LanzaTech Global, Inc.

Good day and welcome to the Lanza Tech Global Inc. Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the Start key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the Start 1 on your touch-tone phone. To withdraw your question, please press the Start 2. Please note, this event is being recorded. I would now like to turn the conference over to Omar El-Shakali, Vice President, Corporate Development. Please go ahead, sir.

Good morning, and thank you for joining us for Lanzatec Global Inc.' 's fourth 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 Truckenbrode. Earlier this morning, we issued a press release with our fourth quarter and full year 2023 financial and operating results, as well as an investor presentation summarizing the company's performance and key operational highlights. Subsequent to this call, we intend to file with the SEC our annual report on Form 10-K for the fiscal year ending December 31, 2023. 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. 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 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 and outlining our 2024 objectives. Jeff will then review in greater detail our financial results, 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 joining us today. We appreciate your ongoing interest in and support of Lanza Tech as we host our first year-end earnings call and fourth call since becoming a public company just over a year ago. Starting with slide five, we had a strong year of growth overall, and as compared to 2022, increased our revenue by 68%. As discussed in our third quarter earnings call, we had a very strong quarter over quarter growth through the first three quarters of 2023, and we're proceeding on track to achieve the low end of our guidance. However, while fourth quarter revenue increased significantly year over year by 77% to $20.5 million, this was meaningfully below our expectations. As a result, our full year revenue of $62.6 million was well below the $80 to $100 million full-year guidance that we provided last year, as several material opportunities identified as fourth quarter revenue drivers failed to materialize. Weaker-than-anticipated fourth quarter results were primarily driven by carbon smart opportunities that did not materialize during the quarter. It is important to note that the issues were not demand-driven, which remains robust for our carbon smart products. Rather, the challenges we faced late in the quarter were related to availability of off-tech supply of carbon smart ethanol from our various licensees for three main reasons. One, there were some facilities that were somewhat delayed in coming online in 2023 compared to our early and mid-year expectations. Two, policy requirements for fuels are still not finalized at the European level. leading to delays on how to certify our ethanol as fuel for sale in the European Union. And three, without clear commitments, we did not inventory significant supply and were unable to satisfy several carbon smart orders that came in late in the quarter as our licensees had already committed those volumes to others. We are taking key steps to address each of these challenges head on. First, We're supporting our partners through the certification process. And second, we are negotiating committed offtake supply agreements with our partners in China and Europe to satisfy the growing carbon smart demand in 2024 and 2025. While adjusted EBITDA loss for 2023 was below our goal at $80.1 million, we showed quarter-over-quarter improvement throughout the year as a result of our increased focus on improving gross margin and controlling operating expenses. This cost control discipline will continue through 2024. We ended 2023 with $121.4 million of cash on hand, including cash, restricted cash, and investments, which we believe provides sufficient runway for more than 15 months. We are disappointed by the shortfall versus our guidance and accountability for performance must start at the top. Therefore, we are addressing this underperformance head on with several organizational changes and corrective actions. We must deliver relative to our targets and we're taking actions to ensure we are demonstrating this core principle. I would highlight three specific actions we have taken as you can see on slides six through eight. First, this morning we're announcing a significant reorganization of our management team. The goal of this reorganization is to drive greater accountability, as well as operational transparency and efficiency, ultimately enhancing execution throughout the company. Dr. Steven Standing, Lancetec's chief commercial officer, has elected to retire, and Carol Wolf, Lancetec's chief operating officer, will be departing the company to pursue other opportunities. We would like to thank each of them for their many contributions to the company and wish them well. These departures, together with some additional restructuring of the executive team, have reduced the size of the go-forward executive team by 33%. Ms. Aura Cuellar, our EVP of Growth and Strategic Projects, has been named president of Lancetec. In this new role, Aura will be responsible for all revenue generating business lines, and engineering work, in addition to continuing to lead our strategic projects group. Bringing all revenue under our stewardship will create synergies and ensure accountability across all three parts of our business. Having a single point of responsibility for all revenue sources, as well as our engineering team, will ensure focus and prioritization across all commercial activities. Dr. Zahra Summers, our Chief Science Officer, will be additionally responsible for our scale-up and product manufacturing team. Dr. Robert Conrado has been named Chief Technology Officer. In addition to continuing to lead technology development of the front-end engineering design, Rob will now have responsibility for all process infrastructure technology. Consolidating all departments under Zahra and Rob's respective leadership will also drive efficiencies. Bringing science and synthetic biology leadership under the same roof with product manufacturing will improve commercial product viability. Our scientific computing capabilities create the ability to leverage the extensive generative AI informatics infrastructure and machine learning capabilities built within Landsat for a synthetic biology world across the businesses to increase efficiency in our scale-up, engineering, workforce, and business processes. Second, together with the management reorganization, we executed a plan eliminating a variety of additional roles based on reprioritization of work and poor performance. Collectively, we expect these actions to reduce our annualized operating expenses by $5.3 million, which we expect to result in approximately 4.2 million in annual cash savings. This will also reduce our headcount by approximately 5%. We intend to end the year with a global headcount below 400 people as compared to the approximately 415 people at the end of 2023. We are also implementing a plan in the first half of the year to offset over 10 million in additional cash burn annually and we will continuously review the organization and our strategic growth initiatives to ensure our team is balanced between our need to drive sustainable, profitable growth and innovation. We believe these changes position the organization for long-term commercial success and to deliver on our targeted KPIs and strategic priorities. Third, We cut the targeted 2023 cash bonus payouts for the executive and management teams, myself included, by 80%, which in the aggregate represented approximately $3 million in cash savings. This component of compensation for the executive and management team is tied entirely to company performance and accounts for a significant portion of leadership's total target cash compensation. This action reinforces our alignment between compensation and performance and evidences our pay for performance culture. Together, we expect these actions to improve and streamline our execution while also reducing a cost structure consistent with our sharp focus on balance sheet health. Right-sizing the organization and the headcount optimization will ensure focus on commercial growth in our core businesses And the cash bonus decisions will send a clear message to management that we are focused on delivering financial results. Turning now to slide nine, I want to recap our other execution priorities from last year and highlight that 2023 was a milestone year for Lancetec, marking our 18th in operation. That's a testament to our diligence, patience, resilience, and perseverance. of our team, as well as the difficulty associated with scaling and commercializing a disruptive process technology. In 2023, together with our partners, we started up three commercial scale plans, bringing the total number of operating commercial land-to-tech plants to six. The total installed nameplate production capacity across our licensees operating fleet is approximately 310,000 tons per year of ethanol, with the ability to abate more than half a million tons per year of carbon that would otherwise enter our atmosphere. The four commercial plants in China are operational, and we expect that Indian Oil's facility in India, as well as Arsenal Middle's facility in Belgium, will continue to ramp up to full capacity over the course of 2024. The Indian oil facility started up in September 2023, and the team in India is working diligently to ramp up production. As is normal with a new commercial feedstock, refinery off gas in this case, the startup phase can be elongated, but we are confident that successful full-scale operations will be achieved in the coming months. Our solar middles plant started up in November 2023. The steel mill shut down at the end of the year for planned routine maintenance, and the mill is now back in operation, and the team in Belgium has restarted operations with a ramp-up of production expected over the next two quarters. In mid-January, Landsat Jet is celebrating the opening of the world's first ethanol-to-sustainable aviation fuel facility at its 10-million-gallon-per-year plant in Soperton, Georgia, as seen on slide 10. The SAF plant is expected to ramp up production over the first half of the year, having the ability to produce up to 90% sustainable aviation fuel and 10% renewable diesel from ethanol. Landsat X ethanol serves as a feedstock for SAF, and when coupled with Landsat X technology, enables production of SAF from a variety of waste inputs and residues, including municipal solid waste and carbon dioxide plus hydrogen. The latter is commonly referred to as e-fuels or power to X. While we currently have an approximate 25% ownership in LanzaJet, the completion of this facility also represents a significant milestone for LanzaJet's ownership in LanzaJet as it is expected to prompt our co-investors and others to take licenses to build their own alcohol-to-jet plants, which in turn triggers the issuance of additional land-to-hip shares to land-to-peck. Looking now at safety, one of our core values, I do want to acknowledge that we experienced a singular recordable loss and injury during the fourth quarter, the first such incident since November 2018. This was the only recordable incident in all of 2023 across our global operations and was a result of the lab-related incident that occurred while moving equipment. The employee made a complete recovery from the injury and returned to work quickly. We have addressed the root cause of the incident and remain vigilant in ensuring the safety of all employees and stakeholders. Lastly, from a process competitiveness standpoint, at the Suncoast facility in Canada, we demonstrated at scale the production of the key new proprietary bacterium production strain capable of making isopropyl alcohol, or IPA. IPA commands a large market of approximately $3 billion annually and can be utilized as a feedstock for the production of polypropylene, which has an annual market size of approximately $123 billion. This process is now ready to license and we expect to do so in 2024. Additionally, our strain engineering and fermentation optimization work on the direct microbial production of monoethylene glycol, or MEG, a chemical with an annual market size of approximately $25 billion, and a key ingredient in the production of PET fibers and bottles, continued successfully as our science team's overall goal is to develop new commercial strains for the direct production of high-value, industrially relevant molecules. Moving to slide 12, we outline our strategic priorities for 2024, which are safety, commercial growth, and path to profitability. First and foremost, safety. We're a safety-first organization and will continue to strive for excellence and zero safety incidents. Second, commercial growth. Even against the somewhat difficult macro backdrop and challenging safe cycles, our market opportunity remains outstanding and we're committed to accelerating our growth by adding and advancing projects through our commercial pipeline. As we progress projects and ultimately bring more plans online, we will further expand our base of long-lived, high-margin recurring revenues from royalties, the sale of microbes and media, and other services. On slide 13, you will see our current project pipeline funnel. Since our last update, we added several opportunities to the top of the funnel, and we saw five net additions to the early stage engineering phase, either through advancement from the TA stage or from projects already in early engineering. Licensing is hard and dependent on the decision cycles of our licensees, and many organizations around the globe have leaned away from next-generation work in this macroeconomic environment. However, we continue to add to our backlog and are encouraged by the diversity of the pipeline, including the diversity of feedstocks, the variety of technical integration, and the geographic breadth. With regard to diversity of feedstock in the pipeline, industrial off-gas and gasified solids make up approximately 42% and 38% of our opportunities, respectively. with other feedstocks, including carbon dioxide plus hydrogen, representing the remaining 20%. The feedstock diversity shows the extensive reach of our technology as a distributed decarbonization solution that is fit for purpose. Related to technical integration, we have seen tremendous global interest in SAF. This is unsurprising, given the enormous market opportunity. Approximately 100 billion gallons of SAF is needed to meet the world's fuel needs, while the current annual production capacity of SAF only stands at approximately 120 million gallons. We have several opportunities in the pipeline that focus on an integrated solution to take waste gas through SAF by pairing Lantotex gas fermentation technology with the Lantotex alcohol-to-jet process. The ramifications of this are enormous as it unlocks the use of locally advantaged feedstocks to enable regional domestic production of SAF at industrial scale without negatively impacting the food supply chain. Specifically, we have four integrated waste to SAF projects in early stage or advanced engineering stages, including a project in New Zealand with Air New Zealand and the New Zealand government to take predominantly gasified forestry residues through the SAF. Our project with Tadweer in Abu Dhabi to take gasified solids through the SAF, our project Dragon in the UK to take industrial off-gas through the SAF, and our project to take gasified solids through SAF in Australia. There is significant feedstock advantage in the alcohol-to-jack technology, and our ability to produce ethanol from multiple waste sources is a clear differentiator, further supported by several sub-mandates for power-to-ex-fuels, in regions like the European Union to create a distinct market from fuels produced from CO2. Geographically, we are seeing regional bubbles of projects forming with strong partners that are focused on decarbonization. These partners are leading the way in their respective regions, like the Middle East with partners like ADNOC and Terweer, and in Saudi Arabia through a partnership with Olyan, as well as in India with partners like Indian Oil Corporation and Gale. Overall, the buy-in we're securing amongst these leading organizations establishes strong regional footholds, allowing us to focus our resources regionally and capture large local markets. We expect that engineering services revenue will be bolstered by several projects this year, including our project with Ed Weir, our work with ADNOC for a prospective carbon dioxide plus hydrogen project, also in Abu Dhabi, our work across a couple of commercial gasified MSW projects with Sekisui in Japan, as well as from several projects in India. Additionally, we anticipate revenues from sales of equipment packages to materialize from several projects beginning construction in the second half of the year. In addition to the significant depth of our commercial licensing pipeline, we anticipate transferring our first project to our infrastructure capital partner, Brookfield, this year, while ramping up development of additional projects for them. Additionally, we're actively developing a pipeline of project opportunities with our partner, Olyan, in Saudi Arabia and the broader Middle East. Overall, the health of our commercial project pipeline remains strong, and we are progressing these opportunities through the development process, setting us up for the next crop of projects to be placed into service in the near future. In our carbon smart business, we remain focused on sales into the global chemicals market. For our chemicals customers, third-party sustainability certification is important, and we can provide ethanol for downstream applications that comes from roundtable and sustainable biomaterials or international sustainability and carbon certification certified facilities. We are optimistic about selling carbon smart ethanol into the low-carbon fuels market, specifically in the EU, once regulations have settled at the European Commission on how these first-of-the-kind fuels are treated. Positive technical guidance continues to be provided by the Commission, but is not yet final. Additionally, approvals on the certification bodies who can officially certify recycled carbon fuels for the road, air, or marine markets in the EU are still pending. We are following this rulemaking closely and see significant upside potential for our carbon smart business as the regulatory environment firms and certifications are finalized. Third, path to profitability. We are focused on developing high quality revenue streams that will continue to expand their gross margin while maintaining a disciplined eye on operating costs. The recent reorganization of the business demonstrates our commitment to achieving the goal of sustained long-term profitability and will strengthen our focus, prioritization, and execution of high quality revenue opportunities. Our leadership team remains committed to smart growth and right-sizing the business to achieve success no matter the challenges we face. We are motivated by the importance of our work and significant progress we have made to date. We're focused on our core business and delivering upon the key strategic priorities that laid out for this year. With that, I'll turn the call over to Jeff to provide details on our financial performance. Jeff, please go ahead.