We have very strong relationships with all of the different customers that are looking for high-quality PET resin and polyester fiber coming from Loop's technology. I couldn't be more excited about the future of Loop. With that, I'll open up the line to questions.
Questions and answers
Our first question today comes from the line of Gerry Sweeney with ROTH Capital.
I wanted to see if you could touch upon the off-take agreements, and maybe go into a little bit more detail. Do you have an idea of potential timing and what we should think about that? And then secondarily, does signing any of the CPG agreements need to coincide with any stages of the India project moving forward?
So the customer contracts. We've been advancing discussions with customers steadily over the past few months, especially since the CapEx number was confirmed. We have a confirmed profitability range that we want to maintain. So things are going really well on the customer side. Signing off on contracts is taking sometimes a little bit longer as there are a lot of steps involved internally in today's world. With higher inflation, people are a little bit more cautious, and there are more internal steps that have to be taken to get contracts fully executed and signed, especially for contracts that we are negotiating, which are longer-term contracts. We are asking for longer length contracts between 3 to 5 years. Internally, they have to get acceptance from senior management for these types of things. The pricing, however, is really competitive because of the low cost structure in India. That's a big advantage we have. There's a take-or-pay element to our contracts, meaning if the customer does not take the volume for any reason, they would be penalized to a certain amount, which could be 40% of the value of the contract, or for some contracts, it could be 100% of the value of the contract. We want to make sure that these contracts are very bankable, and we are looking to sell out a portion of the facility before starting up the facility. Securing the debt financing for the facility is easier when you have a certain percentage of contracts secured. We are very confident in being able to execute on that.
Got you. A couple more questions, maybe a little bit more detailed questions on the contract. Previously, you looked at having your input cost plus the conversion cost plus a markup. So you had some stability on the margins. Will the contracts have a similar structure?
Actually, the one advantage that we're offering to customers is predictability. Customers like to know what they will pay over a 3-year period without the ups and downs of cycles due to potential factors like wars or oil disruptions that can affect prices. With India's low-cost structure and the security of our supply, we can lock in fixed prices on our feedstock, therefore allowing us to offer fixed prices to customers. Today, we're actually offering customers fixed price contracts for 3 to 5 years, which is a huge benefit, evening out their cost predictability. In Europe, we may revert back to a cost-plus structure because there can be more variations. But in India, fixed-price contracts are what we're offering, and customers appreciate that.
Got it. One more question. What would be the next key steps, obviously, the CPG contracts or apparel? And that helps drive the financing aspect. So what would be some other areas that we should keep an eye on going forward?
The joint venture has hired KPMG to syndicate out the debt financing. They prepared a detailed project report, which they are already presenting to Indian banks and other banks. The Export Development Bank of Canada is interested in supporting Loop's technology and bringing it worldwide. We've already begun the debt financing work stream. As customer contracts come in, this brings more credibility to our story and proves the economics shown to the banks. This is well underway. The land selection has been narrowed down to two pieces in Gujarat, in the Dahej region, where there is a plentiful supply of both waste textile feedstock and waste bottle feedstock. We are just looking at negotiating the final terms for those two pieces of land, and we hope to conclude that soon. Yes, the biggest milestones will be securing the customer contracts for the facility. Those will be the key ones for us.
Our next question comes from Varyk Kutnick with Divyde Capital Partners.
I wanted to get some direction on Loop's capital intensity. A public dissolution recycler recently said the facility in Thailand will have a gross CapEx per pound of approximately $1.40 to $1.70, based off, I think, 130,000 tons per year. Where does Loop fall from a gross, excluding financing and land, and net CapEx per pound on the facility you're building?
For Loop's technology—excluding land acquisition, financing costs, and polymerization—the cost per pound with a facility capacity of 154 million GBP per year would be $0.61 per pound. That $0.61 is on a net basis, exactly, excluding financing costs, land costs, and polymerization costs. If you added in the polymerization unit, then we would be at $0.75 per pound. But Loop's technology alone is $0.61 per pound. It's important to highlight that our technology is easily scalable, so as we develop future facilities, we anticipate reducing that cost even further.
Our next question comes from Jonathan Norwood with friends and family of BMO.
I apologize, I was muted briefly. I have a couple of follow-up questions regarding Gerry's inquiry about the offtake agreement. These are typically long-term agreements, and you're likely about three years away from being able to operate this facility and start producing products. Could you clarify that for me? By the time this facility is online, we're probably looking at a three-year timeline. What kind of flexibility do you or the CPG company or the apparel company have if Loop fails to meet construction milestones? Additionally, what options would be available if market conditions change to the point where selling to this specific company is no longer viable?
So a couple of points to make. The facility would be operational by the end of 2027. We expect an 18-month construction time plus about 6 months of start-up, so that's 24 months from now. Customer contracts will include a take-or-pay element; if we're producing material and shipping it to them, if they choose not to accept it, they have to pay a penalty on the material, ranging from 40% to 100% of the contract value, depending on the negotiation with each customer. If Loop is unable to deliver the material to the customer, there is no financial penalty for us.
Okay, so if you were able to have this operational in 18 months, could they back out of the agreement? Is there anything tied to your ability to get the plant running by the end of 2027?
No, there’s nothing tied to that. As you know, in the past, Loop was unable to deliver a facility in Spartanburg, South Carolina. At that time, contracts were not pulled by customers like Coke and Pepsi. So yes, I understand your concern from the past events, but this is a different project and a different customer base.
So on the equity contribution required by Loop for the India facility, how much is that and what’s the timeline for having to inject that amount?
The total amount would be $25 million. Part of it will be paid for through polymerization equipment that we purchased for a previous project, and some committed by a government entity here in Quebec. Timing for that will likely be in the fall, once we have the land selected, likely around the end of the year when we're set to break ground.
So what’s the funding gap between the cash on hand at that time, the amount the government entity will provide, and the amount you need to inject? How do you anticipate coming up with that capital?
The funding gap for that facility is about $15 million. We have various opportunities we're evaluating for that $15 million. With the acceleration of the SocGen project, it will bring engineering and modularization revenue in sooner, which will definitely help with Loop's cash position. So yes, the amount needed is currently $15 million.
And on licensing, can you give us an update on what the pipeline looks like for potential companies to license your IP? How active is that pipeline?
Once we've confirmed the CapEx number in India and the modularization work, it allows for projects where before you were looking at capital-intensive projects of over $500 million. Now that we're able to cut that number in half for the Western world, I think that opens up many potential projects. SocGen is very interested in building several of these facilities. We plan to start with one in Europe, but they have intentions to expand through their private equity arm. The modularization is a game changer for rapidly expanding future facilities. We have more potential opportunities in Asia and North America, and we are looking at various prospects. India will remain our lowest-cost facility, with tremendous economics. Customer appetite for Indian materials is strong, as the textile supply chain is centered around neighboring countries. We are planning to buy enough land for a second facility after the first one goes operational.
Just one last question on the debt piece that your Indian partner has to come up with. It seems that KPMG is engaged to put together a syndicate. Is this an Indian-based venture? Typically in North America, you wouldn't expect to see an accounting firm organizing a syndicate. What’s typical in Asia?
Our partner has built several PET operating facilities. KPMG was used for their recent debt syndication, and we're following their lead as they have the industry experience, especially with the Indian banks.
Our next question comes from Marvin Wolff with Paradigm Capital.
Can you hear me all right, guys?
We can hear you fine, Marvin.
I was wondering if you could give us more color on the two sites you're considering. Things like lead time on permits, are these fully greenfield sites, etc.? Here in Canada, you could choose the site today and not be allowed to break ground for a couple of years due to local regulations. Some more color on that would be helpful.
The permitting process is included with the purchase of the facility; they are in industrial zones already zoned for this type of activity. When you acquire the land this way, you also acquire the permitting. So once the land is acquired, we are ready to start construction.
Very good. And so that includes everything. That includes like utilities and everything?
Utilities depend on the process. Utilities for our technology involve steam generation and electricity, so you may need to bring in a substation for electric connection. Some industrial parks have utilities; others do not, and that plays a big part in site selection. In India, Loop will provide all of the required utilities, and that CapEx number includes those costs. In Europe, you might find industrial parks that have some utilities, but that's not the case in India.
Okay. And how many megawatts of power do you need to operate the facility?
Less than 5.
Okay. Is that a standard number you can easily get from the hydro or electricity provider?
Yes. Our technology is low energy; we have a very low operating temperature in our reactors, below 85 degrees Celsius. The primary energy source for our process will be steam, generated from biomass sources like rice husks, which is very environmentally friendly.
Okay. That sounds great. What about the long lead equipment? Have you ordered any yet? Or is there any that you need to order soon here?
There aren’t long lead items for our technology. Our equipment consists of reactors, filters, and distillation columns, which all have around an 8-month lead time. We do have the reactors for the polymerization in stock. Therefore, there aren't significant long lead items we need to be concerned with for our startup deadline.
On the polymerization unit you have, what’s the dollar value attributed to that for your contribution towards the $25 million in equity?
That's going to be approximately $5 million.
Thanks very much for the color. I'm looking forward to seeing an announcement on the site selection because I think it will really help to push this forward.
Yes. Site selection and customer announcements are the biggest upcoming announcements. Having those top-quality CPG brands or apparel brands as customers is key for us.
And they will let you use their name in a press release?
Yes, we've announced similar contracts in the past, so I anticipate the same for any new contracts.
Thank you. At this time, we have no further questions. I will turn the call back to the management team for any closing comments.
There's no further questions. Thank you all very much for participating, and we look forward to providing further updates as soon as they become available. Thank you very much.
Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.