LanzaTech Global, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. LanzaTech develops gas-fermentation technology that converts waste carbon into chemicals and fuels; it also provides engineering, licensing and research services and sells CarbonSmart products. Five commercial-scale plants were operating by September 2023: four in China and one in India. The February 2023 business combination was accounted for as a reverse recapitalization.
Financial performance
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | 19.6 | 8.1 | 42.2 | 25.8 |
| Gross profit / margin* | 5.2 / 26.7% | 2.1 / 26.0% | 9.2 / 21.8% | 6.6 / 25.4% |
| Operating loss | (24.6) | (20.6) | (87.7) | (56.2) |
| Net loss | (25.3) | (22.3) | (115.4) | (55.0) |
| Adjusted EBITDA (non-GAAP) | (19.1) | (19.5) | (66.4) | (52.2) |
| Operating cash flow | Not provided by quarter | Not provided by quarter | (81.6) | (71.3) |
*Gross profit and margin are calculated as revenue less cost of revenue, excluding depreciation; they are derived from reported figures.
Q3 revenue rose 143%, mainly from engineering and other services as customer projects advanced, with additional growth in licensing, research and CarbonSmart products. Nine-month revenue grew 64%. Most revenue was classified by management as one-time: $18.1 million of Q3 revenue and $38.4 million for the first nine months. The nine-month net loss more than doubled, reflecting higher operating costs and $29.9 million of net other expense, including fair-value changes in financial liabilities. Q3 net loss increased 14% year over year.
- Costs and margins: Q3 cost of revenue increased 141%, broadly in line with revenue growth; management cited project activity and inflation in costs and wages. Nine-month R&D expense rose 30% to $51.8 million and SG&A rose 111% to $41.1 million, including stock compensation and business-combination-related costs. Nine-month gross margin was lower than the prior-year period.
- Liquidity: At September 30, cash and cash equivalents were $91.4 million, restricted cash $0.7 million, and held-to-maturity investments $44.8 million. Cash, cash equivalents and restricted cash increased $8.4 million from year-end 2022. Management said existing resources were expected to fund operations for at least 12 months after the report, while cautioning that assumptions could prove wrong.
- Cash flows: Nine-month investing outflow was $116.6 million, including $93.9 million of debt-security purchases and $60.1 million for the FPA, partly offset by $50.0 million of investment maturities. Financing inflow was $207.4 million, primarily from the business combination and PIPE, net of transaction expenses and other items.
- Liabilities and equity: Total liabilities were $117.9 million. The filing says the company had no outstanding conventional debt other than the Brookfield SAFE and Fixed Maturity Consideration, both presented as liabilities; the balance sheet also reports a $38.1 million FPA put-option liability. Common shares outstanding were 196.1 million at September 30.
Changes, outlook and risks
- FPA accounting revision: The company revised its treatment of the Forward Purchase Agreement, moving the $60.5 million prepayment from a previously reported derivative asset to equity and reporting related FPA obligations as non-current liabilities. It said the revision did not affect Q3 liquidity, cash flows or results, and intends to restate its March and June 2023 quarterly financial statements.
- Controls: Management concluded disclosure controls were ineffective at September 30 and identified a material weakness in internal control over financial reporting related to accounting for complex arrangements such as the FPA. Remediation was underway; the weakness was not remediated as of quarter-end.
- Management outlook: No specific numerical revenue or earnings guidance was provided. Management expects engineering services and equipment packages on committed and contracted projects to support near-term revenue, and anticipates CarbonSmart growth as more plants operate and supply becomes available. It expects continued losses until the technology is sufficiently commercialized.
- Concentration and execution risks: One customer represented 36% of Q3 revenue and 39% of nine-month revenue. Revenue is concentrated among a small number of customers, and about 75% of nine-month revenue came from outside the U.S. Management also cited financing needs, commercialization and partner execution, inflation, foreign-exchange exposure and reliance on policy incentives as risks.
- FPA exposure: The agreement includes potential maturity and share consideration payments; the filing warns the company may not have sufficient funds or authorized shares to meet obligations, and a default could have material adverse effects. Fair-value changes are sensitive to assumptions, and the FPA liabilities rely on Level 3 inputs.
- Contingencies: The company reported no reasonably possible or probable material litigation losses. It also disclosed a future headquarters lease expected to commence May 2024, with payments in 2024–2026 totaling approximately $3.3 million.
Key investor verification points
- Review the planned Q1 and Q2 2023 restatements and assess the FPA accounting revision, valuation assumptions and related controls weakness.
- Track cash burn against management’s 12-month liquidity expectation, including how much of reported liquidity is held in securities and the timing of maturities.
- Assess whether revenue growth can become recurring and profitable; distinguish engineering milestone revenue from recurring licensing and product sales.
- Monitor the largest customer’s contribution, project timing, plant commissioning and CarbonSmart offtake availability.
- Evaluate potential dilution and obligations from the Brookfield SAFE, warrants and FPA, alongside the company’s financing requirements.
- Compare GAAP net loss and cash use with management’s non-GAAP Adjusted EBITDA, which excludes significant items and is not a substitute for GAAP results.