8-K: LanzaTech Reports Disappointing Q3 Results, Expands Business Model to Drive Future Growth

LanzaTech's third-quarter 2024 revenue fell short of expectations due to a delay in a key sublicensing agreement, but the company is expanding its business model to include more direct ethanol sales and project ownership.

Summary

• LanzaTech reported a third-quarter 2024 revenue of $9.9 million, a decrease from $17.4 million in the second quarter of 2024 and $19.6 million in the third quarter of 2023.
• The sequential decrease in revenue was primarily due to a delay in a LanzaJet sublicensing event, which was expected to contribute approximately $8.0 million in licensing revenue.
• The year-over-year decrease was mainly due to higher engineering services revenue in the third quarter of 2023 related to the completion of a specific project.
• The company's net loss for the third quarter of 2024 was $(57.4) million, compared to a net loss of $(27.8) million in the second quarter of 2024 and $(25.3) million in the third quarter of 2023.
• Adjusted EBITDA loss for the third quarter of 2024 was $(27.1) million, compared to $(17.8) million in the second quarter of 2024 and $(19.1) million in the third quarter of 2023.
• LanzaTech is expanding its business model to include more direct ethanol sales and increased involvement in the ownership of its biorefining value chain.
• The company announced a two-stage ethanol off-take agreement with ArcelorMittal, including a one-year contract with potential revenue of $6.0 million and a five-year contract with potential annual revenue of $10.0 million to $20.0 million.
• LanzaTech is advancing Project Drake, a 30 million gallon per year sustainable aviation fuel project in the EU, and has entered into an exclusivity agreement with a financial partner.
• The company had $89.1 million in total cash, restricted cash, and investments as of September 30, 2024, compared to $75.8 million at the end of the second quarter of 2024.
• LanzaTech made a $10.0 million settlement payment related to a Forward Purchase Agreement to reduce outstanding common shares and limit potential downward pressure on the stock price.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are positive developments like the ArcelorMittal agreement and Project Drake, the significant revenue shortfall and increased losses raise concerns. The expansion of the business model is a positive step, but the overall sentiment is cautious due to the disappointing financial results.

Positives

• LanzaTech secured a two-stage ethanol off-take agreement with ArcelorMittal, which includes a one-year contract with potential revenue contribution of $6.0 million, and a five-year contract with potential annual revenue of $10.0 million to $20.0 million.
• Project Drake, a 30 million gallon per year sustainable aviation fuel project, is advancing with a new financial partner, and the company has received the first $5 million in fees associated with this agreement.
• The company is expanding its business model to include more direct ethanol sales and project ownership, which could lead to increased revenue and profitability.
• LanzaTech has progressed a project in Norway with Eramet, expected to reach FID within six months, and is collaborating with Brookfield Asset Management, which has committed to invest $500 million in qualifying projects.
• The company has expanded its biorefining capabilities to produce a single-cell protein called LanzaTech Nutritional Protein, targeting the $1 trillion alternative protein market.
• LanzaTech added eight projects to the early-stage engineering phase of its project development pipeline.

Negatives

• Third-quarter 2024 revenue was $9.9 million, significantly lower than the $19.6 million reported in the third quarter of 2023.
• The company experienced a net loss of $(57.4) million in the third quarter of 2024, compared to a loss of $(25.3) million in the same period last year.
• Adjusted EBITDA loss was $(27.1) million for the quarter, compared to $(19.1) million in the third quarter of 2023.
• The sequential decrease in revenue was primarily due to a delay in a LanzaJet sublicensing event, which was expected to contribute approximately $8.0 million in licensing revenue.
• The year-over-year decrease was mainly due to higher engineering services revenue in the third quarter of 2023 related to the completion of a specific project.
• The company's gross margin for the third quarter of 2024 was 18%, impacted by revenue mix and the absence of the LanzaJet sublicense transaction benefit from the previous quarter.

Risks

• The company's financial results are subject to timing uncertainties related to several large initiatives, which could lead to a wide range of potential outcomes for the fourth quarter and full year of 2024.
• The successful signing of another LanzaJet sublicensing agreement, which could result in additional share consideration and incremental revenue, is not guaranteed.
• The company's projects are subject to risks and uncertainties, including market conditions and the satisfaction of closing conditions.
• LanzaTech may be adversely affected by economic, business, or competitive factors.
• The company's forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions.

Future Outlook

LanzaTech anticipates a wide range of potential financial outcomes for the fourth quarter and full year of 2024 due to several large initiatives in various stages of development. Potential revenue drivers include the base business, Project Drake, the Norway project, Project SECURE, and LanzaJet sublicensing agreements.

Management Comments

• From a financial point of view, third-quarter 2024 ended on a disappointing note, with LanzaTech missing our financial targets due primarily to a timing delay related to a LanzaJet sublicensing event we were expecting, and to a lesser degree, softer ethanol pricing in a key fuel trading market of ours, said Dr. Jennifer Holmgren, Board Chair and Chief Executive Officer of LanzaTech.
• That aside, we have steadily made commercial progress during the second half of this year, and have much to accomplish during the remainder of the fourth quarter, and beyond.
• Today, we are announcing our first long-term committed off-take agreement with a licensee, ArcelorMittal, and the advancement of Project Drake, a sizeable sustainable aviation fuel opportunity that we believe positions us for greater upside as compared to a pure licensing arrangement.
• As we work to increase our ethanol sales business and widen our project ownership and operating scope, so too are we working to expand our business models revenue drivers.
• By controlling more feedstock, operations, and off-take in our business portfolio, we are building multiple pathways to cash flow generation and are working to accelerate our timeline to profitability.

Industry Context

LanzaTech's expansion into direct ethanol sales and project ownership reflects a broader trend in the renewable fuels industry towards greater vertical integration and control over the value chain. The company's focus on sustainable aviation fuel aligns with growing demand for low-carbon alternatives in the aviation sector.

Comparison to Industry Standards

• LanzaTech's revenue of $9.9 million for the quarter is significantly lower than some of its peers in the renewable fuels sector, such as Gevo, which reported $2.2 million in revenue for the same quarter, but Gevo is a much smaller company.
• The adjusted EBITDA loss of $(27.1) million is also concerning when compared to companies like Amyris, which reported an adjusted EBITDA loss of $100 million for the same quarter, but Amyris is a much larger company.
• The company's move to expand its business model beyond licensing is similar to other companies in the space that are seeking to capture more value from their technologies, such as Neste, which has a large refining business.
• The development of Project Drake is comparable to other sustainable aviation fuel projects being developed globally, such as those by World Energy and Velocys, but LanzaTech is using a different technology pathway.
• The $500 million investment commitment from Brookfield is a significant endorsement of LanzaTech's technology and business model, similar to other large investments in the renewable energy sector.

Stakeholder Impact

• Shareholders may be concerned about the lower-than-expected revenue and increased losses.
• Employees may be affected by potential cost reduction measures and resource reallocation.
• Customers may benefit from the company's expanded product offerings and increased involvement in the biorefining value chain.
• Suppliers may see increased demand for their products as LanzaTech expands its operations.
• Creditors may be concerned about the company's financial performance and ability to meet its obligations.

Next Steps

• LanzaTech will continue to advance Project Drake and finalize agreements with its financial partner.
• The company expects to submit its project package for the Norway site to Brookfield for FID evaluation.
• LanzaTech anticipates finalizing the award contracting process for Project SECURE by the end of 2024.
• The company will continue to mature its LanzaJet development pipeline and seek additional sublicensing agreements.
• LanzaTech will actively evaluate material cost reduction opportunities and reallocate resources to focus on commercial activities.

Key Dates

Keywords

LanzaTech, biorefining, ethanol, sustainable aviation fuel, carbon recycling, licensing, revenue, net loss, EBITDA, Project Drake, ArcelorMittal, LanzaJet, financial results