LanzaTech Global, Inc.

Good day and welcome to Lanza Tech Global Incorporated 3rd Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. If you need assistance, please signal Conference Specialist by pressing the Start key followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Omar L. Sarkawi, Vice President of Corporate Development at Lanza Tech. Please go ahead.

Good morning, and thank you for joining us for Lanza Tech Global Inc.' 's third quarter 2023 earnings conference call. On the call today, I'm joined by our Board Chair and CEO, Dr. Jennifer Holmgren, and our CFO, Jeff Truckenbrug. Earlier this morning, we issued a press release with our third quarter 2023 financial and operating results, as well as an investor presentation summarizing the company's performance and key operational highlights for the quarter. We intend to file with the SEC our quarterly report on Form 10Q for the quarter ending September 30, 2023, after market closed today. Both our press release and results summary investor presentation can be found in the investor relations section of our website at www.lanzatech.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. 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. We would also like to remind you that our previously provided 2023 guidance, as or if updated on this call, constitutes the entirety of the company's financial and operational guidance, and no other prior projections or forecasts from the company should be relied upon. 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 remarks from Jennifer providing an overview of our performance. Jeff will then review in greater detail our financial results from the third quarter, and Jennifer will conclude with a few closing remarks. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Jennifer.

Thank you, Omar, and thanks to everybody for joining us today. We had an exceptional third quarter. Commercially, we grew quarterly revenue to $19.6 million. That represents a 52% sequential increase and 143% year-on-year improvement. This performance was fueled by robust growth across all three of our business lines, our core biorefining business, our carbon smart business, and our joint development and contract business. In addition, we reduced our quarterly cash burn to $24.2 million in the third quarter from $33.8 million in the second quarter. Operationally, our team has kept us on track to start up three new commercial plants in 2023, as outlined on slide 5 of the presentation. Our joint venture partner, Shugang Steel, started up its fourth plant, a 60,000-ton-per-year facility out of ferroalloy milk. Also, during the quarter, our partner Indian Oil started up its 33,500-ton facility at the Panipat Refinery. This is our first commercial-scale project in India and the first commercial facility that will convert carbon dioxide-rich refinery off-gas into ethanol. Both bioreactors have demonstrated ethanol production and we're now focused on ramping up the full production capacity. Our partner, ArcelorMittal, just started the first bioreactor at its 64,000-ton-per-year facility at its steel mill in Ghent, Belgium. The steel mill is scheduled for routine maintenance in mid-November, and following completion of that maintenance, we will restart with ramp-up to full production in early 2024. Recurring revenue from these 2023 plant startups will contribute to the top line in 2024 through the payment of royalties and sales of microbes, media, and software services. It's important to recall that the four plants operating in China are held through our joint venture and that the royalties for these plants are structured differently than with the other licensees, as some of our royalty value manifests itself through our equity ownership in Big JV. And to date, the profits have been reinvested in building additional commercial plants. The addition of these 2023 plant startups will bring our total installed nameplate capacity to more than 300,000 tons. That's approximately 100 million gallons of annual ethanol production. This increased production will enable us to secure more off-take volumes to supply our growing carbon smart business. While these six commercial plants represent half a million tons of annual carbon dioxide abatement, we need to get to gigatons. This requires us to deploy at an increasingly accelerated rate. To that end, In addition to continuously developing our core licensing project pipeline, we're actively partnering with strategic capital partners to co-develop project opportunities. We have talked previously about our partnership with Brookfield Renewable, which is focused on the U.S., EU, and U.K. markets, and we recently announced a joint venture with OLEAN Financing Company, a subsidiary of the OLEAN Group, to develop projects in the Kingdom of Saudi Arabia. We are extremely excited about this partnership, and through it, the leaders can get more steel in the ground and more plants online to capture and recycle waste carbon. The joint venture will develop project opportunities and source outside investment partners, ensuring that the projects are more akin to capital-efficient high-return licensing deals. With partner Brookfield, we continue to progress two co-development projects. These Europe-based industrial off-gas projects are progressing through early engineering phases, and we anticipate that one of these projects will move into the advanced engineering early next year, setting us up to transfer the project to Brookfield at FID within the first half of 2024. FID, or Final Investment Decision, is a critical project milestone in the development lifecycle, signifying the project is ready for construction after the completion of major engineering work, site selection and procurement, permitting off-state contracts and financing packages. Our work with partners like Brookfield and OLEA not only provides access to incremental offtake and additional economic upside, but also enables us to condense certain aspects of the project development timeline, which, in turn, accelerates our growth and pace of deployment. We have a high degree of confidence around our global commercial project pipeline, and we continue to advance projects through the various stages of the project and engineering development cycle. as shown on slide A of the presentation. The growth and momentum across our business is visible and tangible. Third quarter, we delivered the first basic engineering package, or VEP, for Project Dragon, and integrated gas fermentation to sustainable aviation fuel plants in the UK. We anticipate that the front-end engineering design or feed of this alcohol-to-jet portion of the project will be completed this month, driving continued engineering services revenue through the fourth quarter and into next year. Globally, new material circulatory policies and corporate commitments are driving customers to seek recycling solutions such as Lansatex that keep materials in use and out of landfill. With an estimated 450 million tons of carbon embedded in chemicals, and materials annually, we have an urgent need to deploy our scalable recycling technology globally to enable a circular carbon economy. The apparel industry, which generates 92 million tons of global textile waste annually, represents an area of particular interest to Lancetec and our customers. New end-of-life product legislation in the EU and beyond, such as extended producer responsibility and public disclosure of unsold products discarded, is putting pressure on producers to pursue material recovery technology. It remains evident that our early mover advantage and our demonstrable experience in processing solid waste for conversion to chemicals have led to additional partnerships beyond our long-standing partnership with Sekisui in Japan and continue to bolster our project pipeline. While we are advancing early-stage engineering work on several commercial-scale municipal solid waste projects with Sekisui in Japan, We are developing additional commercial-scale solid waste projects across a diverse geography base, including Europe, the Middle East, and North America. We have recently hit major development milestones across all of these projects that serve as an important component of our go-forward financial momentum. For the Next Chem Roma project, we completed basic engineering and are commencing the feed stage for 64,000 tons per year waste to ethanol facility. A second Next Chem waste to ethanol project in Italy is now moving through the early stages of engineering. In the United Arab Emirates, our work with Tadweer, the Abu Dhabi Waste Management Company is progressing with an ongoing feasibility study for an integrated solid waste to sustainable aviation fuel project. In the United States, a commercial project basic engineering package is under execution with multinational tire companies to utilize waste products such as end-of-life tires and municipal solid waste, providing an innovative solution for a market where there are approximately one billion end-of-life tires generated per year. All these projects will continue to contribute to the top line in the form of engineering services revenue through the fourth quarter and into 2024. In parallel, we advanced several projects utilizing industrial off-gas feedstocks. We completed a feasibility study for integration into a steel facility with JSW, one of India's largest business conglomerates, and the largest steel manufacturer. We are also working with Jindal Steel and Power Limited, or JSPL, an Indian steel company under the Jindal Group and the third largest private steel producer in India. JSPL has received around $20 million through grants available in India for commercial projects for the deployment of our technology in one of their steel mills. Turning now carbon smart and various applications for ethanol within the transportation sector from road to aviation to marine fuels. These fuel opportunities unlock significant markets commensurate with the volumes of commercial ethanol we have available. We have been following closely the policy developments on recycled carbon fuels, and as we assess the fuel markets in Europe, we have been slower than expected progress on the policy and fuel certification front. Technical specification of fuel requirements are yet to be clarified and approvals by the European Commission to accredited certification bodies for the certification of recycled carbon fuels for sales within the EU has been delayed. But once approvals are granted and the technical details are outlined, we expect to progress on fuel certification for sales in Europe, wherein increasing numbers of EU member states have included this new fuel category in their national regulations. Certification and approvals will support significant new markets for carbon smart ethanol. We see enormous opportunities for ethanol to be utilized to help the shipping industry achieve its goal of reducing its greenhouse gas emissions by at least 50% by 2050, and are developing a go-to-market strategy with potential customers for the use of ethanol in the marine sector, where global demand for marine fuels is expected to reach 15.8 million tons in 2030. We're encouraged by recent announcements by Wärtsilä, a leading marine-time transportation proportional company, and Ryzen, the world's largest producer of sugarcane ethanol, to conduct tests on dual-engine vessels with both traditional marine-time fuel and with ethanol. Currently being produced at scale on a global basis, ethanol has the potential to supplement methanol as a second-generation fuel to help meet the industry's emissions reduction goals. Turning now to sustainable aviation fuel, the Lancet Freedom Pines facility is expected to begin operations in early 2024. As you can see on slide six of the presentation, once operational, This plant will be the world's first alcohol-to-jet SAF facility and will produce approximately 10 million gallons of sustainable fuels per year, 9 million gallons of SAF, and 1 million gallons of renewable diesel. Together with Project Dragon in the UK, this represents significant progress in the production of SAF. We're encouraged by the incredible demand pool that the marine and aviation sectors provide for our ethanol production facilities, which can deliver fuel without impacting land, water, or food resources. Recently, our EU entity completed EU REACH registration for our ethanol, which allows us to produce and import ethanol or finished products containing ethanol. Additionally, we do believe that having third-party sustainability audits and certification is critical to doing business and allows us to become a reliable supplier of sustainable carbon smart products to brands. To this end, we continue to work with Roundtable and Sustainable Biomaterials, a robust and credible sustainability framework for third-party certification at our commercial facilities. In addition, this quarter, two of our commercial facilities in China achieved ISCC Corsia and ISCC Plus certification. This ISCC Plus certification is well recognized in the chemicals market as a voluntary sustainability certification. And the ICC Corsia certification has been approved by the International Civil Aviation Organization and positions our existing Chinese facilities as potential suppliers of ethanol feedstock into the regulated SAF market. Transparency on sustainability and working with credible third parties is important as we continuously improve our technology and scale. Thanks to feedback from various market touchpoints over the last several months, I'm pleased to share that you can now find details of our lifecycle for some of our products on our website. Let's transition now to CarbonSmart materials, which you can see outlined on slide 9 of the presentation. Crabhoppers, a British performance wear brand, released a collection of performance fleeces made from polyester fibers derived from carbon smart ethanol and remain in active discussions for additional commercial product launches with our carbon smart ethanol products. We also recently announced our partnership with Dow to sell surfactants made from carbon emissions. Surfactants are an important chemical compound found in everyday products like shampoos, detergents, and soaps. Through this partnership, we have an entry to a wide market of many end users who already work with Dow as part of their supply chain. Lancetec continues to sell to other interesting customers in the surfactants business, including long-term partner Mibel. In 2024, we estimate detergent sales in the carbon smart business of around $1 million, a number we expect to grow significantly over the next four years. We are building an ecosystem with brand leaders for transforming sustainable raw materials into products. With Carbon Smart as an enabler and trusted third-party certifiers as validators, we are giving consumers a choice about which products they use in their everyday life. We are seeing Carbon Smart brand partners planning multiple corrections rather than pursuing a one-time demonstration collections with materials made from recycled carbon. Not simply a marketing ploy, these first Carbon Smart products are the first step towards validating supply chains that do not require virgin fossil carbon. Building on these successes to date, as well as the recent certifications achieved, we continue to anticipate planned commercial campaigns from existing and new brand partners across various consumer product verticals in the fourth quarter and through 2024. We are proud of CarbonSmart's growing position as a decarbonization enabler across industries and economies, and we're looking forward to continuing growth and expansion of the business. In addition to the successes that we've achieved this quarter, we advance a number of initiatives to ensure our process competitiveness. We continued our work at the Suncor demonstration facility in Canada to produce a key new product strain making isopropyl alcohol, or IPA, at scale. This high-value chemical is commonly used as a chemical intermediate or in sanitizers. IPA commands a large market of approximately $3 billion annually, a market which today is almost exclusively met by virgin fossil-based products. IPA can also be used as a feedstock for the production of polypropylene, a chemical with an annual market size of approximately $123 billion, and that is also nearly exclusively produced with virgin fossil inputs. Polypropylene is a key polymer used for medical devices, including syringes and IV bags, as well as for large-scale applications in automotive furniture, textiles, and other everyday products. We're currently negotiating our first commercial IPA production license so we can move quickly into the commercialization of our first non-ethanol-producing microbes. Additionally, we surpassed our critical intermediate milestones for the direct microbial production of monoethylene glycol, or MEG, a key ingredient in polyester fibers and PET bottles. We have now produced MEG directly from real-world syngas derived from non-recyclable solid waste. Lancetec has partnered with Mentec Waste Management and Lululemon, receiving financial support from the U.S. Department of Energy for upscaling of non-recyclable solid waste to MEG via gasification of the waste to syngas and then production of MEG via microbial fermentation of the waste-derived syngas. In the race to become cost-competitive with conventional fossil, the direct production of MEG turns a four-step process into one step, further decreasing energy consumption and eliminates substantial water and chemical use associated with that four-step conversion. Our cross-team collaboration demonstrates the ability to turn waste plastics or apparel to have reached end-of-life directly back into the key building blocks for plastics and polyester. Circular MEG for production of plastics or polyester fibers is gaining interest from many consumer brands, such as Danone, with whom we have collaborated on this new microbial bio-calculator. Overall, our science team's goal is to develop new commercial strains for the direct production of different industrially relevant molecules. To that end, the synthetic biology team has recently decreased the time it takes us to produce new strains. which has traditionally been a bottleneck in our new product development pipeline. This process improvement is enabling the acceleration of the prototyping and testing of new products, reducing strength. Additionally, we have also been developing the capability to produce single-cell protein as a primary product from our gas fermentation platform. Lastly, and most importantly in the third quarter, we are proud to have zero lost stem injuries and zero recordable injuries once again. This important achievement reflects safe execution across our operations, including our offices, laboratories, as well as global commercial scale plans. This high standard of safety remains at the forefront of everything we do. With that, I'll turn the call over to Jeff to provide details on our financial performance. Jeff, please go ahead.