Business Overview and History

LanzaTech Global, Inc. (LNZA) is a pioneering carbon recycling company that is revolutionizing the way we think about waste. Founded in 2005, the company has developed a proprietary gas fermentation technology that allows it to transform various waste carbon streams into sustainable fuels, chemicals, materials, and even protein.

LanzaTech was founded in 2005 by Dr. Sean Simpson and Dr. Richard Forster, two scientists with a passion for finding innovative solutions to environmental challenges. The company's early focus was on developing its core gas fermentation technology, which uses specialized microbes to convert carbon-rich waste gases, such as those emitted from industrial facilities, into valuable products.

Over the years, LanzaTech has steadily expanded its technological capabilities and commercial footprint. In 2018, the company established the world's first commercial waste gas-to-ethanol plant in China, in partnership with Shougang Group. This was followed by the development of five additional commercial-scale biorefineries in China, India, and Belgium between 2021 and 2023.

LanzaTech primarily employs a licensing business model where its customers build, own and operate facilities that use the company's technology. In return, LanzaTech is paid a royalty fee based on the revenue generated from the use of its technology. The company has also performed research and development (R&D) services related to novel technologies and development of biocatalysts for commercial applications.

Despite its growth, LanzaTech has faced financial challenges since its inception. The company has not achieved operating profitability since its formation, with net losses after tax of $25.3 million for the three months ended September 30, 2023, and $115.4 million for the nine months ended September 30, 2023. As of September 30, 2023, LanzaTech had an accumulated deficit of $831.9 million. To continue developing its products and expanding its business, the company has primarily financed its operations through equity and debt financing.

In addition to its licensing business model, LanzaTech has also been evolving its approach to include more direct participation in the biorefining value chain. In 2022, the company entered into a framework agreement with Brookfield Asset Management to exclusively offer Brookfield the opportunity to acquire or invest in certain LanzaTech-developed projects. This strategy aims to provide LanzaTech with greater control over project development timelines and economics.

Financial Performance and Ratios

LanzaTech's financial performance has been mixed in recent years, with the company reporting significant losses. For the full year 2023, the company reported a net loss of $134.1 million on revenue of $62.6 million, resulting in a net profit margin of -214%. The company's operating cash flow for 2023 was -$97.3 million, and its free cash flow was -$105.8 million.

For the third quarter of 2024, LanzaTech reported revenue of $9.94 million, a decrease of 49% year-over-year. This decline was primarily due to lower engineering services and contract research revenues as certain projects reached completion. The net loss for Q3 2024 was $57.43 million, a 127% increase compared to the same period in 2023, mainly due to lower revenue and higher operating expenses. Operating cash flow for the quarter was -$35.57 million, and free cash flow was -$37.76 million.

Financials

LanzaTech's balance sheet remains relatively strong, with $89.1 million in cash, cash equivalents, and short-term investments as of September 30, 2024. The company's current ratio stands at 2.92, indicating a strong liquidity position, while its debt-to-equity ratio of 0.13 suggests a conservative capital structure.

Liquidity

LanzaTech's liquidity position appears to be stable, as evidenced by its current ratio and quick ratio of 2.92 as of September 30, 2024. This indicates that the company has sufficient short-term assets to cover its short-term liabilities, providing a buffer against potential financial challenges.

Geographic Performance

LanzaTech has a significant international presence, with revenue generated from customers and grant providers outside the United States accounting for approximately 73% in Q3 2024 and 75% in Q3 2023. As of September 30, 2024, approximately 34% of trade accounts receivable and unbilled accounts receivable were due from customers and grant providers located outside the United States.

Recent Developments and Outlook

Despite the challenging financial environment, LanzaTech has continued to make progress on several fronts. In the third quarter of 2024, the company reported revenue of $9.9 million, which was below its target but included strong growth in its CarbonSmart product sales, which more than doubled quarter-over-quarter to $2.2 million.

Looking ahead, LanzaTech is focused on accelerating its commercial activities and transitioning towards profitability. The company has announced several key initiatives, including a new ethanol off-take agreement with ArcelorMittal and the advancement of its Project Drake, a 30 million gallon per year EU-based ethanol-to-sustainable aviation fuel project.

Additionally, LanzaTech has expanded the capabilities of its biorefining platform to include the production of LanzaTech Nutritional Protein, a microbial protein that the company believes can be a cost-effective and sustainable alternative to plant and animal-based proteins. This move aligns with the growing global demand for alternative protein sources.

For Q4 2024, LanzaTech has provided a wide range of potential outcomes. The company's current base business is expected to generate around $10 million in revenue. Several key projects could contribute significantly to Q4 revenue, including:

• The expected final investment decision on their project in Norway, which could contribute around $20 million in revenue.

• The finalization of Project Drake, which could contribute a similar amount to the Norway project.
• Successful contracting for Project SECURE, which could result in around $4 million in Q4 revenue.
• A potential additional LanzaJet sublicensing event, which could also contribute significant revenue.

The company has stated that these projects, if finalized as expected, would unlock access to cash that would significantly bolster their financial liquidity.

Product Segments

LanzaTech operates in three main product segments:

1. Biorefining: This segment includes feasibility studies and engineering services for the design, procurement, and construction of commercial plants using LanzaTech's technologies. It also encompasses the licensing of intellectual property and software when customers deploy the company's biorefining technology. Revenue in this segment is recognized over time as services are provided, using either a cost-to-cost input method or percentage of completion. Licensing revenue is recognized when the customer deploys LanzaTech's technology, either as recurring royalties or one-time fixed consideration.

2. Joint Development and Contract Research: LanzaTech provides R&D services related to novel technologies and the development of biocatalysts, primarily for the production of fuels and chemicals. This includes joint development agreements and contract research projects, often with government entities. Revenue is recognized over time, based on milestone completion, percentage of completion, or the cost incurred input method, depending on the specific contract terms.

3. CarbonSmart: In this segment, LanzaTech purchases ethanol produced at customer facilities using its proprietary gas fermentation technology and sells these CarbonSmart products and related intermediaries directly to end customers. Revenue is recognized at a point in time when control transfers to the customer, based on the applicable shipping terms.

Industry Trends

The waste management industry, in which LanzaTech operates, is experiencing robust growth. The industry is projected to grow at a compound annual growth rate (CAGR) of 5.4% from 2023 to 2030, driven by factors such as industrialization, urbanization, and increasingly stringent government regulations. This growth trend aligns well with LanzaTech's mission and technological offerings, potentially providing tailwinds for the company's expansion efforts.

Risks and Challenges

Despite its innovative technology and growth prospects, LanzaTech faces several risks and challenges that investors should be aware of. The company's heavy reliance on its licensing model and the adoption of its technology by customers introduce uncertainty and potential volatility in its revenue streams. Additionally, the capital-intensive nature of developing commercial-scale biorefineries poses a significant financial burden, which the company is attempting to address through partnerships with infrastructure providers like Brookfield.

Furthermore, LanzaTech operates in a highly competitive and rapidly evolving industry, where it must contend with both established players and emerging competitors. The company's ability to maintain its technological edge and secure favorable commercial arrangements will be crucial to its long-term success.

Conclusion

LanzaTech Global, Inc. is a pioneering carbon recycling company that is leveraging its proprietary gas fermentation technology to transform waste streams into sustainable fuels, chemicals, materials, and protein. While the company has faced financial challenges in recent years, it is actively working to evolve its business model, expand its commercial footprint, and capitalize on growing market opportunities in the circular economy and alternative protein sectors.

As LanzaTech continues to execute on its strategic initiatives, investors will be closely watching the company's ability to drive revenue growth, improve profitability, and solidify its position as a leader in the emerging carbon recycling industry. With its innovative technology, strong partnerships, and a focus on sustainability, LanzaTech appears well-positioned to play a significant role in the global transition towards a more circular and low-carbon future. However, the company's path to profitability remains challenging, and its success will depend on its ability to execute its growth strategies effectively while managing costs and capitalizing on the favorable industry trends in waste management and sustainability.