Loop Industries, Inc. (NASDAQ:LOOP) is a clean technology company on a mission to accelerate the world's shift towards sustainable polyethylene terephthalate (PET) plastic and polyester fiber. The company's patented and proprietary Infinite Loop™ technology enables the depolymerization of waste PET plastic and polyester fiber into their base building blocks, dimethyl terephthalate (DMT) and monoethylene glycol (MEG), which are then purified and repolymerized into virgin-quality Loop™ branded PET resin and polyester fiber.
Loop's innovative approach addresses the limitations of traditional mechanical recycling by allowing the company to process a wider variety of PET feedstock, including complex and degraded plastics as well as polyester textiles. This enables a true closed-loop recycling system, where PET can be recycled an infinite number of times without degradation of quality.
Business Overview
Loop was founded in 2014 with the goal of revolutionizing the plastics industry through its breakthrough depolymerization technology. The company's Infinite Loop™ process breaks down waste PET plastic and polyester fiber into their base monomers, DMT and MEG, which are then purified and repolymerized into new PET resin and polyester fiber.
This process allows Loop to utilize a diverse range of PET feedstock, including colored, opaque, and degraded plastics, as well as polyester textiles, that are typically difficult or impossible to recycle through traditional mechanical methods. By expanding the pool of acceptable feedstock, Loop is able to create a sustainable supply of high-quality recycled PET and polyester fiber, enabling its customers to meet their growing sustainability commitments.
In addition to its PET resin and polyester fiber business, Loop has recently expanded its product offering to include the direct sale of its recycled DMT and MEG monomers. This strategic move addresses the global shortage and high demand for these essential petrochemicals, providing Loop with an additional revenue stream and diversifying its business model.
Financials
For the fiscal year ended February 28, 2023, Loop reported annual revenue of $153,000 and a net loss of $21,087,000. The company's operating cash flow for the year was -$18,034,000, and its free cash flow was -$23,678,000.
In the latest quarter ended May 31, 2023, Loop generated revenue of $6,000 and incurred a net loss of $5,189,000. The company's operating cash flow for the quarter was -$3,915,000, and its free cash flow was -$176,000.
The company's financial performance reflects its continued investment in the development and commercialization of its Infinite Loop™ technology. Loop has prioritized expanding its production capacity, securing strategic partnerships, and building out its global sales and marketing capabilities, all of which have contributed to its current cash burn rate.
Strategic Partnerships and Commercialization Efforts
Loop has made significant progress in its commercialization efforts, highlighted by several key strategic partnerships:
India Joint Venture with Ester Industries
In May 2023, Loop announced a 50/50 joint venture with Ester Industries Ltd., a leading Indian manufacturer of polyester films and specialty polymers. The Infinite Loop™ India facility is expected to produce 70,000 metric tons of recycled DMT and 23,000 metric tons of recycled MEG annually, addressing the global shortage and high demand for these essential petrochemicals.
The partnership leverages Ester's operational expertise and local market knowledge, while Loop is responsible for sales and marketing of the facility's products. The project is expected to have an attractive unlevered internal rate of return of 35% and generate approximately $70 million in annual EBITDA, of which Loop's 50% share would be $35 million.
Strategic Partnership with Reed Management SAS
In May 2023, Loop announced a strategic partnership and financing agreement with Reed Management SAS, a European investment firm. Under the terms of the agreement, Reed will provide a €35 million financing package to support Loop's global expansion, including a €10 million investment in a convertible preferred security and a €25 million loan.
The partnership is structured as a 50/50 joint venture for the European deployment of Loop's Infinite Loop™ technology, aligning with the company's asset-light business model focused on licensing its technology in higher-cost manufacturing regions.
Ulsan, South Korea Project with SKGC
Loop's planned Infinite Loop™ manufacturing facility in Ulsan, South Korea, in partnership with SKGC, is expected to have an annual capacity of 70,000 metric tons of Loop™ PET resin for packaging and polyester fiber applications. The partners are currently evaluating opportunities to reduce the capital costs of the project and are in discussions with the Korean government for potential subsidies.
Additionally, Loop and SKGC are exploring the possibility of building a monomer facility in Ulsan to capitalize on the large and growing market for recycled DMT and MEG, which could further enhance the project's financial returns.
Sustainability and the Circular Economy
Loop's Infinite Loop™ technology is at the forefront of the global transition towards a circular economy, where waste PET plastic and polyester fiber are recycled into new products rather than being landfilled or incinerated. By enabling the infinite recycling of PET without degradation of quality, Loop is helping its customers, which include leading consumer brands and apparel companies, meet their ambitious sustainability goals.
The company's recent partnership with Swiss shoe brand On AG, where Loop's recycled polyester fiber was used in the upper of the Cloudeasy Cyclon shoe, is a prime example of Loop's ability to drive innovation in the textile and footwear industries. The Cloudeasy Cyclon shoe is part of On AG's Cyclon™ subscription service, where customers can return the shoes for recycling once they are worn out.
Risks and Challenges
While Loop's Infinite Loop™ technology presents a compelling solution to the global plastic waste crisis, the company faces several risks and challenges that investors should be aware of:
1. Commercialization and Scaling: Loop must successfully scale its technology and manufacturing capabilities to meet the growing demand for its products. Delays or setbacks in the construction and operation of its planned production facilities could impact the company's financial performance.
2. Regulatory Landscape: Changes in environmental regulations, recycling mandates, or government incentives could significantly affect the demand for Loop's products and the economics of its business model.
3. Competitive Landscape: The company faces competition from both traditional mechanical recyclers and emerging chemical recycling technologies, which could erode its market share or pricing power.
4. Feedstock Availability and Quality: Securing a consistent supply of high-quality PET and polyester fiber feedstock at competitive prices is crucial for Loop's operations. Disruptions in the supply chain or fluctuations in feedstock costs could impact the company's profitability.
5. Financing and Capital Requirements: Loop's capital-intensive business model requires significant upfront investments in its production facilities. The company's ability to secure additional financing on favorable terms will be critical to its long-term success.
Outlook
Loop Industries is at the forefront of the global transition towards a circular economy for plastics and polyester fiber. The company's innovative Infinite Loop™ technology addresses the limitations of traditional recycling methods, enabling the production of high-quality recycled PET and polyester fiber from a diverse range of feedstock.
The company's recent strategic partnerships, including the joint venture in India with Ester Industries and the financing agreement with Reed Management SAS, demonstrate the growing demand for Loop's technology and the company's ability to execute on its global expansion plans. Additionally, the potential for the company to capitalize on the large and growing market for recycled DMT and MEG monomers presents an exciting opportunity to further diversify its business model.
Conclusion
While Loop faces several risks and challenges, the company's strong technological capabilities, experienced management team, and commitment to sustainability position it well to continue driving innovation in the plastics and textile industries. As the world increasingly embraces the circular economy, Loop Industries is poised to play a pivotal role in transforming the way we produce and consume plastics and polyester fiber.