Executive Summary / Key Takeaways

• Loop Industries is executing a strategic pivot towards commercializing its differentiated low-temperature depolymerization technology through a two-pronged model: direct investment in low-cost manufacturing joint ventures (India) and an asset-light licensing/engineering services approach in higher-cost regions (Europe).
• The company's technology offers a competitive edge by effectively recycling contaminated PET waste and polyester textiles into virgin-quality monomers (DMT and MEG), addressing a critical need in the growing circular economy and textile-to-textile recycling markets.
• Recent financial results reflect this transition, showing a significant increase in revenue driven by the first technology license sale ($10.395M) and initial engineering services revenue ($0.368M) in the year ended February 28, 2025, alongside reduced operating expenses, although net losses persist.
• The India joint venture with Ester Industries, targeting 70,000 tons/year capacity with projected attractive economics ($70M annual EBITDA, 35% unlevered IRR) and a low-cost focus (~$176M CapEx, $25M-$30M Loop equity), represents the core capital deployment initiative, with groundbreaking expected in the second half of calendar 2025.
• While liquidity was bolstered by the recent $20.8M Reed Societe Generale Group transaction, successful execution of the India JV and future projects remains dependent on securing additional project-level financing and navigating risks including competition, operational scale-up, and macroeconomic volatility.

Setting the Scene: A Pivot Towards Circularity

Loop Industries, Inc. (NASDAQ:LOOP) stands at a pivotal juncture, aiming to accelerate the global transition towards a circular plastics economy. Founded with the mission to decouple PET plastic and polyester fiber production from fossil fuels, the company has spent years developing and refining its proprietary depolymerization technology. This journey, originating from a reverse acquisition in 2015 and the establishment of its Terrebonne, Québec facility, has culminated in a strategic evolution designed to bring its innovative recycling solution to commercial scale globally.

The backdrop for Loop's ambition is a world grappling with escalating plastic waste and increasing regulatory and consumer pressure for sustainable alternatives. The traditional linear model of plastic production, use, and disposal is under intense scrutiny, driving demand for high-quality recycled content, particularly in packaging and textiles. Loop's strategy is explicitly tailored to meet this demand by transforming low-value waste into virgin-quality materials, thereby closing the loop on plastic and polyester.

The Technological Edge: Breaking Down Barriers

At the heart of Loop's investment thesis is its patented and proprietary Infinite Loop technology. Unlike conventional mechanical recycling, which physically processes waste plastic and often leads to degradation and downcycling, Loop's method employs a chemical depolymerization process. This technology breaks down waste PET plastic and polyester fiber, including challenging feedstocks like colored bottles, multi-layered packaging, and contaminated textiles (carpets, clothing with dyes and blends), into their base building block monomers: dimethyl terephthalate (DMT) and monoethylene glycol (MEG).

A key differentiator of the Infinite Loop process is its operation at low temperature (<90°C) and no added pressure. This contrasts with many other depolymerization technologies that require high heat and pressure, which can be energy-intensive and lead to unwanted side reactions that compromise yield and purity. Loop's low-temperature approach allows for a simplified purification process, resulting in high-purity DMT and MEG monomers. These monomers are then repolymerized to create Loop branded PET resin and polyester fiber that is chemically identical to virgin material, suitable for demanding applications like food-grade packaging and high-quality textiles.

The tangible benefits of this technology are significant. It enables the recycling of a much wider range of waste feedstocks that are currently difficult or impossible to recycle economically through mechanical means. This expands the available pool of recyclable material, diverting waste from landfills and incineration. The resulting virgin-quality output ensures that Loop PET and polyester fiber can be recycled infinitely without loss of quality, a critical factor for brands committed to true circularity. The Terrebonne facility has served as a vital proving ground for this technology over the past five years, demonstrating consistent monomer recovery and supplying material for customer validation and product launches. Loop's intellectual property portfolio, comprising four patent families with protection extending potentially to 2044, provides a foundational moat for this differentiated process.

Strategic Commercialization: A Two-Pronged Global Rollout

Recognizing the need to scale its technology efficiently and cost-effectively, Loop has refined its commercialization strategy. The previous approach, which included planned large-scale joint ventures in high-cost regions like South Korea (with SKGC) and Europe (with Suez and SKGC), has been strategically adjusted. The joint venture agreement with SKGC for the Ulsan facility was mutually terminated in January 2025, and the planned European partnership with Suez and SKGC was suspended.

The new strategy focuses on a two-pronged approach:

1. Direct Investment in Low-Cost Manufacturing Regions: This involves forming joint ventures with strategic partners to co-own and operate large-scale facilities in regions offering favorable capital and operating costs. The flagship initiative under this model is the 50/50 joint venture with Ester Industries Ltd. in India. This partnership leverages Loop's technology and customer relationships with Ester's extensive polymer production expertise and local market knowledge, including access to abundant textile waste feedstock. The planned facility in India is designed for a capacity of 70,000 tons per year of Loop branded PET resin and polyester fiber. The estimated total investment cost is approximately $176 million, including a continuous polymerization line for improved efficiency. Loop and Ester are contributing 50% each to the equity portion, with the remainder expected to be financed through debt. Loop's equity commitment is estimated in the $25 million to $30 million range, which management indicates is expected to be funded by proceeds from the Reed transaction and potentially a government agency. The projected economics for this facility are compelling, with an estimated annual EBITDA of $70 million and a 35% unlevered IRR, offering attractive returns without requiring substantial sustainability premiums. Loop will receive 50% of the JV profits and a 5% royalty on revenue, estimated at $8 million annually. Groundbreaking is anticipated in the second half of calendar 2025, with commercial operations projected for calendar 2027.
2. Asset-Light Licensing and Engineering Services in Higher-Cost Regions: For regions with higher construction and operating costs, Loop intends to primarily license its technology to partners who will lead the capital investment and operation. Loop will generate revenue through licensing fees and by providing engineering services. This strategy was initiated with the transaction closed in December 2024 with Reed Societe Generale Group. Loop sold the first technology license for one Infinite Loop manufacturing facility in Europe for an initial upfront royalty payment of $10 million (€10 million), with additional milestone payments expected as the project progresses. A joint entity, Infinite Loop Europe SAS (10% owned by Loop, 90% by a Reed affiliate), was formed to develop European facilities. Loop retains the right to increase its equity stake up to 50% in these facilities but is not obligated to deploy significant capital. Loop will also generate revenue by providing engineering services throughout the project lifecycle for licensed facilities, a revenue stream that has already begun with the India JV ($0.368M in FY2025). The company is also developing a modular construction strategy, including standardized design and pre-fabrication in a low-cost country, aimed at reducing CapEx and timelines for global deployment, potentially offering another revenue stream.

This refined strategy represents a pragmatic approach to commercialization, balancing capital deployment in high-return regions with leveraging technology ownership for revenue generation in others, while mitigating the risks associated with large capital projects in expensive markets.

Operational Progress and Market Traction

While the large-scale commercial facilities are under development, Loop's Terrebonne facility continues to play a crucial role. It serves as a demonstration plant, a hub for R&D and process optimization, and a source of material for customer sampling and product activations. Over the past year, Loop has highlighted collaborations with global brands, showcasing the quality and versatility of its recycled material. Notably, the launch of the On AG (ONON) Cloudeasy Cyclon shoe in May 2024 featured an upper crafted from 100% recycled polyester fiber using Loop's technology, demonstrating successful fiber-to-fiber recycling in footwear. A collaboration with Hyosung TNC and Pleatsmama in February 2025 further underscored the application of Loop's polyester in textiles (handbags).

These product activations are critical for validating market demand and securing future offtake agreements for the commercial facilities. Loop is also adapting its product offering based on customer needs, developing the capability to sell spun fiber directly to certain textile customers who prefer this format over PET chips, positioning Loop as a Tier 3 supplier in the textile value chain. Feedstock sourcing, particularly the abundant polyester textile waste in India, is well advanced for the India JV, aligning operational inputs with market outputs in the circular fashion sector.

Financial Performance and Liquidity

Loop's financial results for the year ended February 28, 2025, reflect the early stages of its commercialization strategy coming to fruition, albeit still characterized by net losses typical of a company in this phase. Revenue saw a significant increase to $10.889 million, up from $0.153 million in the prior year. This growth was primarily driven by the $10.395 million upfront royalty payment from the Reed Societe Generale Group licensing agreement and $0.368 million in engineering services revenue from the India JV. Sales of Loop PET resin from the Terrebonne facility contributed $0.126 million.

Operating expenses showed a positive trend excluding one-time items. Research and development expenses decreased significantly by $4.515 million to $6.864 million, as the company shifted focus from core technology development at Terrebonne to engineering for commercial scale. General and administrative expenses also decreased by $0.760 million to $9.228 million, primarily due to lower insurance and employee compensation costs. However, the company recognized an $8.460 million impairment loss on equipment previously intended for the terminated SKGC South Korea facility. Loss on equity accounted investment increased by $0.687 million, reflecting Loop's share of preliminary costs incurred by the India JV.

The net loss for the year decreased to $15.057 million from $21.087 million in the prior year, primarily due to the increase in revenue and reduction in operating expenses, partially offset by the impairment charge.

As of February 28, 2025, Loop had cash and cash equivalents of $12.973 million. This was significantly boosted by the $20.8 million cash proceeds received from the Reed transaction in December 2024, which occurred after the close of the third quarter but within the fiscal year. Management believes this liquidity is sufficient to meet obligations and budgeted expenditures for at least twelve months from the filing date (May 29, 2025).

However, funding the equity contributions required for the India JV and future projects necessitates securing additional financing, including project debt and potentially government incentives or further equity/licensing deals. The company also has a secured credit facility of up to $2.424 million with a Canadian bank, which was undrawn but subject to a minimum equity covenant with which Loop was not in compliance as of year-end.

Management has guided for head office cash burn (excluding non-cash items and recoverable project costs) to be between $800,000 and $900,000 per month for the fiscal year ending February 28, 2026, reflecting continued cost control efforts and the expectation of offsetting expenses with engineering services revenue.

Competitive Landscape and Positioning

The market for recycled PET and polyester is intensely competitive, segmented primarily between mechanical recycling and emerging chemical recycling technologies. Mechanical recycling, while dominant, faces inherent limitations in feedstock quality, material degradation, and inability to process complex waste streams like textiles with dyes and blends. This creates a significant opportunity for chemical recycling technologies like Loop's.

Within chemical recycling, Loop competes with various players employing different processes, such as glycolysis, methanolysis (Loop's approach), and pyrolysis. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, companies like PureCycle Technologies (PCT), Eastman Chemical Company (EMN), and Covestro AG (COVTY) are notable players in the broader sustainable plastics and recycling space.

Loop believes its low-temperature, low-pressure methanolysis process offers distinct advantages, particularly in its ability to handle a wider range of contaminated and low-value feedstocks compared to many higher-temperature processes used by some competitors. This feedstock flexibility is crucial for accessing large, untapped waste streams, especially polyester textiles. The resulting virgin-quality output directly addresses the quality concerns faced by brands using mechanically recycled content and differentiates Loop from processes that may produce lower-grade outputs or require cleaner, more expensive feedstocks.

While larger, more diversified chemical companies like EMN and COVTY benefit from economies of scale, established infrastructure, and broader customer bases, Loop's focused technology provides a potential edge in specific niche applications like textile-to-textile recycling and processing difficult waste streams. Smaller, specialized players like PCT also focus on PET recycling but may employ different purification methods. Loop's strategic pivot to licensing and engineering services in high-cost regions allows it to leverage its technology without directly competing on capital-intensive scale in every market, while its focus on low-cost JVs aims to achieve competitive production economics where capital is deployed.

The increasing regulatory mandates for recycled content and strong brand commitments for circularity are powerful tailwinds for Loop, creating demand for high-quality, traceable recycled material that mechanical recycling often struggles to provide consistently. Loop's ability to co-brand with customers on final products further enhances its marketability. However, competition is intensifying as more players enter the chemical recycling space, and the long-term competitive position will depend on successful scale-up, cost competitiveness relative to both virgin and other recycled materials (influenced by fluctuating oil prices), and effective protection and enforcement of its intellectual property globally.

Risks and Challenges

Investing in Loop Industries involves significant risks, primarily stemming from its pre-commercialization stage and dependence on successful execution of its strategic plan.

• Financing Risk: While recent funding provides near-term liquidity, constructing large-scale facilities like the India JV requires substantial capital. The ability to secure project debt, government incentives, and potentially further equity or licensing deals on favorable terms is critical and not assured.
• Project Execution Risk: The construction and commissioning of the India facility and future licensed plants face inherent risks, including potential delays, cost overruns, engineering challenges, and difficulties in achieving planned operational efficiencies and production volumes. The termination of the SKGC JV highlights the potential for such projects to be impacted by partner strategies or external factors.
• Technology Scale-Up Risk: Although the Terrebonne facility has demonstrated the technology at a smaller scale, successfully replicating and operating the process at the planned commercial scale (70,000 tons/year) efficiently and reliably presents technical and operational challenges.
• Market Adoption and Pricing: While demand for recycled content is growing, the ability to sell Loop's products at a premium or competitive price relative to virgin PET and other recycled materials depends on market conditions, customer acceptance, and the price of crude oil.
• Competition: The competitive landscape is evolving rapidly. New technologies or increased capacity from competitors could impact market share and pricing power.
• Intellectual Property Protection: Protecting proprietary technology across multiple international jurisdictions through patents, trade secrets, and licensing agreements is complex and costly, and there is a risk of infringement or misappropriation.
• Regulatory Compliance: Operating chemical manufacturing facilities globally requires navigating complex and evolving environmental, health, safety, and product-specific regulations, with potential costs and compliance challenges.
• Key Personnel and Management: The company's success depends heavily on its executive team and ability to attract and retain skilled personnel with expertise in chemical engineering, plant operations, and project management.
• SEC Investigation: The ongoing SEC investigation, while not alleging wrongdoing by the company or CEO, could still result in significant legal expenses, divert management attention, and potentially impact reputation.
• Concentrated Ownership: The significant voting control held by CEO Daniel Solomita could influence corporate decisions in ways that may not always align with the interests of all stockholders.

Conclusion

Loop Industries is transitioning from a technology development company to a commercial-scale operator, underpinned by a strategic pivot that focuses capital deployment on high-return, low-cost regions like India while leveraging its technology through licensing in higher-cost markets. The core investment thesis rests on the strength of its differentiated low-temperature depolymerization technology, which addresses critical limitations of traditional recycling and is well-positioned to capitalize on the growing demand for high-quality recycled content, particularly in the textile industry.

Recent financial results, marked by the initial revenue from licensing and engineering services, signal the beginning of this commercialization phase. The India joint venture represents the most significant near-term catalyst, with its planned capacity and projected attractive economics offering substantial potential value accretion if successfully executed. The European licensing partnership provides a blueprint for asset-light expansion.

However, the path to profitability and sustained growth is not without challenges. Securing the necessary project financing, successfully scaling the technology to commercial operations, navigating an increasingly competitive landscape, and managing macroeconomic factors are critical hurdles. Investors should closely monitor progress on the India JV timeline, the securing of project-level financing, the development of the European licensing model, and the company's ability to translate its technological advantages into consistent operational performance and market share gains against rivals. The successful execution of this refined strategy will ultimately determine Loop's ability to fulfill its mission and deliver long-term shareholder value.