Loop Energy Inc.

Good morning, my name is Alex and I'll be the conference operator today. At this time, I would like to welcome everyone to the Loop Energy Q2 2021 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the sound button. On the call today, we have Ben Nyland, President and CEO, and Darren Reddy, CFO. Thank you. Ben, you may begin your conference.

Thank you very much, Alex. And welcome, everyone, to the Loop Energy Q2 conference call. We're extremely happy with the outcomes of Q2 and the progress the business has made. Just some quick highlights. We've recorded revenues of $1 million in the quarter. Conversion of backlogged sales has begun with customers responsible for over $23 million worth of previously disclosed backlogged commitments placing their initial purchase orders. Our market footprint in the transit bus market, arguably the most dynamic vertical in the industry, has grown dramatically. As of today, we have four transit bus OEM customers between Asia and Europe. that have either launched or are preparing to launch vehicle platforms with Loop fuel cells. Last but certainly not least, our first municipal bus fleet in China has now accumulated over 100,000 kilometres with performance exceeding expectations for this stage of the deployment. All in all, Q2 was an outstanding quarter for our company and I'm looking forward to sharing some more details with you. On the financial front, Q2 was Loop's first million dollar quarter with shipments to both China and Europe and the successful deployment of the bus fleet in Nanjing, China. As a follow-on quarter to our successful IPO, we have built and are capitalizing on the strong momentum in both the industry and our business. We have recently initiated over $7 million in purchase orders related to the build-out of the manufacturing facilities both here in Vancouver and in China. The HR recruitment process as per our plan of record, is well underway and we are nearing double the size as an organization as compared to the close of our IPO. These increased assets and human resources are positioning us to continually win and supply a steadily increasing customer base. Looking forward, we're very excited to report that in addition to the revenue generated in Q2, we are seeing good conversion of our backlog into sales with the placement of initial purchase orders from multiple customers. We define our backlog as a combination of POs and MOUs, both contingent and committed orders. As of today, customers responsible for 90% of our current $38 million backlog have placed initial purchase orders in line with what is expected under their 24-month commitments. On the business front, the execution against our business objectives has continued strong into the second quarter. In spite of recent weakness in the stock market across fuel cell and hydrogen companies, The sector's market continues to grow and expand. Continued announcements from industry giants such as Shell, Tata Motors, Hyundai, and Cummins demonstrate the scale-up of both hydrogen production and fuel cell vehicles around the planet. Global resolve to deal with emissions continues to gain momentum globally with the EU's recent aggressive adjustment of their 2030 emissions reduction targets. The recognition of the critical role that hydrogen and fuel cells will play over the coming years continues to grow, with global giants such as Honeywell, Indian Oil, and Komatsu recently joining the Hydrogen Council. Tom Leinberger, Cummins chairman and CEO, was also just recently announced as co-chair of the Hydrogen Council. Our own success in the market is very much in line with this positive industry momentum. Even more importantly, by focusing our sales and business development efforts on some of the highest growth areas, we were able to significantly expand our presence in one of the most dynamic vertical markets, transit buses. Since the last earnings announcement, we were able to engage and secure purchase orders from three separate OEM customers serving transit bus fleet operators from South Korea to Eastern Europe and Russia. In addition to broadening our customer base in one of the most important verticals, we were able to further gain exposure to multiple geographic markets thus enabling Loop to better capitalize on regional opportunities created through various government-driven policies. We expect Loop to benefit for years to come from our growing transit bus market footprint, as well as the geographic diversity of our customer base. In addition to the efforts of the sales, marketing, and integration teams, our success in the bus market has been greatly assisted by the performance of the first transit bus fleet launched in Nanjing, China earlier this year. The shipment of 10 fuel cell units in April was successfully integrated into a bus fleet and put in full revenue service operation in an extremely fast six week period. As we reported at our investor day in June, this fleet continues to exceed our expectations for both uptime and fuel efficiency and is providing an exceptional showcase for our value proposition in the field. This is the second phase of a multi-year project to deploy 300 fuel cell vehicles in Nanjing as part of an MOU signed in January of 2020 between the Lishui Economic Development Zone and InPower Renewables, Loop's joint venture manufacturing partner in China. We're looking forward to completing this pilot phase and moving into production. This is the first hydrogen fuel cell bus line in Nanjing. and is being serviced by a hydrogen refueling station capable of dispensing 500 kilograms of hydrogen per day. The fleet is servicing the Leashway Number 12 route, which runs 20 kilometers each way between Chauteng Station and the Leashway Bus Passenger Transport Station, with a total of 29 stops. There are 120 daily departures, with a total daily operating mileage per bus of about 220 to 250 kilometers. Powered by Loop's T-505, our 50 kilowatt system, Each bus is capable of traveling up to 400 kilometers on a single fill. Looking forward, our sales focus remains in high-growth vertical markets, each meeting three key criteria. The first, multiple OEM customers with electrified product platforms. The second, a strong business case for hydrogen. And the third, a three-year serviceable, obtainable market in excess of 1,000 units. Our 2021 goal is to establish a diversified base of at least 10 customers addressing these target market applications and as of today we're well on track to complete this objective with six customers signed on to date and meeting the 110 100 criteria which I will expand on shortly. we've also been working hard towards growing ecosystem of channel partners capable of supporting our customer base, as well as expanding the reach of our sales. Just last week, we announced our partnership with Technicus Rayonidis. Throughout its almost 60-year history, Technicus Rayonidis has designed and managed the construction of more than 1,000 industrial plants in over 50 countries. They specialize in refining petrochemicals, natural gas, and hydrogen. With over $3.5 billion in annual sales, Technicus is exactly the type of mature, stable, and motivated partner that we want to go to market with. The initial scope of this joint market agreement focuses on providing hydrogen-based solutions to several key vertical markets, transport agencies, truck, transit and coach bus service fleets, material handling, warehouse, and port logistics, including drayage, urban delivery services, and stationary power applications. With the assistance of Technicus on-site production and supply equipment, Creating hydrogen both via water electrolysis and steam reforming of natural gas, Loop will be able to provide more convenient and cost-effective hydrogen solutions to our global customers. Loop and Technicus are also exploring partnership opportunities to develop commercial products that leverage both Loop's proprietary eFlow fuel cell technology and Technicus know-how and experience in hydrogen technologies. In China, Loop Energy Technologies Shanghai is now incorporated Facilities have been secured in Jiading Technology Park just north of Shanghai, and the build-out of the facilities is underway. Initially, the facility in Jiading will be a replication of our production facility in Vancouver, allowing Loop to produce units in China to meet localization requirements and provide Chinese customers and partners with supply chain certainty, while also continuing to protect our IP. This facility future-proofs Loop's manufacturing requirements in China as well as giving the ability to expand operations as needed to the over 8,500 square meter facility as production capacity requirements grow. This location is ideally situated in the Yangtze River Delta with close proximity to Shanghai and the surrounding area which is home to over 100 million people and represents a quarter of China's GDP, roughly 2 trillion US dollars. It has the full support of the national government as a hydrogen super city surrounding Shanghai. All in all, it's been a very positive quarter for Loop. We expect more positive news as we continue to execute our business plan. For those of you just getting to know Loop, I'd like to take a few minutes to introduce you to the high points. For those of you who have attended previous calls and have heard this section before, I promise you that this is the last time that I'll be running through it on one of these calls. At Loop, We believe we have the team, the technology, and the products to become a dominant player in the fuel cell market as it develops into more than a $50 billion opportunity over the coming decade. Our team is composed of seasoned executives with deep experience in fuel cell and automotive development, new product launches, and high growth enterprises. We build fuel cell stacks and modules for use in zero emission commercial vehicles. We have a global footprint with headquarters in Vancouver, Canada, regional sales in Europe and China, and regional manufacturing with our joint venture partner in China, and soon to have regional manufacturing in China in our own facility that I just mentioned. With an expanding customer base in North America, Europe, and China, we are positioned well to grow our market footprint over the next few years. Our products are based on our core proprietary and patent-protected eFlow technology. EFLOW gives our products competitive advantages in the areas of fuel efficiency, maximum power output, and durability. Our fuel cells have up to 16% better fuel efficiency than comparable competitors' products, leading to significant savings in the total cost of ownership for vehicle operators using LOOP products. This advantage is proving to be compelling to the market as evidenced by our rapidly growing customer engagements. Our fuel cells further deliver up to 90% higher peak power than the same size competition. This benefit of putting more horses under the hood will help vehicle OEMs provide end customers with more versatile vehicles as the market grows and customer demand grows with it. Customers will demand greater versatility and power in their zero emission vehicles and Loop's products are well positioned to deliver those benefits. And finally, eFlow delivers something that we call uniform current density. This balancing of fuel cell production of electricity, heat, and water leads to a more stable operating environment that eliminates a number of known lifetime failure modes in fuel cells. Our technology has led to investments from leading industry players, first from InPower, a Chinese power electronics manufacturer with whom we now have a manufacturing joint venture in China. This was followed by two investments from Cummins, one of the leading developers and manufacturers of commercial vehicle powertrains. First investment from Cummins was in the fall of 2019. Following a deeper due diligence process involving multiple site visits, the second investment was made in March of 2020. Development of our next generation stack is also on schedule for the initial prototypes to be deployed in the field in the first half of 2022. This next generation provides a substantial increase in power output capabilities over our current products, while bringing the benefits of eFlow to a new set of applications, including long-haul heavy-duty trucking. We're in discussions with a number of potential customers and partners for those deployments. We'll announce the details of these relationships as they progress. With all of these developments in our current opportunity pipeline, we believe Loop is very well positioned to achieve our objective to be a top fuel cell provider to the zero-emission commercial vehicle market. We believe Loop's value proposition is ideally suited to address the total cost of ownership concerns of commercial vehicle operators and make zero emissions a viable economic solution for the replacement of internal combustion engine vehicles. The next two years are foundation-building years for Loop. We have industry-leading technology, a great team, and great products. Over the next two years, we'll be working with customers to refine and improve our product capabilities while we put in place manufacturing capacity to grow with the market as demand scales. As we have discussed, our focus will not be on growing top-line revenue over the next two years. but rather on building a solid customer base and product offerings, which we believe are foundational for Loop to capitalize on the rapid growth we anticipate the industry will experience in the years to come. Having said that, we recognize there's tremendous value in having clear metrics to guide our business and for investors to be able to measure our performance. So I'd like to give you some insight into how we will be measuring our progress through the end of 2022. In almost every customer and prospective customer, We are engaged with we see a three phase process to the development of each relationship. The first phase of the product and vehicle design validation typically involves the customer ordering one or two units. The second phase is the deployment of a pilot fleet and typically involves ordering approximately 10 to 20 units. The third phase is the commercial launch of the customers product, while the size varies based on the customer. At Loop, our rule of thumb is that on average, the transition to Phase 3 involves an order of approximately 100 or more units. We measure our success based on how many customers we are bringing into this process over time and how well they are progressing through the phases. Depending on the customer size and type, each phase can last anywhere from 9 to 12 months. The metric that we will be using as we progress through 2021 is that by the end of this year, we expect to have a total of 10 customers actively engaged in this three-phase process, with at least one of them transitioning to phase two. As I mentioned earlier in this presentation, we now have six customers actively engaged in the process, and one of those customers, Skywell, the bus fleet in Nanjing, has successfully transitioned to phase two. So we consider ourselves to be well on plan, if not ahead of plan, at this point. And so we are very excited at Loop that we see in our business today that we are exceeding the expectations that we set out during the IPO process and are extremely excited about how the balance of 2021 will be moving forward. So with that, I'd like to turn control of the meeting back over to Alex, the moderator, and we'd be happy to take questions at this time.

As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. Again, that is star 1 on your telephone keypad. So, with your question, you may press the pound key. Let us stand by while we compile the Q&A roster. Your first question comes from the line of Rupert Amer from National Bank. Your line is now open.