LanzaTech Global, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 15, 2023. LanzaTech develops gas-fermentation technology that turns waste carbon into fuels and chemicals, and earns revenue from engineering, licensing, research and development, and product sales. Its February 8, 2023 business combination with AMCI was accounted for as a reverse recapitalization; prior-period results reflect Legacy LanzaTech.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $9.6 million | $7.9 million; up 23% |
| Gross profit / margin | $1.9 million / 19.2% | $2.0 million / 25.8% |
| Operating loss | $32.5 million | $16.5 million |
| Net loss | $63.3 million | $16.8 million |
| Net loss per common share | $0.58 | $2.85; share counts differ substantially after recapitalization |
| Adjusted EBITDA (non-GAAP) | $(27.6) million | $(14.8) million |
| Cash used in operations | $33.8 million | $18.1 million |
| Cash, cash equivalents and restricted cash | $145.8 million | $83.7 million at December 31, 2022 |
| U.S. Treasury debt investments | $49.1 million | None at December 31, 2022 |
Revenue growth came mainly from engineering and other services and joint development agreements. Recurring revenue, as defined by the company, fell 16% to $0.8 million; one-time revenue rose 28% to $8.9 million. Cost of revenue increased 34%, faster than revenue, and gross profit declined 8%. R&D expense rose 32% to $16.3 million; SG&A rose 232% to $16.8 million.
Cash and Treasury investments totaled approximately $194.2 million at quarter-end. The company reported no conventional outstanding debt, but had a $19.4 million Brookfield SAFE liability and a $7.0 million Fixed Maturity Consideration liability. Operating cash use was offset by $206.5 million of financing cash flow, principally Business Combination and PIPE proceeds; investing cash use was $110.6 million, including the $60.1 million forward-purchase prepayment and $49.1 million of Treasury purchases. Management stated that available cash was expected to fund operations for at least 12 months from the filing date.
Material changes and unusual items
- Q1 net loss widened by $46.5 million year over year. Other expense was $30.2 million, versus $0.03 million a year earlier, primarily reflecting about $51.6 million of expense associated with the Forward Purchase Agreement and its related transaction costs, partly offset by approximately $21.0 million of gains from fair-value changes in SAFE and warrant liabilities.
- SG&A included significant business-combination-related professional fees, employee transition costs, and stock compensation. The quarter also included $2.7 million of compensation expense from restricted shares vesting at the transaction closing and a $7.7 million cash payment to repurchase shares for related payroll taxes.
- The business combination and PIPE generated $213.4 million of cash proceeds before other transaction and forward-purchase effects. Preferred shares converted into common shares, and the company had 195.5 million common shares outstanding at March 31, 2023.
- The Forward Purchase Agreement involves 5.9 million shares purchased using $60.1 million of trust proceeds, with a three-year term and additional maturity and share consideration. The purchaser may accelerate maturity if the share price is below $3 for 50 of 60 consecutive trading days or if the company is delisted. The filing warns that payment obligations could exceed available funds and that a default could have material adverse consequences.
- Management reported three commercial-scale waste-gas-to-ethanol plants operating in China, versus two a year earlier. Reported cumulative capacity additions increased to 150,000 tonnes per annum from 90,000; new additions were 60,000 tonnes per annum.
Outlook, risks and contingencies
No quantified revenue, profit, or cash-flow guidance is provided. Management expects continued losses until the technology is sufficiently commercialized, and anticipates increased R&D spending and business-development and public-company costs. It says existing liquidity should cover at least the next 12 months, while cautioning that assumptions could prove incorrect and future financing may be needed. Additional equity financing could dilute shareholders; debt financing could add fixed obligations and restrictions.
Key risks include commercialization and project execution, financing needs, partner relationships, availability of low-carbon incentives, customer concentration, and the complex valuation and payment terms of the Forward Purchase Agreement and SAFE instruments. Three customers each accounted for at least 10% of quarterly revenue; the largest represented 30%. About 62% of revenue came from customers outside the United States. The company reported no reasonably possible or probable material litigation losses and no material change to its previously disclosed risk factors. Management concluded disclosure controls were effective as of March 31, 2023.
Subsequent to quarter-end, LanzaTech funded its committed $5.5 million purchase of LanzaJet subordinated secured notes on May 1, 2023. On May 13, it amended the Shortfall Warrants so they qualified for equity classification; the change is to be reflected in Q2.
Important facts for investors to verify
- Whether revenue growth can translate into improved gross margins and more recurring licensing revenue, given the decline in recurring revenue and gross margin.
- The cash-burn trajectory and whether the stated 12-month liquidity outlook remains achievable as commercialization and R&D spending continue.
- The Forward Purchase Agreement’s full cash and share obligations, early-termination mechanics, potential acceleration triggers, and exposure to default or dilution.
- How much of the large quarterly net loss reflects non-cash fair-value changes and transaction-related costs, and how the company’s non-GAAP Adjusted EBITDA reconciles to cash needs.
- Customer concentration, project milestones, planned capacity additions, and the timing and economics of commercial deployments.
- Potential dilution from warrants, options, the Brookfield SAFE, and other equity-linked instruments; also verify the Q2 accounting impact of the Shortfall Warrant amendment.