Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Loop Industries Second Quarter 2023 Corporate Update Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, October 13, 2022, and the press release accompanying this conference call was issued after market close yesterday, October 12, 2022. On our call today is Loop Industries Chief Executive Officer, Daniel Solomita, and Kevin O’Dowd, VP of Communications and Investor Relations. I'd now like to turn the conference over to Kevin to read a disclaimer about forward-looking statements.

Thank you, operator. Before we get started, let me remind you that today's meeting will include forward-looking statements within the meaning of the securities laws. These forward-looking statements relate to, among other things, current plans, expectations, events, and industry trends that may affect the Company's future operating results and financial position. Such statements include risks and uncertainties, and future activities and results may differ materially from these expectations. Additional information concerning these statements and related risks and uncertainties is contained in the Risk Factors and Forward-Looking Statements section of our latest annual report on Form 10-K and our quarterly report on Form 10-Q filed with the SEC yesterday, in yesterday's press release. Copies of these documents are available at sec.gov or from our Investor Relations department. At this time, I'd like to turn the call over to Daniel Solomita, Chief Executive Officer of Loop Industries. Daniel, please go ahead.

Thanks, Kevin. Hi, everyone. Welcome to our Q3 earnings call. I'll just start with the main headlines of what has gone down in the last quarter. First, the sale of the land in Bécancour. It's just a solid business decision. The value of that land has increased over 500% in the two years since we bought it, so the value has exploded, and there were a lot of people looking for land in Bécancour, which was the main motivation behind selling it. The value had increased significantly, and for us, it was just a solid business decision, selling the land. Plus, our cost reduction initiative gives us three years of cash on hand without raising capital and dilution. That is more than enough to get us through the current global slowdown we are experiencing. The Quebec and Canadian project is still really important for us. It's an important project for Loop and for Canada to be able to achieve its 2030 goals of eliminating plastic waste. We're continuing to engage with both the Canadian government and the Quebec government. We've already looked for other land available in Quebec and outside of Quebec and in other parts of Canada. There is plenty of land available that's much cheaper than the land we had at Bécancour. So, when the macro environment improves, we'll be ready to begin that project. It remains a very important project for us, and it is definitely still in our plans for future development. With the current uncertain macroeconomic conditions, it's crucial for us to focus on the projects that have the least amount of risk and the highest chance of success. This leads us to the projects we are working on with our partners at SK Global Chemical. SKGC is a large petrochemical company with very deep resources. Our project in Ulsan, South Korea, has been underway for quite some time. It's not a new project that we're just starting. We've been working with SK hand-in-hand. Teams from Loop and SK are collaborating daily to execute the Ulsan project since we announced our partnership when SK became a 10% equity owner of Loop back in 2021. The companies are working closely together and we have multiple projects with SK in development. The first is the project in Ulsan, South Korea, which is scheduled to break ground this year in 2023. This project is vital for us, establishing a foothold in Asia is essential for some of our customers, especially in the fiber sector. The polyester fiber supply chains for the clothing and textile industry are a significant area of importance for us. SKGC brings a wealth of experience and they run all of the operations at the plant. We’re building the plant on one of their existing petrochemical sites, so they have a substantial amount of the necessary infrastructure already in place. We're working alongside SKEE, the ecoengineering division, which is SK's in-house EPC contractor. They have built petrochemical plants around the world and bring a tremendous amount of knowledge and experience in construction and engineering. They will be providing all construction and engineering services for the projects. SKGC also provides the majority of the capital for the projects, which is very important for Loop. They are an experienced operator, and SKGC is also in charge of all the feedstock sourcing. Loop and SKGC are working together with customers, where Loop brings in our global customer base while SKGC focuses on local clients. This partnership allows us to execute projects with less risk due to having a reliable partner like SKGC. In these uncertain economic times, it's prudent for Loop to execute on projects that are easier to implement with minimal risk. We have numerous projects in the pipeline, and there is considerable interest in our technology worldwide, particularly in Asia, due to SKGC. We plan to build multiple plants with them in the coming years, as well as pursuing additional projects in Europe. Our project in France is one, but we are also exploring others in Europe with the same group of partners. Demand for our technology and final product is robust. Nevertheless, we must evaluate which projects are simplest to advance with the least risk and the highest return on capital. Collaborating with our partners at SKGC yields significant benefits. That is all I have, so we can open the call up for questions now.

Thank you. Our first question comes from Gerry Sweeney of ROTH Capital. Gerry, your line is open. Please go ahead.

Good morning, Daniel. Thanks for taking my call.

Hi, Gerry.

I was hoping that you could discuss some of the critical next steps with SK. I believe you're looking at different scenarios, such as determining the structure of the JV as well as the financing of the project going forward. Could you also provide any context on timing or target milestones? I know things are in flux, but I want to understand what significant steps are ahead and when we might see resolutions on those fronts.

Yes, thanks for the question, Gerry. With SKGC, things are not in flux. Our work with them is well organized and structured. We are in the final stages of finalizing all joint venture agreements. That's one aspect. Additionally, our engineering teams are collaborating on the final engineering and construction plans. We've engaged with SKEE, the ecoengineering division, which will provide all engineering and construction for the facility. We aim to break ground on this facility in Q3 of 2023. SKGC has been very vocal about the project and its importance, particularly in Asian media. They want to be perceived as the largest recycling company globally, prioritizing sustainability. So, I would say the signing of the joint venture, which is nearly complete, is crucial, followed by breaking ground in Q3 of this year. In terms of financing, we are in discussions with SKGC about the partnership, where SKGC is responsible for 80% of the project's capital, while Loop covers 20% of the equity required.

Got it. That's it for me. I appreciate it. Thank you.

Thanks, Gerry.

Thank you. Our next question comes from David Quezada of Raymond James. David, your line is open. Please proceed.

Thanks. Good morning, everyone. Daniel, my first question is a follow-up on the Ulsan project. Can you comment on whether the long lead time equipment has been ordered and how these timelines are shaping up against expectations? Also, are the costs for the facility still in line with your expectations?

Yes. Thanks, David. It's nice to hear from you. For equipment with long lead times, the two reactors that Loop had ordered for the Bécancour project will be transferred to the Ulsan project. This equipment is standard and can be utilized across various projects. At this time, we're scheduled to break ground in Q3 of 2023, so any long lead time equipment will need to be ordered later this year. Nothing needs ordering today. Currently, costs are in line with expectations. We have our first cost estimates ready, which have been approved. We have navigated through this inflationary environment and don't foresee any changes in facility costs going forward. Ideally, we hope to see some cost reductions as the global economy cools and supply chains stabilize, especially with China's recent policy changes. The project is in an excellent position, and both parties are highly dedicated and motivated to construct this facility as soon as possible.

Excellent. Thanks for that, Daniel. Secondly, regarding feedstock for this facility, do you have agreements for specific volumes of feedstock? Can you provide any insights on whether any has been sourced yet?

Yes. We have been evaluating feedstock from various suppliers in Korea. Loop has been testing these feedstocks in collaboration with SKGC. Typical feedstocks we use include waste PET from the mechanical recycling industry and polyester fiber waste from the clothing supply chain. SKGC is primarily responsible for sourcing feedstock, while we support them with testing and qualification. Their role in the joint venture is to secure local feedstock.

Perfect. That's great. On the sales side, you and SK are working together to line up new customers. Is there a target proportion of volumes from the Ulsan facility you would like to have contracted? Do you anticipate these contracts closing before groundbreaking, or would that happen post-breaking ground?

We always aim to have a portion of the volume sold or reserved through contracts or letters of intent with customers prior to breaking ground on the facility. We are actively engaging with customers to determine who will take volumes from the Asian facility, concentrating on regional customers. However, we can also ship material from Korea globally. The Asian supply chain in the polyester fiber sector is particularly promising, as many companies need to incorporate recycled content into their products. Currently, the mechanical recycling industry is their only means to achieve this, so being able to convert waste back into fibers is a significant interest. We expect to have a considerable number of fiber customers from the facility and intend to have a majority of the volumes contracted before we break ground.

Excellent. And just one more from me, if I could. Your R&D expenses were down this quarter, which seems consistent with your plan to reduce burn rate. Could you comment on whether most of the R&D activities you need for upcoming projects are nearly complete? I think you mentioned still conducting some R&D or testing for feedstock in Korea. How do you expect R&D expenses to trend going forward?

The primary component of our cost-cutting measures involved reducing operating hours at our production facility in Terrebonne. This facility has a capacity of 1,000 tons per year and is not designed to generate profits but to showcase our technology at a commercial scale and supply customers with commercial volumes. We successfully achieved that. Thus, by reducing operational hours instead of running 24/7 with multiple shifts, we significantly reduced expenses that couldn’t yield profits due to small volumes. We still ensure that operations remain ongoing, fulfilling customer contracts and upcoming events with other brand owners. The R&D expenses intertwine with production costs, as we conduct feedstock testing at the facility and on a lab scale. It’s important to keep the facility operational for material production and feedstock assessment. There's no need to run at full capacity since cost-cutting is a priority. Making the company leaner enhances motivation and productivity across the board. Overall, it has been a success.

Excellent. I appreciate the insights. Thanks, Daniel. I will turn it over.

Thank you. At this time, this concludes our Q&A session. I'd now like to turn the call back over to Mr. Daniel Solomita for his closing remarks.

Thank you very much, operator. This concludes our Q3 earnings call. As I mentioned, the company has made strong business decisions. Selling the land in Bécancour was astute, as its value appreciated over 500% in two years. Focusing on projects that are easier to execute with minimal risk alongside SKGC represents the best course of action in our view. We are excited about 2023, breaking ground on our first facility, and many more to come. Thank you for your time.

Ladies and gentlemen, this concludes today's call. You may now disconnect your lines.