Executive Summary / Key Takeaways

• Pivoting to Profitability: Loop Industries is transitioning from a pre-commercialization phase to a global commercialization powerhouse, leveraging its patented depolymerization technology to address the critical need for high-quality, infinitely recyclable PET and polyester fiber.
• Differentiated Technology & Market Leadership: Loop's low-temperature, no-pressure process uniquely handles contaminated and textile waste, producing virgin-quality monomers (DMT, MEG) and polymers, a significant advantage over traditional mechanical recycling and other chemical methods.
• Dual-Pronged Global Strategy: The company is executing an "asset-heavy" direct investment model in low-cost regions like India, complemented by an "asset-light" licensing and modular construction approach for higher-cost markets such as Europe.
• India: The Economic Engine: The 50/50 India joint venture with Ester Industries is poised to deliver substantial returns, with an estimated $70 million annual EBITDA (JV level) and a 35% unlevered IRR, driven by low-cost manufacturing and a high-margin monomer business.
• Financial Discipline & Funding Path: Loop has significantly reduced cash operating expenses by 46% year-over-year and is actively securing the remaining $15 million equity funding gap for the India project through strategic partnerships and anticipated engineering/modularization revenues.

The Dawn of a Truly Circular Economy

The global plastics crisis demands innovative solutions, and at the forefront of this transformation stands Loop Industries, Inc. (NASDAQ:LOOP). Founded in 2010, Loop embarked on a mission to accelerate the world's shift towards sustainable PET plastic and polyester fiber, aiming to break dependence on fossil fuels and enable a truly circular economy. The company's core business revolves around its patented and proprietary technology that depolymerizes no and low-value waste polyethylene terephthalate (PET) plastic and polyester fiber into its base building block monomers: dimethyl terephthalate (DMT) and monoethylene glycol (MEG). These monomers are then meticulously filtered, purified, and repolymerized to create virgin-quality Loop branded PET resin, suitable for food-grade packaging, and polyester fiber for textiles.

The industry landscape is ripe for disruption. Traditional mechanical recycling, while common, faces significant challenges. It struggles with impurities, leading to quality degradation and "downcycling" where recycled PET is relegated to lower-value applications. Crucially, mechanical recycling is largely ineffective for polyester fiber waste, especially blends or dyed materials, which constitute over 66% of the global PET market. This limitation has created a substantial unmet need for advanced recycling solutions. Loop's technology directly addresses these pain points, offering a pathway to infinite recycling without quality degradation, a "holy grail" for brands committed to sustainability.

Technological Edge: The Infinite Loop Advantage

Loop's technological differentiation is profound and forms the bedrock of its investment thesis. Unlike many existing depolymerization technologies that demand high temperatures and pressures, Loop's process operates at low temperature with no added pressure. This not only implies significantly lower energy consumption but also leads to higher yield and purity of the recovered monomers. This low-energy, low-pressure approach enables Loop to process an exceptionally wide range of waste PET plastic and polyester fiber, including materials of any color, transparency, or condition, as well as complex polyester textiles containing dyes, additives, or other blended fibers. This ability to utilize contaminated feedstocks that other recycling methods cannot process is a critical competitive advantage.

The output from Loop's process is consistently virgin-quality. Regardless of the incoming feedstock's quality, the purified DMT and MEG monomers are identical to their petroleum-based counterparts, making them "drop-in replacements" for customers without requiring any modification to their existing production facilities. This is particularly vital for demanding applications like food-grade packaging and high-quality textiles, where mechanical recycling often falls short. For instance, Loop's technology can produce pristine white fabrics from recycled material, a challenge for mechanical recycling. The company's Terrebonne, Québec facility, operational for five years, serves as a testament to this technology's effectiveness, consistently demonstrating monomer recovery and supplying customers.

Beyond its core process, Loop is innovating in its deployment strategy through modular construction. This involves developing a standardized facility design and pre-fabrication approach, with modules built in low-cost countries like India and then shipped for assembly globally. This strategy is projected to reduce CapEx by an estimated 50% compared to traditional "stick build" methods, significantly accelerating project timelines and improving scalability. This innovation positions Loop to deliver its high-quality PET and polyester fiber at extremely competitive prices worldwide, enhancing its market penetration and economic returns.

Strategic Commercialization: A Dual-Pronged Global Play

Loop's commercialization strategy is a calculated dual approach: direct investment in low-cost manufacturing regions and an asset-light licensing model for higher-cost markets. This strategic pivot was underscored by the company's decision to cancel its joint venture with SK Geo Centric in South Korea. Korea was deemed a high-cost manufacturing country, and Loop preferred a licensing arrangement over significant capital deployment, especially given the financial reorganizations at SK's parent company. This experience reinforced Loop's commitment to requiring significant upfront payments for future technology licenses.

The India Growth Engine

The cornerstone of Loop's direct investment strategy is the 50/50 joint venture with Ester Industries Ltd. (ESTER) in India. This partnership leverages India's low-cost environment, abundant polyester textile waste, and Ester's nearly 40 years of polymer production expertise. The planned Infinite Loop India facility is designed to produce 70,000 tons per year of Loop branded PET resin and polyester fiber. A key strategic enhancement for this facility is its focus on the monomer business model, producing DMT and MEG directly. This addresses a global market opportunity exceeding $20 billion annually for sustainably produced intermediate chemicals. Virgin petroleum-based DMT sells for $1,950 per metric ton and MEG for $835 per metric ton, and Loop anticipates a 15% premium for its sustainable, drop-in replacement products.

The economics of the India project are compelling. The estimated total investment cost for the facility, including continuous polymerization, financing, and land, is approximately $176 million. Loop's equity contribution is projected to be in the $25 million to $30 million range, with approximately $5 million covered by existing polymerization equipment and a portion committed by a Quebec government entity. The joint venture is expected to generate an annual EBITDA of $70 million, with Loop's 50% share translating to $35 million. This yields an attractive 35% unlevered IRR and an equity payback period of under two years. Loop will also receive a 5% royalty fee on all revenue generated from the facility, estimated at $8 million per year, and will be the exclusive seller and marketing agent for the JV's products. Groundbreaking for the India facility is expected in the second half of calendar 2025, with commercial operations projected to commence in calendar 2027.

European Expansion and Modular Innovation

For higher-cost regions like Europe, Loop is pursuing an asset-light licensing model. This is exemplified by its partnership with Reed Societe Generale Group (GLE). Loop sold its first technology license for a European Infinite Loop facility for an initial upfront royalty payment of €10 million (approximately $10.4 million), with additional milestone payments anticipated in late 2025 and 2026. Loop holds a 10% ownership stake in Infinite Loop Europe, the entity formed to develop these facilities, with the option to increase its stake to 50%. This structure allows Loop to generate revenue from licensing and engineering services while minimizing its direct capital investment. Loop's engineering team will provide services for the European project, estimated to generate approximately $10 million (€10 million) in revenue over the 24-month construction period.

The modular construction strategy is particularly impactful for European expansion. By pre-fabricating plant modules in low-cost regions like India and assembling them on-site, Loop expects a 50% reduction in CapEx compared to traditional construction. This significantly enhances the economic viability of projects in higher-cost markets, making Loop's technology more competitive globally and accelerating the potential rollout of future facilities.

Financial Discipline and Path to Self-Sufficiency

For the three months ended May 31, 2025 (Q1 Fiscal 2026), revenues increased significantly to $252,000, up from $6,000 in the prior year, primarily driven by $244,000 in engineering fees from the India JV. This marks the emergence of a new revenue stream directly tied to project development.
The company has demonstrated strong cost control, with cash operating expenses for Q1 Fiscal 2026 at $2.6 million, a 46% reduction compared to the same quarter last year. This was achieved through a substantial decrease in external engineering expenses for design work ($623,000 reduction) and professional fees ($894,000 reduction), as the Terrebonne facility upgrade and basic design package were completed, and legal costs related to partnership formations subsided. General and administrative expenses decreased by $1.262 million, and research and development expenses by $863,000. The net loss for the quarter decreased by $1.742 million to $3.447 million.

As of May 31, 2025, Loop held $9.748 million in cash and cash equivalents, with available liquidity of $12.3 million. Management believes this liquidity, combined with anticipated engineering revenues and government funding, will be sufficient to meet obligations for at least twelve months. The company's head office cash burn rate for fiscal 2025 is guided to a high watermark of $10 million, down from a previous $12 million, with a monthly run rate expected to be between $800,000 and $900,000. Loop is actively evaluating opportunities to secure the remaining $15 million equity funding gap for the India project, with the acceleration of the Societe Generale project's engineering and modularization revenues expected to contribute to cash flow. The $10.4 million proceeds from the Series B Convertible Preferred Stock issued in December 2024 also bolster liquidity, though the 13% PIK dividend on this stock contributed to increased interest expenses in the recent quarter.

Competitive Positioning and Market Dynamics

Loop's competitive standing is defined by its ability to overcome the inherent limitations of conventional recycling methods. While mechanical recycling struggles with quality degradation, impurities, and polyester fiber waste, Loop's depolymerization process consistently yields virgin-quality material from diverse and contaminated feedstocks. This is a crucial differentiator, as the quality of mechanically recycled PET is deteriorating, pushing brands to seek superior alternatives. Loop's technology provides the "top quality output" regardless of feedstock, a critical need for European beverage brands facing increasing recycled content mandates.

In the broader depolymerization landscape, Loop's low-temperature, no-pressure process stands out for its efficiency and purity, avoiding the high energy consumption and unwanted chemical reactions associated with some competitors. Furthermore, Loop's strategic focus on the monomer business (DMT and MEG) allows it to tap into a distinct, underserved market. These monomers are direct replacements for fossil-fuel-based chemicals, and Loop can command a sustainability premium. The current global shortage in DMT, partly due to European plant shutdowns, further enhances Loop's market opportunity.

The company's strategic decision to leverage India's low-cost manufacturing environment provides a significant competitive edge. Labor costs in India are 80% less than in China, enabling Loop to offer its high-quality recycled products at "very competitive prices" while maintaining attractive margins. This cost advantage, combined with the ability to secure fixed-price feedstock due to its unique processing capabilities, allows Loop to offer customers predictable pricing, a major benefit in volatile commodity markets. The growing "China Plus One" trend, where global manufacturers, particularly in textiles, are shifting production to India, further aligns with Loop's strategic positioning.

Risks and Outlook

While Loop's strategic direction is clear and its technology compelling, investors should consider certain risks. The company's ability to secure the remaining financing for its equity contributions to the India JV and its ongoing cash requirements is paramount. While management expresses confidence in attracting additional funding through strategic partners, government incentives, and new capital, there is no assurance that such financing will be available on favorable terms. The recently announced At the Market (ATM) offering of up to $15 million in common stock, while providing a flexible funding mechanism, carries the risk of dilution for existing shareholders and could impact stock price.

Project execution and timelines, though derisked by experienced partners and modularization, remain critical. Any delays in groundbreaking or commercial operations for the India or European facilities could impact revenue generation and cash flow. The ongoing SEC investigation, while not alleging wrongdoing by the company or its CEO, introduces an element of uncertainty until resolved.

Despite these risks, Loop's outlook is increasingly positive. The India JV is progressing towards groundbreaking in the second half of calendar 2025, with commercial operations targeted for 2027. The European partnership is actively assessing site locations, and the modular construction strategy promises to accelerate future deployments globally. The company's disciplined cost management and the emerging revenue streams from engineering services and licensing fees are crucial steps towards achieving self-sufficiency.

Conclusion

Loop Industries stands at a pivotal juncture, poised to capitalize on the burgeoning demand for sustainable plastics and fibers. Its proprietary depolymerization technology offers a distinct competitive advantage, enabling the creation of virgin-quality materials from challenging waste streams that mechanical recycling cannot address. The strategic pivot to a dual asset-heavy and asset-light commercialization model, anchored by the high-potential India joint venture and the innovative modular construction approach, positions Loop for significant growth and attractive financial returns.

The company's disciplined financial management, coupled with the anticipated revenue streams from licensing and engineering services, provides a clear path towards funding its ambitious global expansion. As Loop moves closer to the commercial operation of its Infinite Loop facilities, its ability to deliver high-quality, cost-competitive recycled content will be a key determinant of its success. For investors seeking exposure to a truly transformative technology addressing a critical global challenge, Loop Industries presents a compelling opportunity to participate in the future of the circular economy.