LanzaTech Global Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the LanzaTech Global, Inc. 1st Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

I would now like to turn the conference over to your host, Omar Elshakarwe, Vice President, Corporate Development for LanzaTech Global Inc. Thank you. You may begin.

Speaker 1

Good morning, and thank you for joining us for LanzaTech Global Inc. 1st Quarter 2023 Earnings Conference Call. On the call today, I'm joined by our Chairman and CEO, Doctor. Jennifer Holmgren and our CFO, Jeff Trukenbrand. Earlier this morning, we issued a press release with our Q1 2023 financial and operating results as well as an investor presentation summarizing the company's performance and key operational highlights for the quarter.

Speaker 1

Please also reference our quarterly report on Form 10 Q for the quarter ending March 31, of 2023 filed today. Both our press release and results summary investor presentation can be found in the Investors section of of our website at www.lanzatek.com. Before we begin, I'd like to direct you to the disclaimers in the front of the company's investor presentation and remind you that today's call may include forward looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, Projections, forecasts and assumptions are forward looking statements. Please note that the company's actual results may differ from those anticipated by such forward looking Statements for a variety of reasons, many of which are beyond our control.

Speaker 1

Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business prospects and future results. We assume no obligation to update publicly any forward looking statements. In addition, we will be discussing and providing certain non GAAP financial measures today, including adjusted EBITDA. Please see our earnings release and filings for a reconciliation of these non GAAP measures to their most directly comparable GAAP measure. Today's call will begin with Jennifer providing an overview of LanzaTech and our recent financial results.

Speaker 1

She will also highlight some key accomplishments and review our strategic objectives. Jeff will then review in greater detail our financial results from the Q1. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Jennifer.

Speaker 2

Thank you, Omar, and thanks to all of you for joining us today. I'm honored to represent We have a relatively short tenure as a public company. So we thought it would be helpful to begin today by providing an overview of our company and our progress towards our strategic and commercial goals. I will provide context about our mission, how we got here, an overview of our financial and operational results for the Q1 of 2023 and share an outline of our strategic priorities. Jeff will then follow with a more detailed discussion of our Q1 financial results and our outlook for the remainder of the year.

Speaker 2

Today, we're faced with a seemingly impossible challenge. We need to disrupt and completely overhaul our current carbon economy. That's easy to say, but it's quite difficult to do When you consider that fossil carbon is not just found in gasoline and power, fossil carbon is in everything we use in our daily lives. Unfortunately, in 2023, this carbon economy is not fit for purpose because we now understand The negative impact of waste of carbon of putting carbon on a one way street into our atmosphere into our landfills To do that, we must transition to a circular carbon economy, and that is what LanzaTech does. As you'll see in Slide 4 of the presentation, we have developed and commercialized a technology platform that utilizes waste Carbon Resources to produce the fuels and chemicals we need in our daily lives.

Speaker 2

This is the very definition of a circular carbon economy. While many companies talk about sustainability goals in terms of their plans for the future, I'm proud to say that 100% of LanzaTech Revenues are generated by providing sustainable solutions today. We are focused on the goal of reducing the need for humans to Constantly mine fossil carbon, while at the same time maintaining production of the goods that define modern life. What LanzaTech does is nothing less than malavius. Over the last 18 years, we have built this company out From little more than a bench top biology experiment in a New Zealand lab to a global technology company that allows its customers, the partners for whom we design facilities and to whom we supply microbes, equipment and services To turn decarbonization from a cost center into a profit center.

Speaker 2

We have been able to do this while creating a new platform technology That redefines where the carbon in everything we use comes from. In fact, we use carbon pollution as our carbon resource. Our vision has been so compelling that now we must continue to grow to satisfy expanding demand. Demand for engineering services, Demand for our contract research services and demand for the carbon negative chemical building blocks that constitute the products that we call Carbon Smart. Carbon Smart products are those that are made from recycled carbon, carbon that would otherwise pollute our planet.

Speaker 2

We foresee that someday consumers will have an obvious choice of where the carbon in their products This choice will be no different than opting for fair trade coffee And we are already making such products available with laundry detergents and apparel made from steel mill emissions Available today on store shelves. Slide 5 is a simple illustration of this point, Highlighting the items in our home that are currently derived from fossil carbon today, including our Clothes, our cosmetics, our toys, our packaging and an endless list of home goods. Creating a new paradigm is not easy. It has taken LanzaTech nearly 2 decades to prove, de risk and commercialize its core carbon transformation technology, which enables carbon to be reused rather than be wasted. We leverage the power of biology, chemistry And cutting edge engineering to transform greenhouse gases into the chemical building blocks of the products we use in our daily lives.

Speaker 2

At the core of our technology is a specialized microbe that consumes diverse carbon resources from hard to decarbonize processes and metabolizes them into the critical building blocks upon which so many consumer products are based. Similar to the process by which yeast consumes sugar to make alcohol, our microbe consumes carbon in the form of either carbon dioxide Our carbon monoxide and produces ethanol can be used as a chemical intermediate for a wide variety of applications. In addition to our commercial microbe, we've engineered and optimized the design of a proprietary bioreactor in which The process takes place on a continuous basis, very much like a refinery unit. We've built our business around the mission of deploying this We're at 3 commercial facilities. To date, these facilities have produced over 160,000 tons Or 54,000,000 gallons of ethanol, resulting in the mitigation of over 275 1,000 tons of carbon dioxide from the atmosphere, the equivalent of CO2 emissions from over 28,000,000 gallons Our designs and engineering expertise have been so well received across many hard to decarbonize industries We are seeing tremendous demand from asset owners and growth in our commercial pipeline.

Speaker 2

As a response, we expect to more than double our installed nameplate production capacity by the end of this year with an additional 3 licensed commercial scale plants coming online in new geographies, including in India and the European Union. These projects include a facility utilizing oil refinery off gas in India with partner Indian Oil, A facility using steel no off gas in Belgium with partner ArcelorMittal and a facility utilizing ferroallor off gas in China With partner, Shogang Steel. Once all are operational, the cumulative installed capacity of our partner License facilities will be approximately 300,000 tons per year of ethanol production, approximately double of where we ended last year. This is the equivalent of removing over 500,000 tons of CO2 from the atmosphere Per year, we're comparable to removing approximately 100,000 passenger cars from the road each year. This is the start of our journey to realize our potential to abate gigatons of carbon through our technology.

Speaker 2

In 2022, we generated over $37,000,000 in revenue, representing an 1.5x increase over 2021. As outlined on Slide 9 of the presentation, we have had significant growth over the last few years As seen in the approximate 27% compounded annual growth rate of our revenue from 2020 to 2022. We expect continued growth in the quarters and years ahead. Recent commercial operations position us well to Accelerate deployment of our technology over the near and medium term. In the Q1 of 2023, we saw growth across our business As our revenue continue to expand year on year to reach $9,600,000 which is consistent with our 2023 plan And 2023 revenue guidance.

Speaker 2

As we look ahead over the rest of the year, we are focused on execution and commercial project development and As you'll see on Slide 10, we have the right executive leadership in place to deliver on our commercial growth objectives. The commercial team is led by our Chief Commercial Officer, Doctor. Stephen Steinle, who joined us in May 2022 following more than a 30 year career as a leader in the global petrochemicals industry. Most recently, Steven served as the President of Univision Technologies, a joint version between Dow and Ekso Mobile Chemical. Stephen brings a wealth of experience scaling and licensing technologies across broad global portfolios and the technical knowledge to help take the Chemicals portfolio in new direction.

Speaker 2

Over the course of last year, we saw great demand for We believe that infrastructure investment partners Attractive to our de risk technology and profitable carbon abatement offer could provide LandSat Tech with sophisticated and In October of 20 We announced its strategic partnership with Brookfield Renewable, whereby Brookfield committed up to $500,000,000 in commercial project equity with the ability to add more capital up to $1,000,000,000 to fund commercial deployment. As outlined on Slide 7, our partnership with Brookfield will enable us to take a more active role in commercial development for select opportunities, allowing those facilities to advance more quickly and catalyze our deployment. LanzaTech will have access So up to 50% of the production volumes from any facility built through our partnership with Brookfield to place into our conference smart supply chains We'll use as feedstock for the production of sustainable aviation fuel through the Lancetjet alcohol to jet process. LanzaTech will also participate in the economic upside, capturing additional value from the performance of the commercial And we look forward to unlocking significant value and bringing strategic commercial facilities To help facilitate this, we were excited to recently announce the addition of Ms. Ara Cuellar As our new Executive Vice President of Growth and Strategic Projects to lead and accelerate commercial and capital deployment in partnership with Brookfield.

Speaker 2

Ms. Cuellar joins us from Shell, where she has spent nearly her entire career, most recently as the Vice President of Energy Transition And Head of Capital Projects and Turnaround for Shell U. S. Ms. Square has a record of running and implementing Large scale capital projects for the refining and chemicals sector.

Speaker 2

We look forward to her leadership as she stewards this important partnership And business unit for LanzaTech. With our and Stephen's leadership, LanzaTech is strongly positioned to deploy our technology rapidly and globally through our Capital Lite Licensing model. Our commercial and engineering teams are Focused on advancing the more than 80 identified potential licensing projects in our pipeline through the various development stages into commercial operation. Our business model for the biorefining project produces revenues for LanzaTech throughout the project's lifecycle, Very similar to other technology licensing businesses, our approach enables us to capture both one time and recurring revenues. First, we realized one time revenues during the development stage through engineering services and sales of equipment.

Speaker 2

During the operational stage, we realized long tail recurring revenues through licensing royalties, sales of microbes and media, as well as through sales of software and analytical services. We are constantly working to improve and drive efficiencies in our process. As a result, we are pleased to have scaled and further validated the performance of Landsatk's 2nd generation bioreactor technology At a demonstration scale in partnership with Ambitions Reduction Overto and Suncor. The 2nd generation bioreactor design operates at greater efficiency and at a lower operating cost, allowing us to utilize more waste streams, Core to our process is biology. We have been able to leverage biology's innate ability to capture and transform the carbon and This ethanol can be converted into multiple building blocks such as ethylene, one of the most widely used petrochemicals in the world With a market value of approximately $125,000,000,000 in 2022, ethanol can also be converted into monoethylene Glycol, MEG, an ingredient in the manufacture of PAT, with a total addressable market of approximately $30,000,000,000 in 2022.

Speaker 2

As such, the ethanol is the basis for all the consumer products our partners have manufactured today. Through paid contracted work, our world class synthetic and computation biology teams are working on commercializing The portfolio of next generation microbes that will enable the production of a wide variety of chemicals directly using our platform. For your reference, direct production of chemicals means we are producing these chemicals directly from waste and not indirectly through ethanol. At demonstration scale, we have been able to directly produce carbon negative acetone, a key ingredient for solvents, lacquers and textiles, as well as carbon negative isopropanol, the building block used to make polypropylene, a key material in multiple sectors, including automotive and for medical devices, with a market of over $120,000,000,000 in 2022. The ability to go beyond the production of ethanol will increase our total addressable market and allow us to access Newmark.

Speaker 2

In addition, we recently announced the ability to transform waste carbon gas directly into ethylene and MEG rather than through the conversion of ethanol. By going from waste directly to these products, we should be able to achieve significant cost reductions In the production of these widely used commodity chemicals, we are not pursuing niche specialty chemical markets. The ethylene market is anticipated to surpass $287,000,000,000 by 2,030, while MEG is Expected to reach nearly $40,000,000,000 by 2,030. In leveraging advanced manufacturing technologies Such as synthetic biology, we are targeting direct production of these bulk chemical commodities to bring consumer everyday goods Into the circular economy. We believe this commodities focus will have a significant No matter how much you earn or where you live, LanzaTech therefore represents an exceptional opportunity to implement meaningful carbon removal In a distributed and decentralized fashion from waste resources and to create sustainable synthetic chemicals that we believe Can we place fossil carbon?

Speaker 2

Fundamental to our mission is the belief that the world has enough carbon above ground To make everything we need, and we are delivering on that mission. The ethanol from our licensed plants has been converted into the chemical building blocks To make polyester yarn, PET packaging, surfactants and many other products representing a potential market of over $335,000,000,000 per year. In 2022, we announced the expansion of our core business model to include CarbonSmart. In our CarbonSmart business, we partner with brands to provide sustainable As an example, we have partnered with consumer brands Such as Zara, H&M Move, Nibel and Unilever, I have seen these products sold in global markets. The demand that we are seeing for sustainable products and materials creates an enormous demand for further licensing of our technology and engineering services.

Speaker 2

In addition to products and materials, We believe that Sustainable Aviation Fuel or SAF, as it's often referred to, produced through the Lancet jet alcohol digest Process will create a massive demand for waste based ethanol. In 2020, we formed and spun out LancerJet Following over a decade of process technology development in partnership with the U. S. Department of Energy and the Pacific Northwest National Laboratories to convert alcohol to sustainable aviation fuel. We retain an approximate 25% ownership in Lanfijet, Supported by co investors and partners including On Capone Airways, Breakthrough Energy, International Aviation Group, The Microsoft Climate Fund, Missouri and Company, Shell and Suncor Energy.

Speaker 2

Together, we are pleased to see the progress Amsojet is making towards The completion of the construction of the world's 1st ethanol based alcohol to jet sustainable aviation fuel plant At the 10,000,000 gallon per year Landsek at Freedom Pines fuel facility in the state of Georgia, which is slated to be completed in 2023. Once operational, this facility will account for almost 10% of global SAF production and will increase production of SAF in the United States by 60%. Sustainable fuel uptake agreements are in place to cover 100% Of the fuels produced at this site for the next 10 years, including agreements in place with Suncor, British Airways, ANA and others. It has been a tremendous journey over the past 18 years, but one of the most monumental achievements in the company's history occurred just a few months ago in February As we closed our business combination with the AMCI Acquisition Corp. II and became publicly listed under NASDAQ as LanzaTech Global Inc.

Speaker 2

Through the business combination, which is summarized on Slide 12 of the presentation, LanzaTech raised $242,000,000 in gross proceeds. In addition to the cash left in the SPAC Trust account following redemptions net of the forward purchase agreement, This amount includes $185,000,000 from the common equity pipe anchored by accredited investors, institutional buyers And strategic partners including ArcelorMittal BASF, K1W1, Cosla Ventures, Mitsui, New Zealand Superannuation Fund Oxylocarbon Ventures, Pline Metals, SHV Energies Trafigura as well as a $15,000,000 investment from our strategic Infrastructure Investment Partner, Brookfield. We expect that the proceeds from the transaction will fully fund the business Through to positive adjusted EBITDA by the end of 2024 and we are heads down as a company working to execute on our plan. I would like to thank all of our partners and investors for believing in us and helping us get to this point. Since going public in February, we have made Several exciting announcements regarding our CarbonSmart business, some of which you can see summarized on Slide 13.

Speaker 2

Notably, Coty, one of the world's largest beauty companies with an iconic portfolio of brands, released a new Gucci fragrance that contains 100% carbon captured ethanol. Separately, HNN Move partnered with LanzaTech to launch a capsule collection using ethanol produced through our process as the building block for the polyester in their garments. Adidas recently introduced collections, including the Melbourne Tennis Collection, Adisir, Obersunet 4 and adidas by Stella McCartney, True Nature Collection, all utilizing raw materials that started as industrial emissions Before being carbon and transformed by the Lancet TEFL process. This broader acceptance of the value of using recycled carbon as a feedstock Turning to portfolio expansion, we were recently awarded and initiated new R and D projects in partnership with multiple government agencies, including the U. S.

Speaker 2

Department of Energy and the U. S. Department of Defense, highlighting our continued focus on expanding and improving our capabilities. The team has also expanded Lanfatek's fermentation portfolio, recently demonstrating a 400 Full increase in the direct production of NEG at AbScale. We remain focused on continuing to optimize the direct production of other commodity chemicals, including acetone, ethylene, isopropanol and MEG.

Speaker 2

Indeed, in 2023, one of Strategic priority as outlined on Slide 16 is to operate at least 1 non ethanol producing microbe at demonstration scale To truly change the current system by which everyday items are produced, We are targeting the supply chains that underpin our material economy. By pursuing these massive commodity chemical markets And using waste carbon as a resource, we believe we can create a new carbon economy whereby cost competitive supply chains Provide access to sustainable goods for everybody, not just the 1st movers nor the wealthy. By increasing We have grown to approximately 400 Fulton employees with offices across the world. Throughout this tremendous growth, safety has remained our central operating focus. We are proud that 2022 marked our 4th consecutive year without a loss time injury.

Speaker 2

This trend carried over into the Q1 of 2023 as we not only had 0 loss than injuries, but also 0 recordable injuries across our global operations. Diversity and inclusion are core to our values as a company, and we have not lost sight of this as we've grown. I'm proud that our Board of Directors is comprised of greater than 40% women and that with the addition of Ms. Ara Cuellar earlier this month, Our executive team is now majority women. Additionally, we're proud that over 60% of our technical leadership team is comprised of women.

Speaker 2

Approximately 48% of our global workforce is ethically diverse And approximately 35% of our U. S.-based workforce is comprised of underrepresented minorities. Our commitment to diversity is one of our strengths. We're committed to fostering a diverse, equitable and inclusive workplace where people of all cultures and backgrounds can succeed. Our people are our greatest asset.

Speaker 2

Diversity matters for advancing innovation and we will continue to prioritize growing a global team that is representative of those Before turning it over to Jeff to walk through our financial results in greater detail, I want to go back to our 5 strategic priorities for 2023, which are outlined On Slide 16 of the presentation. 1st, and as I mentioned earlier in my remarks, safety is a critical operational focus and we are focused on having 0 loss time injuries across our global sites. I am proud to say that this focus has thus far resulted In 4 consecutive years, we had a loss and injury. We have a global team in global sites, including commercial scale facility and have implemented several training, tutorials and audits across our organization to ensure we continue to prioritize expect that through our anticipated top line growth and disciplined cost management, we will achieve this goal. We will continue to focus on accretive opportunities and Accelerated the deployment of our technology platform significantly improving margins as our revenue mix shifts towards recurring biorefining revenues over the long term.

Speaker 2

Through focused execution on our plan, we anticipate that the company will turn Adjusted EBITDA positive by the end of 2024. 3rd, we are committed to growing our total installed namely production capacity by 100 percent to approximately 300,000 tons of waste based ethanol per year. As mentioned previously, there are 3 commercial scale plants that are expected to start up in 2023 and with those startups we will further expand The commercial reach of our technology. 4th, we are focused on moving the more advanced project to our current pipeline backlog and anticipate that sales of engineering services, key equipment packages and expansion of our Carbon Smart business will contribute meaningfully to Revenues throughout the remainder of the year. This is evidenced in our 2023 revenue guidance of $80,000,000 to $120,000,000 which we introduced earlier this year and reflects year over year growth of approximately 2.7x at the midpoint.

Speaker 2

We are also focused on further developing and advancing the project pipeline for earlier stage projects to move Those through to key revenue generation milestones in 2024, which supports our goal of doubling annual revenue in 2024 relative to our already strong 2023 growth expectations. Finally, we continue to prioritize process optimization, Focusing on driver greater profit per ton of carbon dioxide abatement at our partner facilities and Accelerating deployment of our technology maximizing carbon abatement potential. The Manfatex solution shifts our partners' focus To assess the profit per ton of carbon abated in their operations rather than the cost per ton associated with most other carbon abatement solutions, We provide this profitable decarbonization solution for our partners today, but we are working collectively across all teams to drive further efficiencies and profitability for our customers in the future. Additionally, as previously mentioned, We are focused on demonstrating at scale the application of non ethanol producing microbes. With that, I'll turn the call over to Jeff to provide details on our financial performance and outlook, and then I'll come back with a few closing remarks.

Speaker 2

Jeff, please go ahead.

Speaker 3

Thank you, Jennifer. Good morning and thank you to everyone joining us. Before I get into our Q1 results, I'd like to provide some additional details of our recently completed business combination within AMCI. The implications of the transaction on our accounting presentation And how the proceeds from the transaction set us up to execute on our current business plan. As Jennifer mentioned earlier and as shown on Slide 12, We closed our business combination on February 8, 2023.

Speaker 3

Legacy LanzaTech completed this business combination with AMCI, With legacy LanzaTech continuing as the surviving corporation and as a wholly owned subsidiary of AMCI. The reporting entity is LanzaTech Global Inc. And its subsidiaries. Accordingly, for accounting purposes, the financial statements of LanzaTech equivalent of pre combination legacy LandsTech issuing stock for the net assets of AMCI accompanied by recapitalization. Over the duration of the transaction, we raised $242,000,000 in gross proceeds through a combination $185,000,000 of proceeds from investors in the common equity pipe, dollars 50,000,000 of proceeds from an investment made by Brookfield and the remainder from the cash Trust account of AMCI, net of the forward purchase agreement.

Speaker 3

In addition, prior to closing, on February 3, 2023, LanzaTech entered into a forward purchase agreement or FPA, where the FPA counterparties purchased approximately $60,000,000 worth of shares in the open market from holders who had previously elected to redeem their shares. This amount incremental to the $242,000,000 raised through the transaction was paid by LanzaTech to the FPA counterparties upon closing out of the funds held in the trust account. The FPA provides the Potential for additional liquidity to LanzaTech of up to $60,000,000 if the FPA counterparties are able to sell The FPA has been recorded as a derivative asset and a liability and is measured at fair value. Subsequent change in the fair value of this derivative asset was recorded as a non cash expense and significantly impacted our net loss result for the quarter. Additional details of the FPA and its accounting treatment can be found in our 10 Q filing.

Speaker 3

As you'll see on Slide 18, I'm pleased to report We continue to see growth year on year with $9,600,000 in total revenue in the quarter, increasing 23% From $7,900,000 in the Q1 of 2022, which again was consistent with our forecasts and previously provided guidance for the year. On a disaggregated basis, revenue from our biorefining, carbon capture and utilization category grew 31% year on year in the quarter Reaching $6,400,000 driven predominantly by increases in engineering and other services revenue. Research and development revenue, which includes our joint development and contract research work, grew 45% year on year to $3,300,000 As we anticipated, there was no revenue from CarbonSmart line of business in the Q1, although we expect meaningful revenue from CarbonSmart through the rest of the year. Cost of revenues in the quarter increased 34 percent to $7,800,000 from $5,800,000 in the prior corresponding period, Mainly as a result of an increase in the number of customer projects and a shift in the sales mix with certain projects generating a higher cost of revenue Due to the shifting nature of the development pipeline, operating expenses were $34,400,000 in the Q1, an 86% increase from the prior Corresponding period mainly as a result of higher SG and A expenses driven primarily from one time expenses including external consulting fees and other expenses related to the business combination as well as higher personnel costs as the company scaled up non R and D related functions.

Speaker 3

Net loss in the quarter was $63,300,000 Net loss was significantly impacted by other expenses net, which increased primarily as a result of the $51,100,000 non cash accounting impacts of the FDA. Adjusted EBITDA loss was $27,600,000 for the quarter compared to an adjusted EBITDA loss of $14,800,000 in the Q1 of 2022. We completed the Q1 of 2023 with cash, cash equivalents, restricted cash and investments in U. S. Treasuries totaling approximately $195,000,000 This included $145,800,000 in cash, cash equivalents and restricted cash, up from $83,700,000 at the end of 2022.

Speaker 3

In addition, LanzaTech invested approximately $49,100,000 in short term Lantotek does not have any outstanding debt other than the Brookfield Safe, which Classified as a liability for accounting purposes on its balance sheet as of March 31, 2023. As we look at the financial forecast, We believe the associated proceeds from the transaction, the current cash and liquidity position is sufficient for the company to execute its business plan And achieve positive adjusted EBITDA by the end of 2024. As a recap on Slide 19, we recently introduced our guidance for the full year 2023, including revenue of $80,000,000 to $120,000,000 which we are reiterating today. The midpoint of this 2023 revenue guidance implies a compounded annual growth rate of 76% since 2020. We anticipate significant quarter on quarter growth throughout the rest of the year as projects have advanced in our pipeline, are in advanced engineering and and beginning to move toward a final investment decision or FID and into construction starts.

Speaker 3

We expect Revenues generated from Engineering and Development Services as well as sales of equipment packages will make up the majority of the biorefining revenue this year. Additionally, we expect significant and continued growth from CarbonSmart this year. Our full year 2023 adjusted EBITDA guidance is I will now turn the call back over to Jennifer for for some closing remarks before we open the call for Q and A. Jennifer?

Speaker 2

Thank you, Jeff. In summary, we had a strong quarter with continued Our focus is squarely on business execution and delivering the results we guided the market to for the rest of the year. We're proud of the numerous accomplishments and milestones we've achieved, not only in this quarter, but over the last 18 years. Our Technology is proven at commercial scale and we continue to innovate and push the envelope on what is possible. As UN Secretary General, Antonio Guterres said in March, The climate time bomb is ticking.

Speaker 2

We firmly believe that the world has enough carbon above ground to make everything we need. Our current carbon economy is not sustainable and it's time for a fundamental paradigm shift. Our goal is to significantly reduce the need for virgin fossil carbon By changing the way the world uses carbon, there are significant tailwinds to our business and ManseTech is uniquely positioned to play a leading role In enabling a circular economy, I'm proud to represent Lantica's many employees and look forward to continuing to drive growth in the future. Thank you again for joining us and to so many of you for your support. Operator, we can now open the lines for Q and A, please.

Operator

Thank

Speaker 4

Good morning. I was hoping to get a little bit more color in terms of your thoughts On the progression of revenues throughout the year, if I look at Q1 'twenty three, it looks like you were down about $2,000,000 versus Q4 2022 and if I look at the number, it's kind of circa $10,000,000 You got your midpoint of guidance is $100,000,000 for the year. I guess that implies an average of $30,000,000 per quarter for the rest of the year to kind of hit that midpoint. So can you kind of talk us through the important pieces here that can kind of drive the significant growth and maybe also just Talk about the range on the guidance. You guys are at $80,000,000 to $120,000,000 which is about a 50% bottom to kind of top You increased there.

Speaker 4

So maybe just kind of talk about what gets you to the lower end versus the higher end in terms of how that might play out?

Speaker 2

I can start addressing that question, Leo. Thank you for joining us and for asking it. And then I'll pass it over to Jeff. The guidance of $80,000,000 to $120,000,000 relates simply to timing. Our expectation is to hit the midpoint.

Speaker 2

However, we gave an 80 as a bottom number because Often as you know in our business there can be delays related to licensing business decisions etcetera. The first quarter numbers are within what our expectations for that quarter were. Quite a bit of our revenue for this year will come from some equipment, and that equipment will not materialize in revenues until the second half of the year. So those are the that is the driver. We are reaffirming, 80 to 120, and we Feel comfortable with that.

Speaker 2

And Jeff, do you want to add to that?

Speaker 1

Yes. I was just going to reiterate a couple of

Speaker 5

the points that you were making there, I think. And Leo, I appreciate the question. In terms of Q4 last year versus Q1 this year, as you know, a lot of Our revenue is based on project development work at this point in time. So this is really just about the timing of kind of key things being recognized in revenue During these separate quarters, we do reiterate that this is consistent with our forecast for the year and our revenue guidance for the year. We do expect significant upticks quarter over quarter and kind of a ramp an increasing slope of the line in terms of revenue generation over Subsequent quarters as we ramp based on projects that are in development currently.

Speaker 5

And the The guidance range is really timing related as to whether or not it will be realized in 2023 or in 2024 just Depending on the pace of those as those projects progress.

Speaker 4

Okay. And I guess, would you say that each quarter you see Significant growth going forward? Are we going to see big second quarter growth? Is it more second half weighted on the revenue? Can you provide any kind of Quantification of what you expect in the first half versus the second half this year on revenues?

Speaker 5

So we do expect significant growth quarter over quarter. And so it will ramp quarter by quarter. It is heavily weighted to the back half of the year.

Speaker 4

Okay. You referred in some of your prepared comments to some one time costs in In the Q1 of 2023, I mean, it looks like a lot of that might have hit the G and A line. Can you provide kind What that number was in terms of what the one time costs were in 1Q?

Speaker 5

Sure. So I'll take a shot at that. So there are a variety of one time costs in addition to our Cash flow impacts from ongoing operations, we have a variety of things that do tend to hit in the Q1 that are Including bonuses that were related to or that were some of which were expensed in Q1. There's a variety of other consulting costs that were related to the close of the business combination. A lot of those flow through SG and A.

Speaker 4

Okay. I was trying to see if you guys had a number for that. I mean, I'm just looking at your Cash G and A number for the quarter was around $13,300,000 If I exclude the non cash stock comp piece here, looking at The previous quarter here was like $6,900,000 So up fairly significantly. I mean, $5,000,000 of that one time? I mean, what can you kind of quantify here with

Speaker 5

us? Yes. No, I mean, there's a little bit of increase Year over year and quarter over quarter in terms of just our SG and A expenses, we continue to kind of grow the team, but the majority of that increase is one time in nature

Speaker 4

Okay. And then can you talk about your cash burn? I think at Close of the deal, which was early to mid Feb, you guys press release, you had about $230,000,000 of cash and equivalents. Now at March 31, Looks like you're down about $35,000,000 at the $195,000,000 that you guys talked about. Can you talk about where that $35,000,000 went?

Speaker 2

Yes, go ahead.

Speaker 5

Sure. So thanks, Leo. The basics associated with it, there are obviously we are projecting negative EBITDA. We recognize Negative EBITDA for the quarter, so there are cash flow impacts purely associated with that. But there was in excess of $20,000,000 of one time cash uses In the quarter for the year, that includes a series of one time expenses, tax payments, As well as some increases in our prepaid assets, kind of see on the statement of cash flows, those did bump up.

Speaker 5

That includes certain things like D and O insurance prepayments for some of the products, some of our Carbon Smart Materials as those we look to turn around and generate Revenues on in subsequent quarters.

Speaker 4

Okay. And obviously, you guys have your EBITDA guidance this year of negative $55,000,000 to negative $65,000,000 It looks like you guys did just over $27,000,000 of negative EBITDA In the Q1 here, so I guess that kind of implies somewhere around negative $11,000,000 of EBITDA on average per quarter. You've got your revenue guidance there. It certainly looks like kind of cash G and A and R and D are kind of your 2 main cost components that will drive That forecast, so can you kind of help us out with what you think the cash G and A is going to be here in 2023 and what you think the R and D is going to be in 2023?

Speaker 5

So Leo, we haven't provided guidance specifically on those components of the P and L. What I can say This point in time is that the expectation for the EBITDA consistent with our EBITDA guidance is that we do expect the EBITDA The adjusted EBITDA loss declined quarter over quarter as a couple of things happened. 1, revenue growth and gross profit No increases quarter over quarter are going to be material impact on that as we also continue to kind of manage our operating costs. We don't expect to cut back on those costs, but we do expect that the gross profit generated from our revenue growth will continue to offset and reduce that EBITDA loss.

Speaker 4

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Jordan Levy with Truett Securities. Please proceed with your question.

Speaker 6

Good morning, all, and appreciate all the color. I wanted to start out, maybe understanding you're in the early stages of getting a lot of the Maybe if you could just walk through how you see the marketing segment with CarbonSmart Evolving kind of over the next few quarters and then maybe longer term over the next few years. Is it just a matter of getting projects up and volumes online there given your pipeline? Or is it kind of balancing that with partnership growth? And then maybe kind of as a second part of that, how have you seen that pipeline develop since Your last update?

Speaker 2

Yes. Thank you for that question. The key element of this year's Carbon Smart Work, actually last year's Carbon Smart Work was really getting a few So that each of our brand partners have the opportunity to work with this New fiber, etcetera, these new materials. And so what you'll start to see happen This year is that we'll start to see broader portfolio where our brand partners will introduce not just capsule collections, But entire collections that are not just available on the Internet, but actually in stores, like the work that Adidas did, where you could literally walk into a So there's a transition from capsule collection or trying out the materials to actually Starting to build their whole polyester portfolio around our fibers derived from waste carbon. So that will result in much larger revenue.

Speaker 2

The other thing that you'll also see in Carbon Smart is we're going to start to consolidate As we start to have plants come up in many jurisdictions other than just in China, As you know, this year, we'll be bringing up a plant in India and a plant in Europe. We'll be able to be consolidating The production from the ethanol all the way to the fiber in one jurisdiction, which will reduce cost and will then also drive additional adoption. So we believe CarbonSmart will become an increasingly important part of our revenue portfolio this year.

Speaker 6

I appreciate that. Maybe as a follow-up to that, I know you might not want to get into too many specifics this early on, Really high level, I'm just curious how you're thinking about pricing on the CarbonSmart side and how you expect that to Trend over time versus the fossil derived alternatives?

Speaker 2

That's a great question. The fact that we are consolidating supply Change means that we'll be driving a lot of the costs right now are in the movement of the materials From China to India to Taiwan and then to wherever the product is being used. So we expect That will go from where we are today in terms of multiple times the price of the fossil equivalent To say 50% uptick,

Speaker 4

that is

Speaker 2

what we're trying to get to 130% to 150% versus 200 to 300 and a lot of that will come just from driving down the cost of the logistics.

Speaker 6

Thanks so much. That's very helpful.

Operator

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Speaker 7

Thanks for taking the question. Given that this is your inaugural call, let me zoom out for a moment. You talked a lot about Having a licensing centric business model, but at the same time, the Brookfield Relationship gives you the ability to invest your own capital and co invest in various projects. How do you kind of discern where you are 100% licensing versus Where LanzaTech will be an equity partner.

Speaker 2

Thanks Pavel So on the projects where we are doing work with Brookfield, Actually, those will be licensing deals. It's just that we will need to co develop the project in advance because they will really only pick it up at FID. So we'll develop the project, we'll work to develop the project with the site owner, With the gas owner and Brookfield will be working with us on those projects, but we'll be taking it to FID, which means the engineering, the EPC, The site work preparation, etcetera. But when it comes to the actual equity investment, we are not intending to then invest. We will flip the project over, if you will, to Brookfield at FID, and then they will pick it up, pay us all our development costs, But also it will become a traditional licensing project and will get all of the standard revenues.

Speaker 2

How do we select the project For a pure license versus a Brookfield project, the key difference will be the owner. A company like Indian Oil intends to build out plants. They're very familiar with the process industry, So they will adopt their technology fully funded, fully own it. But there are some steel companies or alloy companies that have never built a process plant And would rather just hand over the gas over the fence. And in those cases, we can say, okay, the gas is available.

Speaker 2

All we need to do is develop the project and it will not be owned by the site owner. It will be owned by Brookfield And we'll develop it for them. That's really the key break point is, does the site owner Want to own the asset or not, in which case we just go straight to a license. If the site owner does not Or they only want to own a portion, we'll develop it for Brookfield, who will then become just a licensing Jeff, do you want to add something to that?

Speaker 8

Yes. No, Bob. Thanks again for the question.

Speaker 5

I think the just for the sake of clarity, two things about the Brookfield agreement with us. One was There were two pieces of capital associated with it. 1 was an investment into LanzaTech. We intend to use that for operating purposes. That was $50,000,000 And then there was the additional $500,000,000 up to $1,000,000,000 that was made available for the projects that Jennifer was talking about.

Speaker 5

So 2 different pieces of capital, just to clarify. And the only other thing I would add is that as the development partner and operating partner of those plants with that we'll work on with Brookfield, it does generate the opportunity for additional Revenues for LanzaTech and beyond our traditional licensing deals, again, the development services that Jennifer mentioned, but also we'll work longer term With Brookfield to help operate and oversee those plants and so there are some longer additions to our long tail recurring revenue aspects of those

Speaker 7

Okay. Let me Ask about the policy dimension of all this. You're operating in China. There is a carbon tax There you will soon be in Europe, which of course has some of the highest carbon pricing in the world, but you're also looking at Addictions which have no significant kind of carbon policy historically. What's the role of Carbon pricing in how you are thinking about the economics of various opportunities?

Speaker 2

The projects we have so far are not based on carbon pricing. The value comes from the fact that in those jurisdictions, Our ethanol gets the same premium as other ethanol gets. However, There is a lot going on right now globally. As you know, the IRA in the United States is going to have a massive impact. The IRA in particular incentivizes green hydrogen and CO2, carbon dioxide Capture and so for us combining lower costs on hydrogen to fix and refine Carbon dioxide will help us accelerate implementation in the U.

Speaker 2

S. So that is a massive, massive impact for us. India is also a great growth opportunity with the first project starting up there. India is really focused on growing and they have a 20 That's the goal. The target is 20% by 2025.

Speaker 2

So that will help us tremendously. So it's not really the carbon mandates per se, but rather all the other things Around it, what I mean is not the carbon pricing. Having said that, CorSoa, when it comes to jet fuel, is essentially a carbon tax, right? And so we will see demand for our ethanol because of Caucea's impact on sustainable aviation fuel. And in addition, concerns over ETS and the impact of green border taxes, which is essentially a carbon tax On large part 2 of 8 sectors will both have an impact on our business.

Speaker 7

And then lastly, in fact, kind of dovetailing with what you just said about jet fuel. As Landsatjet begins to produce in Georgia later this year, as you talked about, you're not A majority holder of LantaJET. So is that revenue going to be recognized And LantaJack's revenue?

Speaker 2

We use an equity method to recognize the revenue from LantaJack and we will continue to do that.

Speaker 7

Okay. So that's not included in your revenue guidance?

Speaker 2

It is included, yes. The equity portion And Jeff can get into the details.

Speaker 5

Okay. So the revenue doesn't necessarily flow through. We take a percentage we take our associate Percentage of their gain or loss into our income statement. So it doesn't flow through our revenues. Our revenue guidance isn't based at all on Their revenues in particular, but our net loss for the year would include our participation in that.

Speaker 5

And just for the sake of clarity, as you mentioned, we are not a majority owner. We do have a mechanism in our agreement with Lanza Jet We do expect at some point in time to go back to being a more significant holder. That Mechanism is described in our filings, but even in those situations, we won't be in control of the business. We don't expect to change the way that we So even should we go back to being 50 percent owners of that business, we still expect to treat them as an equity method investee.

Operator

Thank you. Our next question comes from the line of Derrick Whitfield with Stifel. Please proceed with your question.

Speaker 8

Good morning, all, and thanks for taking my questions. Perhaps picking up with Freedom Pines facility, Wanted to see if you could speak to the key remaining construction milestones for 2023 and when you're expecting to see first production?

Speaker 2

Thank you for that question. On ISBL, the main unit is 80% in place right now at Freedom Pines. And so it's a matter now of building out The additional tankage and all of the other elements that constitute the outside of the unit's main battery limit, We expect that plant to be mechanically complete by the end of this year, and it is tracking on schedule

Speaker 8

Terrific. And then with respect to the next generation bioreactor facility you referenced in your prepared remarks, Could you speak to its ability to improve efficiency and lower operating costs?

Speaker 2

Yes, absolutely. So I can't quote you the exact numbers on the call because we've not disclosed them yet, but what it does is it allows us to go to much more dilute gases. So what that means is our ability to expand The portfolio of gases is going to increase. It will be super helpful in the work that we're doing with municipal solid waste with trash And it will be very, very helpful. With some of the 20% -ish kind of level Active ingredient gas streams, we have a lot of steel mill plants that only have about 20% carbon monoxide versus the higher 40% 50% we've been using.

Speaker 2

That's where this reactor will be useful. For the higher gas streams, The ones we already use, it will have a significant operating cost reduction and essentially will get The same performance with a much smaller reactor. So there will be a lot of savings also on the capital on the construction side.

Operator

Thank you. Our next question comes from the line of Jason Gabelman with TD Cowen. Please proceed with your question.

Speaker 9

Hey, thanks for taking my questions. You referenced in the press release an opportunity set of about 80 projects, I think. And I was hoping if you could characterize that a bit More in terms of phase of engineering and how close they are to being sanctioned kind of the pace of Project development as you look out over the next few years and the types of projects, how many of those sit in Lanza Jet, how many loads So the Atlanta Tech, how many of those will be within Brookfield? Just any kind of details around that opportunity set would be great. Thank you.

Speaker 2

So the first part of that on Lantigen, we do not So the only time the Lancet Jet related project will be in our pipeline is when it's an integrated Lancet Otherwise, you won't see a Lanza Jet project. These are Lanza Tech ethanol production When it comes to Brookfield versus non Brookfield, Right now, because it's early days on the Brookfield, the Brookfield piece will constitute less than 15% Of that portfolio. Everything else will be LanzaTech. We are on a, I would say 10%, no more 20% of that number of 80% is equipment related Projects, in other words, projects where we will actually deliver a 1 ton per day or a 10 ton per day facility to be installed at a partner site. Everything else is just conventional licensing.

Speaker 2

I do not expect construction on any of the projects in our pipeline to begin until later this year, But I expect on the order of, I believe, 10, and I'll have Jeff correct me, as going into engineering throughout the year. Jeff, can you add to that if I missed something?

Speaker 8

Yes. No, I think that's all right.

Speaker 5

And I think that and Jason, thanks

Speaker 8

for the question. It's good

Speaker 5

to hear from you. I think the pipeline as you think about it is a function of converting our traditional projects. These are all Jennifer mentioned the handful that are And Brookfield related, there are a couple of what we kind of consider to be demo scale facilities in here as well. But the vast majority Our traditional licensing projects, they kind of go through our traditional stage gates of development. So just kind of see them in our provided materials We talked about something getting through the techno economic assessment phase, the TEA stage.

Speaker 5

That's really the beginning step of something in our pipeline For traditional licensing project, those projects have been looked at in terms of what is the feedstock, what is the site. We're under confidentiality agreement Our partners kind of looking at their actual data and determining if those are economically viable projects. Once those once we have a good TEA, that's when it goes into the pipeline and then we're trying to move those into Engineering, then in the later stage engineering and construction and operation, etcetera. The timeframe from kind of TEA all the way through to start up ranges Between say 24 36 months, getting to that construction start is in that 6 to 12 month timeframe. So If you're kind of looking at the numbers that we have in there, you can kind of do a little of your own math to kind of makes to look at which ones should be making their way Through that pipeline during the course of this year.

Speaker 9

Got it. So just to clarify, do you have a Sense of how many projects you expect to start up in 2024?

Speaker 5

Not that we've disclosed at this point in time.

Speaker 9

All right. I'll leave it there. Thanks.

Operator

Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back Doctor. Holmgren for final comments.

Speaker 2

Thank you very much for joining us today at our first earnings calls. We're very excited about 2023, and I hope you'll continue to join us on this journey, as we continue to make progress and show that

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
LanzaTech Global Q1 2023
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