LanzaTech (LNZA) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents LanzaTech Global, Inc.'s unaudited condensed consolidated financial statements and detailed notes for specified periods Condensed Consolidated Balance Sheets This section provides a snapshot of assets, liabilities, and equity for June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :-------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $110,719 | $83,045 | | Debt security investments | $49,704 | — | | Total current assets | $208,917 | $123,897 | | Total assets | $302,337 | $176,856 | | Liabilities | | | | Total current liabilities | $32,615 | $55,981 | | Total liabilities | $90,699 | $124,947 | | Shareholders' Equity (Deficit) | | | | Total shareholders' equity (deficit) | $211,638 | $(428,722) | | Accumulated deficit | $(787,872) | $(456,245) | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details revenue, expenses, and net loss for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $12,917 | $9,852 | $22,563 | $17,709 | | Loss from operations | $(30,618) | $(19,121) | $(63,140) | $(35,591) | | Net loss | $(26,786) | $(15,929) | $(90,098) | $(32,707) | | Net loss per common share - basic and diluted | $(0.14) | $(2.77) | $(0.60) | $(5.63) | | Weighted-average common shares outstanding | 195,537,601 | 9,222,214 | 156,472,730 | 9,222,870 | Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Shareholders' Equity/Deficit This section outlines changes in preferred stock and shareholders' equity/deficit for the reported periods - As of June 30, 2023, the company had no redeemable convertible preferred stock outstanding, a significant change from December 31, 2022, when 129,148,393 shares were outstanding with a carrying amount of $480,631 thousand[12][16][18] - Additional paid-in capital increased substantially from $24,782 thousand at December 31, 2022, to $996,704 thousand at June 30, 2023, primarily due to the reverse recapitalization and conversion of preferred stock[12][16] - Accumulated deficit increased from $(456,245) thousand at December 31, 2022, to $(787,872) thousand at June 30, 2023, reflecting net losses and in-kind dividend payments on preferred stock[12][16] Condensed Consolidated Statements of Cash Flows This section presents cash flow activities from operations, investing, and financing for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(59,116) | $(42,505) | | Net cash used in investing activities | $(120,017) | $(4,894) | | Net cash provided by financing activities | $206,808 | $7 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $27,675 | $(47,392) | | Cash, cash equivalents and restricted cash at end of period | $111,389 | $81,269 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies and financial statement items Note 1 — Description of the Business This note describes LanzaTech's business, its recent business combination, and proprietary carbon refining technology - LanzaTech Global, Inc. (formerly AMCI Acquisition Corp. II) completed its business combination with Legacy LanzaTech on February 8, 2023, with Legacy LanzaTech continuing as the surviving wholly-owned subsidiary[21][22] - The company is a nature-based carbon refining company that converts waste carbon into sustainable fuels, fabrics, and packaging using proprietary gas fermentation technology[23] - As of June 30, 2023, the company's partners operate three commercial-scale waste-to-gas ethanol plants in China, an increase from two plants as of June 30, 2022[23] Note 2 — Summary of Significant Accounting Policies This note details the company's key accounting policies, including revenue recognition and the reverse recapitalization - The Business Combination was accounted for as a reverse recapitalization, with Legacy LanzaTech identified as the accounting acquirer[26][27] - The company operates as a single operating segment, with revenue disaggregated by contract type (Biorefining, Joint Development and Contract Research, CarbonSmart) and customer location[36][37][56] - Revenue recognition follows ASC 606, with services recognized over time (milestone completion, cost-to-cost input, percentage of completion) and tangible product sales (CarbonSmart) recognized at a point in time when control transfers[56][58][60][63] - The company had an accumulated deficit of $(787,872) thousand as of June 30, 2023, and cash outflows from operations of $(59,116) thousand for the six months ended June 30, 2023, but projects sufficient liquidity for the next twelve months due to proceeds from the Business Combination[30][31] Note 3 — Reverse Recapitalization This note explains the accounting treatment and financial impact of the business combination - The Business Combination closed on February 8, 2023, resulting in 196,222,737 shares of common stock outstanding and 12,574,200 outstanding warrants[75] - The transaction was accounted for as a reverse recapitalization, with Legacy LanzaTech as the accounting acquirer, and its financial statements continuing as the historical financial statements of the Company[76] - Upon closing, Legacy LanzaTech shareholders held 85.3% of common stock, public stockholders 5.3%, and PIPE investors 9.4%, with the Business Combination and PIPE financing providing $213,381 thousand in cash, net of transaction costs[77][78] Note 4 — Net Loss Per Share This note presents the calculation of net loss per common share and factors affecting dilution Net Loss Per Common Share (Basic and Diluted) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss allocated to common shareholders | $(26,786) | $(25,583) | $(94,215) | $(51,884) | | Weighted-average common shares outstanding | 195,537,601 | 9,222,214 | 156,472,730 | 9,222,870 | | Net loss per common share | $(0.14) | $(2.77) | $(0.60) | $(5.63) | - All potential common shares (options, RSUs, Brookfield SAFE, warrants) were excluded from diluted EPS calculation due to their anti-dilutive effect in periods of net loss[83][84] - Preferred shares converted into common shares upon the Business Combination, with cumulative accrued dividends paid in-kind, resulting in an additional 24,152,942 common shares[84] Note 5 — Revenues This note disaggregates revenue by contract type and customer location, detailing contract assets and liabilities Disaggregated Revenue by Contract Type (in thousands) | Contract Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Biorefining revenue | $9,693 | $5,907 | $16,047 | $10,755 | | Joint development and contract research revenue | $2,217 | $2,963 | $5,509 | $5,232 | | CarbonSmart (tangible product) | $1,007 | $982 | $1,007 | $1,722 | | Total Revenue | $12,917 | $9,852 | $22,563 | $17,709 | Disaggregated Revenue by Customer Location (in thousands) | Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $2,314 | $3,910 | $6,547 | $7,949 | | Europe, Middle East, Africa (EMEA) | $9,646 | $3,784 | $14,356 | $6,607 | | Asia | $418 | $1,853 | $468 | $2,263 | | Australia | $539 | $305 | $1,192 | $890 | | Total Revenue | $12,917 | $9,852 | $22,563 | $17,709 | - Contract assets increased to $21,776 thousand at June 30, 2023, from $18,000 thousand at January 1, 2023, primarily due to unbilled accounts receivable from engineering and other services[91] - Contract liabilities decreased to $2,952 thousand (current) and $9,480 thousand (non-current) at June 30, 2023, from $3,101 thousand and $10,760 thousand respectively at January 1, 2023, mainly due to revenue recognition from advance payments[91][94] Note 6 — Investments This note details the company's debt security and equity investments, including LanzaJet and SGLT - The company holds $49,704 thousand in held-to-maturity U.S. Treasury debt securities as of June 30, 2023, all maturing within one year[95][96] - Equity investments total $25,154 thousand as of June 30, 2023, comprising an equity method investment in LanzaJet ($10,164 thousand) and an equity security investment in SGLT ($14,990 thousand)[97] - LanzaTech's ownership in LanzaJet was diluted to approximately 23.15% as of June 30, 2023, from an original 37.5%, due to additional investment rounds and proportionally fewer warrants received[100] - The company ceased applying the equity method for SGLT from October 1, 2022, due to a significant decrease in SGLT's technological dependence on LanzaTech, now accounting for it at fair value (practicability exception)[104] Note 7 — Warrants This note describes the treatment and fair value of various warrants, including public and private placement warrants - All warrants on preferred shares were exercised on a cashless basis on February 8, 2023, converting into 594,309 shares of preferred stock, which then converted to common stock[106] - The AM SAFE warrant converted to an equity-classified instrument on the Closing Date, becoming exercisable for 300,000 common shares at $10.00 per share, and was reclassified to additional paid-in capital[108] - Shortfall Warrants (4,083,486 total) were issued on March 27, 2023, and subsequently amended on May 13, 2023, to meet equity classification criteria, resulting in a $2,042 thousand gain and reclassification to additional paid-in capital[109] - Public Warrants (7,499,924) and Private Placement Warrants (4,774,276) remained outstanding as of June 30, 2023, and are recognized as derivative liabilities at fair value, with changes recorded in other expense, net[110][113] Note 8 — Forward Purchase Agreement This note explains the components and fair value of the Forward Purchase Agreement - The Forward Purchase Agreement (FPA) consists of a prepaid forward contract (derivative asset) and Fixed Maturity Consideration (debt instrument)[53][54][114] - As of June 30, 2023, the fair value of the prepaid forward contract was $33,804 thousand, and the Fixed Maturity Consideration was valued at $6,737 thousand[115] - The FPA involved a prepayment of $60,096 thousand for 5,916,514 common shares, with the company obligated to pay Maturity Consideration and Share Consideration at the 3-year maturity date, unless early terminated[50][51] Note 9 — Fair Value This note provides fair value measurements for financial instruments using a three-level hierarchy Fair Value Measurement Hierarchy (in thousands) as of June 30, 2023 | Instrument | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------- | :------ | :------ | :------ | :------ | | Assets: | | | | | | Cash equivalents | $31,665 | — | — | $31,665 | | Prepaid forward contract | — | — | $33,804 | $33,804 | | Liabilities: | | | | | | Fixed Maturity Consideration | — | — | $6,737 | $6,737 | | Brookfield SAFE liability | — | — | $34,150 | $34,150 | | Private placement warrants | — | — | $5,347 | $5,347 | | Public warrants | $3,075 | — | — | $3,075 | - The fair value of the FPA (prepaid forward contract and Fixed Maturity Consideration) was estimated using a Monte-Carlo Simulation, with key inputs including stock price ($6.83), term (2.61 years), expected volatility (50.0%), and risk-free interest rate (4.59%)[119][120] - The Brookfield SAFE liability's fair value decreased to $34,150 thousand as of June 30, 2023, from $50,000 thousand at December 31, 2022, based on the as-converted value (initial purchase amount divided by liquidity price, times stock price)[128][129][130] - Private Placement Warrants were valued using a Black-Scholes option pricing model, with key inputs including stock price ($6.83), exercise price ($11.50), term (4.61 years), and expected volatility (32.5%)[132][133] Note 10 — Income Taxes This note discusses income tax expense, effective tax rate, and valuation allowance against deferred tax assets - The company recorded $0 income tax expense for the three and six months ended June 30, 2023 and 2022, resulting in an effective tax rate of 0%[136] - The difference from the U.S. federal statutory rate of 21% is primarily due to a full valuation allowance against the company's U.S. and foreign deferred tax assets[136] - The company is subject to audits for tax years 2017 and onward for federal purposes, and various other state and foreign jurisdictions[138] Note 11 — Share-Based Compensation This note details share-based compensation plans, expenses, and unrecognized costs for various equity awards - The LanzaTech 2023 Long-Term Incentive Plan (LTIP) was adopted, providing for various equity-based awards including stock options, RSUs, and SARs[139] - Total compensation expense related to RSUs was $2,677 thousand for the three and six months ended June 30, 2023, with unrecognized RSU compensation costs of $14,068 thousand as of June 30, 2023[143] - Total compensation expense related to stock options was $2,445 thousand for the three months ended June 30, 2023 (vs. $676 thousand in 2022) and $3,209 thousand for the six months ended June 30, 2023 (vs. $1,414 thousand in 2022)[145] - The Business Combination triggered the vesting of all outstanding, unvested Restricted Stock Awards (RSAs), resulting in $2,741 thousand in compensation expense for the six months ended June 30, 2023, and a cash payment of $7,650 thousand for tax withholding[147][148] - Phantom RSUs and Phantom SARs are liability-classified awards for non-US employees, settled in cash, with graded vesting schedules[149][150] Note 12 — Related Party Transactions This note outlines financial transactions and balances with related parties, including LanzaJet and SGLT Related Party Balances (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :---------------- | :-------------- | :---------------- | | Accounts receivable | $913 | $1,821 | | Notes receivable | $5,267 | — | | Accounts payable | $1,879 | $3,195 | - The company recognized revenue from LanzaJet for transition services and engineering services for a gas-to-jet demonstration plant, totaling approximately $169 thousand for the three months ended June 30, 2023[153][154] - LanzaTech committed to purchase $5.5 million of Subordinated Secured Notes in LanzaJet's subsidiary, FPF, which was funded on May 1, 2023, and received warrants to purchase 316,250 shares of LanzaJet common stock[155][156] - Revenue from SGLT for water-soluble organic compounds, equipment, and consulting services was approximately $75 thousand for the three months ended June 30, 2023, and sublicensing revenue from SGLT was $249 thousand for the three and six months ended June 30, 2023[158][159] Note 13 — Redeemable, Convertible Preferred Stock This note describes the conversion of preferred stock into common shares following the Business Combination - Prior to the Business Combination, LanzaTech had six outstanding series of contingently redeemable convertible preferred stock, totaling 129,148,393 shares with a carrying value of $480,631 thousand as of December 31, 2022[161] - All preferred stock converted into common shares on a 1:1 basis on the Closing Date of the Business Combination, with cumulative dividends of $241,529 thousand declared and paid in-kind, converting into an additional 24,152,942 common shares[161] Note 14 — Commitments and Contingencies This note addresses potential legal proceedings and future lease commitments - The company does not have any reasonably possible or probable losses from legal proceedings as of June 30, 2023[164] - A new lease for headquarters expansion in Skokie, Illinois, commencing May 1, 2024, is expected to incur total lease payments of $3,287 thousand in 2024, 2025, and 2026[165] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes LanzaTech's financial performance, condition, and operational results for the reported periods Overview This section provides a general description of LanzaTech's business model, financial status, and near-term expectations - LanzaTech is a nature-based carbon refining company converting waste carbon into sustainable fuels and chemicals using proprietary gas fermentation technology[168] - The company primarily uses a licensing business model, earning royalty fees from customers operating facilities with its technology[169] - LanzaTech has not achieved operating profitability since its formation, reporting net losses of $(26.8) million for Q2 2023 and $(90.1) million for H1 2023, with an accumulated deficit of $(787.9) million as of June 30, 2023[170] - Near-term, the company expects higher revenues from engineering services, equipment package sales, and its CarbonSmart business, driven by new plants and brand partnerships[171] The Business Combination This section confirms the completion of the merger between LanzaTech NZ, Inc. and AMCI Acquisition Corp. II - LanzaTech NZ, Inc. completed its merger with AMCI Acquisition Corp. II on February 8, 2023, with the combined entity renamed LanzaTech Global, Inc[172] Accounting Impact of the Business Combination This section explains the reverse recapitalization accounting treatment for the Business Combination - The Business Combination was accounted for as a reverse recapitalization, with LanzaTech NZ, Inc. deemed the accounting acquirer and its financial statements becoming the historical financial statements of the Company[173][174] Basis of Presentation This section states that the condensed consolidated financial statements adhere to US GAAP - LanzaTech's condensed consolidated financial statements were prepared in accordance with US GAAP[175] Key Operational and Business Metrics This section presents key financial and operational metrics for the three and six months ended June 30, 2023 and 2022 Key Financial Metrics (in thousands, except percentages) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change (2023 vs. 2022) | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :------- | | Revenue | $12,917 | $9,852 | $3,065 | 31% | | Net Loss | $(26,786) | $(15,929) | $(10,857) | 68% | | One-Time Revenue | $11,459 | $8,982 | $2,477 | 28% | | Recurring Revenue | $1,458 | $870 | $588 | 68% | | Cost of Revenues (ex. Depreciation) | $(10,827) | $(7,427) | $(3,400) | 46% | | Selling, general & administrative | $(12,452) | $(7,146) | $(5,306) | 74% | | Adjusted EBITDA | $(23,823) | $(17,886) | $(5,937) | 33% | Key Financial Metrics (in thousands, except percentages) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (2023 vs. 2022) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------------------- | :------- | | Revenue | $22,563 | $17,709 | $4,854 | 27% | | Net Loss | $(90,098) | $(32,707) | $(57,391) | 175% | | One-Time Revenue | $20,348 | $15,939 | $4,409 | 28% | | Recurring Revenue | $2,215 | $1,770 | $445 | 25% | | Cost of Revenues (ex. Depreciation) | $(18,617) | $(13,256) | $(5,361) | 40% | | Selling, general & administrative | $(29,287) | $(12,224) | $(17,063) | 140% | | Adjusted EBITDA | $(47,336) | $(32,645) | $(14,691) | 45% | - Installed capacity increased from 90 thousand tonnes per annum as of June 30, 2022, to 150 thousand tonnes per annum as of June 30, 2023, driven by 60 thousand tonnes of additions[184] Components of Operating Results This section defines the various revenue streams, cost categories, and other financial components impacting operating results - Revenue streams include Biorefining (feasibility studies, engineering, licensing), Joint Development and Contract Research (R&D services), and CarbonSmart (sale of tangible products)[191] - Cost of revenues includes R&D costs for external projects, engineering, and direct service costs, encompassing materials, supplies, labor, and fringe benefits[193] - R&D expenses cover personnel, consultants, materials, and indirect overhead, expected to remain stable over time as a percentage of overall cost[194] - Selling, General and Administrative (SG&A) expenses include personnel, corporate development, travel, and professional services, expected to increase due to public company operations[195][196] - Other expense, net, includes mark-to-market adjustments on liability-classified warrants, prepaid forward contract derivative, Fixed Maturity Consideration, and SAFE liabilities, as well as foreign currency gains/losses[197] - The company accounts for its interest in LanzaJet under the equity method, while its investment in SGLT is accounted for at cost (with adjustments for observable price changes) since September 30, 2022, due to loss of significant influence[199][201] - A full valuation allowance is maintained against net deferred tax assets due to management's belief that recoverability is not more likely than not[204] Results of Operations — Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 This section compares financial performance for the three months ended June 30, 2023, against the same period in 2022 Three Months Ended June 30, 2023 vs. 2022 (in thousands, except percentages) | Metric | 2023 | 2022 | Change | % Change | | :----------------------------------- | :----- | :----- | :----- | :------- | | Total revenue | $12,917 | $9,852 | $3,065 | 31% | | Cost of revenue | $(10,827) | $(7,427) | $(3,400) | 46% | | Gross Profit | $2,090 | $2,425 | $(335) | (14)% | | Research and development | $(18,908) | $(13,237) | $(5,671) | 43% | | Selling, general and administrative expense | $(12,452) | $(7,146) | $(5,306) | 74% | | Loss from operations | $(30,618) | $(19,121) | $(11,497) | 60% | | Interest income, net | $1,701 | $(5) | $1,706 | N/M | | Other income (expense), net | $2,001 | $102 | $1,899 | N/M | | Net loss | $(26,786) | $(15,929) | $(10,857) | 68% | - Revenue increase was primarily driven by a $3.3 million increase in engineering and other services from existing customers and a $0.3 million increase in licensing revenue[207] - R&D expense increased by $5.7 million, mainly due to a $2.6 million increase in personnel and consumables, $1.6 million in stock compensation, and $1.0 million in external R&D services[210] - SG&A expense increased by $5.3 million, primarily due to $2.2 million in external services (insurance, professional fees), $2.1 million in stock compensation, and $0.8 million in personnel expenses[211] - Other income (expense), net, increased by $1.9 million, driven by a $18.1 million gain on the FPA and a $2.0 million gain on shortfall warrants, partially offset by a $(14.8) million loss on Brookfield SAFE liability and a $(3.6) million loss on SPAC warrant liabilities[213] Results of Operations — Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 This section compares financial performance for the six months ended June 30, 2023, against the same period in 2022 Six Months Ended June 30, 2023 vs. 2022 (in thousands, except percentages) | Metric | 2023 | 2022 | Change | % Change | | :----------------------------------- | :----- | :----- | :----- | :------- | | Total revenue | $22,563 | $17,709 | $4,854 | 27% | | Cost of revenues | $(18,617) | $(13,256) | $(5,361) | 40% | | Gross Profit | $3,946 | $4,453 | $(507) | (11)% | | Research and development | $(35,194) | $(25,598) | $(9,596) | 37% | | Selling, general and administrative expense | $(29,287) | $(12,224) | $(17,063) | 140% | | Loss from operations | $(63,140) | $(35,591) | $(27,549) | 77% | | Interest income, net | $1,915 | $(5) | $1,920 | N/M | | Other income (expense), net | $(28,395) | $76 | $(28,471) | N/M | | Net loss | $(90,098) | $(32,707) | $(57,391) | 175% | - Revenue increase was primarily driven by a $3.9 million increase in engineering and other services from existing customers and a $1.1 million increase from new customers[216] - R&D expense increased by $9.6 million, mainly due to a $4.3 million increase in personnel and consumables, $1.7 million in 2023 stock compensation, and $1.2 million from RSA vesting[219] - SG&A expense increased by $17.1 million, primarily due to $8.3 million in external services (one-time Business Combination fees), $2.3 million in 2023 stock compensation, and $1.6 million from RSA vesting[220] - Other income (expense), net, decreased by $(28.5) million, primarily due to a $(33.5) million net loss from the Forward Purchase Agreement and related expenses, and a $(3.8) million net loss from warrant fair value changes[222] Liquidity and Capital Resources This section assesses the company's cash position, investment activities, and financing sources - Cash, cash equivalents, and restricted cash increased by $27.7 million (33%) to $111.4 million as of June 30, 2023, primarily due to the Business Combination and PIPE financing, net of Forward Purchase Agreement funding[224] - The company holds $49.7 million in held-to-maturity U.S. Treasury debt securities as of June 30, 2023, all maturing within twelve months[225] - Net cash used in operating activities was $(59.1) million for the six months ended June 30, 2023, an increase from $(42.5) million in the prior year[239][240] - Net cash used in investing activities was $(120.0) million for the six months ended June 30, 2023, significantly higher than $(4.9) million in the prior year, driven by debt security investments and the Forward Purchase Agreement prepayment[239][242] - Net cash provided by financing activities was $206.8 million for the six months ended June 30, 2023, primarily from $213.4 million in proceeds from the Business Combination and PIPE financing[239][244] - The company believes existing cash and cash equivalents will be sufficient to fund operations for at least the next 12 months[236] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements during the reported periods - As of June 30, 2023, and December 31, 2022, the company did not engage in any off-balance sheet arrangements[246] Critical Accounting Policies and Management Estimates This section highlights key accounting policies and estimates, including valuation of financial instruments and stock-based compensation - Key critical accounting policies and estimates include the valuation of the Forward Purchase Agreement (prepaid forward contract derivative and Fixed Maturity Consideration) using a Monte-Carlo Simulation[248][249] - Stock-based compensation accounting involves estimating fair values for various equity-based awards (options, RSUs, SARs, RSAs) using models like Black-Scholes and Monte Carlo simulation, and recognizing expense over the requisite service period[250][251][254] - Compensation expense for performance awards is recognized when it is probable that the performance condition will be met, such as the occurrence of a liquidity event for RSAs[252][253] Emerging Growth Company Status This section explains LanzaTech's status as an emerging growth company and its implications for financial reporting - LanzaTech is an 'emerging growth company' and has elected to take advantage of the extended transition period for complying with new or revised financial accounting standards[256] - The company will remain an EGC until the earliest of specific criteria related to market value, annual gross revenue, non-convertible debt issuance, or December 31, 2026[257][258] Implications of being a Smaller Reporting Company This section discusses LanzaTech's status as a smaller reporting company and its reduced disclosure obligations - LanzaTech is a 'smaller reporting company' and can take advantage of reduced disclosure obligations, such as providing only two years of audited financial statements[259] - The company will remain an SRC until specific criteria related to market value of non-affiliate held common stock and annual revenues are exceeded[259] Recently Issued and Adopted Accounting Standards This section states that no recent accounting pronouncements are expected to materially impact the company - There are no recently adopted or issued accounting pronouncements that are expected to have a material impact on the Company[73][260] Non-GAAP Financial Measures This section presents Adjusted EBITDA as a non-GAAP measure, reconciling it to net loss - Adjusted EBITDA is presented as a non-GAAP financial measure to supplement US GAAP financial statements, excluding depreciation, interest income, stock-based compensation, changes in fair value of warrant/SAFE/FPA liabilities, and one-time Business Combination costs[262] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(26,786) | $(15,929) | $(90,098) | $(32,707) | | Depreciation | $1,348 | $1,163 | $2,605 | $2,222 | | Interest income, net | $(1,701) | $5 | $(1,915) | $5 | | Stock-based compensation expense and change in fair value of SAFE and warrant liabilities | $21,526 | $(30) | $4,052 | $648 | | Change in fair value of the prepaid forward contract derivative and Fixed Maturity Consideration | $(18,080) | — | $33,029 | — | | Transaction costs on issuance of Forward Purchase Agreement | — | — | $451 | — | | (Gain) loss from equity method investees, net | $(130) | $(3,095) | $478 | $(2,813) | | One-time costs related to the Business Combination and initial securities registration | — | — | $4,062 | — | | Adjusted EBITDA | $(23,823) | $(17,886) | $(47,336) | $(32,645) | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines LanzaTech's exposure to various market risks, including interest rate fluctuations, foreign currency exchange risks, and inflation - The company's primary market risk exposure is interest rate sensitivity, particularly from short-term U.S. Treasury and government obligations, but a 100 basis point change is not expected to have a material impact[270] - Foreign currency exchange risk arises from foreign subsidiaries and vendors, with foreign currency translation adjustments reported as a $0.10 million (gain) for Q2 2023 and $(0.36) million (loss) for Q2 2022[271] - Inflation affects labor, supplies, consumables, and equipment costs, but has not had a material effect on the business during the three and six months ended June 30, 2023[273] ITEM 4. CONTROLS AND PROCEDURES This section addresses the effectiveness of LanzaTech's disclosure controls and procedures - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[275] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[276] PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section states that LanzaTech may be involved in legal proceedings in the normal course of business but does not believe the outcome of any pending legal matters will have a material adverse impact on its consolidated financial position, results of operations, or cash flows - The company does not believe any pending legal proceedings will have a material adverse impact on its financial position, results of operations, or cash flows[278] ITEM 1A. RISK FACTORS This section refers to the risk factors disclosed in the company's Annual Report on Form 10-K, noting no material changes during the six months ended June 30, 2023, except for the addition of a new risk factor concerning customer concentration - No material changes to risk factors from the Annual Report on Form 10-K, except for the addition of a new risk factor[279] - New risk factor: Revenue is concentrated within a small number of key customers, with the largest customer accounting for 42% of revenue for the six months ended June 30, 2023, posing a risk if such relationships terminate[279] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section confirms that the company did not sell any unregistered securities during the period covered by this Form 10-K, except as previously reported - No unregistered sales of equity securities occurred during the period covered by this Form 10-K, other than those previously reported[280] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[281] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures[282] ITEM 5. OTHER INFORMATION This section reports that none of the company's directors or officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023 - No directors or officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2023[283] ITEM 6. EXHIBITS This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications from executive officers, and financial information formatted in Inline XBRL - Exhibit 3.1 and 3.2 refer to the Amended and Restated Certificate of Incorporation and Bylaws, respectively, previously filed[284] - Exhibits 31.1 and 31.2 are Certifications of Principal Executive Officer and Principal Financial Officer, respectively, filed herewith[284] - Exhibit 32.1 is a Certification of Principal Executive Officers and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, furnished herewith[284] - Exhibit 101 includes financial information formatted in Inline XBRL, and Exhibit 104 is the Cover Page Interactive Data File[286] SIGNATURES This section contains the signatures of the registrant's authorized officers, Jennifer Holmgren, Ph.D. (Chief Executive Officer and Principal Executive Officer), and Geoff Trukenbrod (Chief Financial Officer and Principal Financial Officer), certifying the report on August 9, 2023 - The report was signed by Jennifer Holmgren, Ph.D., Chief Executive Officer and Principal Executive Officer, and Geoff Trukenbrod, Chief Financial Officer and Principal Financial Officer, on August 9, 2023[290][292]