LanzaTech Global, Inc. (LNZA) Q2 2024 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary highlights strong financial performance with a 35% revenue growth and improved EBITDA loss. The partnership with Technip Energies and investment from Carbon Direct Capital are positive catalysts. The Q&A section indicates potential market expansion and sufficient liquidity. Despite some uncertainty in management responses, the overall sentiment is positive, supported by optimistic guidance and strategic partnerships.

Key Financial Performance

Revenue $17.4 million for Q2 2024, representing a 35% growth year-over-year, driven by core biorefining licensing revenue and engineering services.

Adjusted EBITDA Loss $17.8 million for Q2 2024, an improvement of 26% year-over-year from a loss of $23.8 million, primarily due to higher revenue and a favorable revenue mix.

Biorefining Revenue $13.7 million for Q2 2024, up 41% year-over-year, significantly influenced by additional equity consideration from LanzaJet.

Joint Development and Contract Research Revenue $2.8 million for Q2 2024, a 25% increase year-over-year from $2.2 million, reflecting expanded work with existing partners.

CarbonSmart Revenue $0.9 million for Q2 2024, relatively stable compared to $1 million in Q2 2023, but $1.8 million for the first half of 2024, up 79% year-over-year.

Cost of Revenue $5.5 million for Q2 2024, down from $10.8 million in Q2 2023, leading to a gross margin of 68%.

Operating Expenses $34.7 million for Q2 2024, up from $32.7 million in Q2 2023, reflecting a 6% increase year-over-year due to ongoing project expenses.

Cash Position $75.8 million at the end of June 2024, down from $92.3 million at the end of Q1 2024, with a cash burn of $16.5 million for Q2 2024, significantly reduced from $29.2 million in Q1 2024.

Investment $40 million investment from Carbon Direct Capital, aimed at supporting working capital and scaling the business.

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Operating Highlights

New Products: LanzaTech completed development work on isopropanol process for IKEA, ready to license technology this year.

CarbonSmart Fuel Sales: LanzaTech completed its first pure play CarbonSmart fuel sales, marking a significant milestone.

Market Expansion: LanzaTech's collaboration with IKEA focuses on converting waste carbon-rich gases to polypropylene materials.

Joint Projects: LanzaTech and LanzaJet launched CirculAir, a coordinated offering to produce sustainable aviation fuel from waste feedstocks.

Operational Efficiencies: Cost savings from reorganization and reprioritization are starting to show in results.

Revenue Growth: Revenue for Q2 2024 was $17.4 million, a 35% increase year-over-year.

Strategic Shifts: Increased ownership in LanzaJet from 23% to 37% without capital contribution.

Investment: Announced a $40 million investment from Carbon Direct Capital to support growth and working capital.

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Risk or Challenges

Competitive Pressures: LanzaTech faces competitive pressures in the sustainable aviation fuel (SAF) market, which is expected to grow significantly. The company must maintain its technological edge and market position against other players in the industry.

Regulatory Issues: The company benefits from recent regulatory tailwinds supporting the use of various waste feedstocks for SAF production, but any changes in regulations could impact project viability and timelines.

Supply Chain Challenges: LanzaTech's projects depend on the availability of diverse waste feedstocks. Disruptions in supply chains or changes in feedstock availability could affect project execution and revenue generation.

Economic Factors: The company’s financial outlook is sensitive to macroeconomic conditions, including fluctuations in demand for sustainable products and potential economic downturns that could impact customer spending.

Litigation Risks: LanzaTech is involved in ongoing litigation regarding a breach of a Forward Purchase Agreement, which could result in financial liabilities or impact the company's reputation.

Project Timing Risks: The timing of project developments and final investment decisions (FID) is critical. Delays in project progression could negatively impact revenue guidance and overall financial performance.

Cost Management: While LanzaTech is focused on cost management, any unforeseen increases in operating expenses could hinder the path to profitability.

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Guidance & Outlook

Ownership in LanzaJet: Increased ownership in LanzaJet to 37% from 23%, enhancing collaboration and potential revenue from sustainable aviation fuel.

Investment from Carbon Direct Capital: Announced a $40 million investment from Carbon Direct Capital to support working capital and path to profitability.

Project SECURE: Selected for a $200 million award from the US Department of Energy for a new gas fermentation facility, aimed at reducing capital expenses.

CarbonSmart initiatives: Continued development of CarbonSmart products with existing customers, including new fuel sales.

CirculAir offering: Launched a joint offering with LanzaJet to produce sustainable aviation fuel from waste feedstocks.

Revenue Guidance: Reaffirmed full year 2024 revenue guidance of $90 million to $105 million, with expectations for Q4 to be heavily weighted.

Adjusted EBITDA Guidance: Reaffirmed adjusted EBITDA guidance of negative $65 million to negative $55 million for full year 2024.

Project Timing Impact: Expect project timing to impact revenue guidance, with potential delays affecting ability to meet targets.

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Shareholder Return Plan

LanzaJet Ownership Increase: Increased ownership in LanzaJet by nearly two-thirds to 37%, up from 23%.

Equity Consideration from LanzaJet: Received additional equity consideration from LanzaJet related to the exclusive licensing agreement associated with the ATJ technology.

Investment from Carbon Direct Capital: Announced a $40 million investment from Carbon Direct Capital to support working capital and path to profitability.

Future Equity Tranches from LanzaJet: Expected to receive two additional tranches of shares from LanzaJet as they further sublicense the ATJ technology.

Potential Ownership Stake in LanzaJet: Projected ownership stake in LanzaJet above 50% subject to dilution from potential equity financing events.

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Key Q&A

Q:Are other entities showing interest in your polypropylene effort? Does the incipient work with IKEA limit Lanza’s ability to work with other interested parties?

A:There is no limitation on who we can work with. The work with IKEA was to develop the capability, and there is tremendous interest in polypropylene from various sectors.

Q:Can you add a little bit of color to the specific ethanol licensing that you've now achieved for CarbonSmart? Which markets do you feel are now more open to Lanza as a result?

A:The first ethanol sales went into the China market, and we are looking at other markets in Southeast Asia. We still need ISCC certification for Europe.

Q:Is it possible to arrive at an acceptable carbon intensity score for Lanza CO2 hydrogen project without green hydrogen?

A:Gray hydrogen will make it difficult to show a reduction, but blue and green hydrogen will work. The NTPC project is exciting as it focuses on renewable power.

Q:Can you expand on what the promotional advantages or the cost savings are in the CirculAir partnership?

A:The partnership allows for faster project development and better integration, leading to a more cost-effective offering.

Q:Is there anything about the second generation bioreactor that helped make this project pencil out?

A:The project pencils out even with the first generation reactor, but the second generation reactor makes it more efficient.

Q:Can you characterize or provide any more detail on the types of project delays that are possible?

A:We expect Q3 to look like Q2, with significant projects focused on in Q4. There could be timing aspects but no significant risks.

Q:Can you provide key terms around the $40 million convertible notes?

A:The terms include an 8% coupon, paid in kind, with a conversion price of $1.52.

Q:Do you feel like you have enough of a liquidity buffer to get up to breakeven EBITDA?

A:We are pleased with the additional liquidity and believe it provides sufficient funding through 2025.

Q:Could you use the hydrogen that's a byproduct from the cracker and call it blue?

A:Yes, leveraging off gases and hydrogen from the petrochemical complex is important for cost reduction.

Q:At full scale, do you have an estimate of what the unit variable cost could be per pound of ethylene?

A:Not today, too many unknowns on the exact site and hydrogen source.

Q:Are there any meaningful differences or challenges between producing ethanol and ethylene versus producing propanol and propylene?

A:Ethanol is our existing commercialized microbe, while propylene is a genetically modified organism and more challenging.

Q:Review of Unclear Management Responses

A:Management avoided providing a specific estimate for the unit variable cost per pound of ethylene, citing too many unknowns. Additionally, while discussing the project delays, management did not provide specific details on the types of delays, only mentioning timing aspects without elaboration.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

LNZA Transcript

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The earnings call reveals significant financial challenges, including a decline in revenue and increased operating expenses. Despite some positive developments like increased ownership in LanzaJet and a $40 million investment, there are major concerns such as timing uncertainties, cash flow risks, and regulatory adoption issues. The Q&A section highlights vague responses from management, which could further unsettle investors. While there are optimistic elements, the overall sentiment is negative due to financial losses, cost control challenges, and project risks.

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LNZA Report

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