LanzaTech Global, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are in U.S. dollars, millions unless otherwise noted. The February 2023 business combination was accounted for as a reverse recapitalization, with Legacy LanzaTech as accounting predecessor.
Business context and performance
LanzaTech develops gas-fermentation technology that converts waste carbon into chemicals and fuels. It earns revenue from engineering and other services, licensing, research and development contracts, and CarbonSmart product sales. Partners operated three commercial-scale waste-gas-to-ethanol plants in China at June 30, 2023, versus two a year earlier. Reported installed capacity, including customers and cost-method investees, increased to 150,000 tonnes per annum from 90,000.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $12.9 | $9.9 | $22.6 | $17.7 |
| Gross profit | $2.1 | $2.4 | $3.9 | $4.5 |
| Operating loss | $(30.6) | $(19.1) | $(63.1) | $(35.6) |
| Net loss | $(26.8) | $(15.9) | $(90.1) | $(32.7) |
| Adjusted EBITDA (non-GAAP) | $(23.8) | $(17.9) | $(47.3) | $(32.6) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(59.1) | $(42.5) |
Revenue grew 31% in Q2 and 27% for the first half, led mainly by engineering and other services. Gross margin declined to approximately 16% in Q2 from 25% and to 17% for the first half from 25%, as cost of revenue rose faster than revenue. R&D increased 43% in Q2 and 37% year to date; SG&A increased 74% and 140%, respectively, reflecting growth investment, stock compensation, public-company costs and, for the first half, business-combination-related costs.
Q2 net loss included $3.7 million of total other income, while first-half results included $26.5 million of total other expense. The first-half figure was substantially affected by fair-value accounting for the Forward Purchase Agreement (FPA), warrant and SAFE liabilities; it should not be read as solely operating performance.
Liquidity, capital and cash flow
- At June 30, cash and cash equivalents were $110.7 million, restricted cash was $0.7 million, and short-term U.S. Treasury investments were $49.7 million. Treasury securities mature within one year.
- Six-month operating cash use was $59.1 million. Investing cash use was $120.0 million, including the $60.1 million FPA prepayment, $49.1 million of Treasury purchases, $5.3 million of capital expenditures and a $5.2 million loan to LanzaJet. Financing provided $206.8 million, principally from the business combination and PIPE.
- The company reported $90.7 million of total liabilities, including a $34.2 million Brookfield SAFE liability and $6.7 million of FPA Fixed Maturity Consideration. Management said it had no conventional outstanding debt, but these instruments are liabilities for accounting purposes. The SAFE had not converted by quarter-end.
- Management projects available liquidity will cover needs for at least 12 months from the report date, while cautioning that assumptions could prove incorrect and additional financing may be needed. Accumulated deficit was $787.9 million.
Outlook, material items and risks
Management expects continuing losses until the technology is sufficiently commercialized. Near-term revenue drivers cited include engineering services and equipment packages on committed and contracted projects, and CarbonSmart campaigns and expanded offtake supply. The filing gives no quantified revenue, earnings or cash-flow guidance.
The FPA includes a three-year maturity structure, potential early termination and possible acceleration under specified share-price or delisting conditions. The company may owe maturity and share consideration; management warns it may not have sufficient funds or authorized shares to meet those obligations, and a default could have material consequences. The related derivative and liability values rely on Level 3 estimates and stock-price assumptions.
Customer concentration is significant: the largest customer represented 42% of first-half revenue, compared with 14% in the first half of 2022; the filing identifies this as a risk. Revenue is also geographically concentrated outside the U.S. (75% of first-half 2023 revenue). Other risks include ongoing cash burn, financing and dilution needs, commercialization and partner execution, and foreign currency exposure. No material pending litigation losses were reported. Disclosure controls were assessed as effective at June 30, 2023.
Most important facts for investors to verify
- Whether revenue growth converts into improved gross margins and recurring licensing or product revenue rather than predominantly project-based services.
- Customer concentration, including the identity, contract status and payment performance of the customer contributing 42% of first-half revenue.
- Cash-burn trajectory and management’s 12-month liquidity assessment, including the timing and use of remaining cash and Treasury investments.
- FPA maturity, termination and acceleration mechanics; potential cash or share obligations; and the valuation assumptions behind the related asset and liabilities.
- Brookfield SAFE conversion terms and potential dilution, alongside outstanding warrants and equity awards.
- Progress toward commercial deployment, installed-capacity utilization, CarbonSmart offtake availability and the delivery of contracted projects.