Loop Energy Inc.

Good morning and thank you for standing by. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Loop Energy Q4 and full year 2021 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 once again. I'd now like to hand the call over to our first speaker today, Bill Zeng, Investor Relations. Bill, you may begin.

Thank you, David. Good morning, everyone. Welcome to our Q4 and full year 2021 results conference call. Joining me today is our President and CEO, Ben Nyland, and our CFO, Jimmy. Our Q4 2021 news release, MD&A, and financial statements can be accessed from the Investor Relations page on our website at www.loopenergy.com. I would like to remind our listeners today that our comments and answers to your questions may contain oral information. Forward-looking information by its nature is subject to risks and uncertainties that may cause stated outcomes to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions for making the forecasts or projections which are included in the forward-looking information. Listeners are warned not to place undue reliance on forward-looking data. Please refer to our 2021 Annual Information Form dated March 22, 2022 for more information. During today's call, there could also be references to product backlog. Product backlog is a non-IFRS financial measure intended to provide additional information that should not be considered for measures of performance prepared in accordance with IFRS. In addition, this measure does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Please see our Q4 MD&A release for the definition of and further information about product outlook. I would also like to caution our listeners that any projections provided today regarding Loop's future financial performance are effective outlook to date. It is our policy not to comment on or update the science between orders. I would now like to turn the call over to Loop's President and CEO, Mr. Ben Nyland, for his comments, followed by Q&A period.

Thank you, Bill. Good morning. And on behalf of the team at Loop Energy, welcome to our Q4 and full year 2021 earnings results conference call. I'm delighted to report another strong quarter and share some highlights from another successful year as we continue to lay the foundation for future growth in markets worldwide. During the call today, I will touch upon our financial performance and position as of December 31st, 2021. I will also provide some context regarding the current market and macro factors we see impacting the hydrogen economy. I would like to share some key focuses for Luke and finish by updating you on the progress of our key initiatives. There will be some time for questions at the end of the call. First, some highlights and key takeaways. We booked record revenues in 2021 of $1.4 million, almost three times our revenues from 2020, despite the ongoing challenges presented by the COVID pandemic. 2022 is off to an excellent start, with more units ordered in the first two and a half months than in the entirety of 2021. There's a very strong macro environment momentum towards hydrogen and fuel cells in all three of our major markets, China, Europe, and North America. We are on track for the launch of our next generation product, which we expect will provide us with both a larger total addressable market and strong improvements in product performance even beyond our current offerings. We are seeing positive results that our eFlow technology can have a significant impact in the electrolyzer market and are getting strong interest from major players to establish the commercial relationship. Let's start with a view of our 2021 results and operations. We've gained significant traction from our various target markets. In 2021, we achieved 19 purchase orders for our fuel cell solutions, and we are targeting an increase to purchase orders for 60 units in 2022. With POs in hand for 22 units so far in 2022, we feel we are well on our way to meeting this target. We expect to continue to broaden and further diversify our customer base across international markets this year, as we turn our focus towards increasing unit production. Like many companies on the commercialization path, we are experiencing operating losses which we expect to be able to mitigate over time as we scale our operations and purchasing power. We are actively enacting a plan to reduce our costs as we continue to scale. Our cost reduction targets are based on customer requirements to scale their own products, balanced with ensuring that we have operating capacity to supply what the market needs today. With $67 million in cash as of December 31st, 2021, we remain in a strong position to meet our 2022 targets, including delivering upon our cost sets and product development projects. Moving on to what we see in the macro environment. In China, in spite of the strain the pandemic is putting on the economy and supply chains, Chinese markets continue to push for hydrogen, as demonstrated with the recent announcement of two more hydrogen cities. One of China's key priorities is hydrogen production and developing fueling infrastructure. Within the 14th five-year plan, hydrogen is one of the top six priorities concerning energy security. Based on this, we believe that China has identified hydrogen as a clean and renewable energy source that will be critical in securing its national security and national energy independence, with about 70% of its oil and gas currently being imported. China has also committed to becoming carbon neutral by 2060, resulting in a push to decarbonize their roads and industrial sector. For all of these reasons, Loop continues to expect that China's hydrogen and fuel cell sector will experience a step function type of growth that is consistent with the growth of other sectors in China, such as solar, wind, semiconductors, and battery electric vehicles. Loop's strategy in China is to ensure that we are positioned to benefit from that expected rapid growth when it happens. Switching our focus to Europe, we believe that the pandemic Economic disruptions due to climate change and the Ukraine conflict have underlined the need and progressed momentum to embrace hydrogen and hydrogen fuel cell technology throughout the continent. Although I will focus on the macroeconomic impact of the crisis in Ukraine, our thoughts and well wishes go out to all of those individuals who are being impacted by this conflict and the suffering that they are currently enduring. It is reported that the conflict in Ukraine has added energy security as a major concern for Europe from an economic perspective. Coupled with the existing momentum to transition to clean energy, we understand this has led to an acceleration of hydrogen production and infrastructure projects in Europe. On March 8, 2022, RepowerEU, A joint European action for more affordable, secure and sustainable energy announced the goal of Europe becoming the industrial leader in clean hydrogen. The initiative has Europe looking to accelerate its electrification and renewable hydrogen efforts. As part of its reported strategy, Europe proposes a hydrogen accelerator to develop the necessary infrastructure, hydrogen storage and port facilities to ease the demand for Russian gas and oil. Overall, We believe that the world's reaction to the crisis in Ukraine is raising the urgency of energy security in countries where that has not historically been a concern. And we believe that hydrogen and fuel cells are appearing as a key pillar of energy security for many countries. Moving closer to home, the United States continues to be the world's second largest producer and consumer of hydrogen behind China, accounting for 13% of global demand. The Hydrogen Earthshock Program, launched in June 2021, sets out a proposed 1-1-1 goal to reduce the cost of clean hydrogen to $1 per 1 kilogram in one decade. In November 2021, President Biden also secured the $1 trillion U.S. infrastructure bill, which provides a landmark $65 billion to modernize the power grid, improve supply chains for clean energy, including hydrogen and carbon capture technology, and conduct renewable energy demonstrations as well as an additional $17.4 billion for port renovation. Before updating you on some customer developments, I'd like to discuss a few key themes that drive the rhythm of our business and how we work with customers. Our customer adoption cycle ensures that we focus on supporting committed customers and partners who have a documented path to scaling their operations. we're delighted to have added 10 customers in 2021, and we plan to continue to build our customer base to support our growth plans. This approach ensures that Loop is partnered with like-minded companies dedicated to deploying fuel cell vehicles at scale, who we believe can provide Loop with growing product demand in the immediate term, as well as the future. As a result, we are confident that we will continue to grow the number of customers in the customer adoption cycle and advance multiple customers through this cycle. Continuing to win and gain market share requires a product that harnesses superior technology. We believe Loop's patented E-flow fuel cell architecture provides just such an advantage with new levels of fuel efficiency, peak power, and durability, which we refer to as our 16-90-10 advantage. With a focus on reducing the total cost of ownership, we believe our eFlow technology enables us to deliver up to 16% higher fuel efficiency versus same class alternatives and 90% more peak power in the same size stack than our competitors, providing higher payload capacity and increased operating parameters. Our testing also indicates that our bipolar plate delivers up to 10 times better curve density uniformity than conventional bipolar plates, which we believe will reduce PCO for customers through lower service and maintenance costs. We believe that our customer adoption cycle helps us focus with our customers on collaborative and scalable relationships, while our 16-90-10 advantages deliver the value proposition our customers require to be successful. With a strong go-to-market strategy and leading technology, we are confident that Loop has the product line to provide relevant solutions to our customers and their applications. We are focused on commercial mobility, which we believe presently has over a $1 billion total addressable market. As of today, Loop offers 30-, 50-, and 60-kilowatt fuel cell modules with additional systems to accelerate the integration of vehicles in the pilot and scale-up phases. We are excited to be expanding this product line in 2022 with the planned introduction of our 120 kilowatt fuel cell module. The 120 kilowatt module will incorporate our in-house developed and manufactured next generation bipolar plate. The new larger plate will augment our product offerings and significantly improve our ability to service applications such as coach buses and long haul heavy duty trucks. We believe our product developments will help grow our total addressable market. This new bipolar plate also allows us to enhance our existing product offerings further. The improvements will enable us to service both our commercial mobility target markets as well as adjacent markets such as stationary power systems and specialty vehicles. Due to the versatility of our products, we can serve these applications without engineering custom solutions which can consume large amounts of time and resources. 2021 was the first full year Loop commercially offered its fuel cells, and we are very pleased with the market's initial reception. To ensure continued success, we are driving towards cost-out targets based on what our customers have indicated they need in order to scale. Our cost-out strategy involves production scale-up, design improvements, and vertical integrations. We anticipate the introduction of the new larger bipolar plate with the 120 kilowatt fuel cell solution will significantly reduce our cost of goods as it incorporates both design improvements and the vertical integration of the manufacturing process for the bipolar plate. By mid-March, we have secured purchase orders for 22 fuel cell units from Europe, North America, China, and Australia. We have already exceeded our total orders for 2021, and this puts us on track to triple the number of units sold versus last year. Importantly, the purchase orders in Q1 have come from a diverse set of customers and geographies. While we're excited about the momentum in China, Europe, and North America, we also recognize the value in not developing a dependency on any one market or customer. We believe that as we continue to diversify our customer base, we will be able to improve our ability to set expectations for our investors. We believe that the addition of customers to our customer adoption cycle and the purchase orders that this is generating is the best way to measure the success of our go-to-market strategy. As you might expect, our backlog has continued to grow. As of December 31st, 2021, it was just over $53 million. compared with $45 million as at October 31st, 2021. The first fleet of buses powered by Loop Energy fuel cells has now been operating for 10 months in Nanjing, China. The fleet continues to exceed our uptime and fuel efficiency targets as of the end of February has completed over 400,000 kilometers of operational service and is expected to be a big contributor to meeting our 2022 target of 750,000 all field-operated vehicles with the Luke fuel cell system. We view this fleet as validation that the lab performance that we have seen from our products has successfully transitioned into the field, and we believe the stage is now set to scale production into the market. We are increasingly confident in our decision to establish our wholly-owned Chinese subsidiary, Luke Shanghai, as we continue to build out our manufacturing facility and grow our team in the Shanghai area. The facility is on track to be operational in Q2 of this year. We expect to share more about our China strategy and demonstrate the market interest that we are gaining soon. This month in Europe, Slovakian-based OEM Mobility and Innovation launched a bus powered by a loop 30-kilowatt fuel cell system for markets across Europe. We also announced on March 17th that our customer Innotest is integrating that same 30 kilowatt product into their home power energy system, which will be sold in Switzerland and other European markets. We believe the fact that both of these companies are able to use the same Loop product for two very different applications is a great validation of the versatility of Loop's products and our ability to continue to focus our outbound efforts on commercial mobility while taking advantage of inbound demand for adjacent market opportunities. To support our go-to-market strategy in Europe, we are expanding our sales team and have established our global services group. In the United States, we hired a director of Sales North America, and we are seeing a positive response to our product offerings. We believe this is a good indication that interest in fuel cell technology is growing in the same way in the US as we have seen in China and Europe over the last few years. Finally, I want to share that we are actively exploring how our technology could be utilized in electrolyzer applications. Throughout 2021, we worked with multiple entities to better understand the potential for eFLOW's innovations to address the key challenges of traditional PEM electrolyzer designs. We are excited with the results and hope to be able to share these with you soon and the opportunities that eFlow might unlock in the electrolyzer space. Thank you again for calling in today, and Damian and I will now take questions.