17 Nov LanzaTech: Mitigating the Global Carbon Crisis
LanzaTech Global, Inc. (NASDAQ: LNZA) is a Carbon Capture and Transformation (CCT) company that transforms waste carbon into the chemical building blocks for consumer goods such as sustainable fuels, fabrics, and packaging that people use daily. The Company aims to reduce the need for virgin fossil fuels by challenging and striving to change how the world uses carbon.
LanzaTech Global, Inc. (NASDAQ: LNZA)
Market Cap: $878.33M; Current Share Price: 4.50 USD
Data by YCharts
The Company
LanzaTech aims to create a circular economy where carbon can be reused rather than wasted. Through technology and applications that are designed to touch multiple points of carbon use, such as converting industrial, municipal, and agricultural waste into products, developing sustainable products to change the supply chain, and having systems to reuse the waste once consumers are done with the products, the Company offers a solution to help alleviate the global carbon crisis.
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Thus, LanzaTech’s economically viable and scalable technology enables emitters to reduce their environmental impact and potentially replace materials from virgin fossil resources with recycled carbon, supporting their climate goals, meeting mandated targets, and creating a more sustainable future.
The Company’s technology platform is designed to use a variety of waste feedstocks, from waste industrial gases to biomass residues and municipal solid waste. The technology platform is designed to capitalize on the demand for sustainable fuels and chemicals, which can be used in multiple sectors such as aviation, automotive, textiles, home goods, consumer goods, and others, to address the growing preference among major companies for environmentally conscious products and manufacturing processes. This way, LanzaTech’s proven commercialized technology can enable global-scale decarbonization and initiate a circular and climate-positive carbon economy.
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LanzaTech is also developing biocatalysts and processes to produce a vast suite of additional products utilizing novel biocatalysts, including acetone and isopropanol (IPA) and critical industrial solvents used in multiple applications, including producing polymers from IPA. Products generated through the application of downstream catalytic chemistry of ethanol include SAF, sustainable diesel, ethylene, polyethylene, polyethylene terephthalate (PET), surfactants, and glycols.
The Company is continuously innovating and has gathered adequate protection for its technology and processes through a broad IP portfolio – LanzaTech currently has over 1,300 patents granted worldwide, with over 575 pending.
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The innovation and IP are supported by a diversified business model with three integrated and complementary business lines, as shown below.
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Below, we will discuss the critical rationale for covering the Company.
- Growing Addressable Market
GHG emissions are rampant in major economic areas across the globe. In Asia, the largest emitter of GHGs, approximately 10 billion metric tons of CO2 are emitted annually. In the United States, about six billion metric tons of CO2 have been emitted annually for over 30 years. In Europe, nearly five billion metric tons of CO2 are emitted annually.
There is a comprehensive plan to increase the European Union’s GHG reduction target for 2030 to at least 50% and toward 55% compared to 1990, compared to the current target of 40%. President Biden has re-committed to the Paris Agreement in the United States, pledging 50-52% GHG reductions by 2030 compared to 2005 levels. These measures have created significant opportunities for CCT companies like LanzaTech.
Alongside potential government mandates for aviation and industrial emitters, regional governments, companies, and investors have announced their emissions and waste reduction targets. For example, in March 2021, Airlines for America, the industry trade organization representing the leading U.S. airlines, affirmed the commitment of its member carriers to work to achieve net-zero carbon emissions by 2050. The carriers also committed to work toward a rapid expansion of the production and deployment of commercially viable SAF, specifically to make two billion gallons of SAF available to U.S. aircraft operators in 2030.
The upcoming demand for SAF has opened up a significant market opportunity for LanzaTech.
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Currently, LanzaTech recycles carbon to produce ethanol that can be used for Sustainable Aviation Fuel (SAF) production – the global addressable market for SAF is expected to hit 61 billion gallons per year by 2040. Ethanol can also be converted to MEG and PET, with markets worth an estimated $28 billion for MEG and $44 billion for PET packaging at the end of 2021.
The Company’s customers operate its carbon refining technology in the single-cell protein market, estimated at $16 billion in 2019, because LanzaTech’s process makes high protein biomass byproducts. Additionally, it is currently estimated that the plant-based protein market will be valued at $162 billion in 2030, making up an estimated 7.7% of the global protein market.
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The Company also has a portfolio of existing recycled carbon and soon-to-be commercialized CarbonSmart products that may have the potential to penetrate more chemical markets in the coming years as more commercial facilities begin operations. CarbonSmart is a concept where carbon waste is transformed into many products that may be used daily.
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Overall, the total market for products enabled by LanzaTech’s platform is more than $1 Trillion, and LanzaTech is well on its way to maximum benefit.
- Strong Customer Pipeline
The Company’s proven, differentiated, adaptable, proprietary platform has been validated through partnerships with industry leaders.
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Three commercial-scale facilities in China utilizing steel off-gas and ferroalloy off-gas emissions are currently operated by entities in which the Shougang Joint Venture holds a controlling interest. In addition, another commercial-scale facility in China, owned and constructed by the Shougang Joint Venture utilizing ferroalloy off-gas, is in late-stage construction and is expected to begin operations in 2023. A commercial-scale facility in Ghent, Belgium, is in the advanced stages of construction by our partner, ArcelorMittal, and is expected to start in 2023. The pilot-scale plant in Japan developed with Sekisui has been producing ethanol from gasified municipal solid waste since 2017. Construction on a next-scale 1/10th commercial-sized facility with Sekisui was completed in April 2022, and the facility has begun operations.
Additionally, a demonstration-scale facility in Alberta, Canada, with partner Suncor, utilizing waste-based feedstocks, including municipal waste and forestry residues, has produced ethanol in test runs since July 2022 and has begun entire operations. A commercial plant using refinery off-gas feedstock, owned and operated by IndianOil, recently completed construction in early 2023, and whole operations are expected later this year. Various other commercial projects are under development using refinery off-gases, industrial and biorefinery CO2, ferroalloy off-gases, gasified biomass, and gasified mixed plastic wastes.
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The Company has worked with several partners on integrating the gasification and gas fermentation processes to convert solid feedstocks to fermentation products, culminating in over 50,000 hours of pilot and demonstration scale operations on live synthesis gas (syngas) produced from gasification.
LanzaTech has attracted key market industry partners such as Mitsui, ArcelorMittal, Suncor, BASF, IndianOil, and Sinopec.
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The robust customer pipeline and relationship with illustrious customers will likely pave the way for even more projects and increased revenues for LanzaTech.
- Financial Performance
For Q2 FY23, LanzaTech reported revenues of $12.9 million, an increase of 31% compared to $9.9 million in Q2 FY22, and a quarter-over-quarter increase of 34%. Results reflect continued growth across the business, driven primarily by increases in engineering and other services revenue in the Company’s biorefining segment as projects progressed through the development pipeline.
Net loss in Q2 FY23 totaled $(26.8) million compared to net loss of $(15.9) million in Q2 FY23.
Over the last couple of years, the Company has demonstrated strong revenue growth YoY.
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For FY22, the Company reported total revenue of $37.3 million, a net loss of $(76.4) million, and Adjusted EBITDA of $(69.2) million, compared to $25.5 million, $(46.7) million, and $(44.8) million, respectively, for FY21. FY22 total revenue increased 47% year-on-year due to growth across nearly all revenue drivers, led by improved engineering and other services associated with its biorefining licensing business.
For FY23, the Company expects total revenue of between $80.0 million and $120.0 million, and the Company also expects Adjusted EBITDA for the full year 2023 of between $(65.0) million and $(55.0) million. The significant ramp in 2023 revenue reflects multiple new projects in active development and the early recurring revenue streams associated with an increasing number of commercially operating plants under licensing agreements that come online over the year.
As of June 30, 2023, LanzaTech had $161.1 million in total cash, restricted cash, and investments compared to $194.9 million at the end of Q1 FY23.
It is expected that the Company’s strong balance sheet and steadily increasing revenues will allow it to fully fund its business through to positive Adjusted EBITDA by the end of 2024.
Risks
It is important to note that the Company is exposed to certain risks. Firstly, LanzaTech competes in industries characterized by rapidly advancing technologies and a complex intellectual property landscape. It faces competition from many different sources, including companies with competitive advantages, such as more significant financial, research and development, manufacturing, personnel, and marketing resources, greater brand recognition, and more experience and expertise.
Secondly, LanzaTech’s business is subject to various international, national, and regional laws and regulations relating to producing renewable fuels, protecting the environment, and supporting the ethanol industry at large. Any material change in these laws may impact LanzaTech’s prospects.
Finally, the Company has not achieved operating profitability in any quarter since its formation. The Company’s future profitability is dependent on the solid execution and operation of each project by the respective industry partner – LanzaTech relies heavily on industry partners to affect its growth strategy and to execute its business plan. Thus, any discord with partners may affect the Company’s ability to grow its revenues.
Conclusion
LanzaTech has a promising future as it offers a unique and patented platform to transform waste carbon into the chemical building blocks for consumer goods. There is a growing addressable market for CCT companies owing to the commitment of various nations to lower GHG emissions, and LanzaTech seems well positioned to benefit from the same – especially since its technology has been validated through partnerships with reputed companies such as ArcelorMittal and Suncor.
Nevertheless, the Company has a history of operating losses and depends heavily on industry partners to execute its business strategy and growth plan. Thus, prospective investors should proceed with caution.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1843724/000162828023009618/amci-20221231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1843724/000162828023018273/lnza-20230331.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1843724/000162828023028380/lnza-20230630.htm
https://ir.lanzatech.com/static-files/c4c130ac-3d57-4693-9ef4-95008a211ec5
https://ir.lanzatech.com/static-files/d4368ff6-07ab-4dc9-aa2c-e11567b947e9
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