Q3 2024 LanzaTech Global Inc Earnings Call
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Please standby your program is about to begin.
Good day, everyone and welcome to Lindsay Teck's Global Inc's third quarter of 2024 earnings Conference call.
At this time all participants are in a listen only mode.
Later in the call there will be a question and answer session.
If you would like to ask a question. Please press the star and one on your telephone keypad.
Also today's call is being recorded and then will be standing by should you need any assistance.
And now at this time I will turn things over to Kate Walsh, Vice President of Investor Relations and tax. Please go ahead.
Kate Walsh: Good morning, and thank you for joining us for Atlanta check Global Inc's third quarter of 2024 earnings conference call on the call today I'm joined by our Board Chair and CEO, Dr. Jennifer Hogan and our CFO, Jeff talked about.
Kate Walsh: Earlier. This morning, we issued a press release with our third quarter 2024 financial and operating results as well as an investor presentation summarizing the company's performance and key operational highlights for the quarter.
Kate Walsh: Please also reference our quarterly report on Form 10-Q for the quarter ended September 32024 filed today.
Kate Walsh: Both our press release and Investor presentation can be found in the Investor Relations section of our website at Www Dot Atlanta tax Dot com.
Kate Walsh: Before we begin I'd like to direct you to the disclaimers on the front of our Investor presentation and remind you that today's call includes forward looking statements.
Kate Walsh: Any statements describing our beliefs.
Kate Walsh: Oh plans strategies expectations projections forecast 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.
Kate Walsh: 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.
Kate Walsh: Unless required by law, we assume no obligation to update publicly any forward looking statements and.
Kate Walsh: 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 a reconciliation of these non-GAAP measures to their most directly comparable GAAP measures.
Speaker Change: With that I'll turn the call over to Jennifer.
Jennifer Hogan: Thank you Kate and everyone joining us today, it's been a dynamic Newsweek and we appreciate your time and ongoing support of that share back.
Jennifer Hogan: First let's address the elephant and give them a third quarter revenue was $9 $9 million about $7 million below target. This was primarily due to two factors. One we were expecting another lens forget sublicense event that would have resulted in the issuance of the shut in.
Tranche atlantica shares to launch back in the third quarter and close to $8 million in revenue associated with that event similar to our second quarter.
Jennifer Hogan: And two while our carbon smart revenue more than doubled quarter over quarter to $2 $2 million in Q3 due.
Jennifer Hogan: Due to the market dynamics of ethanol price shouldn't be depressed in the target market for Q3 that was still significantly below our expectations for the quarter.
Jennifer Hogan: While we are actively evaluating material cost reduction opportunities across the business as well as opportunities to reallocate resources to focus on that extra related commercial activities.
Jennifer Hogan: So wanted to talk with you today about the evolution of our business model to accelerate revenues and profitability.
Jennifer Hogan: Having worked with partners like <unk>, or so of middle and Indian oil Corporation to develop and construct startup and operate fixed commercial scale bio refineries. We believe we have established and knowhow and infrastructure to develop our own commercial projects.
Speaker Change: <unk> said that has grown primarily with our licensing business model, which allows for rapid capital light scaling. It is a tough model that Leif just dependent upon the adoption in decision cycles over our licensees and often does not allow us to capture the full value of our technology.
Over the course of the past you had been evolving our business model to complement our licensing business and enhance our capability to develop and finance channel project, where we have more control over their timing and ultimate performance.
Speaker Change: And in which we expect to achieve greater economics, including greater upside for Lamb, <unk> second product and profit from these projects.
Speaker Change: This evolution can be seen in our recently announced project you can normally which is expected to reach final investment decision within six months and which we expect to be the first project to meet the guy looked without infrastructure capital partner Brookfield asset management.
Speaker Change: Committed $500 million for such lands with tech projects.
It can also be seen in the creation of a joint venture with the OEM group in the Middle East, which we expect to finance and cultivate a growing pipeline of commercial opportunities in that region.
Speaker Change: It can be seen in another project.
Drake, which I'm excited to announce today as it has reached a major milestone which should have significant positive impact on our fourth quarter financial performance and drive meaningful amount of income.
Speaker Change: For 2025, if we rapidly finalized pretty much as expected.
Comparable to our project Dragon in the U K project 30.
Speaker Change: 30 million gallon per year based ethanol to sustainable aviation fuel project that we have been developing over the last three years, which will utilize ethanol from lands at next week's to ethanol technology platform and convert it to SaaS.
Speaker Change: Kicked platform, we have completed the front end engineering and design or feed work for inside battery limits at this project and expect to reach final investment decision and fully finance the construction stage of this project in 2025.
Speaker Change: Today I'm announcing that we have entered into an exclusivity and financing commitment agreement with a new financial partner.
Speaker Change: Whereby they intend to acquire certain rights and the development of this project and the remaining capital needed to reach up.
Speaker Change: And enter into a development services agreement with <unk> for this free maintenance work.
Speaker Change: We expect to maintain significant that's right. Thank you station in this project and have already received the first $5 million in fees associated with this agreement and expect to share more about this exciting project and its potential additional impact in the 'twenty to 'twenty four 'twenty five yourselves later in the quarter as we finalize the city.
Yes.
Speaker Change: I wanted to clarify that we are not shifting to a capital intensive business model, where we're taking binary company risk on individual projects, rather we're taking more control of our own success shortening project development life cycles, and positioning ourselves for greater upside at multiple projects.
Speaker Change: By partnering with World class visionary capital partners.
Speaker Change: Early stages of project development.
Speaker Change: Securing capital for development stage projects is difficult and time consuming, especially on a project by project basis, which is why we have adopted this partnership approach with strong capital partners for <unk>.
Speaker Change: Financing the various stages of project development and securing financing partnerships upfront and then designing and developing projects to meet our partners' investment criteria.
Speaker Change: We are also continuing to expand access to ethanol volumes produced from our like to Chi by your refiners in order to grow our carbon snack business shipments margins.
Speaker Change: Today, We also announced a two stage ethanol off take agreement with Arsenal of middle or short term contract with a $6 million of annual revenue potential and a five year contract with annual commitments of 5000 to 10000 tons generating a potential $10 million to $20 million per year.
Speaker Change: This is our first long term ethanol purchase agreement, which enhances our access to product and allows carbon smart customers to make longer larger commitments, which has the potential to significantly boost our future revenues. This progress is thanks to the foundation will develop delivering carbon smart ethanol to our customers.
Speaker Change: And trading ethanol from our China plant.
Speaker Change: Now, let's talk further about why we're in a strong position for 2025 and beyond.
Speaker Change: If we look back a lens that that team has accomplished since our last earnings call. It is truly impressive and speaks to the solid foundation, we continue to build for long term growth.
Speaker Change: First on the sustainable aviation fuel trend. In addition to project to Ache, we have announced several projects in milestones, which demonstrate the ingestion labs I think ethanol produced from which to me shows just to produce staff through circle there.
Speaker Change: That is our joint offering in partnership with Lam chicken.
Speaker Change: The global market for sustainable aviation fuel produced from ethanol is experiencing significant growth and we expect the pull up of ethanol as feedstock for SaaS to grow right along with it.
Speaker Change: There are projects underway in the U K, the EU, India, Australia, and New Zealand, and we expect landscape Steven <unk> facility here in the U S producing barrel imminently.
Speaker Change: Ethanol Producing Technology would provide the critical source of feedstock for the multiple SAF projects underway leveraging Landsat's technology.
Speaker Change: During the third quarter, we also expanded the scope of our work with our New Zealand command subject to assess the use of municipal solid waste as a local feedstock for shaft production in New Zealand.
Speaker Change: after successfully completing a feasibility study for locally grown woody waste.
Speaker Change: This builds upon the work we're doing with Wagner Sustainable Fuels in Australia, our first circular project around municipal solid waste as feedstock for their planned shaft refinery at the Port of Brisbane.
Speaker Change: And, adding to a project using municipal solar waste as a feedstock to ethanol production is the master licensing agreement with Seki Suite that we signed in September to develop multiple waste-to-ethanol plants across Japan.
Speaker Change: We are in the early stages of executing this plan, but are truly excited about developing a replicable global blueprint for other countries and businesses to follow on how to access and utilize the carbon log in local garbage.
Speaker Change: Turning now to progress with industrial off-gases as a feedstock for ethanol production.
Speaker Change: Our collaboration with Aramid in Norway represents what we believe to be the first-of-a-kind integrated CCU and CCS facility designed to achieve leading-edge carbon abatement results for hard-to-abate industries.
Speaker Change: Metals, cement, chemicals, shipping, and aviation are among the hardest industrial sectors to evade, and we see a number of avenues ahead where we can leverage and replicate the work we're doing in Norway to provide profitable decarbonization solutions to other companies grappling with the same situation.
Speaker Change: As we expand our biorefining global reach, we're also expanding our platform's capabilities. In early October, we announced our ability to produce single-celled protein, a product we're calling Lambsetect Nutritional Protein.
Speaker Change: The estimated $1 trillion alternative protein market is expected to grow significantly, and our nutrient-rich product is designed to be an ideal ingredient for animal feed, pet food, and human nutrition that can be produced from CO2, oxygen, and hydrogen anywhere in the world.
Speaker Change: Our bioreactors have been producing protein as a co-product to ethanol for years, and now we have developed the capability to produce protein as the primary product.
Speaker Change: Importantly, we continue to develop partnerships with animal, pet, and human food producers to enable us to aggregate demand for the production of LAMPSA-Tech nutritional protein at commercial scale.
Speaker Change: To close, we are focused on a strong Q4 to finish the year. With nearly two months left, there's still a lot of time on the clock to execute what we have in process.
Speaker Change: Several of the largest initiatives we have in development right now have some element of timing uncertainty, which results in a large range of potential fourth quarter financial outcomes.
Those initiatives are...
Speaker Change: Project Drake, where we are finalizing agreements. Our project in Norway, where we are preparing a package for FID review by Brookfield. And Project Secure, which we announced in March of this year and is progressing well.
Speaker Change: We are working on finalizing the contracting framework with Technique Energies and the Department of Energy.
Speaker Change: Additionally, the next LancetJet sub-licensing event and the related issuance of additional shares of LancetJet to LancetTech has timing uncertainty as well.
Speaker Change: It's important to note that we expect these projects will unlock access to cash that will significantly bolster our financial liquidity.
Speaker Change: I am confident that the moves we're making with our business model will improve the certainty of development timelines as we go forward and will be accretive to our short-term and long-term business economics.
Speaker Change: We expect these moves will allow us to control more of the feedstock operations and offtake in our asset portfolio, which should increase our cash flow generation and accelerate our path to profitability. And with that, I'll turn it over to Geoff for the financial update.
Geoff: Thank you, Jennifer. Good morning, everyone, and thank you for joining us on the call. I'm going to provide some additional details associated with our results for the third quarter of 2024 and further details on our expectations for the fourth quarter.
Geoff: As Jennifer mentioned, headline revenue for the third quarter of 2024 was lighter than expected but would have been in line with expectations if the next Lands-to-Jet sub-licensing agreement had been signed in Q3 as we expected.
Geoff: For Q3, we reported $9.9 million of total revenue, which included $5.9 million of biorefining revenues, $1.8 million of revenue from joint development agreements and contract research, and $2.2 million of revenue associated with carbon smart product sales.
Geoff: Drilling down into these separate revenue categories, fire refining revenues of $5.9 million in Q3 was similar to Q2, excluding the $7.9 million related to the additional LanzaJet share consideration we received in Q2.
Geoff: As compared to Q3 of the prior year, this quarter was down $6.5 million, with the key variance item being higher engineering services revenue being reported in Q3 of 2023.
Geoff: Specifically, the engineering services associated with Project Dragon were particularly high in the third quarter of last year as that work was wrapping up. Going forward, we expect to see quarter-over-quarter uplift related to the monetization of engineering work to be done on Project Drake and other projects we have in our pipeline.
Geoff: Joint Development and Contract Research Revenue for the third quarter of 2024 was sequentially down $1 million to $1.8 million.
Geoff: As compared to $2.8 million for second quarter 2024, primarily due to the completion of a few pieces of government projects and some downtime before new projects kick off in fourth quarter, with results materializing in 2025.
Geoff: We announced the project ADAPT, government funding in October, and expect to receive at least one other government contract before the end of the year, which sets us up nicely for 2025 growth in this category.
Geoff: And for CarbonSmart, product sales revenue for the third quarter of 2024 was $2.2 million, up significantly from QQ24 of $0.9 million and in line with third quarter 2023.
Geoff: The quarter-over-quarter increase this year was driven by incremental direct-fuel product sales built upon having the right licensing structure, partners, and supply chain in place, which we announced during our 2Q24 earnings call.
Geoff: We had access to more volumes, but ethanol prices for fuels dropped in China, where we had targeted to sell these volumes, prompting us to scale back our trading activity. Going forward, we expect to have access to more volumes from our solar metals plant in Ghent, which will drive growth in our carbon-smart business for fourth quarter and beyond.
Geoff: Turning now to cost of revenue, which was $8.1 million as compared to $14.4 million for third quarter 2023 and $5.5 million for second quarter 2024.
Geoff: This was largely related to headcount allocations associated with the delivery of our biorefining services and JDA work during the third quarter of 2024 and the higher carbon smart sales.
Geoff: Gross margin was a relatively low 18% of revenue for the quarter as a function of revenue mix, including additional lower-margin carbon smart sales, and the fact that we did not realize the revenue, which was effectively 100% margin, associated with another bonds jet share issue.
Geoff: On the operating cost front, third quarter 2024 operating expenses were $34.8 million of approximately $5 million from prior year. Essentially flat as compared to second quarter 2024 and overall below budget as we have focused on controlling and reducing our costs.
Geoff: The increase year over year is driven by expenses associated with projects that we are developing with the intent of transferring them to our infrastructure capital partners later this year or early next year, at which point we expect to recoup these costs.
Geoff: And as for adjusted EBITDA, our third quarter 2024 adjusted EBITDA loss was $27.1 million as compared to third quarter 2023 adjusted EBITDA loss of $19.1 million.
Geoff: Wrapping up my remarks related to third quarter 2024, I'll give an update on our cash position. At the end of September, we had $89.1 million in cash on hand, including cash, restricted cash, and investments. This compares to $75.8 million at the end of second quarter 2024.
Geoff: The increase in our cash position quarter-over-quarter is attributable to the $40 million investment by CarbonDirect Capital we closed in August and announced on our second quarter call.
Geoff: We ended the quarter in a stronger cash position than forecasted, even on lower than expected revenues due to our focus on cost control and the fact that the forecasted revenues that we did not recognize in Q3 were not expected to have material cash flowing back to us.
Geoff: Post-September 30, we made a $10 million settlement payment to ACM, which is one of the two parties involved in the Board Purchase Agreement that was put in place in 2023.
Geoff: It was our decision to fully satisfy our obligations to ACM under the FBA in cash in order to achieve two main benefits.
Geoff: First, we reduced the number of issued and outstanding common shares, and second, we limited future downward pressure on our stock price in the event that ACM was to sell their equity position in Lancetec on the open market.
Geoff: Now I'd like to take some time and discuss our fourth quarter outlook.
Geoff: As Jennifer mentioned, we have a wide range of possible outcomes for the final four of this year.
Geoff: Potential drivers of revenue for fourth quarter 2024 include five key components. First, for the past three quarters, our current base business has generated about $10 million per quarter.
Geoff: Second, we expect our project in Norway to be in Brookfield's hands for FID evaluation soon, and we estimate that represents approximately $20 million of revenue for us upon positive FID.
Geoff: Third, Project Torhik is in a similar ballpark to our project in Norway in terms of potential cash flow and income for fourth quarter in addition to baselining revenue for 2025.
Geoff: Fourth, assuming we rapidly finalize our award contracting process for Project Secure, we forecast reporting approximately four million dollars of revenue before the end of the year.
Geoff: And finally, LanzaJet is working tirelessly on a number of sub-licensing agreements, and the successful signing of another agreement could result in additional share consideration and incremental revenue during the quarter.
Geoff: We discussed our LanzaJet sub-licensing arrangement in detail during our second quarter 2024 earnings call.
So I won't go into it as much today.
Geoff: But the potential for us to receive both the second and the third and final tranche of Lands and Jet Equity in the next several months would also be expected to result in significant revenue recognition associated with that shared consideration.
Speaker Change: With that, I'll turn the call back to Jennifer for some closing remarks before we open the call for Q&A. Jennifer?
Jennifer Hogan: Thank you, Geoff. I want to close by reiterating a few key points. First, we're happy with the progress we're making to evolve our business model and develop projects like the Aramid Collaboration in Norway and Project Drake in the EU.
Jennifer Hogan: Second, there is strong enthusiasm for alcohol-to-jet-enabled SAF projects and our waste-based low-carbon ethanol. This has led to exciting announcements with Wagner Sustainable Fuels and Air New Zealand with more anticipated.
Jennifer Hogan: Third, we remain sharply focused on commercial growth and increased product sales in tandem with disciplined cost control in order to accelerate our path to mid-term profitability and positive cash flow from our operations.
With that, let's open up the call for questions.
Speaker Change: Thank you. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2.
once again.
Speaker Change: To ask a question, please press the star and 1 on your telephone.
and Madina Saeed-Badd.
Speaker Change: We'll take our first question from Leo Mariani with Ross. Please go ahead, your line is open.
Speaker Change: I guess you guys said that you received $5 million already. So is that $5 million of revenue that's going to hit in the fourth quarter? Or is it going to be accounted for as something else? And then is that $5 million...
Speaker Change: included as part of that roughly $10 million base revenue business that you would expect or that would be additional to that?
Thank you.
Speaker Change: Hey Leo, good morning. Thanks for joining us on the call. So to address it, so Project Drake is a project we've been working on for a while. The $5 million is an exclusivity fee associated with it. We do expect it to think about it as a, effectively as a deposit or the first part of a broader payment in Q4 associated with
Speaker Change: paying for the development services packages work that we've done. So, you know, we expected we
Speaker Change: Assuming we're able to finalize the agreements, then we do expect that $5 million to be part of what will be recognized as revenue and not part of that $10 million that you quoted. We're just trying to connotate there that that's what the business has been doing.
Speaker Change: A little conservatively speaking, yeah, it's been doing a little bit better than that, you know, quarter over quarter, you know, year to date. So that's not in that 10 million. That'd be incremental to it.
Speaker Change: Okay, that's helpful. And then just wanted to jump over to the cost side here. You guys have talked a lot about cost savings initiatives, you know, for quite some time.
Speaker Change: the numbers or maybe they were going to be higher than you reported and now there's sort of less growth, I guess, in the cost. So I'm just trying to understand that and, you know, how do you think cost evolves as you roll into, you know, fourth quarter into next year?
Speaker Change: Thank you for the question, Leo. What is happening is, as you know, Project Drake and also Project XLXS, we are delivering those projects to FID and then they are transferred or sold, if you will.
Speaker Change: Because we're doing all the work now, we're doing, we're expensing all of that cost now.
Speaker Change: That includes external dollars, because as you know, to get to FID, we also have to do feed package with external contractors.
applications permitting all of these things for environmental issues.
Speaker Change: There is an awful lot of work, internal and external, that is required to get a project to FID. All of those expenses are being booked right now. And then when the projects, both Drake and Exelexis, the Norwegian project, get transferred, we will be in a position to simply recoup all those costs.
Jess, do you want to add something to that?
Jess: Yeah, I would just say that with that, and Jennifer's absolutely right, that that has driven a significant component of our OPEX. OPEX is fairly consistent quarter over quarter, but it is, that piece of it is...
Jess: overshadowing some of the cost reductions we've had on specific OPEX items. So we've actually reduced, you know, quarter over quarter many of our OPEX line items as well as reduced it relative to budget for the year. So we are we're driving costs down relative to what we planned at the beginning of the year and on things like, you know,
Jess: Salaries and benefits expense, you know, contractors, a variety of other things, we reduce cost quarter over quarter as well.
Speaker Change: Okay, and then just on your, you know, sort of bit of a tweak to the business model here.
Speaker Change: You talked about bringing in, you know, infrastructure partners, you know, to finance.
Speaker Change: I guess, you know, new projects, maybe accelerate some of these.
Speaker Change: Can you provide a little bit more color there, you know, is Lanza going to be putting, you know, some equity into these projects? Maybe it's a...
Speaker Change: a small amount, but maybe zero, I don't know. Just wanted to get a sense of that. And I guess maybe, you know, do you have discussions going on with multiple infrastructure partners? And presumably this is beyond Brookfield, other people other than Brookfield?
Speaker Change: That's absolutely right, Leo. As you know, a while back ago, we announced we were doing a JV with Olayan.
That JV is now completed. Olayan.
Speaker Change: As you will know, we are working with them in the Middle East, especially in the Kingdom of Saudi Arabia, that JV is completed and we are now developing projects together in that region, and you'll hear a lot more about that in the coming quarters.
Speaker Change: In addition, there are the project Drake that we're transferring is to an infrastructure type investor. And because of the fact that Brookfield is, our relationship with Brookfield is regional.
Europe, U.S., U.K.
Speaker Change: We are actually talking to multiple other infrastructure partners. The key for us
Speaker Change: in relationship to infrastructure partners is getting a project to FID.
Speaker Change: And once that happens, we have multiple folks that have committed to building them, whether they be ethanol projects or SAF projects. One of the things that a lot of our infrastructure partners are excited about is the ability to go all the way through SAF.
VLM suggests.
Speaker Change: starting with ethanol made from waste resources via the Landsatec technology. We call that integration circular, but the point is clear. It's all about the feedstock and the importance of the feedstock in building SAF projects globally, and there's lots of interest from infrastructure partners on that.
Does that address your question?
Speaker Change: Or do you need more than that? That was helpful. Thank you.
Speaker Change: Our next question comes from Geoffrey Campbell with Seaboard Research Partners. Please go ahead, your line is open. Good morning. I'd like to sort of pick up the discussion of the changed business plan here, and we'll use Norway maybe as a lens for future efforts.
Speaker Change: First, if I understand this correctly, the emitter is not contributing capital to the project, so what specific benefit is it receiving? Then second, does this suggest a template where emitters will agree to provide waste carbon, but the project is going to be financed by other parties?
Speaker Change: And then third, will the financiers retain a long-term interest in the project, or is this going to be something more similar to, say, a partnership flip type structure where the partner retains most of the cash flow up to a targeted return and then the cash flows revert to Lanzatec?
Speaker Change: Hi Geoffrey, thank you for the questions. Let me start by by saying that
Speaker Change: Part of the shift in the business model is not just taking more control by developing the projects and getting them to FID, but it is also, as you can see from the Norwegian project, we are also retaining 50% of the offtake so that we can get the revenues.
Speaker Change: that a producer would normally get, which is the upside from selling the product, the ethanol or the SAF or anything else, right? So that's an important part of this. We will...
Speaker Change: So we will be receiving those revenues in addition to our normal revenues, our Brookfield arrangement, and this is what we would do generally, is we still receive the licensing, the equipment, the engineering, and the services revenue.
Speaker Change: In the agreement with Brookfield, we have to get the project to FID and also we need to get it to the point where there is a specific return to them. If there is upside beyond that, we can potentially share in it. But it's, it's
Speaker Change: a path for us to be able not just to control the timelines, but also it is a path to expand who we work with.
Speaker Change: We have been working to date with emitters who want to build a plant. Indian oil, right? They need ethanol to blend into gasoline.
Speaker Change: They need ethanol to make SAF, and so we tend to work with these kinds of folks, our solar methyl. They will fund their own plant, but there are a lot of other emitters who want to reduce their carbon intensity but don't want to put
Speaker Change: a gas fermentation refinery at that site and pay for that because it takes them outside of the core business. And that is where our infrastructure partners have a big role to play. They enable us to work with them.
Speaker Change: even though traditionally these folks would not have been in the pipeline because we wouldn't have had the revenues. And I would just say one last thing about this.
Speaker Change: It is important to note that these relationships with infrastructure partners depend so much on the fact.
Speaker Change: that we have six commercially operating plants, we've established the credibility. These are now cookie cutter projects, right? They're not first of a kind and so that's why we have so much interest from infrastructure and of course the benefit to the emitter.
Speaker Change: as you asked initially, is the fact that they are reducing their emissions, which is something that is critically important to them.
Speaker Change: Now, that's very helpful. And I agree. I think being able to widen the...
Speaker Change: the pool of money that can go into the projects is really critical. I was curious to know what motivated ArcelorMittal to, I guess,
Thank you. Thank you.
Speaker Change: Asked for more exposure into the ethanol business, particularly, as you noted, weak ethanol pricing hurt Carbon Smart during the third quarter.
Speaker Change: Well, our store, what we've announced this quarter actually, is that we are accessing.
Speaker Change: 5,000 tons from the first year of ethanol and then 10,000 tons for the next five years. So they've always intended to sell the ethanol themselves, they've just agreed that we could take a portion of it and therefore
Speaker Change: create more upside from the value we bring than a standard license. But the last thing I would say is they've never wavered on their interest to
use their carbon to make
Speaker Change: fuels and chemicals versus use their carbon to make power. I think there's a view that just wasting carbon and power production is not the future and so they've leaned into the idea of making a product like ethanol and and beyond.
Speaker Change: Okay, and let me ask one question on a different subject. Will obtaining green hydrogen be a necessary ingredient for success in the Incipient Landsatec nutritional protein effort and whatever source of hydrogen is appropriate?
Speaker Change: Is this likely to represent a capital expense should an existing Lanza facility wish to convert to protein production?
So, first of all, the great thing about
The production of protein is...
Speaker Change: It's so energy-intensive, so water-intensive, that even if you use gray hydrogen,
Speaker Change: to use CO2 to make protein, you actually reduce the carbon intensity of the protein product. Obviously you reduce it more when you use blue and green. So we are not dependent on green hydrogen and in fact we can transition.
Speaker Change: not just low-carbon food. And Lancetec Nutritional Protein allows you to do both, not just one. Now, will there be a capital expense? The reaction would require CO2 and hydrogen.
Speaker Change: as well as a small amount of oxygen. So if you wanted to convert a plant, you would need to add some safety systems that would be different. And then if hydrogen is available, you could build out to add hydrogen, but really the expense would be minimal compared to starting from scratch.
Okay, now that's helpful. Thank you.
Speaker Change: Thank you. Our next question comes from Thomas Merrick with Johnny Montgomery. Please go ahead, your line is open.
Thomas Merrick: Good morning, team. Thanks for the time. Just wanted to follow up on a few things related to the Transfer the Norwegian project.
Thomas Merrick: Is it correct that the 20 million is, you know, a quarterly number or will some of that be spread out over multiple quarters?
Thomas Merrick: And then second part of that is what do we model for kind of free cash flow conversion of that bucket of revenue? And then finally,
Thomas Merrick: Just thinking about future projects that have transferred to infrastructure partners, you know, Brookfield or otherwise.
How do we think about...
Thomas Merrick: free cash flow conversion of those projects, and then kind of as a side to that.
Thomas Merrick: What have you learned from the first project that you want to carry forward into the future ones?
Thank you for watching!
Speaker Change: Thanks, Thomas. Great to hear from you and appreciate the question.
Rodrigo Muñoz
Speaker Change: A couple of questions in there, and so I'll try and unpack both of them. So first in terms of just the dollar amounts that we're talking about here relative to the fourth quarter, as Jennifer mentioned, there's a catch-up aspect of a recouping of cost aspect, the cost that we've incurred previously that we expect to recognize in the quarter. So those are actually kind of more the one-time – I don't want to call it a one-time, but it's kind of catching up on the retrospective expense.
Speaker Change: There is a long tail future revenue expectation associated with those projects as well as we continue to play.
Speaker Change: the kind of majority role in those projects. We'll continue to be providing development services. We'll continue to, in some cases, provide additional engineering support. We'll provide start-up services. All of our kind of traditional...
Economics associated with one of our projects as a licensor.
Speaker Change: will translate to these projects. The owner or the customer in those cases will, you know, if it's Brookfield who takes it over one of the other infrastructure partners, they will effectively be the customer. We're gonna be doing, kind of, build and operate as a service. So it does create this long tail, you know, revenue stream associated with us, but the 20 is indicative of the catch-up of the cost we've incurred, you know, to this point.
Thank you. Bye. Bye.
Speaker Change: No, I was just going to add one quick thing. You asked about replicability and why we're choosing one project to begin with, as.
Speaker Change: you know, to transfer to Brookfield. One is to learn how to transfer a project, but also we're trying to develop a platform that is replicable. A design with partners in the EPC world, in this case Floor, and in other cases Technique, that can be replicated across the world. So the amount of time it takes to get there,
Speaker Change: and the cost of getting there for us since we bear the cost until the transfer are lower. We call this a lift and shift strategy and so this first project with Brookfield, with Aramet, with Floor is something that we hope to duplicate and we have identified multiple locations and created a pipeline.
Speaker Change: where we could just literally move the same exact copy of that project somewhere else.
Project Drake is also an example of that.
This is Project Drake, represents the 30 million.
Speaker Change: Gallon Per Year Facility that we developed for Project Dragon. And it is an ethanol disaster facility and we absolutely intend to replicate that across the world in partnership with Lansing Jet. So we're very excited that we are creating a platform that can be duplicated.
Speaker Change: And it's something that, to just be specific about what have we learned, we've learned a lot associated with each of these projects that we've been developing at these pre-FID stages. And it's part of the reason, and part of what we commented in our prepared remarks about this evolution of our business model. It's given us the ability to develop these projects and continue to develop projects.
Speaker Change: led us to this conclusion that partnering with capital partners at the very earliest stages of these projects so that we're well aligned with them throughout the pre-FID stage was also an important component of this.
[inaudible]
Thanks, that's it for me.
Thank you, we will move next with Jason Gabelman.
with T.D. Cohen. Please go ahead, your line.
Morning. Thanks for taking my questions.
Speaker Change: I wanted to ask on the revenue buildup for 4Q. Given the lumpiness of the revenues quarter to quarter and the potential for things to move around, are these revenues that if you don't earn in 4Q, you expect to get in 1Q25, just so that we properly kind of calibrate our expectations on the delivery on these revenues?
Speaker Change: That's right it's it's not a question of if but a question of when and so how long it takes to do some of the transfers and and complete agreements is really what this is all about rather than a yes or a no decision on going forward.
Speaker Change: Got it. That's helpful. Thanks. And then the 10 million base business, what does that exactly represent? I'm just trying to understand how that could potentially grow over time so we have more confidence in kind of what the company can earn steady state moving forward.
Speaker Change: Yeah, thanks Jason. I think what we're trying to connotate there is that if you kind of look at the three prior quarters and the engineering services, the JD and contract research, you know, the work we've been doing kind of quarter over quarter, you know, we expect to continue and then we're adding additional revenue as things convert through the pipeline. So we talked about we had a project kind of move, you know, out of advanced engineering and into the kind of post FID construction stage. We got additional projects that we expect to move into those stages which will, you know, continue to create additional revenues while we continue to bring projects through the same stages that we've been working on. So it is really the same
Thank you.
Speaker Change: The story we've been trying to articulate previously, which is that it's about taking projects, you know, building the pipeline and converting those projects through the various stages of our pipeline. And we're excited about a couple of those projects now having, like, moved, you know, beyond advanced engineering. We think that's something that we've been telling the market and telling you that we expect it to do, you know, later this year. And so we are pleased that that is happening. But we expect more of those in 2025 and kind of creating additional associated with those.
Speaker Change: Got it. And my final question is on the ethanol offtake agreement.
Speaker Change: Just trying to understand this $6 million number, is that tied directly to ethanol prices?
Speaker Change: That $6 million is going to move around based on where ethanol prices are. And then what exactly is driving the change from the $6 million to the wider $10 to $20 million range? Is that just the offtake volumes?
Speaker Change: That's right. So we are using approximate numbers based on both ethanol trading numbers but also on our Carbon Smart business and what value we can get for that ethanol. And the only difference between that is the two numbers is
Thank you.
Speaker Change: years after that first year. And that's how we got those numbers. We intend to continue to do this.
We have been using almost a spot.
Speaker Change: timing for asking for ethanol from China that we then put into our carbon
Speaker Change: smart products. And now what we're doing is we're trying to get long term offtake commitments.
from our production facilities and in turn flip that over
Speaker Change: to offtake commitments for our CarbonSmart users. And I think that will give them certainty that they'll be able to access product as well. So it really is.
Speaker Change: us getting product and then transferring that product to other to our customers and creating more certainty and for us also creating more upside. I mean the licensing model is
Speaker Change: You leave a lot of money on the table for the value that you've generated. And while that's good because, you know, somebody else is putting the capital, we would like our business to participate more in.
Speaker Change: You know based on all the IP that we've generated. So that's why we're transitioning
Okay, great. That's really helpful, Collar. Thanks for the help.
Speaker Change: Thank you. Our next question comes from Steve Byrne with Bank of America. Please go ahead, your line is open.
Steve Byrne: Yes, thank you. I'd like to drill a little bit more into your nutritional protein product.
Steve Byrne: Is this actually a protein, or is it a series of amino acids? And I ask, are you able to...
Steve Byrne: to affect the composition of amino acids in what is produced, you know, in some cases it could really have a benefit in animal feed for certain amino acids. That's one.
The other question I had on this is...
What's the source of nitrogen for this process?
Are these bacteria able to fix...
Speaker Change: atmospheric nitrogen into organic nitrogen. And then the last one, Jennifer, your comment about, you know, the carbon footprint of animal feed is...
is very provocative. Have you done any...
Speaker Change: Life Cycle Analysis on this product and the carbon intensity of it as opposed to the carbon intensity of either animal feed or animal protein.
Speaker Change: Great, thanks Steve for the great series of questions. So let me address the last one first and then work backwards. So absolutely we have done both lifecycle and cost analysis.
Speaker Change: We do not affect the amino acid composition. There's no need to because we have all 20. We have learned how to genetically modify the organism to add vitamins and minerals.
Speaker Change: I shouldn't say vitamins and minerals. Vitamins or other beneficial products like anti-inflammatories, omega-3s, etc.
Speaker Change: that is from a genetically modified material. Our initial offering will be, as always, the non-genetically modified material that has been optimized to provide the 20 amino acids.
I would add something also quite important.
Speaker Change: In our current system, we have a lot of experience with
Nutritional Protein, because as you know today,
Speaker Change: We just, the only shift now is to say, hey, we want protein to be the primary product because the world is, you know,
Speaker Change: food versus food being a co-product. And then the last thing I would say is you asked an important question. Where does the nitrogen and the sulfur come from? Unfortunately, we don't fix nitrogen from the atmosphere. So this is still an enclosed bioreactor.
Speaker Change: and inside the bioreactor, where the water is, where the bacteria lives.
Speaker Change: We have to add vitamins and minerals, nitrogen, sulfur, etc. to help the bacteria produce those amino acids. However, net-net
Speaker Change: The economics, as well as the life cycle, are excellent and we have done some comparisons and we'll be posting more and more of these.
comparisons, but really one commercial
of Nutritional Protein, is the equivalent of
Speaker Change: of 200 million chickens per year. That is the type of impact that this nutritional protein can have and it does it without impacting water supply.
Speaker Change: because it's in an enclosed bioreactor and it doesn't have the same needs as growing plants.
So, so really the carbon intensity is tremendously lower.
Speaker Change: impact on on food is tremendous and we already have the experience having done it using using the currently byproduct of our our work producing ethanol.
Speaker Change: Interesting, can't imagine what CO2 emissions are from 200 million chickens.
Speaker Change: But also wanted to just ask you a little bit about Project Secure. What's the level of interest that you've received from from some of the polyethylene producers along the US Gulf to include one of their ethylene crackers in this project?
and and how close are you to identifying a site?
Speaker Change: So working with our partner, Technique, we have in fact identified a primary site. We're just not able to discuss it right now. There is a lot of interest and it's not so that would be interest here in the U.S. for Project Secure. But as we travel the world, many who are
Speaker Change: padcrackers in Europe and the Middle East are also quite interested in a replica
Speaker Change: of what is Project Secure. So our ability to extend and replicate that project globally is a very important part of our future plan. And I wanna add one thing because
Speaker Change: We don't talk about it enough, but I think you saw us announce with IKEA that we have been producing isopropanol.
Speaker Change: not just ethanol and we have a bacteria now that's genetically modified that co-produces ethanol and isopropanol. So you can imagine that a project secure today is making ethylene but a project secure
Speaker Change: tomorrow because our isopropanol bacteria is ready to commercialize. That project...
could produce.
isopropanol and ethanol.
Speaker Change: and then make ethylene and propylene by going over techniques, Hummingbird technology. So now we're impacting the ethylene and the propylene value chain and that is the beauty of our technology because that should not take any additional capital investment. It just takes putting in that new bacteria.
Speaker Change: So we see a path, and that's what our partners see globally, a path to making both ethylene products and propylene products and really growing their low-carbon portfolio. As far as I know today, very little non-ethylene products
Speaker Change: 100% fossil carbon propylene and polypropylene are made today, so this is game changing.
Very good. Thank you.
Speaker Change: Thank you. Our next question comes from Pavel Molkanov with Raymond James. Please go ahead. Your line is open.
Speaker Change: Thanks for taking the question. If we go to the website of Freedom Pines, there actually have not been any updates on the SAP plan since the grand opening in January, so I thought I would see if you guys can give us the latest on that facility.
Thanks, Pavel.
Speaker Change: first of all noted that we need to update the website.
Speaker Change: We have in fact started feed into the system, and we are not producing SAF right now. You'll be the first to know when we do, but right now we have started feed, so we're past the early shakedowns.
Speaker Change: part of the broader climate conversation in Washington. Just generally, what are your thoughts on what we can expect that would be directly relevant for your business next year?
Speaker Change: in the broader view, but I will address it from our business. First of all, it's great that the election is behind us because it removes uncertainty. One of the biggest problems we've had is that the election and the results and what people's opinion of how it could be different has impacted projects moving forward, right? Everybody's just waiting to see what happens.
Speaker Change: I would also say that you have to remember that we are not just doing projects in the U.S.
Speaker Change: We are a global company with projects in India, in Europe.
Middle East, and so our geographically
Speaker Change: is not just impacted by the U.S. elections. And the fact is that different countries have different motivations for what they do.
Speaker Change: You know that in the Middle East, in the Kingdom of Saudi Arabia, they're focused on the circular economy.
Speaker Change: You know, what the administration does may impact the U.S., but the reality is the IRA is...
Speaker Change: bipartisan, and the reason it's bipartisan is not a carbon project or a climate bill, it's actually a jobs bill. So I think I
Speaker Change: technologies, which frankly is what we are. So I think, you know...
Speaker Change: It's where we are, and it's good progress in my mind that we can move forward.
Thanks very much.
Speaker Change: And this does conclude our Q&A session. I will turn the call back to Jennifer Holmgren for closing remarks.
Speaker Change: and their families. Thank you. Thank you. Thank you. Thank you.
Jennifer Holmgren: Thank you everybody for joining us. As you can see we continue to make steady progress in executing our commercial strategy even during times like this when we are and our industry are facing a number of headwinds.
Jennifer Holmgren: Lancetec is in a unique position where we have six commercial scale facilities already operating and the progress we're making is building on that solid foundation. We've earned the right to develop projects, to build projects, to access offtake.
Jennifer Holmgren: These things are really important in growing our revenue and getting us to profitability.
We're looking forward with confidence.
Jennifer Holmgren: for our strong 2025 and beyond, and we thank you for all your support.
Jennifer Holmgren: It's not an easy journey. We'll get there with the help of everybody who's on this line.
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Jennifer Holmgren: TORONTO 2015 PAN AM & PARAPAN AM GAMES Visitor Information NHRA Directive theNationalExprinten Book of Review
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