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Welcome to The Albertsons Companies Fourth Quarter and Fiscal Year End twenty twenty four Earnings Conference Call, and thank you for standing by. All participants will be in listen only mode until the Q and A session. This call is being recorded. I would like to hand the call over to Melissa Plaisance, Senior Vice President, Investor Relations, Treasury and Risk Management. Please go ahead.

Good morning and thank you for joining us for The Albertsons Company's fourth quarter and fiscal year end twenty twenty four earnings conference call. With me today from the company are Vivek Shankaran, our CEO Susan Morris, our COO and CEO elect and Sharon McCollum, our President and CFO. Today, Vivek will make a few parting comments on his retirement and then Susan will update you on our strategic priorities and our progress and path forward against them. Then Sharon will provide the details related to our fourth quarter twenty twenty four financial results and our 2025 financial outlook before handing it back over to Susan for some closing remarks. After management comments, we will conduct a Q and A session.

I'd like to remind you that management may make statements during this call that are or could include forward looking statements within the meaning of the federal securities laws. Forward looking statements are not limited to historical facts, but contain information about future operating or financial performance. Forward looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements are and will be contained from time to time in our SEC filings, including on Forms 10 Q, 10 ks and eight ks. Any forward looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise.

Please keep in mind that included in the financial statements and management's prepared remarks are certain non GAAP measures and the historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA. And with that, I'll hand the call over to Vivek.

Thanks, Melissa. Good morning, everyone, and thank you for joining us today. First, let me say a few words about my upcoming retirement and Susan's succession to the role of CEO. It has been an honor to serve as the Albertsons CEO and work alongside the best people in the industry. My tenure has spanned the COVID-nineteen pandemic, our initial public offering and our reemergence as a standalone company following our 2022 review of strategic alternatives.

What I'm most proud of is that throughout this journey, we have stayed true to our customers, invested in strengthening our business and advancing our customers for life strategy. This strategy has firmly positioned the company for its next chapter of growth and value creation for our shareholders. Within the few months since the termination of the merger, our mojo is back. We are executing once again like we used to and we have proof points and therefore more conviction to say that our strategy is right and working. Thank you for your support through all of it.

For those of you who don't already know Susan, let me introduce you. Susan is a homegrown talent, starting her career at Albertsons nearly forty years ago at a store in the Denver market. During her tenure, she has taken on roles of increasing responsibility, including store operations, supply chain and merchandising. She's been the steward of our retail operations for my six years here. He has become one of the most influential leaders across the industry.

He has extensive knowledge of all facets of the industry and our company, a strong track record of driving operational excellence, and most importantly, a passion for serving our customers, our associates and our communities. He has been a top partner with me since the day I arrived and an integral part of developing and leading our Customers for Life strategy. I'm delighted she is taking the reins and cannot wait to see the next great chapters of our company under her leadership. Susan, it's all yours.

Thanks, Vivek, for the introduction and for your partnership. Over the last six years, you've helped us reach a new level from which to grow. Turning to the fourth quarter. We're pleased with our results, including ID sales growth of 2.3%, adjusted EBITDA of $855,000,000 and adjusted earnings per share of $0.46 These results illustrate the proof points of our strategy that Vivek mentioned and were guided by the following priorities: driving customer growth and engagement through digital connection growing our Albertsons Media Collective, enhancing the customer value proposition, modernizing capabilities through technology and driving transformational productivity. As we outlined last quarter to engage customers, we've continued to invest in growth through four digital platforms.

These platforms are designed to drive increased sales, more deeply engage our most loyal customers, increase customer lifetime value and generate digital space and robust data for the Albertsons Media Collective. The first digital platform is e commerce. E commerce grew 24% in the fourth quarter and the full year, with first party far outpacing third party growth. We operate our e commerce business out of our stores, which allows us to leverage our rich asset base and proximity to our customers. It also enables full access to our merchandise assortment, a fast and convenient drive up and go experience and robust delivery options.

E commerce penetration is now over 8% of grocery revenue with our top performing markets now over 10%. This growth is driven by award winning experiences in our fully integrated mobile app and the success of our five star certification program, which we discussed last quarter. At over 8% of grocery revenue today, e commerce penetration is still below our industry peers and is one of our biggest growth customer acquisition and customer retention opportunities for 2025 and beyond. The second digital platform is loyalty. Loyalty membership grew by over 15% year over year in the fourth quarter to more than 45,000,000 members and at the same time actively engaged customers increased 12%.

Our new simplified loyalty program is a key enabler of digital customer engagement and a rich source of data for the Albertsons Media Collective. Through the unified mobile app, it allows customers to get personalized deals, to earn points and to have an extended period of time to redeem them for fuel and grocery rewards or automatic cash off their grocery bill. Since launching the simplified program, twenty percent of engaged households are now electing the new cash off option, reinforcing the customer desire for immediate value. In fiscal twenty twenty five, we will continue to simplify and expand the program to include integrated strategic partnerships that will offer even more value. The third digital platform is Pharmacy and Health.

In the fourth quarter, pharmacy revenue increased 18% year over year, driven by industry leading script and immunization growth, best in class customer satisfaction scores and the ongoing integration of Experiential Health offerings in our Sincerely Health mobile app. Although the pharmacy business is financially dilutive, cross shoppers between grocery and pharmacy are exceptionally valuable, contributing outsized customer lifetime value to the total store. For this reason, in fiscal twenty twenty five, we will continue to invest in our pharmacy and health platform to drive increased customer engagement and loyalty. We also expect growth in scripts and immunizations as pharmacy competitors continue to close stores. The fourth digital platform is the integration of the mobile app for use in our stores.

Launched in 2024, over 9,000,000 customers have engaged with this in store feature. When customers are in our stores, we want them to digitally engage with us, which requires us to raise the bar on store level execution. Our in store geolocation mobile feature delivers real time coupons, helps shoppers locate products and assist customers with meal planning and generating shopping lists. In 2025, we expect to drive increased customer engagement through this platform by adding additional conveniences and value. All these digital platforms are working together to generate deeper customer engagement, increase digital inventory and enrich our data to accelerate growth in the Albertsons Media Collective or AMC.

In fiscal twenty twenty five, we will continue to significantly invest in improving endemic and non endemic brand reach by building industry leading technologies to deliver an easy to use, dynamic and transparent measurement model. These investments will also improve our ability to define shopper audiences, run targeted media campaigns, compress campaign measurement timelines and deliver consistent omni execution across our digital and physical assets. In addition, we expect to build new partnerships that add even more digital inventory and capabilities to our media offerings. We continue to expect AMC to grow faster than the retail media market and to be one of the largest sources of fuel for reinvestment into our core business. Turning now to our customer value proposition.

Inflationary pressures have elevated our customers' needs for value. To address these needs, we're working with our vendor partners to strategically invest in price in certain categories in certain markets. We've also enhanced the breadth of our loyalty offerings to provide immediate savings and greater value. Finally, we're amplifying our own brands presence to drive profitable unit growth and increase share of wallet. We will increase innovation, more prominently feature existing owned brands and offer products at attractive entry price points.

We ended Q4 with sales penetration of 25.4 and believe with increased exposure and new product launches, we can increase our penetration to at least 30%. In Q4, we launched new items in our industry leading Open Nature Cauliflower Pizza line and in our Signature Select ice cream assortment. We also launched our first seasonally relevant Bursta flavor campaign with strong customer response. Each of these value creating initiatives are driving increased loyalty, greater digital and omni household engagement and higher transaction counts. Our next priority is the modernization of our capabilities through technology.

Our North Star is to use technology in everything that we do. We've invested strategically to build best in class technology platforms with our core infrastructure in the cloud and a modernized scalable network. Most recently, we've built a real time comprehensive data platform designed to enable data science and artificial intelligence. This advanced technology platform on which we will continue to innovate powers our e commerce, store, pharmacy, supply chain, merchandising and media collective operations and will allow us to leverage emerging AI technologies to accelerate our operational transformation going forward. This transformation includes empowering merchants to optimize pricing decisions using our recommendation and lookalike capabilities to provide customers personalized offers to complete their basket and capitalizing on in store Vision AI to reduce inventory shrink and enhance product quality.

The final priority is driving transformational productivity. Our productivity engine is systematically improving the efficiency of our business and lowering our costs. From fiscal year twenty twenty five through fiscal year twenty twenty seven, we expect to ratably deliver $1,500,000,000 in productivity savings, which we plan to reinvest in our growth initiatives and our customer value proposition, as well as to help offset inflationary headwinds. The largest of these initiatives is leveraging our consolidated scale to buy goods for resale. In fiscal twenty twenty five, we are accelerating national buying on a category by category basis, resulting in lower costs and easier, more efficient supplier relationships.

The next of these initiatives is transforming our ways of working, including strategically consolidating divisions, rationalizing non customer facing headcount and optimizing our onshore and offshore activities to not only reduce costs, but to accelerate innovation in technology and data analytics. In our supply chain, we are continuing to invest in automation and the rollout of our new warehouse management system. By the end of twenty twenty five, we expect 30% of our distribution volume to be automated. And we're piloting innovative new technologies to expand our menu of options for future warehouse automation. We also expect our new warehouse management system to be fully implemented companywide by year end.

All of these initiatives lower our cost to serve and improve our end to end data analytic capabilities, resulting in better in stock conditions and a differentiated level of quality and fresh. And finally, in store operations in fiscal twenty twenty five, we're leveraging new store replenishment, shrink management and labor productivity tools to drive enhanced efficiency and improved customer experience and deeper associate engagement. We're also continuing to expand utilization of AI technology in our produce departments to drive increased freshness, higher sales and better Net Promoter Scores. I would now like to talk about the support we provide to the communities that we serve. In 2024, along with the Albertsons Companies Foundation, we contributed more than $435,000,000 in food and financial support.

This includes $40,000,000 to our Nourishing Neighbors program to ensure those living in our communities and those impacted by disasters have enough to eat. In addition, on March 10, we announced a new goal to enable 1,500,000,000 meals through 02/1930, supporting our efforts to help end the cycle of hunger. I will now hand it over to Sharon for an overview of our fourth quarter and to provide guidance on our expectations for fiscal year twenty twenty five.

Thank you, Susan, and good morning, everyone. It's great to be here with you today. As Susan shared, we are pleased with our fourth quarter results. The investments we are making are delivering transformational capabilities and affirm our confidence in our Customers for Life strategy. What I'll do now is provide additional color on our financials for the fourth quarter and then I will discuss our 2025 outlook and provide an update on our capital allocation priorities.

We grew IV sales 2.3% in the fourth quarter, fueled by an 18% increase in pharmacy and a 24% increase in digital sales. The digital increase continues to be driven by strong growth in first party sales. Our Q4 gross margin was 27.4%. Excluding fuel and LIFO expense, the gross margin decreased 45 basis points compared to Q4 last year. Strong growth in pharmacy sales, which carries an overall lower gross margin rate and incremental digital volume related delivery and handling costs related to the 24% increase in digital sales drove this decrease, but was partially offset by productivity initiatives.

In the fourth quarter, we also made incremental investments in our customer value proposition, which were funded by the benefits from our productivity initiatives, which included reductions in shrink expense. Our selling and administrative expense rate was 25.7% this quarter. Excluding fuel, the SG and A rate decreased five basis points compared to last year. This decrease was primarily driven by lower merger related costs and leveraging of employee costs and depreciation, partially offset by increased business transformation costs. Our selling and administrative expenses also benefited from our productivity initiatives.

Interest expense net decreased 7,500,000 to $101,500,000 during Q4 twenty twenty four. This reduction was primarily driven by lower outstanding debt. Income tax expense in the fourth quarter was $46,400,000 a 21.3% effective tax rate compared to a 20.4% effective tax rate in Q4 of last year. And as mentioned in the highlights, Q4 twenty twenty four adjusted EBITDA was $855,000,000 compared to $916,000,000 last year. And adjusted EPS was $0.46 per diluted share compared to $0.54 in the fourth quarter of twenty twenty three.

Turning now to the balance sheet and cash flow. Capital expenditures of $485,000,000 in the fourth quarter were driven primarily by investments in the modernization of our store fleet and our digital technology platforms. In fiscal year twenty twenty four, we opened 11 new stores and remodeled 127 stores. We also returned approximately $87,000,000 to our shareholders through common stock dividends. Additionally, we repurchased $83,000,000 of common stock during Q4 twenty twenty four under our $2,000,000,000 share repurchase authorization.

Net debt leverage at the end of the fourth quarter was 1.9 times and the balance sheet remains strong. I'll now discuss our 2025 outlook. As a reminder, 2025 is a fifty three week year. Looking forward to fiscal twenty twenty five, we do so with continued confidence in our Customers for Life strategy and our ability to execute against it. To drive incremental growth, we are deepening customer engagement through our digital platforms, enhancing our value proposition and modernizing our capabilities through technology.

We are also continuing to drive our productivity agenda to fuel this growth and offset inflationary headwinds. Throughout fiscal twenty twenty five, we will continue to invest in our Customers for Life strategy, including accelerate investments in digital growth, the Albertsons Media Collective and in health and pharmacy. We will also continue to surgically invest in our customer value proposition and elevate the customer experience. We expect these investments will continue to drive outside growth in our digital and pharmacy businesses, which will result in increased future customer lifetime value but create short term margin headwinds. With that as our backdrop and excluding the impact of tariffs and other potential market dislocations, we are assuming the following in our outlook: ID sales growth in the range of 1.5% to 2.5%, assuming inflation in the range of 1.5% to 2% adjusted EBITDA in the range of 3,800,000,000.0 to 3,900,000,000.0 including the investments I just shared, partially offset by our productivity improvements and including approximately $65,000,000 in adjusted EBITDA related to our fifty third week.

Adjusted EPS in the range of 2.3 to $2.16 including $03 related to the company's fifty third week. The effective income tax rate is expected to be in the range of 23.5%, twenty four point five % and capital expenditures in the range of 1,700,000,000 to 1,900,000,000.0 Looking beyond fiscal twenty twenty five, we expect to leverage the investments we make this year to drive growth consistent with our long term algorithm of two plus percent identical sales and EBITDA growth higher than that in fiscal twenty twenty six and beyond. Before I hand it back to Susan for some closing comments, I'd like to spend a moment on capital allocation. First and foremost, we will continue investing in our business to drive long term sustainable growth. We also plan to maintain our quarterly dividend and seek to grow it over time.

And finally, we plan to return excess cash to our shareholders through opportunistic share repurchases. As a reminder, in December of twenty twenty four, our Board authorized a $2,000,000,000 share repurchase program. Since that time and as of today, we have completed over $100,000,000 in share repurchases and have approximately $1,900,000,000 available for repurchase under that program, which we expect to complete during the next three years. Our balance sheet is strong and it provides flexibility as we drive our business forward and seek to generate long term sustainable shareholder value. I will now hand the call back to Susan for closing comments.

Thank you, Sharon. Our customers for life strategy is working. We're growing digitally engaged customers, omnichannel households, loyalty members and increasing customer traffic. Our stores are operating more effectively and efficiently as new technologies take hold, and we're proactively reducing our costs. Our productivity programs are creating fuel for investments and are an offset to inflationary headwinds.

We believe all of this puts us in a strong position to continue to transform the business and serve our customers even better. As we look forward to the balance of fiscal twenty twenty five and beyond, we are excited about the investments that we've made in our core business, in new sources of revenue and in our tech enabled capabilities. We expect to continue our investments going forward, including enhancements to our value proposition for our customers. As a result of these investments, we expect gradual and incremental improvement in top line trends in our grocery business in the second half of twenty twenty five, ultimately driving growth in line with our long term algorithm of 2% plus identical sales and adjusted EBITDA growing higher than that in fiscal year twenty twenty six. In closing, I am thrilled to be taking the helm of our company during this transformational time in our Customers for Life strategy.

None of our success would be possible without the support of our 285,000 associates who work tirelessly to make it all happen. Over the next weeks and months, Sharon and I look forward to engaging further with all of you in the investment community and thank you for your support. I would also like to thank Melissa Plaifant, who will be retiring next month after thirty five years with the company. On behalf of all of us, we want to acknowledge her contributions to our success, including the relationships that she has developed with all of you. Melissa, you will be greatly missed.

Cody Perdue, who you all know, will be assuming her responsibilities. We will now open up the call for questions.

Thank you. We'll now be conducting the question and answer session. Thank you. And our first question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your questions.

Thank you. Good morning. Thanks for taking my question. Just given the price investments you've made in the quarter and plan to make for this year, just seeing if you could provide an update on how you view your price gaps today, maybe what you're seeing in the competitive environment? And just given the dynamic consumer environment overall, just has anything changed in your view on the breadth and depth of investments that you need to make throughout the year?

Hi, Leah. Thanks for the question. So I would say a couple of different things. So first of all, I'm going to address the second part of your question first. We have not seen a dramatic shift in the recent months from consumer behavior.

As we've mentioned before, that we're seeing a shift toward value. They're clearly more responsive to promotion. When we listen to the voice of our internal customers, we recognize that our Snap customers are feeling more pressure and that customers in general are thinking about their budgets and how to optimize them, maybe eating out less and making different choices, shopping more own brands, those kinds of things. With regards to the pricing question, first and foremost, we have a very different price position across the multiple markets that we operate in. And as we think about our investments, we are taking a very surgical approach to how we are making those adjustments, surgical by category and by market.

To be honest, we've been actually investing in price over the last several quarters very thoughtfully using the new tools and technology that we've developed over the last few years that help us understand elasticity, us make the best decisions that will optimize value for the customer, but also support the sales and margin goals that we're trying to achieve.

Great. Thank you. That's very helpful. And then I just had one quick follow-up around the comments around the buybacks. I noticed you made buybacks in the quarter.

It sounds like some activity has continued maybe even a little bit quarter to date. So I guess curious have you assumed anything with buybacks within the guide? And then how are you thinking it about it as a lever for this year? Thank you.

Leah, in the guidance, what we've assumed is in our prepared remarks, we said we will be repurchasing that $1,900,000,000 over the next three years.

And if you spread that radically over that time frame, that would equate to approximately $06 of accretion in EPS each year, if you bought it that way, but that gives you the math.

Great. Thank you. Very helpful.

Our next questions are from the line of Mark Carden with UBS. Please proceed with your question.

Good morning. Thanks so much for taking the questions. So to start, I want to ask one on tariffs. Just as it stands, what proportion of your cost of goods you import at this stage? And how do you think about the impact of tariffs once you back out USMCA exempt goods understanding again that it's very fluid?

Good morning, Mark. Thanks for the question. So for us for Albertsons companies, we procure more than 90% of our products domestically. So that's very different position than some of the competitive set out there. We also recognize though that even in those domestic purchases, there are impacts from ingredients that are sourced from tariff impacted areas.

The situation, as you know, is very fluid. We're staying very close to it. We've deployed a task force to help us understand the complexity of this situation as it evolves. And we've got some very good plans in place to help mitigate the impacts accordingly.

Great. That's helpful. And then how are you thinking about demand growth with your Abyssense Media Collective initiative in the year ahead? And are you seeing any hesitancy in advertiser spend just given the macro?

So today as you may know, we are rather nascent in our media collective opportunity, which and actually to date we're still delivering outsized growth compared to the market in media. So we're very optimistic about our abilities to achieve the goals that we've set forth for 2025.

Great. Thanks so much and good luck.

Thank you.

Our next question comes from the line of Edward Kelly with Wells Fargo. Please proceed with your question.

Yeah. Hi. Good morning, I wanted to ask about the '25 guidance and the investment.

I was hoping that you could provide maybe just some additional color around the key buckets of investment that you are planning to attack in 2025, the magnitude of the investment around those areas? And then how do we think about the cadence of EBITDA growth or EBITDA throughout the year? Susan, I think you maybe mentioned something at the end about progressing towards the algo as the year rolls on. So I'm just kind of curious around that as well.

Sure. Thanks, Ed for the question. So as we think about the investment, it's multifaceted, right? So clearly, there's the conversation we just had around price, which we think is a very surgical opportunity. And it's already begun, by the way, in many respects across the organization in select markets.

The other elements are around investing continuing to invest in growing our digital and loyalty business, important parts of our growth algorithm. And when you think about the ecosystem that we talk about, the more we can engage customers in loyalty in our digital platforms, in pharmacy and of course in our stores, there's 2x, 3x, 4x value for those customers that they go through work through that cycle. The investments will be as I think about how they occur throughout the year, the timing of the investments will not necessarily let me think. When I think about the investments, the cadence will be thoughtful throughout the year, recognizing the fact that some of the benefits that we have through the media collective, through productivity and so forth, may not directly align with the timing of the investments. And that's part of the reason we shared our expectations for the year.

We expect to leave 2025 with stronger growth and building towards our long term algorithm of IDs at two plus percent and EBITDA growth higher than that in 2026. Sharon, would you add anything to that?

No, think that's absolutely right. When you think about it, it's going to be these accelerated investments we're making in digital growth. Obviously, the media collective is a main focus for us this year. And then in health and pharmacy and the customer value proposition that pulls all that together through the digital platforms is going to be what will bring us to the back half of 2025 and allow us to enter that algorithm in '26.

Okay. And then maybe just a follow-up and maybe this is for you Sharon, I don't know. But as you think about Q1, obviously, the backdrop has been rather uncertain, especially from a consumer standpoint. I'm just kind of curious as to how we should think about Q1. I don't know if you can share anything around what you're seeing from the standpoint of IDs so far relative to the guide.

And do you expect Q1 to be a softer quarter than the rest of the year for any of these reasons?

Yeah. What you need to expect is not because of what is happening with the consumer, it's going to be the investments. We will be making investments in the first half of the year. As Susan said, we will be expecting those investments to start paying off towards the back half of the year. And from a customer point of view, I'll just reiterate what Susan said.

We are not seeing a major change in customer behavior at this point. Everything you're hearing about, our own research validates. The consumer sentiment is low, etcetera, but the consumer is also saying that they will do what they've been doing, which is seek value and find ways to tighten their pocketbooks. Food away from home versus food at home is always a decision for those customers who need value. So at this point, we have not seen a major change.

Great. Thank you.

Our next question is from the line of John Heinbockel with Guggenheim Partners. Please proceed with your question.

Hey, Susan. I wanted to start with you've acquired a lot of pharmacy customers the last two years, three years. Maybe the journey as they go through the engagement process, right? When you think about their wallet share, kind of where does it start out? How does it progress?

What's the opportunity there, right? And then how do you attack that? Is that simply CRM through things they might be interested in? Or how do you look at that?

Good morning, John. Thanks for the question. So to speak about the pharmacy customer, it's definitely an evolution over time. They engage with us they start to engage with us typically in store first and join our pharmacy business in that first year. But over the course of one point five to two years, they engage across multiple platforms.

So going back to our ecosystem, right, as they think about, of course, brick and mortar customers evolve to e commerce, to pharmacy, to loyalty. As they engage with us through those multiple platforms, that's when we start to see bigger unlock in their lifetime value. Now that said, customers that shop pharmacies and brick and mortar alone typically have ForEx the basket of customers that don't.

Okay. And then just maybe as a follow-up, right? When you think about enhancing profitability in the digital channel, right? Obviously, you're not running larger automated facilities. But is the opportunity when you think about density, right, of delivery versus in store labor productivity?

Where are the big unlocks in the e commerce profitability?

Sure. Thanks for the question. So as I think about that, the largest opportunity for us in e commerce profitability is all around growing sales, right? So scale, free productivity. You touched on the fact that our stores are actually in the neighborhoods that our customers live.

So our proximity to customers creates some productivity for us that perhaps others may not have. We have advantages in our growth because we do carry full assortment. We have fast delivery, convenient delivery. Our Doug part of our business is actually quite robust, which helps on the profitability side. The other part around scalability, as we look at our growth and we mentioned before, 24% growth in the fourth quarter, which is fantastic.

Strong penetration, which by the way, at 8% store penetration, we believe there's upside there versus our competitive set. And we fully expect to be able to capture that. But that growth, that expansion of growth, the scalability of that creates efficiencies from our picking platform as well. So we've got in house built tools that are fantastic. What we're learning though is as you get more and more e commerce orders in a given store, we actually shift the way that the pickers are selecting orders to batch picking.

So they're doing more than one order at a time. Lower times of the day, they're going back to one. But we're really studying and understanding the science of how we're investing labor to most effectively, first of all, deliver the terrific customer experiences we're looking for, but also to seek more productivity in e commerce business.

Thank you.

The next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.

Good morning. This is actually Erica Eiler on for Rupesh. Thanks for taking our question. So I was just hoping maybe to unpack gross margin a little bit more this year. So it would be helpful I think if you could just maybe talk about the puts and takes.

Obviously a lot of moving pieces there.

I you touched on productivity a little bit.

Maybe you could talk about how you're thinking about level of reinvestment of the $1,500,000,000 of savings you guys have outlined.

You touched on price investments. And then just also as we think about mix headwinds, are you assuming similar type headwinds from the strong growth in pharmacy and digital that you're seeing currently?

Yes. Thank you. As we look at 2025 and you think about first, let's talk about productivity. From a productivity perspective, you're going to see it both in SG and A and in the margin. And over the years, it will shift.

In 2025, you're going to see more of it in SG and A than you do in the gross margin. We will continue we are expecting strong growth from the digital platform. So we're expecting strong growth in e commerce and pharmacy and health, which will create a mix shift impact. I will say that that's getting better because as e commerce scales, it levers. And on the pharmacy and health side, we have productivity initiatives that are coming into place like central fill and other things that we are able to do that will take that diluted nature pharmacy and make that better.

Additionally, obviously, we talked about investing in loyalty and the customer value proposition. So that will flow into the margin and then be partially offset by the cost of goods sold and the buying together initiative that we have. So that's how you should think about it. But when you look at the guidance for next year and you think about where to weight it, which is probably where your question came from, you need to wait it's into the margin.

Okay.

That's super helpful. And then just lastly for me, just wanted to touch on the competitive backdrop and the promotional environment. So I mean are you seeing any changes on the competitive side? And then just given the increased macro uncertainty out there and you talked about that your consumer increasingly seeking out value, what are you expecting on the promotional front this year?

So, Erika and I think I might have mentioned this earlier, we are absolutely still seeing the customers navigate towards value and towards promotion. So our promotional volume is up, and it's where our work around buying better together and seeking to improve our cost of goods is going to be critical for us as we go throughout 2025. From a competitive perspective, think like the rest of the industry, we're all seeing the pressures from mass and club stores value players. That said, our customer traffic is up. We have shared growth in several of our markets and we understand exactly where those are and are very thoughtful about how we're investing in the areas where we have opportunity very surgically using the tools and technology that we have to help us make the best decisions.

Great. Thank you.

The next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

This is Seth on for Simeon. I would like to ask you about the guidance. Could you talk a little bit about what food inflation assumptions are embedded in your IV sales guidance?

And what would be the effect of pharmacy within the IV sales figure for the full year?

Thank you. The inflation assumption within the guidance, we've got a 1.5 to 2.5% ID sales guidance. And within that, it's 1.5% to 2% on inflation. And on the mix of pharmacy and e commerce, we expect to see very strong growth in ecom and continued growth in pharmacy. We're not guiding that, but you can think about in terms of continuing we are making continued investments there.

So that would be how I would model it if I was you.

Okay, great. Thank you. And as a follow-up, if I could ask you about e commerce. Congratulations. You had impressive sales growth there, 24% in the fourth quarter.

Could you help us think through how you're looking at the e commerce contribution to profitability and how you're thinking it more broadly alongside retail media and the loyalty program into 2025?

Yes. So on e commerce, e commerce is dilutive to our margins. And it is getting better all the time. If you look at the explanation in the press release about our gross margin in Q4, we talk about the fact that the picking costs and delivery costs are putting weight on the margin, but then we explain it's only because of the volume. And so we actually are making progress in productivity in our e commerce operations within our stores so that business is getting more profitable as it goes.

So our guess would be that when you combine our first party and our third party businesses that we are getting close to being contributing to the EBITDA margin. We expect that to continue to grow over time.

Great. Thank you.

The next question is from the line of Ravi Ohmes with Bank of America. Please proceed with your question.

Hey, good morning. I had just two quick follow-up questions. Just maybe on the pharmacy growth outlook, how much is GLP-one still a driver to the comps there? And do you see that fading at all in 2025? And what are the other how much is a GLP-one say versus how much benefit are you getting from drugstore closings?

Thanks for the question. So first and foremost, of course GLP-1s are contributing to our growth, but that's not the sole increase that we have. Our core script volume is growing year over year and actually has been for several years now. So we're excited about the health of the business from that regard. Clearly, the GLP-one profitability is less.

That said, as we engage those customers into our entire ecosystem, recognizing clearly their eating habits change, but their eating habits change with regard to wanting more protein, looking for supplements, buying more fruits and vegetables, we have all of those things. So it's actually an opportunity for us to even more deeply engage those customers. Sharon, what might you add?

Yeah.

I would add that we continue to actually be excited about the GLP-one customer. And as you know, the industry is evolving. You know, it's going to be in pill form. I don't know the exact timing of that, but as that goes, but it gives us such a substantial opportunity to help these customers achieve this life goal. And when we embrace those customers, we can fulfill their new basket.

Remember, their basket materially changes and it shifts to, as Susan said, to a more profitable basket. And we believe through Sincerely Health and the other investments that we're making in the digital side of our business that we can be an asset to these customers and that they will choose us for the role that we play in their health care. So from that standpoint. So that's how we're thinking about it right now.

And then you mentioned sorry, was just going to answer your acquisition question. So yes, we are continually looking at opportunities to acquire Scripps pharmacy businesses, certainly hire the pharmacists and the techs from other units around us. We have a very solid thoughtful approach on how we do that, but we are absolutely looking to continue to grow our pharmacy business thoughtfully.

That's really helpful. And maybe Sharon a quick follow-up for you. Just on the so this year we should expect a little more pressure on gross margin and maybe some offset in SG and A. What's the wage rate pressure you guys are expecting in 2025 in that SG and A?

Yes. We said last quarter that we used to see 2% to 3%. We're seeing significantly higher than that. Remember these contracts are multiyear. So our assumption on wage growth in 2025 looks a lot like the wage growth we saw in 2024 and we don't anticipate that changing materially.

And part of the challenges we recognize actually the opportunity we have is we recognize that as we've shared an estimate of multiyear contracts. So as we talk about our $1,500,000,000 goal in productivity, which by the way, as I say goal, we've got evidence that we can accomplish that and we'll continue to do so. But those targets were set with the wage growth in mind.

Got it. Thank you.

The next question is from the line of Scott Mushkin with RFI Capital. Please proceed with your question.

Hey guys, thanks taking my question. So my first one is kind of looking at the business by category. And if you think about the center store, do you need the center store to be positive next year to or this year I guess now to make your comp numbers? I guess my first question.

So we let's see. We are seeing growth in center of store. And when we by the way, when I'm seeing center of store, I mean grocery and grocery non food, but we're actually also seeing growth in our fresh departments. So yes, we're seeing strong pharmacy growth. We're seeing strong e commerce but we are actually experiencing growth in the core part of the store as well.

Okay. And then if you were guys going to if you were to exceed your thoughts on EBITDA internally, would that flow to shareholders this year? Or would that just be further invested in the business?

Scott, we put our guidance out there. And at this point, as the year progresses, we can talk more about that. But our guidance is the 3,800,000,000.0 to $3,900,000,000 is where we expect to land the year at this time.

Okay. So no thoughts on if you were to exceed where that money would go?

Lots of thoughts, but not for you.

Right. Thanks. Thank for taking questions. Appreciate it.

The next question is from the line of Michael Muntzan with Evercore ISI. Please proceed with your question.

Yes. Hi. Good morning. Thanks for taking the questions.

The first one was just if you could give an update within the CapEx, how you're planning to allocate that out? How many remodels should we expect and also new stores for this year and then for next? And then I had a separate follow-up.

On the CapEx for next year, you can think about it very similarly to the way it played out this year. We expect to open new stores. We're not giving committed numbers at this point. But you can think about the capital as half of it is in our stores. There's a maintenance capital piece and then the rest of it will be invested in the digital platforms and AMC.

Okay. And then if I could just follow-up around tariffs. You mentioned that it's not in the guide. To the extent that it does flow through over the course of the year, is the goal to preserve margin dollars or margin rate? And how should we think about that evolution?

On the tariffs, what we would tell you is our goals, our priorities for this year are going to be what the five that Susan laid out. Our goal is to drive customer growth and engagement through the digital connection. It's growing AMC. It's enhancing the customer value proposition. And with those three priorities, it is fluid.

How we handle the tariffs, how we handle negotiations with vendors, etcetera, will depend on continuing to deal with the tariffs, but doing so in a way that continues to amplify our work toward those priorities.

And Sharon, what I would add to that is, clearly, it's dollars that drive our business and that's always our focus.

Understood. Thank you.

Our next questions are from the line of Karen Short with Melius Research. Please proceed with your questions.

Hey, thanks very much. And Melissa, it's been a long twenty five plus years. So congratulations and have loved working with you. Thank you. So my two questions are price gaps.

So when you think about price gaps relative to your peers, can you give me a sense of what you think your price gaps are and where you think they need to go? And then my second question is, do you think you could be at the algo by 4Q as it relates to sales growth and EBITDA growth?

Karen, first of all, you made Melissa very happy with your comments. Thank you for that. So with regards to price caps, it's not a simple answer. We operate in over 120 MSAs and our price position is very different in each of those. So there's really not one simple answer.

There are markets where we're very comfortable with our price position and see very little need to change. And there are others where we have more opportunity. So we're really excited about using the new tools, technology and processes that we have in place to be very surgical and thoughtful about how and where we make those investments. We feel we have a deep understanding of the elasticity of our customers based off of experiments that we've been running over the last several months. So it's a very surgical and thoughtful approach.

Sharon, maybe I'll give the algo question over to you.

Yes. So we will be building towards that. Obviously, as we make these investments, they start to return. And when we start getting toward Q4, as we're expecting that to materialize by the end of twenty twenty six, we expect it to be gradual and incremental. So you should be expecting us to be moving in that direction.

Okay. Great. Thank you.

The next question is from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.

Good morning. Thanks for taking our questions and congrats to both of you, Vivek and Melissa on your retirement. I was wondering if we could just talk about IDs a little bit more granularly. The I think you mentioned an improvement in kind of grocery sales trends in the back half in your expectations. And wondering if you could just unpack kind of the traffic versus the ticket component of that and the expectation for that to improve in the back half.

And then also if there's any conservatism with regard to SNAP and if there are any developments on reductions in SNAP there into the back half?

So Kelly, for the question. So for IV sales, we are as mentioned before, we're looking at that 1.5% to 2.5% range. Clearly, we expect to see growth increase as we exit 2025 and going into 2026. Sharon, any color you would add?

Yes. So Kelly, and as it relates to when we go into 2025, as we're entering the year, we have said consistently, we are continuing to see customers. The traffic in our store is positive. We're very excited about that. Obviously, the AID rate CPI in the fourth quarter up 1.9.

AID is going to be up. And what the opportunity for us at this point is it going to be in units as we go into 2025. And a lot of the initiatives I'm not going to go back to them, but all the initiatives we've talked about are doing exactly what Susan keeps saying and continues to drive in the company, which is bringing units back into the store. And that is the opportunity that we see within the guidance. And yes, we believe that we are doing it and we can do it.

Okay. And if I can just follow-up on pharmacy, obviously, is and remains a key component of your strategy. Just wondering if it's possible to integrate prescriptions and pharmacy deeper into your digital offering for pickup and delivery just given that competitors are moving forward with that? Is that something that Albertsons can do and is considering doing?

Yes, we absolutely are.

So it varies by market and there's some technological solutions that we're working on that will help us get there, but that is absolutely on our roadmap for pharmacy this year. We agree with you. The more that we can take pressure off of the customer experience, especially patients in pharmacy, make their life easier, We're seeking every possible way to do that.

And, Kelly, I was in our Tom's Thumb store here in Dallas last night, and they were announcing over the speaker that to welcome you to do both your DUG and your pharmacy order through DUG. So your question was perfect. I was just there last night and we were telling our customers all about it.

Great. Thank you.

Thank you. Our final question today comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.

Hi. Good morning, guys.

Thanks for taking some time. Wanted to ask about you made a comment about the division consolidation, which I know you've done some, but I was curious if there's more to go there. It sounded like there are opportunities still. And I don't know if you could share a little more color on that. And also, with the second kind of question I had was around the Albertsons Media Collective.

If you could just share a little more color on sort of the adoption by your partners and what the feedback you're getting on it initially and where there are some of those opportunities you described earlier? Thanks.

Hi, Joe. So with regard to the division consolidation, the most recent one we just announced was the blending of our Denver and Intermountain divisions for client Mountain West. And as part of that, there's it's multitask really. We're looking at, first and foremost, how can we create productivity by bringing two divisions together, but also we're seeking to better develop our team to improve tools and processes and learn from that consolidation, how we might leverage opportunities across the rest of the organization. So we're continually evaluating how we're going to market, where there might be opportunities to look for synergies such as this and in other ways as well.

With regard to AMC, we have had strong performance, strong engagement with our vendor partners. We also recognize that we have an opportunity to as we look about our efforts around buying better together, leveraging AMC as part of those conversations. Today, we operate 11 divisions across the organization and there's important times to act as 11, but there's also times to act as one. And when we think about unlocking dollars for whether it's cost of goods reduction or AMC dollars, this opportunity of buying better together creates simplicity for our vendor partners, ease of execution consistently across the organization. So we see a lot of opportunity as we evolve our model moving forward.

Great. Thanks. Good luck, guys.

Thank you.

Thank you.

Thank you. I'll now turn the floor back to management for closing remarks.

Just wanted to say thank you for your time and for the questions today. We remain very excited, very energized about the growth agenda that we've put forth in 2025. Clearly, it's a year of investment for us. And we feel very confident in our ability to deliver both internally and externally the commitments that we have made. We appreciate your support and we look forward to talking to you all soon.

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.

Good day, everyone, and welcome to LanzaTech 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. [Operator Instructions] And now at this time, I will turn things over to Kate Walsh, Vice President of Investor Relations and Tax. Please go ahead.

Good morning, and thank you for joining us for LanzaTech Global Inc. third quarter of 2024 earnings conference call. On the call today, I'm joined by our Board Chair and CEO, Dr. Jennifer Holmgren; and our CFO, Geoff Trukenbrod. 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. Please also reference our quarterly report on Form 10-Q for the quarter ended September 30, 2024 filed today. Both our press release and investor presentation can be found in the Investor Relations section of our website at www.lanzatech.com. Before we begin, I'd like to direct you to the disclaimers in the front of our investor presentation and remind you that today's call includes forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts 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. 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. Unless required by law, we assume no obligation to update publicly any forward-looking statements. 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. With that, I'll turn the call over to Jennifer.

Thank you, Kate, and everyone joining us today. It's been a dynamic news week and we appreciate your time on the ongoing support of LanzaTech. First, let's address the elephant in the room. Our third quarter revenue was $9.9 million, about $7 million below target. This was primarily due to two factors. One, we were expecting another LanzaTech sublicense event that would have resulted in the issuance of a second tranche of LanzaTech shares to LanzaTech in the third quarter and close to $8 million in revenue associated with that event similar to our second quarter. And two, while our CarbonSmart revenue more than doubled quarter-over-quarter to $2.2 million in Q3, due to the market dynamics of ethanol pricing being depressed in a target market for Q3 that was still significantly below our expectations for the quarter. While we are actively evaluating material cost reduction opportunities across the business as well as opportunities to reallocate resources to focus on and accelerate commercial activities, I also want to talk with you today about the evolution of our business model to accelerate revenues and profitability. Having worked with partners like [Chogang], our Silver Medal and Indian Oil Corporation to develop and construct, start up and operate six commercial scale biorefineries, we believe we have established the know-how and infrastructure to develop our own commercial projects. While LanzaTech has grown primarily with our licensing business model which allows for rapid capital light scaling, it is a tough model that leaves us dependent upon the adoption and decision cycles of our licensees and often does not allow us to capture the full value of our technology. Over the course of the past year, we have been evolving our business model to complement our licensing business and enhance our capability to develop and finance our own projects where we have more control over their timing and ultimate performance and in which we expect to achieve greater economics including greater upside for LanzaTech in the product and profits of these projects. This evolution can be seen in our recently announced project in Norway, which is expected to reach final investment decision within six months and which we expect to be the first project to be developed with our infrastructure capital partner Brookfield Asset Management, which committed $500 n for such LanzaTech projects. It can also be seen in the creation of our joint venture with the Olayan Group in the Middle East, which we expect will finance and cultivate a growing pipeline of commercial opportunities in that region. And it can be seen in another project, our 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 driving meaningful amount of income for 2025 if we rapidly finalize the agreements as expected. Comparable to a Project Dragon in the UK, Project Drake is a 30 million gallon per year EU based ethanol to sustainable aviation fuel project that we have been developing over the last three years, which will utilize ethanol from LanzaTech's waste to ethanol technology platform and convert it to SAF via the LanzaTech platform. We have completed the front end engineering and design or FEED work for inside the battery limits of this project and expect to reach final investment decision and fully finance the construction stage of this project in 2025. Today I'm announcing that we have entered into an exclusivity and financing commitment agreement with a new financial partner whereby they intend to acquire certain rights in the development of this project, fund the remaining capital needed to reach FID and enter into a development services agreement with LanzaTech for this remaining work. We expect to maintain significant upside participation 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 on our 2024 and 2025 results later in the quarter as we finalize these agreements. I want 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 over our own success, shortening project development life cycles and positioning ourselves for greater upside in multiple projects by partnering with world class visionary capital partners from the earliest stages of our project development. 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 financing the various stages of project development and securing financing partnerships upfront and then designing and developing projects to meet our partners' investment criteria. We are also continuing to expand access to ethanol volumes produced from our licensee biorefineries in order to grow our CarbonSmart business and its margins. Today, we also announced a two-stage ethanol off-take agreement with ArcelorMittal, a short term contract with a $6 million annual revenue potential and a five year contract with annual commitments of 5,000 to 10,000 tons generating a potential $10 million to $20 million per year. This is our first long term ethanol purchase agreement which enhances our access to product and allows CarbonSmart customers to make longer, larger commitments which has the potential to significantly boost our future revenues. This progress is thanks to the foundation we developed for delivering CarbonSmart ethanol to our customers and trading ethanol from our China plant. Now let's talk further about why we're in a strong position for 2025 and beyond. If we look back at what LanzaTech 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. First, on the sustainable aviation fuel front, in addition to Project Drake, we have announced several projects and milestones which demonstrate the interest in LanzaTech ethanol produced from waste resources to produce SAF through CirculAir. That is our joint offering in partnership with LanzaTech. The global market for sustainable aviation fuel produced from ethanol is experiencing significant growth and we expect the pool of our ethanol to be picked up for SAF to grow right along with it. There are projects underway in the UK, the EU, India, Australia and New Zealand and we expect LanzaJet's Freedom Pines fuel facility here in the U.S. to start producing barrels imminently. What all these projects reinforce is the massive interest in our ethanol producing technology which provides a critical source of feedstock for the multiple SAF projects underway leveraging LanzaJet’s Technology. During the third quarter we also expanded the scope of our work with our New Zealand command to get to assess the use of municipal solid waste as a local feedstock for shaft production in New Zealand. After successfully completing feasibility study for locally grown woody waste. This builds upon the work we're doing with Wagner Sustainable Fuels in Australia, our First CirculAir Project around municipal solid waste as feedstock for their planned SAF refinery at the Port of Brisbane. And adding to a project using municipal solid waste as a feedstock to ethanol production is the master licensing agreement with SEKISUI that we signed in September to develop multiple waste to ethanol plants across Japan. 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. Turning now to progress with industrial off gases as a feedstock for ethanol production, our collaboration with Eramet in Norway represents what we believe to be the first of a kind integrated CCU & CCS facility designed to achieve leading edge carbon abatement results for hard to abate industries. Metals, cement, chemical 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. 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-cell protein, a product we're calling LanzaTech Nutritional Protein. 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. 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. Importantly, we continue to develop partnerships with animal, pet and human food producers to enable us to aggregate demand for the production of lands of pet nutritional protein at commercial scale. To close, we are focused on a strong Q4 to finish the year with nearly two months less. There's still a lot of time on the clock to execute what we have in process. 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 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. We are working on finalizing the contracting framework with Technip Energies and the Department of Energy. Additionally, the next LanzaJet sublicensing event and the related issuance of additional shares of LanzaJet to LanzaTech as timing uncertainty as well. It's important to note that we expect these projects will unlock access to cash that will significantly bolster our financial liquidity. 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. We expect these moves will allow us to control more of the feedstock operations and off stake 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.

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. 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 LanzaJet sublicensing agreement had been signed in Q3 as we expected. 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 CarbonSmart product sales. Drilling down into these separate revenue categories, biorefining 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. 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. Specifically the engineering services associated with Project Dragon were particularly high in the third quarter of last year as that work was ramping 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. Joint development and contract research revenue for the third quarter of 2024 was sequentially down $1 million to $1.8 million as compared to $2.8 million for second quarter of 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. 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. And for CarbonSmart, product sales revenue for the third quarter of 2024 was $2.2 million up significantly from 2Q 2024 of $0.9 million and in line with third quarter 2023. The quarter-over-quarter increase this year was driven by incremental direct fuel product sales built upon having the right licensing structure of partners and supply chain in place, which we announced during our 2Q 2024 earnings call. 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 CarbonSmart business for fourth quarter and beyond. 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. 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 CarbonSmart sales. Gross margin was a relatively low 18% of revenue for the quarter as a function of revenue mix including additional lower margin CarbonSmart sales and the fact that we did not realize the revenue which was effectively 100% margin associated with another LanzaJet share issuance. On the operating cost front, third quarter 2024 operating expenses were $34.8 million up 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. 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. 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. The year-over-year variance is attributable mostly to lower revenues reported year-over-year and the higher year-over-year project development expenses and OpEx that I just discussed. 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. The increase in our cash position quarter over quarter is attributable to the $40 million investment by Carbon Direct Capital we closed in August and announced on our second quarter call. 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 flow impact. Post September 30, we made a $10 million settlement payment to ACM, which is one of the two parties involved in the forward purchase agreement that was put in place in 2023. It was our decision to fully satisfy our obligations to ACM under the FDA in cash in order to achieve two main benefits. 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 LanzaTech on the open market. Now, I'd like to take some time and discuss our fourth quarter outlook. As Jennifer mentioned, we have a wide range of possible outcomes for the final quarter of this year. Essential 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. 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. Third, Project Drake is in a similar ballpark for a project in Norway in terms of potential cash flow and income for fourth quarter in addition to base lining revenue for 2025. Fourth, assuming we rapidly finalize our award contracting process for Project SECURE, we forecast recording approximately $4 million of revenue before the end of the year. 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. We discussed our LanzaJet sublicensing arrangement in detail during our second quarter 2024 earnings call, so I won't go into it as much today. But the potential for us to receive both the second and the third and final tranche of LanzaJet equity in the next several months would also be expected to result in significant revenue recognition associated with that share consideration. With that, I'll turn the call back to Jennifer for some closing remarks before we open the call for Q&A. Jennifer?

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 Eramet collaboration in Norway and Project Drake in the EU. 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. 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 midterm profitability and positive cash flow from our operations. With that, let's open up the call for questions.

[Operator Instructions] We'll take our first question from Leo Mariani with ROTH.

You guys, ask a little about some of these revenue components here. I guess I'm a little confused on Project Drake. 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 is something else? And then is that $5 million included as part of that roughly $10 million base revenue business that you expect or that would be additional to that?

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 the paying for the development services packages work that we've done. So we expected -- we assuming we're able to finalize the agreements that we do expect that $5 million to be part of what will be recognized as revenue and not part of that kind of $10 million that you quoted which is we're just trying to connotate there that that's what the business has been doing. Little conservatively speaking, it's been doing a little bit better than quarter-over-quarter year to date. So that's not in that $10 million that would be incremental to it.

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 for quite some time. And I guess if I just look at the numbers here, I guess, I define your cash cost as basically cash G&A plus R&D. I guess those numbers have gone up the last three quarters here. So, can you kind of help me out a little bit with the cost savings initiatives? Have they not yet hit the numbers? Or maybe they were going to be higher than you reported and now there's sort of less growth, I guess, than in the cost? So I'm just trying to understand that. And how do you think cost evolves as you roll into fourth quarter and into next year?

Thank you for the question, Leo. What is happening is, as you know Project Drake and also Project [Exelixis], we are delivering those projects to FID, and then they are transferred or sold, if you will. Because we're doing all the work now, we're doing we're expensing all of that cost now. That includes external dollars because, as you know, to get to FID, we also have to do feed package with external contractors. We also have to do applications, permitting, all of these things for environmental issues. So 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 [Exelixis], the Norwegian project get transferred, we will be in a position to simply recoup all those costs. Geoff, do you want to add something to that?

Yeah. I would just say that with that and Jennifer is 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 overshadowing some of the cost reductions we've had on specific OpEx items. So we've actually reduced quarter-over-quarter many of our OpEx line items as well as reduced it relative to budget for the year. So we are driving costs down relative to what we planned at the beginning of the year and on things like salaries and benefits expense, contract, variety of other things we reduced cost quarter over quarter as well. Okay.

And then just on your sort of bit of a tweak to the business model here. You talked about bringing in infrastructure partners to finance, I guess, new projects, maybe accelerate some of these. Can you provide a little bit more color there? Is Lanza going to be putting some equity into these projects? Maybe it's a small amount, but maybe it's zero, I don't know. Just wanted to get a sense of that. And I guess maybe, do you have discussions going on with multiple infrastructure partners? And presumably this is beyond Brookfield, other people other than Brookfield?

That's absolutely right, Leo. As you know, a long a while back ago, we announced we were doing a JV with Olayan. That JV is now completed. Olayan, 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. 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, UK, we are looking we are actually talking to multiple other infrastructure partners. The key for us in relationship to infrastructure partners is getting a project to FID. 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 via LanzaJet starting with ethanol made from waste resources via the LanzaTech technology. We call that integration CirculAir, 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? Or do you need more than that?

No, that was helpful. Thank you.

Our next question comes from Jeffrey Campbell with Seaport Research Partners.

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. 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 projects can be financed by other parties? And then third, will the financers 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 target return and then the cash flows revert to LanzaTech?

Hi, Jeffrey. Thank you for the questions. Let me start by saying that 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 off-take so that we can get the revenues 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 -- 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. 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 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. We have been working to date with emitters who want to build a plant. Indian Oil. Right? They need ethanol, to blend into gasoline. They need ethanol to make SAF. And so we tend to work with these kinds of folks, our solar metal. 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 a gas fermentation refinery at that site and pay for that because it takes them outside of their core business. And that is where our infrastructure partners have a big role to play. They enable us to work with them 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. It is important to note that these relationships with infrastructure partners depend so much on the fact 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 as you asked initially is the fact that they are reducing their emissions, which is something that is critically important to them.

Now that's very helpful. And now that's very helpful. And I agree. I think being able to widen the pool of money that can go into the projects is really critical. I was curious to know what motivated ArcelorMittal to, I guess, ask for more exposure into the ethanol business, particularly as you noted, weak ethanol pricing hurt CarbonSmart during the third quarter?

Well, Arcelor what we've announced this quarter actually is that we are accessing 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 create more upside from the value we bring, but than a standard license. But the last thing I would say is they they've never wavered on their interest to use their carbon to make fuels and chemicals versus use their carbon to make power. I think there's a view that just wasting carbon on power production is not the future. And so they've leaned into the idea of making a product like ethanol and beyond.

Okay. And let me ask one question on a different subject. Will obtaining green hydrogen be a necessary ingredient for success in the Incipient LanzaTech nutritional protein effort and whatever source of hydrogen is appropriate, is this likely to represent a capital expense, should an existing LanzaTech facility wish to convert to protein production?

So first of all, on the great thing about nutritional protein is that the production of protein is so energy intensive, so water intensive that even if you use gray hydrogen to convert -- 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, we can have an impact from gray to blue to green. You have to remember that there are food security issues as well and food availability for growing population, not just low carbon food. And LanzaTech nutritional protein allows you to do both, not just one. Now will there be a capital expense? The reaction would require CO2 and hydrogen 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.

Our next question comes from Thomas Meric with Janney Montgomery.

Good morning, team. Thanks for the time. Just wanted to follow-up on a few things related to the transfer of the Norwegian project. Is it correct that the $20 million is a quarterly number or will some of that be spread out over multiple quarters? 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, just thinking about future projects that are transferred to infrastructure partners, Brookfield or otherwise, how do we think about the free cash flow conversion of those projects? And then kind of as a side to that, what have you learned from the first project that you want to carry forward into the future ones?

Thanks, Thomas. Great to hear from you and appreciate the question. 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 of cost that we've incurred previously that we expect to recognize in the quarter. So those are actually kind of more the one time associate. I don't want to call it one time, but it's kind of catching up on the retrospective expense. There is a long tail future revenue expectation associated with those projects as well as we continue to play 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 startup services all of our kind of traditional economics associated with one of our projects as a licensor will translate to these projects. The owner or the customer in those cases will it's Brookfield who takes it over one of the other infrastructure partners. They will effectively be the customer. We're going to be doing kind of build on operate as a service. So it does create this long tail revenue stream associated with us, but the 20 is indicative of the catch up of the costs we've incurred to this point.

Let me --

Yes, please go ahead, Jennifer.

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 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, Fluor and in other cases, Technip that can be replicated across the world. So the amount of time it takes to get there 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 Eramet, with Fluor is something that we hope to duplicate, and we have identified multiple locations and created a pipeline where we could just literally move the same exact cop copy of that project somewhere else. Project Drake is also an example of that. This is Project Drake represents the 30 million gallon per year facility that that we developed for Project Dragon, and it is an ethanol to SAF facility, and we absolutely intend to replicate that across the world in partnership with LanzaJet. So we're very excited that we are creating a platform that can be duplicated.

And it's something that we would 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. As part of the reason and part of when we commented in our prepared remarks about this evolution of our business model, given the ability to develop these projects and continue to develop projects has 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. It was also an important component of this.

We will move next with Jason Gabelman with TD Cowen.

Good morning. Thanks for taking my questions. I wanted to ask on the revenue build up 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 a 1Q ‘25, just so that we properly kind of calibrate our expectations on the delivery on these revenues?

That's right. 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 complete agreements is really what this is all about rather than, a yes or a no decision on going forward.

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?

Yes. 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 JDA contract research, the work we've been doing kind of quarter over quarter, 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 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 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 story we've been trying to articulate previously which is that it's about taking projects, 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 moved beyond advanced engineering. We think that's something that we've been telling the market and telling you that we expected to do 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 revenue associated with those.

Got it. And my final question is on the ethanol off-take agreement. So just trying to understand the $6 million number, is that tied directly to ethanol prices? So 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 million to $20 million range? Is that just the off-take volumes?

That's right. So we are using approximate numbers based on both ethanol trading numbers, but also on our CarbonSmart business and what value we can get for that ethanol. And the only difference between that is the two numbers is in the first case, it's 5,000 tons per year, which is what we have acquired for the first year of production, and the rest is 10,000 tons per year for the five years after that first year, and that that's how we got those numbers. We intend to continue to do this. We have been using almost a spot timing for asking for ethanol from China that we then put into our CarbonSmart products. And now what we're doing is we're trying to get long term off-take commitments from our production facilities and in turn flip that over to off-take 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 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 you leave a lot of money on the table for the value that you've generated. And while that's good because, somebody else is putting the capital, we would like our business to participate more in you know, based on all the IP that we've generated. So that's why we're transitioning.

Our next question comes from Steve Byrne with Bank of America.

Yes. Thank you. I'd like to drill a little bit more into your nutritional protein product. Is this actually a protein or is it a series of amino acids? And I ask, are you able to affect the composition of amino acids in what is produced? 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? Do these are these bacteria able to fix atmospheric nitrogen into organic nitrogen? And then the last one, Jennifer, your comment about the carbon footprint of animal feed is very provocative. Have you done any lifecycle analysis on this product and the carbon intensity of it as opposed to the carbon intensity of either animal feed or animal protein?

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 life cycle and cost analysis for this protein. This protein has all 20 amino acids. Our bacteria has all 20 amino acids and is 85% protein. And so it looks very different than plant protein and very similar to animal protein. 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. I shouldn't say vitamins and minerals. Vitamins or other beneficial products like anti-inflammatories, omega-3s, et cetera. 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. In our current system, we have a lot of experience with nutritional protein, because as you know today our organism, our bacteria is alive. It does produce ethanol as the primary product, but approximately 10% of the carbon goes to growing the bacteria, right. It's alive and reproducing. We typically remove that bacteria from the bioreactor and we dry it and we already sell it as fish food. That is already marketed. We sold 25,000 tons of protein since we started our ethanol facilities. And we just the only shift now is to say, hey, we want protein to be the primary product because the world is population is growing and it's difficult to grow food. The reality is we're making it harder and harder to grow food. And so fundamentally, we felt why not leverage our capability to make a product that's 100% 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. And inside the bioreactor where the water is, where the bacteria lives, we have to add vitamins and minerals, nitrogen, sulfur, etcetera to help the bacteria produce those amino acids. However, net-net, the economics as well as the lifecycle are excellent. And we have done some comparisons and we'll be posting more and more of these comparisons. But really one commercial plant that would produce 45,000 tons just like our ethanol facilities, 45,000 tons of nutritional protein is the equivalent 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 because it's in an enclosed bioreactor and it doesn't have the same needs as growing plants. So really the carbon intensity is tremendously lower, the impact on food is tremendous and we already have the experience having done it using that currently byproduct of our work producing ethanol.

Interesting. Can't imagine what CO2 emissions are from 200 million chickens. But also wanted to just ask you a little bit about Project SECURE. What's the level of interest that you've received from some of the polyethylene producers along the U.S. Gulf to include one of their ethylene crackers in this project? And how close are you to identifying a site?

So, working with our partner, Technip, 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 have crackers in Europe and the Middle East are also quite interested in a replica 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 want to add one thing because we don't talk about it enough, but I think you saw us announce with IKEA that we have been producing isopropanol, 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 tomorrow because our isopropanol bacteria is ready to commercialize, that project could produce isopropanol and ethanol and then make ethylene and propylene by going over Technip 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. 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-100% fossil carbon propylene and polypropylene are made today. So this is game changing.

Our next question comes from Pavel Molchanov with Raymond James.

Yeah. Thanks for taking the question. If we go to the website of Freedom Pines, there actually have not been any updates on the SAF plant 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. The first of all noted that we need to update the website. We -- we haven't, in fact, started FEED into the system. And we are not producing SAF right now. You'll be the first to know when we when we do. But right now, we have started FEED, so we're past the early shakedowns.

Okay. That's helpful. Let me zoom out as well. Given that we're three days out from the election, and a lot of questions about for example, Section 45Q tax credits as 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?

Yeah. That's a great question, and I wouldn't dare to pretend that I am a politician or a pundit or somebody that that could address your question, 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 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. I would also say that you have to remember that we are not just doing projects in the U.S. We are a global company with projects in India, in Europe, Middle East, and so are geographically diverse business is not just impacted by the U.S. elections. And the fact is that different countries have different motivations for what they do. You know that in the Middle East, in the Kingdom, Saudi Arabia, they're focused on the circular economy to try to grow an alternate business, and that's why we're working with Olayan. You know that in Europe, it's about carbon abatement. That's why we have projects in Norway and the UK and the EU, and they're all focused on getting away from food. We have projects in Australia and New Zealand markets where SAF is so critically important to their industries because of the fact that they are so far away from everything. And so they need low carbon fuel as a license to continue to grow. And in New Zealand specifically to continue to grow their tourism business, they're an ecotourism country, right? You need to get people there with low-carbon intensity products and you need to get them back out of there with low-carbon intensity fuel. So really, what the administration does may impact the U.S, but the reality is the IRA is 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 the fact that the election is fastest is we can move on strong support for public, private, and job creating technologies, which frankly is what we are. So I think, it's where we are, and it's good progress in my mind that we can move forward.

Thank you. And this does conclude our Q&A session. I will turn the call back to Jennifer Holmgren for closing remarks.

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 in our industry are facing a number of headwinds. LanzaTech 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 off-take. These things are really important in growing our revenue and getting us to profitability. We're looking-forward with confidence for our strong 2025 and beyond. And we thank you for all your support. It's not an easy journey. We'll get there with the help of everybody who's on this line.

Thank you. And this does conclude today's presentation. Thank you all for your participation, and you may disconnect at any time.

Good morning, everyone, and welcome to today's LanzaTech Global Inc. Second Quarter 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. [Operator Instructions] Also today's call is being recorded and I will be standing by if you should need any assistance. And now at this time, I'll turn things over to Kate Walsh, Vice President of Investor Relations & Tax. Please go ahead.

Good morning and thank you for joining us for LanzaTech Global Inc second quarter of 2024 earnings conference call. On the call today, I'm joined by our Board Chair and CEO, Dr. Jennifer Holmgren and our CFO, Geoff Trukenbrod. Earlier this morning, we issued a press release with our second quarter 2024 financial and operating results, as well as an investor presentation summarizing the company's performance and key operational highlights for the quarter. Please also reference our quarterly report on Form 10-Q for the quarter-ending March 31, 2024, filed today. Both our press release and results summary investor presentation can be found in the Investor Relations section of our website at www.lanzatech.com. Before we begin, I'd like to direct you to the disclaimers in the front of the company's investor presentation and remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, 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. 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. Unless required by law, we assume no obligation to update publicly any forward-looking statements. 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 measure. Today's call will begin with remarks from Jennifer, providing an overview of our performance, our recent financial results and our recent outlook. Jeff will then review in greater detail our financial results and financial outlook. Jennifer will conclude with a few closing remarks before we open up the line for questions. With that, I'd like to turn the call over to Jennifer.

Thank you, Kate, and thanks to everybody joining us today. We appreciate your ongoing interest in and support of LanzaTech. I'd like to begin today by sharing several highlights from the second quarter, as well as an update on our key projects and future outlook. I will then pass it over to Jeff to give a more detailed view of our financial performance and position. On slide four of our latest investor presentation, we have outlined the key takeaways from this quarter, and I'll summarize it all with one word, progress. We're making progress on several fronts and I'm proud of what our team has accomplished. First, we delivered solid financial results for the second quarter, which were ahead of expectations. Revenue was 17.4 million for the quarter, representing 35% growth year-over-year. Adjusted EBITDA loss was 17.8 million for the quarter, a significant improvement relative to the prior year and to last quarter. These strong results were driven by our core biorefining licensing revenue and in particular revenue from engineering services and our arrangement with LanzaJet, which allows them to exclusively sublicense our alcohol to jet technology. Second, we continue to execute on all key aspects of our business, including biorefining projects, joint development and contract research engagements, and CarbonSmart initiatives. Let me give you a few examples. One, our carbon dioxide conversion project with NTPC in India resulted in equipment revenue associated with the order of long lead items, enhancing our confidence that this power to ethanol project will enter the construction phase during the second half of this year. Additionally, we moved several new projects to early stage engineering across multiple feedstocks and geographies, showing the flexibility of our technology. Adding to that, our CarbonSmart business continued to be active with existing customers such as Lululemon, REI and Cody [Phonetic], bringing new products online and our commercially available CarbonSmart yarns becoming part of brand supply chains rather than only being used in limited one-off collections. IKEA recently disclosed a long standing collaboration with us to develop new manufacturing routes to their products from industry emissions, specifically focusing on polypropylene materials. And we also completed our first pure play CarbonSmart fuel sales. Putting the right licensing structure, partners and supply chain infrastructure in place required significant effort, so we're very happy to have reached this milestone. These direct fuel sales build on our existing CarbonSmart business that requires our ethanol to undergo further processing or purification before being supplied to our textile, chemical and plastics customers. Overall, we're pleased to see such tremendous progress this quarter in our base business. Moving to the third highlight of this quarter, we increased our ownership in LanzaJet by nearly two-thirds to 37%, up from 23% without the need for any capital contribution for LanzaTech. LanzaJet and the exciting work it is doing to advance the sustainable aviation fuel market continues to show substantial progress on multiple fronts while benefiting from continued significant macro tailwinds. Fourth, we're excited to announce a $40 million investment from a new investor, Carbon Direct Capital. This strategic capital raise will support our path to profitability and support our working capital needs as we further scale our business. And fifth, we continue to expect revenue for the year to be between $90 million to $105 million with second house revenue being heavily weighted to the fourth quarter. Jeff will provide more details on our latest financial outlook, including greater detail on the breakdown between the third and fourth quarter in his remarks. Now for a few more details on these highlights, I mentioned a new project with NTPC, which is India's largest power generation utility company. NTPC and Jakson Green, their engineering, procurement and construction partner, are planning to use our second generation bioreactor to biorefine carbon dioxide with green hydrogen to produce valuable fuels, chemicals and raw materials. Having proven we can use carbon dioxide in a refinery setting with Indian Oil Corporation, we're expanding that ability with NTPC to a feedstock stream where CO2 is the only carbon source. In fact, LanzaTech can convert CO2 with the addition of hydrogen, ideally made from green energy in our carbon capture and utilization platform. NTPC's carbon recycling facility is designed to showcase the readiness of LanzaTech's technology for regions that are transforming the power sector and in turn enabling the widespread production of sustainable fuels, chemicals and raw materials from CO2. This is an inspiring example of the elusive power to X made real. As mentioned earlier, we continue to realize the value of our LanzaJet shareholding through our increased ownership in and continued collaboration with LanzaJet. By way of background, this increase in LanzaJet ownership was always part of the plan that we put in place for the commercialization of the alcohol to jet or ATJ process when we spun LanzaJet off into a standalone business four years ago. Our agreement with LanzaJet allowed them to develop the world's first commercial ATJ plant and allows them to further sub-license the ATJ technology that was originally developed by LanzaTech in collaboration with the Pacific Northwest National Lab and the US Department of Energy. With LanzaJet’s success in licensing the ATJ technology in June, we received the first of what is anticipated to be a total of three additional tranches of LanzaJet common stock. The first tranche received in June increased our landslide jet ownership to 37%, up from 23% and was related to a sub license issued to Jet Zero Australia. Jet Zero Australia is developing Australia's first ethanol to sustainable aviation fuel plant and LanzaJet’s Freedom Pines Fuels facility located in Soperton, Georgia is the reference plant for the project. We expect to receive the other two tranches of shares as LanzaJet further commercially sublicenses our technology, which is projected to result in an ownership stake in LanzaJet above 50%, subject to dilution from potential LanzaJet equity financing events. Given the projects and opportunities LanzaJet is working on, we have a line of sight to upcoming sublicensing events and expect an additional equity tranche within the next six months, with the third expected during 2025. Adding to the benefit of our increased ownership percentage is that we believe LanzaJet continues to grow its own enterprise value. This is due to the upcoming production of the first ever commercial quantities of SAF from an APJ process at LanzaJet’s Freedom Pines Fuels facility, from the development of an execution on a robust pipeline of APJ sublicensing opportunities, and from the recent additions of multiple world-class co-investors including Airbus, Groupe ADP, Microsoft Climate Innovation Fund, MUSG, Southwest Airlines; LanzaJet is growing quickly. Commercially, LanzaTech and LanzaJet are actively collaborating on several projects whereby commercial partners are expected to deploy both the LanzaTech and LanzaJet platforms in order to convert local waste resources to drop in sustainable aviation fuel. The sustainable aviation fuel produced through the combined processes is capable of reducing aviation emissions by at least 85%, depending in part of the waste based feedstock selection. Let's be clear that every carbon rich waste feedstock from solid carbon, including carbon locked in municipal solid waste or biomass industrial off gases, including those rich in CO2 to carbon and biogas can all be converted to SAS in this way. The robust pipeline of opportunities that exists for this type of collaborative waste based fuel solution is expected to be a significant demand driver for our biorefining business and a key pathway for LanzaJet to license its technology. To facilitate delivering these projects, LanzaTech and LanzaJet launched our joint offering called CirculAir. CirculAir is a coordinated commercial offering and powerful end-to-end solution utilizing LanzaTech’s Gas Fermentation platform in conjunction with LanzaJet’s ATJ platform to produce sustainable aviation fuel and renewable diesel from a wide range of waste feedstocks. Scaling SAF for urgency is critically important for aviation, a hard to abate sector, representing 3% of today's global CO2 footprint. In 2023, a mere 0.2% of global aviation fuel volumes was SAF, but this is expected to jump to 1% in 2026 and to 10%, or approximately 10 billion gallons in 2030. The enormous scale up of the SAF industry necessary to meet this demand is also benefiting from recent regulatory tailwinds around the world that support the use of a variety of waste feedstocks to meet that end. This supports rapid build out of technologies like LanzaTech that can flexibly use locally available feedstocks to suite regional conditions. CirculAir builds on the undeniable momentum behind scaling shaft production globally and the large opportunity set available to our two companies. You will hear more about CirculAir in the coming months as we expect to announce some important joint projects with LanzaJet. I also want to take a few moments to give an update on Project SECURE, a major initiative which we announced in March of this year. By way of background, LanzaTech and our partner Technip Energies were selected to receive a $200 million award from the US Department of Energy's Office of Clean Energy Demonstrations. The award is for the construction of a new LanzaTech gas fermentation facility, which will be integrated with Technip's Hummingbird ethanol-to-ethylene technology and an existing steam cracker in the US Gulf coast. Importantly, this is not an R&D project. The R&D and related investments are complete. The funds from this award will aid in reducing the capital expense for this first of a kind of commercial facility. Project SECURE represents a highly replicable project opportunity set for LanzaTech, as there are more than 370 ethylene steam crackers across the world and our decarbonizing solution efficiently bolts onto that existing infrastructure. On the feedstock front, no new fossil feedstock is being brought in to produce more ethylene. Rather, we're generating more ethylene for the producer from what would have been their CO2 waste emissions. Ethylene is often referred to as the world's most important chemical, given its use as a key building block in countless products we use every day, from clothing to packaging to foam and jet fuel, and is expected to be a $200 billion market by 2030. However, ethylene production is also a major source of emissions globally, responsible for the release of over 500 million tons carbon dioxide into the atmosphere per year and in need of carbon abatement solutions like what LanzaTech provides. With our combined solution, we take those emissions and convert them into valuable product this maximizes the use of the carbon molecules going into that facility, enabling our customer to increase their profits by being more resource efficient. We're currently working collaboratively with the DoE on the agreement for the project and anticipate completing the award contracting process in the coming months, with the goal of receiving initial award funds by the end of 2024. I'll touch now on a highlight I mentioned at the start, and that's the work we're doing with IKEA related to polypropylene. We're working with IKEA to convert waste carbon rich gases to isopropyl alcohol and then to propylene. Polypropylene is a very versatile and durable plastic with many different uses, and customers like IKEA are interested in applications where mechanically recycled plastic cannot be used today; for example, transparent products, products requiring food contact, or other products with very strict requirements, including medical applications. Today, 100% of new propylene in use worldwide is made from petrochemicals. Replacing all of the world's fossil propylene production with carbon capture and utilization made polypropylene would reduce carbon emissions by an estimated 700 million tons per year or more. The global propylene market size was a little over 120 billion in 2022 and is expected to expand at a compound annual growth rate, or CAGR, of close to 5% from 2023 to 2030. We talk a lot about the anticipated growth I had for LanzaTech related to SAF, and it's my belief that our work with chemicals could grow in tandem with SAF and be just as big. This is not just an idea. In fact, we produced sufficient isopropanol for IKEA to make food storage containers. As a proof of concept, we also completed the development work on our isopropanol process, which means we should be ready to license that technology this year. Our progress is not only driven by growing revenue, it is also underpinned by our commitment to manage costs across the organization. And the cost savings we expect from our reorganization and from our reprioritization earlier this year are starting to show up in our results. Stepping back from the specifics of the many important projects and developments I have discussed, I want to address a question that I'm frequently asked by customers, partners, investors, thought leaders and stakeholders. And the question is, what is LanzaTech's competitive advantage? Or, stated differently, what gives you confidence that LanzaTech will be successful over the long term? And while there are many reasons, two stand out. Number one, we have a commercially proven endurance technology. With six commercially operating facilities, we're not only ramping up production volumes and generating licensing revenues, but we also have over half a decade of operational experience at commercial scale. This extensive know-how allows us to partner with an impressive roster of customers, innovate continuously, and build more commercial scale facilities. Later this year, we expect to see announcements regarding repeat licensees and customers as we continue to move from first of a kind in the region to a series of plants with existing partners. Number two, the flexibility of our technology. Our ability to utilize a diverse range of waste feedstock such as municipal and industrial waste, agriculture and forestry residues, and industrial off gases ensures a commercial scale low cost supply of inputs globally, allowing us to benefit from regional variations in feedstocks and produce valuable ethanol for major markets in sustainable fuels, textiles, plastics and chemicals. We are a business built on a platform which has led to sufficient interest to enable a licensing model and we are building a strong recurring revenue foundation brick by brick, with each license that we deploy. As I said at the start, we are making undeniable progress and that to me and to all of us here at LanzaTech, is very satisfying. With that, I'll turn it over to Geoff.

Thanks Jennifer. Good morning everyone, and thank you for joining us on the call. I'll discuss our results for the second quarter of 2024 and then I'll provide further details on our expectations for the back half of this year. As Jennifer mentioned, and as seen on slide five of our latest investor presentation, we reported strong revenue growth for the second quarter of 2024, achieving $17.4 million of total revenue, which exceeded expectations. This represented year-over-year growth of 35% and 70% quarter-over-quarter. Drilling down into the separate revenue categories, this quarter's strong results were driven by revenue of 13.7 million in our biorefining business, which was up 41% year-over-year. As Jennifer noted, a significant component of this revenue was related to the additional equity consideration we received from LanzaJet in Q2. This additional consideration relates to the exclusive licensing agreement associated with the ATJ technology that we entered into with LanzaJet when we originally spun LanzaJet out into its own business. When we launched LanzaJet in 2020, we received our initial equity ownership stake in consideration for exclusively licensing them, the ATJ technology developed at LanzaTech. The company has consistently accounted for this transaction as a revenue transaction with a customer under ASC 606. The licensing and technical support services provided are recognized as a single combined performance obligation satisfied over the expected period of those services beginning May 2020 through December 2025. Consistent with that approach, the additional equity consideration we received in Q2 was accounted for as additional consideration for that same performance obligation over the same period. As contemplated in the original licensing agreement, LanzaJet's ability to further sublicense the ATJ technology is enabled by the grant of additional equity to LanzaTech. Associated with LanzaJet's first sublicensing event of the ATJ technology, the Q2 equity grant to LanzaTech was the first of what is anticipated to be a total of three additional tranches of 15 million shares for each of the first three sublicensing events, at which point LanzaTech will have received its full consideration for the ATJ license. For further details regarding the accounting treatment for this transaction, please refer to the Form 10-Q we filed with the SEC today. Biorefining revenue in Q2 also included startup and engineering services revenue from existing customers, as well as early stage engineering and equipment revenue associated with multiple new customers, including NTPC, one of India's leading power generation companies. Excluding the $7.9 million related to the LanzaJet transaction, these revenues were 5.8 million for the quarter. Joint development and contract research revenue for the second quarter of 2024 was $2.8 million as compared to 2.2 million for second quarter 2023, representing an increase of 25% year-over-year, primarily reflecting the progression expansion of work with existing JDA partners. And for CarbonSmart, revenue for the second quarter of 2024 was $0.9 million. It was fairly in line with the $1 million we did in second quarter of 2023. Importantly, CarbonSmart for the first half of 2024 was $1.8 million as compared to 1 million for the first half of 2023, representing a year-over-year increase of 79% and we continue to expect a ramp in this revenue category in the back half of the year. Turning now to cost of revenue, we reported $5.5 million in second quarter 2024 as compared to 10.8 million for second quarter 2023. Cost of revenue for this quarter was largely comprised of headcount allocations related to delivery of our biorefining services and JDA work. As a result of the significant licensing component of our revenue in Q2 and its associated low cost, gross margin was very healthy this quarter, coming in at 68%. If we strip out the uplift attributed to the LanzaJet transaction, gross margin was still a solid 42% for the quarter. On the operating cost front, second quarter 2024 operating expenses were $34.7 million as compared to 32.7 million for second quarter 2023. Importantly, this OpEx came in under budget as we continue to work to drive down our OpEx this year. With that said, we still saw a 6% increase in OpEx year-over-year as we continue to incur expenses associated with select free FID projects that we're developing which are not currently eligible for capitalization. We expect to recoup these costs when our infrastructure capital partners take over these projects at FID and expect the first of these transition transactions to take place during the fourth quarter of 2024. Our second quarter 2024 adjusted EBITDA loss was $17.8 million as compared to a second quarter 2023 adjusted EBITDA loss of 23.8 million. The year-over-year improvement of 26% is primarily attributable to the higher Q2 revenue and its mix of higher margin revenue, which drove significantly higher year-over-year gross profit. Turning now to our liquidity and cash position; at the end of June, we had $75.8 million in cash on hand, which includes cash investments and restricted cash. This compares to $92.3 million at the end of first quarter 2024. Our total cash burn for the second quarter of 2024 was $16.5 million, which was down significantly as compared to $29.2 million for the first quarter 2024 and the comparable quarter in 2023. The decrease quarter-over-quarter was due in large part to the working capital impacts we previously discussed in our first quarter 2024 call, including a number of large annual payments such as 2023 incentive compensation, the majority of our 2024 insurance premiums and other expenses that are traditionally paid during the first quarter but expensed throughout the year for accounting purposes, as well as a large customer payment that was deferred from Q1 into Q2. Q2 cash burn was further benefited by the reduced OpEx I referred to earlier. As Jennifer previously mentioned, we're excited to announce the closing this week of a new $40 million investment by Carbon Direct Capital, a globally recognized investor in the energy transition space. This additional capital bolsters our balance sheet and strengthens our financial flexibility. As noted in our 10-Q, this $40 million was invested pursuant to a convertible note purchase agreement, which contemplates one or more closings for up to $150 million of convertible notes. We continue to seek additional financing under the convertible note purchase agreement from certain accredited investors with whom we have a pre existing substantive relationship. I'll now quickly touch on our recent Form 8-K related to a lawsuit we filed in connection with what we consider a breach of our Forward Purchase Agreement, or FPA. There's a detailed discussion contained in our Form 10-Q filed today, but I will provide you with a few high level details here. Essentially, it is our position that a shareholder breached the FPA by selling LanzaTech shares that it was obligated to hold for the benefit of LanzaTech under the FPA. We are alleging that if in fact shares were sold by the shareholder, LanzaTech is entitled to receive from the shareholder approximately $10.16 per share sold per the terms of the FPA. The shareholder, in turn, has notified us that its position is that they were entitled to accelerate the maturity date of the contract, given our shares had traded under $3 for 50 out of the 60 trading days period prior to July 2, 2024, and therefore, per the contract terms, LanzaTech owes the shareholder approximately $7.5 million in maturity consideration, which can be satisfied in cash or shares, and approximately $2.5 million in share consideration payable in cash. It's important to note that it is our position the shareholder breach the contract before the maturity date could be accelerated and the shareholder sold its shares without complying with the procedures in the FPA, which includes paying LanzaTech the corresponding amount per share to which it is entitled. Therefore, we believe that we are entitled to significant damages and because we do not view the maturity date notice as valid, LanzaTech does not believe that any payments are owed to the shareholder pursuant to the maturity acceleration or its later notice of termination of the FPA due to lack of payment. We plan to pursue our claims vigorously, but cases like this can take some time to conclude. We will not be commenting on this ongoing litigation, but we wanted to make the details of this case abundantly clear from the start. We're taking the situation very seriously. Now, I'd like to take some time and discuss the remainder of 2024 and what we see from here. As Jennifer mentioned, we're reaffirming our full year 2024 revenue guidance of $90 million to $105 million, which at the midpoint represents approximately 55% revenue growth over 2023. We're also reaffirming adjusted EBITDA of negative $65 million to negative $55 million for full year 2024, which at the midpoint represents an improvement approximately 25%. As we look at how projects are progressing and how revenue projections are broken down between the third quarter and fourth quarters of this year, we expect revenue to be heavily weighted to the fourth quarter, with third quarter 2024 revenue expected to be similar to second quarter 2024. We expect several projects to progress to the final investment decision stage of our development process in the fourth quarter. This unlocks equipment revenues as these projects progress into construction. The team is very focused on progressing these projects, but if timing slips into next year, then it can negatively impact our ability to achieve our guidance. We expect the quarterly impact of project timing will lessen over time as we continue to scale our recurring revenue. We remain focused on reaching profitability as soon as reasonably possible. Our path to profitability is simple. It is based on continued growth of revenue and gross profit while diligently controlling our costs, and that's exactly what you can count on from us. With that, I'll turn the call back to Jennifer for some closing remarks before we open the call for Q&A. Jennifer?

Thank you, Geoff. While many countries are already moving to a future with carbon free power, we still need a sustainable source of carbon for essential products like textiles, packaging, consumer goods, food and fuels. Carbon is not the enemy, but an essential part of our daily lives. The issue is how we source, utilize and dispose of the carbon we use. LanzaTech has the flexibility to deliver solutions to address this challenge. Efficiency is key. We must make the most out of every carbon molecule. Initiatives like Project SECURE will enable our customers to produce more products and drive more revenue while reducing the need to buy more fossil feedstocks. This will enable our economy to keep more fossil carbon in the ground. The circular economy prioritizes resource efficiency, waste reduction and sustainable practices. This not only keeps materials in use for as long as possible, minimizing the strain on our planet's resources, but it drives maximum value from every carbon molecule. This is exactly what LanzaTech offers its customers and how we intend to help develop a new circular carbon economy. A cornerstone of a strong circular economy is that companies have to operate within it profitably. We at LanzaTech are steadfast in our focus to drive to profitability as quickly as possible. I want to close by coming back to the five key takeaways I outlined at the outset of the call. First, we delivered strong results that were ahead of expectations for the quarter, with revenue growth of 35% year-over-year. Second, we continue to sign new contracts, add new customers and progress projects through our biorefining development pipeline and I am especially excited about the commencement of our CarbonSmart fuel sales. Third, we increased our ownership in LanzaJet by 14%, up to 37% from 23%. Fourth, we announced a $40 million investment from a new investor, Carbon Direct Capital, which will help fund future growth and working capital as we scale our business. Carbon Direct is a leading investor in the carbon management ecosystem, and they have sophisticated expertise in the scale up of carbon abatement solutions. We are very pleased to welcome them on this journey with us. And fifth and final, we reaffirm the financial guidance for the full year, which includes 2024 revenue expectations of 90 million to 105 million. The team is very focused on getting several sizable projects across the FID line in the back half of this year, and we look forward to updating you on our progress in the coming months. Our financial objectives have been, and continue to be reaching profitability and from there, becoming free cash flow positive. The way we get there is by executing on projects, deploying licenses, and being diligent with cost management, and that is exactly what we're doing. With that, let's open the call up for questions.

Thank you. [Operator Instructions] And we will take our first question from Jeffrey Campbell with Seaport Research Partners.

Good morning. This is a quarter that could produce dozens of questions, but I'll limit myself to four, if I may. The first one is, are other entities showing interest in your polypropylene effort? Does the incipient work with IKEA limit Lanza’s ability to work with other interested parties?

Hi, Jeff. Thanks for limiting your questions to four and that is a great one to start with. There is no limitation on who we can work with. The work with IKEA was to develop the capability, because they win if there is sufficient interest, to build commercial facilities; and as you can imagine, with polypropylene, there's a lot of interest. For example, it's critical in the medical sector, it is critical in the automotive sector, and so we are talking to quite a number of partners who are interested in the off-take. And even more exciting, we're talking to a number of partners who are really interested in licensing the technology so they can use our new bacteria to make isopropanol that can then be converted further to propylene and then polypropylene. So there is tremendous interest and there is absolutely no limitation on us.

Okay, great. I was wondering if you could add a little bit of color to the specific ethanol licensing that you've now achieved for CarbonSmart. And with that in mind, which markets do you feel are now more open to Lanza as a result?

And you're talking about the fuel licenses.

Correct.

And so from the first ethanol sales with our new licenses went into the China market. We are looking at other markets in Southeast Asia as well. The one license that we were -- that still remains is an ISCC certification that enables us to trade into Europe. That one we don't have yet and so our fuel sales right now are absolutely focused on China. And as you can imagine, it was quite a journey to get all of the licensing, all of the permits and all of the infrastructure to enable us to do that. So we're now on a smooth path and made our first sale.

Okay, great. Yeah. Earlier in your prepared remarks, you may referenced hopefully green hydrogen with regard to the Indian project. I was just wondering, is it possible to arrive at an acceptable carbon intensity score for Lanza CO2 hydrogen project without green hydrogen?

So I think gray hydrogen will make it difficult. Conversion with our process or anybody else's process of CO2 with grey hydrogen will make it very difficult to show a reduction. However, blue hydrogen will work and green hydrogen will also work. The reason the NTPC project is so exciting for us is that NTPC is really accelerating their transition to renewable power and have started also to focus on green hydrogen. So blue works, green works and our partner is already doing a lot of work to transition to renewable power, so we know the electrons will certainly be available, the green electrons, and it's just a question of building out the greenhouse electrolyzers as well.

Okay, and then my last one. Can you expand on what the promotional advantages or the cost savings are in the CirculAir joint or partnership or whatever we call it? What does that offer to Lanza and LanzaJet, it's not already available to them.

Yeah, that is actually a great question. We have worked as independent companies in developing projects that go from waste all the way through to sustainable aviation fuel and, as you can imagine, that slows down the process. And so what we're agreeing to do here is to have a single face to the customer so that the agreements, the proposals, all of the techno economics are all done with a single face. That will make it go much, much faster. So basically what we're doing is committing to faster project development. The other thing that I think is important is by thinking of it as joint offering, the additional thing that we'll be able to do is really do much more on integration. If you look at our technology, it's the technique right now, from ethanol to ethylene, the LanzaJet piece, the LanzaTech piece -- I'm sorry, the LanzaTech and the LanzaJet. By doing it all as one face to the customer, we're also going to work very, very hard to do better mass balance, better heat integration, remove redundant equipment. All of these things will allow us to also get to a more cost effective offering. So the first stage will be just what the customer sees. The second phase will be how we integrate to make everything much more profitable and sustainable for the customer.

Great. Thank you. I appreciate it.

Thank you. And we will take our next question from Thomas Meric with Janney Montgomery.

Good morning. Thanks for the time and for taking the questions. Just a few for me, maybe tagging off at Jeff's on Jakson Green. Curious, just from a different angle, on the second generation bioreactor, is there anything about that second generation reactor that helped make this project pencil out, or is it just kind of a natural progression and timing matchup?

Great question. Thank you for that, Thomas. Indeed, the project pencils out even with the first generation reactor. The second generation reactor makes it more efficient, more effective. And when you've got a second generation reactor, a technology evolution like that, you're going to just start putting it in play, right? You always want to maximize profits. You always want to reduce costs, and that's what second generation reactor does for us. And so we intend to continue to implement it wherever it makes sense.

Helpful. And then on the project funnel, just want to think about the back half of the year as things reach and meet FID. I'm curious if you can characterize or at least provide any more detail on just the types of project delays that are kind of possible. Is it supply chain, is it labor, is it just financial getting things done or general latency? Just kind of curious on any additional detail for that.

Yes, let me pass this over to Geoff so he can give you a lot more details, Thomas.

Yes. Thomas, thanks for the question. As we talked about, we're expecting Q3 to look largely like Q2, which does obviously suggest a lot of weight on the fourth quarter. There are a half dozen or so of significant projects that we are focused on in the fourth quarter. We're seeing revenues ramping up in the third quarter associated with some of those, but there are kind of material events in the fourth quarter. We talked about looking to transfer our first project, one of our infrastructure capital partners, obviously a meaningful amount of the quarter right there, plus these other three or four. So certainly the difference between some of these transactions happening on 12/31 versus 1/1 could have meaningful impact on our quarter, but we don't see significant risk associated with those projects, just a matter of time. But certainly there could be some timing aspects associated with them.

Helpful. And then last question for me, kind of hint to that, I think. Just want to get an update on Brookfield and the first project to be transferred to that partnership or just generally, any comments you have on the partnership. And that's it for me. Thank you again.

Indeed. So we have a project that I can't go through more details right now that we are taking through to FID. The most important part about the partnership is that while we're developing the project, we are working directly with Brookfield, who is providing input on -- FID is a fluffy concept that can be defined by many people in different ways, right. And so by working with them directly, they point us to exactly what they need at every stage of the game so that when we are ready to transfer the project, they're not going to say, well, surprise, I need these three other things which are going to take you another couple of months. So we have a real project. We've gotten it to the very late stages of engineering. We're working with our EPC partner. It has met, so far, even though we're in late stages, all the criteria required by Brookfield. We've just got a couple more things to do to check the FID box. Yeah, leave it at that. Actually, I should add one other important thing. We have a really robust pipeline. The only reason -- with Brookfield, the only reason we're focused on one project initially, while we could do many in parallel, is it's really quite important to understand how to transfer a project to them. And rather than just having too many projects that we're working on at the same time, we wanted to focus on one transfer quickly and say, okay, here's the rest of the pipeline, and move that very, very quickly.

Thank you. And our next question comes from Jason Gabelman with TD Cowen.

Yeah, morning. Thanks for taking my questions. I wanted to ask first on the financing you announced this morning, the $40 million of convertible notes. I was hoping just if you could provide some key terms around that convertible note, the kind of maybe the rate and if that's interest that's paid in cash or in kind, and then the convertible strike price? And, yeah, that would be helpful.

Yeah. Jason, thanks for the question. Happy to try and get on a couple of the key terms. It is, as we commented on, $40 million of what's contemplated to be up to $150 million of convertible notes. The basic terms, there is an 8% coupon. It is a pick, so it's paid in kind, so there's no cash pay associated with it. There are -- the basic conversion price is $1.52, there are different adjustments to the conversion price and mandatory conversion features, voluntary conversion features and so I direct you to the 8-K that we put out this morning that includes the documents themselves and some additional key terms associated with it. But again, it's fairly straightforward piece of converter.

Okay, great. And then the follow up is just the path to break even EBITDA and kind of tied to this financing. Are you more comfortable now with your cash position and do you feel like you have enough of a liquidity buffer to get up to breakeven EBITDA? And any updated thoughts on when you expect to hit that important milestone?

Yeah, so we are very pleased to have an additional $40 million of liquidity on the balance sheet. We do think that that provides sufficient funding through 2025 as you kind of look at our cash burn historically and the expectation that that will continue to decline over that period of time. As you know, we haven't provided guidance beyond 2024 in terms of the specifics around profitability, but we do expect to raise additional capital associated with either this round or some additional.

Okay, thanks.

Can I just please piggyback on that for a second? We're also very excited to be partnering with Carbon Direct. I don't know if you know Carbon Direct, but they specialize in carbon management companies. They have a consultancy piece that works with the Microsoft, Morgan -- JP Morgan, Mitsubishi, and other major corporations on really, carbon management and how to think about carbon reduction. And they also have an investment arm and that investment arm has initially focused on early stage private startup companies and is now starting to focus more and more on de-risk scale up companies like ourselves. So we are really, really happy to have them on board and I just want to make that clear that they're going to make a tremendous partner and help us on our journey and very well aligned with the rest of our investor base. Thank you.

Thanks.

Thank you. And we will take our next question from Steve Byrne with Bank of America.

Yes, thank you. Jennifer, you made a comment that you expect to get that funding from the DoE for Project SECURE by year end. I assume you likely have a cracker lined up for this project and maybe more specifically the hydrogen that you'll need to capture the CO2 and convert it into first ethanol. Could you use the hydrogen that's a byproduct from the cracker and arguably call it blue, given your carbon capture system, is this a way to potentially reduce the cost of the process?

Do you want to come over and project manage the project, Steve, because I think you're right on there. Absolutely, I think the carbon intensity of off gases that exist in the petrochemical complex that we'll be using and how we leverage those is going to be extremely important in thinking through this. And the way we're going to think about the hydrogen we use is to both look at its carbon intensity as well as its availability and cost, right. And the techno economics plus the lifecycle will dictate exactly what hydrogen we use as feedstock. But absolutely, the value of these projects is to integrate. The value of these projects is to reduce costs by leveraging what's available. And I also want us to always remember that our projects enable us to create a roadmap. In other words, one can start with a certain techno economic basis, with a certain carbon intensity, and then transition to something more rigorous, right. Nothing says that as green hydrogen and green electrons become much more available, a plant that started up on what would essentially be blue hydrogen and off gas from the refinery cannot become then supplemented by green hydrogen, continuing to reduce its carbon intensity. And I think what you'll find is, in industries like SAF, you get rewarded for the carbon intensity of your products. So we won't let the perfect be the enemy, good. We'll start with what's available and make sense, and then we will progress to things that raise the bar. And so that really is what we intend to do here and demonstrate that path. Thank you again.

Sure. And at full scale, do you have an estimate of what the unit variable cost could be per pound of ethylene, just as a way to characterize this pathway, as opposed to using ethane based feedstock?

Not today. Too many unknowns on the exact site, the exact hydrogen source, the exact cost of the utilities and that will be after the phase of engineering. And we hope to start that before the end of the year for sure, and take it into early next year. So ask me again next year, please.

And just one last one for you. Any meaningful differences or challenges between this operation to produce ethanol and then ethylene versus producing propanol and then propylene, is one any more challenging than the other? Are your microbes fully capable of producing either?

So the base case ethanol is our existing commercialized microbe that we have so many years of experience with. We had our first commercial plant running in 2018. The propylene is a genetically modified organism. It is one that we have developed. It is the chassis, the basis, it is the bacteria that makes ethanol but it is modified. It is a more challenging step than doing ethanol, which is our bread and butter. We don't believe there are any issues. You know our processes, we're very conservative and we have taken it through the piloting. We've piloted isopropanol at our Suncor demonstration facility. So we're very comfortable and confident, but I don't want to say ethanol and propanol right now on the same breath, right. We need to accept that that is still going to be a first of a kind when we do propanol. But what you said, which I think is most important, is crackers make ethylene and they make propylene. And it is absolutely LanzaTech's intention to lever crackers to make these sustainable ethylene and propylene. We will do it at the same location. We will make it work exactly the same way. We will integrate it in a way that the economics make sense. We are trying to displace all of the commodity chemicals that are used today in making the products we use every day.

Very good. Thank you.

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Jennifer Holmgren for closing remarks.

Thank you so much. LanzaTech and the circular economy are in growth mode. The circular economy market size was valued at roughly 550 million in 2023 and is projected to reach over a trillion dollars by 2030, representing a CAGR of 13% from 2024 through 2030. Together, we at LanzaTech are not just building a technology, we're pioneering that circular economy that has the potential to transform pollution into profit and enable economies to grow using local resources, fostering a sustainable future for generations to come. Thank you again for joining us. Thank you for supporting us. Thank you for giving us the opportunity to show what we can do with carbon that's already above ground. Thank you. Thank you. And I wish you a great rest of your day.

Thank you. This does conclude today's LanzaTech Global, Inc. second quarter 2024 earnings conference call. Thank you for your participation. You may disconnect at any time.

Good morning, everyone, and welcome to today's LanzaTech Global First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Also today's call is being recorded, and I will be standing by if anyone should need any assistance. And now at this time, I'll turn things over to Omar El-Sharkawy, Vice President of Corporate Development. Please go ahead, sir.

Good morning, and thank you for joining us for LanzaTech Global Inc.'s First Quarter 2024 Earnings Conference Call. On the call today, I'm joined by our Board Chair and CEO, Dr. Jennifer Holmgren, and our CFO, Geoffrey Trukenbrod. Earlier this morning, we issued a press release with our first quarter 2024 financial and operating results as well as an investor presentation summarizing the company's performance and key operational highlights for the quarter. Please also reference our quarterly report on Form 10-Q for the quarter ending March 31, 2024, filed today. Both our press release and results summary investor presentation can be found in the Investor Relations section of our website at www.lanzatech.com. Before we begin, I'd like to direct you to the disclaimers in the front of the company's investor presentation and remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts 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. 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. We assume no obligation to update publicly any forward-looking statements. 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 measure. Today's call will begin with remarks from Jennifer providing an overview of our performance and our recent financial results. Geoff will then review in greater detail our financial results, and Jennifer will conclude with a few closing remarks. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Jennifer.

Thank you, Omar, and thanks to everybody joining us today. We appreciate your ongoing interest in and support of LanzaTech. I'd like to begin by sharing 5 key things from the past several months that I'd like for you to take away from this call. These are all outlined on Slide 5. First, we delivered financial results for the first quarter right in line with our internal forecast and guidance provided last quarter. Revenue of approximately $10 million, gross margin of 34% and gross profit of $3.5 million, all increased year-on-year as we continue to scale and optimize the business while closely managing costs across the organization. Second, we announced in March the Project SECURE where our partner Technip Energy has been selected by the U.S. Department of Energy to receive a $200 million grant. This commercial project would leverage land detection Technip Energy's transformational technologies to produce sustainable ethylene from capture carbon dioxide emissions, further validating the transformative nature of our carbon recycling technology and laying the groundwork for a highly replicable project opportunity set for launch of [indiscernible] more than 370 ethylene steam crackers across the globe. Third, it was an extraordinary quarter for sustainable aviation fuel, our investment in LanzaTech and our role in the broader SAF sector, which continues to gain significant momentum globally. In January, LanzaJet which we continue to hold an approximate 25% ownership interest inaugurated the world's first ethanol-to-SAF facility in Soperton, Georgia. The achievement marks the strategic and historic milestone not just for LanzaJet, but for the growing SAP economy at large as the 10 million gallon per facility brings in new production route to commercial scale, the alcohol to jet or ATJ pathway. Separately, LanzaTech is in the process of completing an approximate $100 million investment round to accelerate its growth from some of the largest and noting influential companies and investors in the world with commitments already from Microsoft Climate Innovation Fund and Southwest Airlines. Fourth, we continue to advance our growing pipeline of commercial scale projects while expanding the scale and diversity of the feedstocks and represented geographies. This includes growing the base of fraud extending to the top of our development pipeline as well as advancing projects through the various development stages. And finally, we are reiterating our 2024 financial and operating guidance introduced earlier this year. This includes expected revenue of $90 million to $105 million, which at the midpoint reflects top line growth of approximately 55% over last year's performance. From this, you can see that we continue to execute on our growth plan while maximizing operational financial flexibility across all parts of our business. As we mentioned in our previous quarterly calls, we are committed to our culture and safety. I am proud to report that we concluded the quarter without any safety incidents at our facilities in the field or in the laboratory. Regrettably, we did, however, have one recordable lost time injury due to an office space incident during the quarter. I would like to now review the key highlights from the first quarter of 2024, starting with Project SECURE, a sustainable ethylene from carbon dioxide project in partnership with Technip Energies. As shown on Slide 6, Project SECURE is a commercial demonstration of carbon capture and utilization. The grant funding of up to $200 million from the U.S. Department of Energy will support the design, engineering and construction of Project SECURE at a U.S. [ Equity Practice ] facility. We expect to work on this project to commence in the fall when we finalize the contracting details associated with this project. By combining the lens of the cash fermentation technology with Technip Energy's ethanol to ethylene technology, this transformational project is expected to produce 30,000 tonnes per year of sustainable ethylene from capture carbon dioxide emissions at an ethylene cracker operating at a merger petrochemical facility in the U.S. In turn, this sustainable production will reduce the carbon intensity of the existing open production of the shale. Ethylene has a massive global market projected to reach $200 billion annually by 2030 and is often referred to as quote, "The world's most important chemical given its use as a key building block in countless products we use every day, from closing to packaging to foams to jet fuel." However, ethylene production is also major sourcing emissions globally, responsible for the release of over 500 million tons of carbon dioxide into the atmosphere per year and in need of carbon abatement solutions with LanzaTech. Project SECURE offers an immediate and highly replicable solution to decarbonize ethylene production using existing infrastructure. Technip Energies is the global leader in providing steam cracker technology to the chemical industry with 40% to 50% of the global licensing market share by ethylene production. The modular design of Project SECURE is intended to be easily deploy ethylene crackers around the world for which there are more than 370. This provides an enormous commercial opportunity for LanzaTech and Technip to rapidly penetrate the ethylene value chain with its curing technology offering and capture a significant portion of this market given our established licensing models. Looking now at sustainable aviation fuel on Slide 7, we remain bullish on the SAF market. As I noted earlier, it was an increasingly exciting few months for LanzaJet in the SAF market more broadly. And we believe we are well positioned to play a significant role in the proliferation of SAF production through the alcohol to jet process. LanzaJet ethanol will be a critical feedstock for SAF and when coupled with LanzaJet technology, enables production of SAF from a variety of [indiscernible], including municipal cloud waste and [ East field ]. The inauguration and start-up of LanzaJet in lines field facility, the world's first biorefinery that transforms ethanol into sustainable radiation fuel is a game changer. We expect that the facility will begin producing SAF by the end of the second quarter and ramp up to full production over the course of the year. This facility will focus on maximum production of SAF at 90% of the product output with the remainder 10% as renewable diesel, which is a unique capability of the LanzaJet technology and unmatched [ biomethane ]. We've made good progress on the opportunities in our commercial pipeline that focus on integrated solutions sticking for waste gas and residents through the SAF by pairing LanzaTech gas fermentation technology with the LanzaTech alcohol-to-jet process or particular that we are in Abu Dhabi to take quantified solids through the SAF and our project in New Zealand within New Zealand and the New Zealand government to take predominantly [ densified ] forestry residue through the SAF, both contributed to engineering services revenue during the first quarter. Our Project Dragon in the U.K., taking industrial as gas through the SAF is in advanced engineering with the frontend engineering and design, completed and prime permission granted for the SAF unit. We continue to utilize the funding received by the U.K. Department to transport to bring that Project to FID. The recently announced U.K. SAF mandate is positive for the overall U.K. SAF market and specifically supportive of our process and Project Dragon. The mandate stipulates that SAF is account for 2% of all fuel in the aviation sector, with the threshold increasing to 10% in 2030 and 22% in 2040. Importantly, the mandate provides a cap on SAF production via the hydroprocessed esters and fatty acids or HEFA production pathway that becomes more stringent over time, which means there is a protected market for advanced SAF in the U.K., such as SAF produced from waste-based ethanol. Additionally, the SAF buy-out price or the price of [indiscernible] can pay to out of their obligations has been significantly increased as a result of the mandate, further supporting SAF processes in this market. In addition to a role of feedstock provider of waste-based ethanol alcohol aged SAF production, we are extremely proud of our strategic ownership stake at LanzaJet and welcome new world-class co-investors into LanzaJet. We continue to hold our approximate 25% ownership in LanzaJet today. The recent equity raise by LanzaJet has been done in an unpriced round and is, therefore, non-diluted to LanzaTech at this time. Additionally, LanzaJet recent capital raise does not impact the mechanism by which LanzaTech issued additional LanzaJet take shares to increase our ownership percentage as the original co-investors and others build their own plants using LanzaJet SAF technology. Moving to Slide 8 on our commercial project pipeline, our total operating project count stands at 8 which includes both commercial scale and demonstration scale parties. Please note that for the purposes of the project funnel, we have now separated out the landscape prevent Banks Field facility from this illustration. This LanzaJet Project was previously in the construction category and going forward, we will provide updates on the project separate from the LanzaJet Biorefining project pipeline. The LanzaJet fuels parties currently in commissioning and start-up and is on track for production fell in the second quarter of this year. The total installed maintain production capacity across our licensees operating to the 6 commercial Biorefining projects is approximately 310,000 tonnes of ethanol per year with the ability to abate more than 0.5 million tonnes of carbon per year that would otherwise enter administrated. The full commercial plants in China continue to perform, and we're continuing to make progress on the ramp up to full production capacity at Indian Oil's facility in India and our ArcelorMittal facility in Belgium. Our global services engineers are diligently working hand in hand with our customers to ramp up production, and we expect that successful full-scale operations will be achieved within 2024. Looking at the top of the funnel, we have 9 net additions of qualified project opportunities into the first phase of the pipeline in the first quarter and on net project position into advanced engineering from early-stage engineering. As mentioned during our last update, we continue to expect that several projects in advanced engineering will achieve final investment decision and move into the construction phase in the second half of this year. As a result, we expect revenues from the equipment packages to materialize with respect to those projects along the same timeline. In addition to the significant depth of our commercial licensing pipeline, we're working with our infrastructure capital partner Brookfield to transfer the first project under our partnership to them this year while ramping up development of additional project opportunities. Additionally, we are working close we would joint venture partner, Olayan on developing and financing a pipeline of project opportunities in Saudi Arabia and the Broader Middle East. In our carbon smart business, we continue to negotiate optic supply agreements with our partners in China and Europe to satisfy the growing cabin smart demand in 2024 and 2025. We're focused on sales into the global chemicals market with the revenue in the first quarter from several of these customers. We also remain optimistic about revenue upside for CarbonSmart ethanol in the low-carbon fuels market, specifically in the new one circulations are settled at the European Commission and how these first other fine fields are treated. Positive technical guidance continues to be provided by the commission that it is not yet final with the latest expectations suggesting that the European Commission will approve the certifying bodies this summer. Actually, before turning it over to Geoff, I wanted to share a brief update on the reorganization initiatives we signed last quarter. We've already begun to see the operational transparency and efficiencies bear fruit with a more streamlined executive team driving greater accountability and enhanced execution throughout the company. The reorganization and work reprioritization announced earlier this year are now fully underway with the estimated cost savings associated now beginning to materialize. We continue to expect the annualized operating expense savings of $5.3 million to be realized over the course of this year. Additionally, we will continue to expect during the year with our global head count at all below 400 people, which is below the total head count at year-end 2023. As a global team, we are focused on commercial growth in our core business and delivering on the financial results we've committed to the market. With that, I'll turn the call over to Geoff to provide details on our financial performance. Geoff, please go ahead.

Thank you, Jennifer. Good morning, and thank you to everyone for joining us on the call. As seen on Slide 10, total revenue for the first quarter of 2024 of $10.2 million grew by 6% year-over-year and was right in line with our forecast and the guidance we've laid out last quarter. CarbonSmart revenue of approximately $1 million in JDA & Contract research revenue of $4.3 million, both through year-on-year in the first quarter. The CarbonSmart side, sales from our recurring chemicals customers supported this growth. And on the JDA & Contract research side, the performance was driven by several customers and government grants, which are typically multiyear in duration. Biorefining revenue declined year-over-year in the first quarter to $5 million but saw strong contributions from engineering services revenue across projects in both early and advanced stage engineering as well as from start-up services associated with the ArcelorMittal facility in Belgium. Importantly, the decline year-on-year in Biorefining revenue was anticipated and is attributed to the uneven nature of revenues earned in the early development stages of each project, which currently dominates our Biorefining revenue mix. Notably, we expect the composition of our revenue mix will become increasingly smooth and consistent as we continue to add project opportunities and more projects come online, building recurring revenue as a larger percentage of our overall revenue mix. With respect to margins during the quarter, our focus on revenue quality continued during the first quarter, driving gross profit improvement of 87% year-on-year to $3.5 million. This improvement reflects a higher mix of high-margin engineering services work and JDA & Contracts resulting in first quarter gross margins of 34%, up approximately 570 basis points over the full year 2023 gross margin. As mentioned previously, we continue to expect gross margin to be in the mid- to high 20s for the full year 2024. On the expense side, operating expenses declined 14% year-on-year in the first quarter, coming in at $29.6 million, largely reflective of the onetime expenses in the first quarter of 2023 associated with our Go Public transaction. Sequentially, operating expenses increased due to slightly higher personnel expense and research and development and SG&A from reduced bonuses in Q4 2023 and Q1 2024 severance costs associated with the previously announced reorganization. As Jennifer noted, the executive reorganization that we announced last quarter is complete at the newly reorganized functions are exploring and implementing efficiency and accountability improvements throughout the organization. The associated cost savings initiatives are also well underway and on track to deliver the previously estimated full year cost reductions. CapEx spent during the first quarter of 2024 totaled $1.3 million, and we continue to project CapEx for the full year 2024 to be consistent with or below our CapEx for the prior couple of years. Turning to adjusted EBITDA and cash burn for the quarter. As expected, our adjusted EBITDA loss increased quarter-on-quarter in the first quarter to $22.1 million, largely as a result of the lower Q1 revenue and gross profit as compared to the fourth quarter of 2023. Our total cash burn in the quarter was $29.2 million, which was up quarter-over-quarter as a result of the lower revenue and larger adjusted EBITDA loss was also materially impacted by a number of large annual payments, including 2023 incentive compensation, 2024 insurance premiums and others that are expensed throughout the year were paid in Q1. Importantly, we also expected to invoice and receive a multimillion-dollar payment in the quarter associated with one of our non-contracts, but some administrative contracting issues stand the end of the quarter, resulting in a simple delay in this payment. As a result, we do not believe that this burn rate is indicative of our average quarterly burn rate for the full year 2024. Turning to the balance sheet. As of March 31, 2024, we had $92.3 million of cash on hand, including cash, restricted cash and investments. And in the quarter with more than $92 million of cash on hand, we remain confident that we have the financial flexibility to execute our plan and deliver on our primary objectives outlined for the full year 2024. With that said, we're also announcing today the filing with the SEC of a registration statement on Form S-3 that includes a prospectus offering or an at-the-market or ATM issuance of $100 million of the company's common shares. We recently passed the 1-year anniversary of the completion of our business combination and became eligible to do so, we believe that having a universal shelf as on filings good corporate housekeeping, and the ATM provides us with a tool to opportunistically access additional capital, even though we have no plans at present to utilize it. While we believe we have sufficient liquidity to execute on our near-term objectives and obligations. We will also continue to opportunistically and patiently explore other strategic financing alternatives to ensure we are best positioned to achieve our longer-term growth objectives. Pursuing these additional financing options enables us to maximize potential opportunities to computer supplement our financial flexibility as we continue to explore strategic opportunities to accelerate our growth and path to profitability. Looking ahead to the second quarter and the rest of the year, we continue to anticipate a strong quarter-over-quarter revenue ramp with an expected 20% to 40% quarter-over-quarter growth in Q2 and a very strong back half of the year, underscored by the expectation of moving multiple projects into later stages of development and into construction. As Jennifer mentioned earlier, and as outlined on Slide 11, we are reiterating our full year 2024 guidance of $90 million to $105 million in total revenue, with full year growth across all components of the business. And an obviously significant back-end weighted shift to the year as well as negative $65 million to $80 million to $55 million of adjusted EBITDA. We anticipate the Biorefining revenue growth will come from ongoing and new engineering services revenue as well as the sales of equipment packages related to several projects, and we expect to achieve final investment decision and proceed to the construction phase in 2024. Biorefining will also be bolstered in 2024 by the anticipated kickoff of Project SECURE, our DOE-funded project with Technip for the decarbonization of ethylene production and the multiple opportunities that we are working on to address the growing demand for SAF, including the projects we are codeveloping with LanzaJet and the broader need for waste space ethanol as an enabler of alcohol to jet growth globally. Finally, we continue to anticipate moderate year-on-year growth in our CarbonSmart business and our JDA & Contract research business. With that, I will turn the call back over to Jennifer for some closing remarks before we open the call for Q&A. Jennifer?

Thank you, Geoff. Our performance is not just a set of numbers. It's a tangible media station of progress in a field where every small victory has a significant impact. We are at the vanguard of an industry that is as challenging as it is essential. The opportunities before us are not only progressing but are the cornerstone in creating a new part in economy. This quarter was to-date quarter, and I want to close with coming back to the 5 key takeaways I outlined at the outset of the call. First, we delivered financial results for the first quarter, right in line with our guidance provided last quarter. Second, Project SECURE was a huge win, and we're excited about the project and the replicability of this technology integration. Third, SAF continues to be an enormous demand fulfill-based ethanol, and we are well positioned in this massive sector. Fourth, our commercial project pipeline is growing and progressing and finally, a reiteration of our full year 2024 financial and operating guidance. Thank you for your continued trust and support. Together, we're not simply participants in this economy. We are the architects and builders laying down the foundations for a sustainable future. Operator, we can now open the line for Q&A, please.

[Operator Instructions]. We go first this morning to Leo Mariani at ROTH MKM.

Wanted to just start off on the revenue side here. So if I heard you guys right, you're expecting roughly 20% revenue growth in 2Q versus 1Q here. If I do the math, that gives you about 23% of your revenues in the first half relative to your midpoint of your full year revenue guidance. Given that, can you just elaborate a little bit on what you expect to hit in the second half of '24, which obviously has to be a pretty big significant ramp to hit that guidance this year?

Yes. Leo, and thanks for being on as always. So yes, we put a little bit of a range for Q2, so 20% to 40% growth over the first quarter, just to reiterate that. So there's a little bit of variability there in [ finding ] projects as well. But yes, that does certainly suggest that we expect a large ramp in the back half of the year. We did reiterate our guidance. So we do expect to be in those revenues in the back half. It's a function of a combination of things, including a variety of projects moving into the construction stage as well as ongoing projects that has already moved into as well as the other components of our revenue.

Okay. And just on the cost side, hoping you could help me out a little bit here. So I'm looking at it just on the key cash costs, if I take R&D plus cash G&A, it looks like that was up about $3.2 million in the first quarter versus the fourth quarter. I got the sense that there were some onetime costs in there, some severance and maybe some others. Could you quantify what the onetime costs are? And then is your expectation for those key costs to start dropping here in the second quarter?

Yes, Leo. There's 2 aspects of it. One was the in the SG&A and R&D costs. These are largely cut personnel costs. These are head count costs largely. And so in Q4, they were slightly down. As you recall, we cut back our bonuses in associated with 2023. So that resulted in a reduction in cost in Q4 of last year. Normalized for Q1, it's slightly up as well as there were, as you noted, some onetime costs, some severance costs associated with the reorganization that we announced in [ Q4 ]. I'm not going to get into the specifics of the severance costs, but we do expect those to be onetime and that will trail off for the rest of the year.

Okay. So you're saying that your cash costs are going to start going down here in the second quarter? We expect the cash cost for those line items to reduce quarter on quarter.

We'll go next now to Jason Gabelman of TD Cowen.

I wanted to ask about the project pipeline and some growth that you mentioned, 9 projects added to that pipeline. I was wondering if you could give us some flavor for what those projects were and if you expect to maintain that pace in terms of projects being added to the pipeline or that will be lumpy again as well, I should say, quarter-to-quarter.

Let me address that. [ Deposit ] pipeline just because it's early stage for us, will be a little lumpy and silly. However, we are adding projects both to the top of the funnel and getting projects through to FID. So we do expect to see construction this year. The projects that are being added to the front of the funnel, however, are tough for me to discuss the specific partners because of the fact that a lot of those are still not named partners. However, we are starting to also see interest from companies to start replicating projects. We've done that in China, we have 4 projects with the same partner, and we're starting to see filling up the funnel with partnerships related to companies that are overly building plans.

Got it. And my second question is just on the earnings outlook. I think you have previously mentioned breakeven EBITDA in 2025. Is that still your expectations? And any other color around that in terms of growth from 24% to 25%?

Jason, thanks for the question and for being on. As you know, we haven't provided any guidance beyond 2024, specifically at this point in time. We do think our path to profitability is a function of growth. And our expectation is that the company will continue to grow significantly year-over-year. And as we grow the top line and the associated gross profit, that will drive our ability to get to profitability. But again, just we haven't been specific about our guidance for anything beyond 2024.

We'll go now to Thomas Meric with Janney Montgomery.

A couple for me on the SAF market. Firstly, what's your assessment of the current SAF feedstocks in terms of supply, demand and really cost to use it? And then how do you expect that to change in the coming quarters? And then second one on SAF, just curious your thoughts and reactions to the recent great model, if anything stood out to you there? And then one follow-up on Brookfield after that.

Sure. Let me start, and thank you for the question, Thomas. On the SAF market, we continue to see demand for waste-based feedstocks as a key priority. I think you saw the U.K. government incentives and targets and they really grow in terms of SAF demand, but also they disproportionately grow the non-HEFA in other words, the non-oil stats and greases demand factors. So you're really starting to see people talk about shifting to waste demand with feedstocks. The fact is that we're very well positioned in that since all we use our waste feedstocks. However, I would also say that generally, these types of feedstocks can be more expensive. And so what's happening is that the mandates are slowly increasing the waste inputs so that they are creating a market without unduly pushing towards waste. So we're really excited about how that's happening, and it's happening globally. We're also excited about the fact that e-fuels, CO2 plus hydrogen are also being incentivized disproportionally in favor of trying to create that industry. And as you know, with coupling lens to take advantage using CO2 feedstock is something we can do because if use is a path for us to make ethanol, that ethanol then can be converted to SAF by LanzaJet. So we're seeing more and more incentives, but we also find them to be quite measured in that governments have been realistic and saying when are these things going to be ready. And they're not in the market today, but they will be in the next few years or at least that's our intention, and that's what our project portfolio would say. The second thing I would say to your question, the second question you asked was the GREET model. And as you know, what the GREET model use has done, the White House has sent out a direction around that. And bottom line is it enables corn ethanol if certain measures are utilized to reduce the carbon intensity of corn ethanol to qualify and to be used for the production of sustainable aviation fuel. So we think it's a big win, both for corn producers here in the United States, corn ethanol producers here in the United States because it shows in the path which they can also participate in a market that was difficult for them to participate because there was no clear picture on how they could reduce their carbon emissions. And so the White House basically has shown a path that enables them to participate. Hopefully, that addresses your question. I think you also wanted to ask about Brookfield, I'll pass it back to you.

Yes. Thank you. on Brookfield, specifically just thinking about the unlock of future projects. And I'm wondering if you could comment on the potential for additional project FIDs in after the first one gets transferred.

Right. So that, we do have a very robust pipeline of projects that can go into our Brookfield pipeline, if you will. What we are doing is focusing on the very first one for a reason. This would be our first project and defining all the parameters that we need to define to transfer the project is something we're doing lockstep in them. We work very closely with them, and we're understanding each other on what makes a good project and what is it that they need to see for them to pick it up. So while we have a robust pipeline that we are moving along on certain parameters like getting gas agreements and other types of things, we have focused on only one project so that we are clear on how to transfer. The other thing that I think is quite important is that with the Brookfield pipeline, we are able to look at projects in North America more and more and as well as Europe and the U.K., but we're starting to see a lot of interest in North America. So we're super excited about using the Brookfield approach and partnership to enable those projects to move forward.

We go next now to Jeffrey Campbell of Seaport Research Partners.

Congratulations on all the positive developments. I wanted to ask a few questions for Project SECURE. First of all, I think you gave us an ethylene output number for the project, but I was wondering what would be the likely ethanol output from the plant costing $400 million to construct?

So the output of the plant decides to that ethylene production number, this is meant to be an ethylene producer. So all the ethanol will go straight into the ethanol to ethylene plant. The yield losses are less than 15%. So basically, the ethanol number is very close to the ethylene output number.

Maybe I should rephrase the question. What I'm trying to understand is how does the LanzaTech plant for this project compared to our typical 50,000?

Yes. Thank you for the question. It's 50,000 tonnes per year. This is an ethanol plant of the site, 50,000 tonnes per year, and all of the ethanol will go straight to ethylene.

And are you and Technip looking to construct projects of approximately that size going forward? Or can smaller units be profitable?

So we can go both smaller and larger. And what we're starting to do is we're going to have standard sizes. So the 50,000 is one of our standard sizes, as you know, Jeff, because we use that in multiple of our projects. We also have one that is approximately half of that size that we're now using as a standard, and then we can also go bigger. So what we are trying to do now, especially in this partnership with Technip and more and more as a company is create standard units rather than bespoke units because that will allow us to do the engineering package and work with the disease in a way that goes much, much faster than trying to customize size for every opportunity. So if that is your question, that is exactly what we're doing and that $50,000 is there for that reason.

No, that's a great answer, and I appreciate the color I'm moving away from bespoke. Geoff's remarks if I heard them correctly. It sounded like there might actually be some revenues from Project SECURE at some point in 2024. Was that correct? And if so, is that included in current guidance? Or would this be in addition to guidance?

Thanks for the question, Jeff. Yes, we do anticipate currently that we will be in seeing revenues associated with Project SECURE in the back half of the year. The timing associated with finalizing the administrative contracting associated with that is the pace that's the time uncertainty. We're working hand in hand with the DOE to accelerate that, but we do expect to start work in the back half of the year. That is included in our guidance. As again, as I mentioned earlier, we do probability adjust our forecast. And so we expect that to leave us in the range. So we're not adjusting our range at this point in time, but we do feel good about having additional committed revenues in that.

And let me ask one SAF question and then I'll get off. I was just wondering how are you going to manage the allocations of the LanzaJet production once it starts coming to market in the second quarter '24 and beyond.

Actually, we have 10-year offtakes. LanzaJet has 10 elastics for all of that fuel. So the production is spoken for and it'll be managed in a way that's fair to each of the offtakers so that they can intact their share without one of them being first in line all the way through the year. But that is one important element of that plan is that the offtake is 100% spoken for.

[Operator Instructions]. We go next now to Steve Byrne of Bank of America.

I was just curious about the choice of an ethylene cracker for this Project SECURE. Have you already done some pilot testing on the furnace flue gas at a cracker. I'm curious about that CO to CO2 ratio and perhaps having it at a cracker, you got the hydrogen coming off of the cracker that could also help. But I guess, ultimately, do you have a view of where the variable costs could be for the production of this ethylene.

Let me start with that. Thank you for the question, Steve, and very well noted these points. So first of all, that's right. Often petrochemical complexes are a little bit long on hydrogen. So there is some hydrogen co-production off of the cracker that we could utilize in that integration. The second thing that's worth noting in terms of variable cost is the fact that at the end of the day, if we are to bring in hydrogen, which we intend to do green hydrogen into this, that will be the biggest driver of cost. And so the amount of green hydrogen will impact the cost of production. Why integrate into a cracker? First of all, we know we can use that CO2 from that plant. We have looked at that gas very carefully the contaminants as well. So that is a very nice integration opportunity for us. But what's even more important is the cracker itself is an integration opportunity. And the reason I say that is, as you know, we've done quite a bit of work with Technip on ethanol to ethylene Technip actually made the ethylene from our ethanol for the EVA foam for the work that we did with on shoes. So we've already partnered with them on making ethylene for materials production, if you recall, the [indiscernible] ethylene and made the EVA. But if you take a step even further back, of course, you know the Hummingbird the ethanol to ethylene from Technip is also the first step in their sustainable aviation fuel production. So not only do we know that we can use the gas from the cracker, we note that our ethanol output integrates very nicely with Technip. One of the gaps that we have had is that we have been producing the ethylene at a different location than the ethanol, transporting ethanol can add cost. And so our materials that are produced, there is a supply chain cost. By integrating directly into a cracker, there is no additional supply chain or movement of the ethanol cost. And so we believe this is how we can drive the cost of making materials from our CO2 derived ethanol, drive those costs down. And of course, the other beauty of integrating into a cracker is that most crackers in the petrochemical complex also are integrated with further downstream production, whether it be polyethylene, MEG for polyester or EDA or even PDC. And so for us, that integration means that immediately our ethylene can be used in a mass balanced way with the rest of the ethylene produced in the cracker. And as you can see, it's a beautiful way to start to both reduce the CO2 emissions with a cracker, but also integrate into the back end into the ethylene production. So we think this is just a beautiful, replicable way to get ourselves to a point where we produce materials from CO2.

Yes, makes sense. I'd like to take a similar question on the off gas from an ethanol plant. You mentioned a few minutes ago about the ethanol industry is trying to move down to more decarbonizing the ethanol and lowering the CI score. I'm just wondering, conceptually, could the other approach to decarbonize an ethanol plan is to use your technology on the ethanol flue gas. I guess I'm wondering whether or not there's very little CO, and it's CO2 and thus may be more challenging, but you could build that at an ethanol plant and convert that into SAF.

Absolutely, absolutely. And so to begin with, right, you are correct that we can use that CO2. 45% of the carbon that goes into an ethanol production facility sugar, sugar-based production facility comes off of CO2. You said it might be harder than feel for us to convert it and the difficulties just making sure we have hydrogen available. But a lot of corn ethanol production or other ethanol production in the United States and the Midwest is surrounded literally by windows, wind farms. And so there is access to renewable power. There is access, therefore, to the production of hydrogen. And so converting that CO2 to ethanol is actually not any harder than converting [ feel ]. The second thing I would say is, as there is more and more resistance and concern about pipeline, to take CO2 and sequester it, that means that there is an awful lot of CO2 on the back end of ethanol plants that could be reutilized to make more ethanol, reducing the carbon intensity of the original ethanol and also enabling more ethanol to be produced that we can make SAF. So you hit it right on the head. The beauty of that CO2 as well, by the way, is that it's biogenic. And so globally, there are a lot of drivers to reusing biogenic CO2 versus necessarily fossil derived CO2. So it's a massive win. We are really excited about working with the industry to increase yield from the same input by utilizing CO2. And I hope that you see that as a theme to everything LanzaTech does, it's all about making more products from the same raw materials, whether it's CO2 in the back end of the corn ethanol plant, whether it's CO2 from a cracker. At the end of the day, our goal is to use every last bit of carbon to make products to reduce both carbon intensity but also to reduce raw material inputs.

[Operator Instructions]. And ladies and gentlemen, it appears we have no further questions today. Dr. Holmgren, I'd like to turn things back to you ma'am for any closing comments.

It cannot be overstated that pioneering a new path in the energy sector is rife with complexities. We're altering the very paradigm of energy production and utilization, a task that is as formidable as it is inspiring. Infrastructure perceptions MES legislation are yet to be fully aligned with the innovative process that we are championing. It's important to remember that movement creates friction. And as the first of the kind in this space, we've chosen to lean into that. into that friction because we believe that is where true progress is made. Thank you again for joining us. Thank you again for supporting us. Thank you again for giving us the opportunity to show what we can do with carbon that's already above ground with waste carbon.

Thank you, Dr. Holmgren. Ladies and gentlemen, that will conclude today's LanzaTech Global First Quarter 2024 Earnings Call. Again, thanks so much for joining us, and we wish you all a great day.

Good day, and welcome to the LanzaTech Global, Inc. Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Omar El-Sharkawy, Vice President, Corporate Development. Please go ahead, sir.

Good morning, and thank you for joining us for LanzaTech Global, Inc's fourth quarter 2023 earnings conference call. On the call today, I'm joined by our Board Chair and CEO, Dr. Jennifer Holmgren; and our CFO, .Geoff Trukenbrod. Earlier this morning, we issued a press release with our fourth quarter and full year 2023 financial and operating results, as well as an investor presentation summarizing the company's performance and key operational highlights. Subsequent to this call, we intend to file with the SEC our annual report on Form 10-K for the fiscal year ending December 31, 2023. Both our press release and results summary investor presentation can be found in the investor relations section of our website at www.lanzatech.com. Before we begin, I'd like to direct you to the disclaimers in the front of the company's investor presentation and remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, 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. 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. We assume no obligation to update publicly any forward-looking statements. 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 reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. Today's call will begin with remarks from Jennifer, providing an overview of our performance and outlining our 2024 objectives. Geoff will then review in greater detail our financial results and Jennifer will conclude with a few closing remarks. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Jennifer.

Thank you, Omar, and thanks to everybody joining us today. We appreciate your ongoing interest in and support of LanzaTech as we host our first year-end earnings call and fourth call since becoming a public company just over a year ago. Starting with Slide 5, we had a strong year of growth overall and as compared to 2022, increased our revenue by 68%. As discussed in our third quarter earnings call, we had a very strong quarter-over-quarter growth through the first three quarters of 2023, and we're proceeding on track to achieve the low end of our guidance. However, while fourth quarter revenue increased significantly year-over-year by 77% to $20.5 million, this was meaningfully below our expectations. As a result, our full year revenue of $62.6 million was well below the $80 million to $100 million full-year guidance that we provided last year, as several material opportunities identified as fourth quarter revenue drivers failed to materialize. Weaker than anticipated fourth quarter results were primarily driven by CarbonSmart opportunities that did not materialize during the quarter. It is important to note that the issues were not demand driven, which remains robust for our CarbonSmart product. Rather, the challenges we faced late in the quarter were related to availability of offtake supply of CarbonSmart ethanol from our various licensees for three main reasons: One, there were some facilities that were somewhat delayed in coming online in 2023 compared to our early and mid-year expectations; Two, policy requirements for fuels are still not finalized at the European level, leading to delays on how to certify our ethanol as fuel for sale in the European Union; And three, without clear commitments, we did not inventory significant supply and were unable to satisfy several CarbonSmart orders that came in late in the quarter as our licensees had already committed those volumes to others. We are taking key steps to address each of these challenges head on. First, we're supporting our partners through the certification process. And second, we are negotiating committed off-take supply agreements with our partners in China and Europe to satisfy the growing CarbonSmart demand in 2024 and 2025. While adjusted EBITDA loss for 2023 was below our goal at $80.1 million, we showed quarter-over-quarter improvement throughout the year as a result of our increased focus on improving gross margin and controlling operating expenses. This cost control discipline will continue through 2024. We ended 2023 with $121.4 million of cash on hand, including cash, restricted cash, and investments, which we believe provides sufficient runway for more than 15 months. We are disappointed by the shortfall versus our guidance, and accountability for performance must start at the top. Therefore, we are addressing this underperformance head on with several organizational changes and corrective actions. We must deliver relative to our targets and we're taking actions to ensure we are demonstrating this core principle. I would highlight three specific actions we have taken, as you can see on Slides 6 through 8. First, this morning we're announcing a significant reorganization of our management team. The goal of this reorganization is to drive greater accountability as well as operational transparency and efficiency, ultimately enhancing execution throughout the company. Dr. Steven Stanley, LanzaTech's Chief Commercial Officer, has elected to retire and Carl Wolf, LanzaTech's Chief Operating Officer, will be departing the company to pursue other opportunities. We would like to thank each of them for their many contributions to the company and wish them well. These departures, together with some additional restructuring of the Executive Team have reduced the size of the go-forward executive team by 33%. Ms. Aura Cuellar, our EVP of Growth and Strategic Projects, has been named President of LanzaTech. In this new role, Aura will be responsible for all revenue generating business lines and engineering work, in addition to continuing to lead our strategic projects group. Bringing all revenue under our stewardship will create synergies and ensure accountability across all three parts of our business. Having a single point of responsibility for all revenue sources, as well as our engineering team, will ensure focus and prioritization across all commercial activities. Dr. Zara Summers, our Chief Science Officer, will be additionally responsible for our Scale-up and Product Manufacturing team. Dr. Robert Conrado has been named Chief Technology Officer. In addition to continuing to lead technology development up to front in engineering design, Rob will now have responsibility for all process infrastructure technology. Consolidating all departments under Zara and Rob's respective leadership will also drive efficiencies. Bringing science and synthetic biology leadership under same roof with product manufacturing will improve commercial product viability. Our scientific computing capabilities create the ability to leverage the extensive generative AI, informatics infrastructure and machine learning capabilities built within LanzaTech for synthetic biology work across the businesses to increase efficiency in our scale-up, engineering, workforce, and business processes. Second, together with the management reorganization, we executed a plan eliminating a variety of additional roles based on reprioritization of work and poor performance. Collectively, we expect these actions to reduce our annualized operating expenses by $5.3 million, which we expect to result in approximately $4.2 million in annual cash saving. This will also reduce our headcount by approximately 5%. We intend to end the year where our global headcount below 400 people as compared to the approximately 415 people at the end of 2023. We are also implementing a plant in the first half of the year to offset over $10 million in additional cash burn annually, and we will continuously review the organization and our strategic growth initiatives to ensure our team is balanced between our need to drive sustainable, profitable growth and innovation. We believe these changes position the organization for long-term commercial success and to deliver on our targeted KPIs and strategic priorities. Third, we cut the targeted 2023 cash bonus payouts for the executive and management teams, myself included, by 80%, which in the aggregate represented approximately $3 million in cash savings. This component of compensation for the executive and management teams is tied entirely to company performance and accounts for a significant portion of leadership's total target cash compensation. This action reinforces our alignment between compensation and performance, and evidences are paid for performance culture. Together, we expect these actions to improve and streamline our execution, while also reducing our cost structure consistent with our sharp focus on balance sheet health. Right sizing the organization and the headcount optimization will ensure focus on commercial growth in our core businesses and the cash bonus decisions will send a clear message to management that we are focused on delivering financial results. Turning now to Slide 9, I want to recap our other execution priorities from last year and highlight that 2023 was a milestone year for LanzaTech, marking our 18th in operation. That's a testament to our diligence, patience, resilience, and perseverance of our team, as well as the difficulty associated with scaling and commercializing a disruptive process technology. In 2023, together with our partners, we started up three commercial scale plants, bringing the total number of operating commercial LanzaTech plants to six. The total installed main plate production capacity across our licensees operating fleet is approximately 310,000 tons per year of ethanol with the ability to abate more than half a million tons per year of carbon that would otherwise enter our atmosphere. The four commercial plants in China are operational and we expect that Indian Oil facility in India, as well as ArcelorMittal's facility in Belgium, will continue to ramp up to full capacity over the course of 2024. The Indian Oil facility started up in September 2023, and the team in India is working diligently to ramp up production. As is normal with a new commercial feedstock, refinery off gas in this case, the startup phase can be elongated, but we are confident that successful full-scale operations will be achieved in the coming months. ArcelorMittal plant started up in November 2023. The steel mill shut down at the end of the year for planned routine maintenance, and the mill is now back in operation, and the team in Belgium has restarted operations with a ramp up of production expected over the next two quarters. In mid-January, LanzaTech celebrating the opening of the world's first Ethanol-to-Sustainable Aviation Fuel Facility at its 10 million gallon per year plant in Soperton, Georgia, as seen on Slide 10. The SAF plant is expected to ramp up production over the first half of the year, having the ability to produce up to 90% sustainable aviation fuel and 10% renewable diesel from ethanol. LanzaTech’s ethanol serves as a feedstock for SAF and when coupled with LanzaTech’s technology enables production of SAF from a variety of waste inputs and residues, including municipal solid waste and carbon dioxide plus hydrogen. The latter is commonly referred to as e-fuels or Power-to-X. While we currently have an approximate 25% ownership in LanzaJet, the completion of this facility also represents a significant milestone for LanzaTech ownership in LanzaJet as it is expected to prompt our co-investors and others to take licenses to build their own alcohol-to-jet plants, which in turn triggers the issuance of additional LanzaJet shares to LanzaTech. Looking now at safety, one of our core values, I do want to acknowledge that we experienced a singular recordable loss time injury during the fourth quarter, the first such incident since November 2018. This was the only recordable incident in all of 2023 across our global operations and was a result of the lab-related incident that occurred while moving equipment. The employee made a complete recovery from the injury and returned to work quickly. We have addressed the root cause of the incident and remained vigilant in ensuring the safety of all employees and stakeholders. Lastly, from a process competitiveness standpoint at the Suncor facility in Canada, we demonstrated at scale the production of the key new proprietary bacterium production strain capable of making isopropyl alcohol, or IPA. IPA commands a large market of approximately $3 billion annually and can be utilized as a feedstock for the production of polypropylene which has an annual market size of approximately $123 billion. This process is now ready to license, and we expect to do so in 2024. Additionally, our strain engineering and fermentation optimization work on the direct microbial production of monoethylene glycol, or MEG, a chemical with an annual market size of approximately $25 billion and a key ingredient in the production of PET fibers and bottles, continued successfully as our science team's overall goal is to develop new commercial frames for the direct production of high value, industrially relevant molecules. Moving to Slide 12, we outline our strategic priorities for 2024, which are safety, commercial growth, and path to profitability. First and foremost, safety. We're a safety first organization and will continue to strive for excellence and zero safety incidence. Second, commercial growth. Even against the somewhat difficult macro backdrop and challenging phase cycles, our market opportunity remains outstanding, and we are committed to accelerating our growth by adding and advancing projects through our commercial pipeline. As we progress projects and ultimately bring more plants online, we will further expand our base of long-lived, high-marketing recurring revenues from royalties, the sale of microbes and media, and other services. On Slide 13, you will see our current project pipeline funnel. Since our last update, we added several opportunities to the top of the funnel, and we saw five net additions to the early stage engineering phase, either through advancement from the [TA] (ph) stage or from projects already in early engineering. Licensing is hard and dependent on the decision cycles of our licensees and many organizations around the globe have leaned away from next generation work in this macroeconomic environment. However, we continue to add to our backlog and are encouraged by the diversity of the pipeline, including the diversity of feedstocks, the variety of technical integration, and the geographic breadth. With regard to diversity of feedstock in the pipeline, industrial off-gas and gasified solids make up approximately 42% and 38% of our opportunities respectively, with other feedstocks, including carbon dioxide plus hydrogen, representing the remaining 20%. The feedstock diversity shows the extensive reach of our technology as a distributed decarbonization solution that is fit for purpose. Related to technical integration, we have seen tremendous global interest in SAF. This is unsurprising given the enormous market opportunity. Approximately 100 billion gallons of SAF is needed to meet the world's fuel needs, while the current annual production capacity of SAF only stands at approximately 120 million gallons. We have several opportunities in the pipeline that focus on an integrated solution to take waste gas through the SAF by pairing LanzaTech's gas limitation technology with the LanzaJet alcohol to jet process. The ramifications of this are enormous as it unlocks the use of locally advantage feedstocks to enable regional domestic production of SAF at industrial scale without negatively impacting the food supply chain. Specifically, we have four integrated waste to SAF projects in early stage or advanced engineering stages, including our project in New Zealand with Air New Zealand and the New Zealand government to take predominantly gasified forestry residues through the SAF. Our project with Tadweer in Abu Dhabi to take gasified solids through the SAF, our Project Dragon in the UK to take industrial off-gas through the SAF, and our project to take gasified solids through SAF in Australia. There is significant feedstock advantage in the alcohol to jet technology and our ability to produce ethanol from multiple waste sources is a clear differentiator, further supported by several sub mandates for Power to X fuels in regions like the European Union to create a distinct market from fuels produced from CO2. Geographically, we are seeing regional bubbles of projects forming with strong partners that are focused on decarbonization. These partners are leading the way in their respective regions like the Middle East with partners like ADNOC and Tadweer and in Saudi Arabia through a partnership with Olayan, as well as in India with partners like Indian Oil Corporation and Gale. Overall, the buy-in we're securing amongst these leading organizations establishes strong regional footholds, allowing us to focus our resources regionally and capture large local markets. We expect that engineering services revenue will be bolstered by several projects this year, including our project with Tadweer, our work with ADNOC for a prospective carbon dioxide plus hydrogen project, also in Abu Dhabi, our work across a couple of commercial gasified MSW projects with Sekisui in Japan, as well as from several projects in India. Additionally, we anticipate revenues from sales of equipment packages to materialize from several projects beginning construction in the second half of the year. In addition to the significant depth of our commercial licensing pipeline, we anticipate transferring our first project to our infrastructure capital partner Brookfield this year, while ramping up development of additional projects for them. Additionally, we're actively developing a pipeline of project opportunities with our partner, Olayan in Saudi Arabia and the broader Middle East. Overall, the health of our commercial project pipeline remains strong, and we are progressing these opportunities through the development process, setting us up for the next crop of projects to be placed into service in the near future. In our CarbonSmart business, we remain focused on sales into the global chemicals market. For our chemicals customers, third party sustainability certification is important. And we can provide ethanol for downstream applications that comes from round table and sustainable biomaterials or international sustainability and carbon certification certified facilities. We are optimistic about selling CarbonSmart ethanol into the low carbon fuels market, specifically in the EU, once regulations have settled at the European Commission on how these first-of-the-kind fuels are treated. Positive technical guidance continues to be provided by the Commission, but is not yet final. Additionally, approvals from the certification bodies who can officially certify recycled carbon [shoes] (ph) for the road, air, or marine markets in the EU are still pending. We are following this rule making closely and see significant upside potential for our CarbonSmart business as the regulatory environment firms and certifications are finalized. Third, path to profitability. We are focused on developing high quality revenue streams that will continue to expand our gross margin, while maintaining a disciplined eye on operating costs. The recent reorganization of the business demonstrates our commitment to achieving the goal of sustained long-term profitability and will strengthen our focus, prioritization, and execution of high-quality revenue opportunities. Our leadership team remains committed to smart growth and right-sizing the business to achieve success, no matter the challenges we face. We are motivated by the importance of our work and significant progress we have made to date. We're focused on our core business and delivering upon the key strategic priorities that we laid out for this year. With that, I'll turn the call over to Goeff to provide details on our financial performance. Goeff, please go ahead.

Thank you, Jennifer. Good morning, and thank you to everyone for joining us on the call. As seen on Slide 15, total revenue for the fourth quarter of 2023 of $20.5 million grew by 77% year-over-year, bringing 2023 annual revenue to $62.6 million, a 68% improvement over 2022. While we were disappointed by the performance of our CarbonSmart business during the quarter, revenue from our core Biorefining Carbon Capture and Utilization business grew 103% year-on-year in the fourth quarter to $14.2 million, driven mainly by ongoing and recently initiated engineering services work across several projects. The Biorefining business saw 101% growth year-on-year in 2023, reaching $42.6 million. JDA & Contract Research revenue grew 21% year-on-year in 2023, reaching $14.6 million. This performance was supported by several customers and government grants which are typically multi-year in duration. On the CarbonSmart side, while this part of the business significantly underperformed our expectations for the reasons we have discussed, especially in the fourth quarter, for the full year our CarbonSmart business achieved 33% growth year-on-year, reaching $5.3 million. Our focus on revenue quality continued in the fourth quarter as we saw a gross profit improvement of 62% quarter-on-quarter, $8.5 million, bringing the full year gross profit to $17.7 million, approximately doubling our gross profit from the prior year. This fourth quarter improvement was driven by high margin engineering services work in JDA & Contract Research, resulting in fourth quarter gross margins of 41% and full year 2023 gross margin of 28%, up approximately 400 basis points over 2022. While some of this engineering services work in the fourth quarter benefited from extraordinary pricing terms, we do expect gross margin to be in the mid to high 20s for 2024, based on our anticipated revenue mix and significant amount of lower margin equipment revenue in this particular year. We remain focused on improving gross margins while accelerating revenue growth in 2024. Operating expenses continue to decline quarter-on-quarter in the fourth quarter, coming in at $27.1 million. This decline came as a result of lower quarterly research and development and SG&A expenses and greater billable utilization of our teams. Operating expense for 2023 was $124 million, and as a result of the executive reorganization, headcount reductions, and other cost-cutting initiatives Jennifer laid out earlier, we expect 2024 operating expenses will be flat or lower as compared to 2023. To recap, we expect the earlier discussed reorganization initiatives will reduce annualized operating expenses by approximately $5.3 million, although, of course, not all of that will be realized in 2024, and that there are other efficiencies and cash burn reduction opportunities that we are actively pursuing. CapEx spend during 2023 totaled $8.6 million, 20% lower compared to 2022. Turning to adjusted EBITDA and cash, we reduced our adjusted EBITDA loss quarter-over-quarter by 28% to $13.7 million in the quarter, resulting in a full year adjusted EBITDA loss of $80.1 million in 2023. Our cash burn also declined by approximately 36% to $15.4 million for the quarter as we continue to focus on our path of profitability and getting the cash flow positive. We ended the year with $121.4 million in cash on hand, including cash, restricted cash, and investments. Today, as seen on Slide 16, we're introducing our full year 2024 guidance, which includes total revenue of approximately $90 million to $105 million. At the high end, this reflects growth of approximately 68%, in line with the annual growth we experienced last year. We anticipate that Biorefining revenue growth will come from ongoing and new engineering services revenue as existing projects continue engineering work and advance to the subsequent phases of the development cycle, as well as from the sale of equipment from several projects that we expect to proceed to the construction phase of 2024, some of which were delayed from starting construction in 2023. We also expect incremental ongoing growth in recurring revenue with the additions of the ArcelorMittal and Indian Oil facilities [indiscernible]. We've experienced some timing delays for a subset of projects in the middle of the funnel that we attribute certain macroeconomic factors and elongated decision-making processes at some of our licensee customers. As a result, we have modified our forecasting to take into account these projects taking longer to move from early stage engineering to advanced engineering and from advanced engineering to FID construction start. In 2023, such timing delays with projects anticipated to enter construction push those construction starts and associated equipment revenues into 2024 and beyond. It's important to reiterate that projects are not dropping out of the pipeline. Rather, the tougher macroeconomic and higher inflationary environment leading to changes in steel prices and availability of equipment, combined with a lack of uniform regulatory protocols have elongated the recent project development cycles, which were closely monitored. We anticipate JDA & Contract Research revenue to continue its modest growth, but will selectively deploy our resources on high-margin opportunities and work that we believe will lead to future Biorefining licensing opportunities. On the CarbonSmart side of the business, we anticipate moderate growth this year, but believe there is substantial upside potential for the business as we negotiate committed offtake supply with our partners in China and Europe and should this current certification work underway include in a timely and favorable manner, unlocking additional access to supply for customers looking for product. Given the timing of and development cycles of our Biorefining business, we again anticipate our revenue will be back half-weighted and the Q1 2024 revenue will look very much like Q1 2023. This suggests that we expect to see strong quarter-over-quarter growth throughout 2024 to reach our guidance range. We're highly confident in achieving our forecast. I'd like to highlight a couple of key drivers that could influence outcomes between the lower and upper end of our revenue guidance rate. First, as mentioned, the significant upside potential in the CarbonSmart business should certifications materialize quickly. Second, more favorable timing on FID and construction start for some projects in the pipeline would further benefit our performance in 2024. We believe this top-line performance, coupled with the efficiency and cost-focused actions we are taking, will further benefit our margins and profitability over the near and long term. Adjusted EBITDA loss for full year 2024 is expected to be $65 million to $55 million, reflecting the expected top-line growth range combined with our ongoing focus on high-quality margin opportunities and cost controls. Importantly, we're resetting the timing expectation for when we will achieve positive adjusted EBITDA. We previously expected this to occur in late 2024 with positive full year adjusted EBITDA in 2025. While we're encouraged by the strong growth we continue to see across the business in 2024, the delay of our expected return to profitability simply reflects our shifting view of specific project development timelines and not an erosion of our project pipeline. We are keenly focused on execution to achieve and accelerate our planned path to profitability and remain excited for the future of LanzaTech. Ending last year with more than $120 million in cash, restricted cash, cash equivalents and investments, we have significant financial flexibility and remain focused on maintaining this flexibility to ensure we're in the best position to achieve our growth objectives. Although we believe we have sufficient liquidity to execute on our near-term objectives, we will remain opportunistic around potential ways to supplement our flexibility, especially if it can accelerate our path to profitability and our growth over the long term. With that, I'll turn the call back over to Jennifer for some closing remarks before we open the call for Q&A. Jennifer?

Thank you, Goeff. 2023 was a milestone year with much to celebrate. That said, as we look ahead to 2024 and beyond, we appreciate that we must deliver relative to our financial targets. We have created a business model that we can scale in every region across the globe because we use distributed waste-based feedstocks that can use waste that are specific to each country. But working globally comes with challenges, not least from a regulatory perspective, especially if you're the first and are challenging the status quo and how goods are currently produced. Rather than give up, we persevere. And my team and I continue to be excited about our coming projects and our ability to deliver a new carbon materials and energy paradigm. By executing our business plan, we expect to reward our shareholders while we start solving our carbon problem today, which is what the world needs us to do. Thank you again for joining us and to so many of you for your continued support as we realize our vision of a circular carbon economy. Operator, we can now open the lines for Q&A, please.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Leo Mariani with ROTH MKM. Please proceed.

Hi, guys. I was hoping you could provide a little bit more color on the revenue ramp here. I guess, you're saying first quarter 2024 is going to be around $10 million, which is about half of what fourth quarter of 2023 revenues are, certainly kind of coming down in the near term. Can you maybe just talk about some of the specific kind of operational milestones that sort of drive that? It sounds like you're not expecting much growth in CarbonSmart, so is it generally just kind of milestones around some of these engineering service packages that kind of drive things here in 2024? And you kind of also referred to maybe changing the forecast methodology a little bit as well. So clearly you guys missed numbers here in 2023. So maybe just talk a little bit more about how you've changed methodology to come up with a forecast you guys think is maybe a little bit more realistic here in 2024?

Hey Leo, it's Goeff. Good to hear you -- hear from you, and happy to try and address each of those if I miss one as I answer, circle back to me on it. So, first and foremost, I think your first question was around Q1 2024. Yep, that is exactly what we were saying. It's really just a function of the timeline and progression of projects during the course of the year. And so, we happen to see a similarly aggressive ramp quarter-over-quarter through 2024. And it just so happens that Q1 of this year, we expect to be consistent with Q1 of the prior year. But yes, below Q4 of last year, just based on the timing of those projects. Yes, CarbonSmart, we do expect to only have modest growth in there as referring back to some of Jennifer's comments. We think that there's a lot of upside potential around CarbonSmart in the year, but we're taking a more conservative approach until there's some more clarity on certifications and access to supply. And then, I guess, finally, with regards to methodology on the forecast. Yes, we are looking at and reflecting on 2023. Historically, we've been very good at tracking to the projects that are going to say yes and that are going to progress. But in 2023, we certainly saw some elongated timelines and we've taken those into account and adopted a more kind of conservative forecasting methodology around timelines of projects in 2024 and beyond.

Okay, and obviously you've got your cost-cutting initiative underway, kind of looking at your kind of main costs here really I guess R&D and then sort of your cash G&A piece, certainly both those numbers came down a little bit in fourth quarter versus third quarter. How do you expect kind of R&D to progress in 2024 and how do you see cash G&A progressing? I mean, should those numbers kind of be similar to what fourth quarter 2023 levels were? Do you expect those numbers to kind of drop as a result of their cost cutting initiative as the year progresses? And then could you also address this potential plan to cut another $10 million in cash burn? I mean, it sounds like it's not, that's probably been implemented yet, but maybe it's kind of on the drawing board or something you guys are giving strong consideration to.

Yes, Leo. Appreciate that. So I'll hit on the last one first and then kind of circle back to your other questions. So, at least with regards to the plan that we're putting in place over the next quarter, we're not really in a position to share additional details about the plan at this time, but we'll certainly provide them as they occur. On your question about our OpEx, R&D, SG&A, relative to where we ended the year. I think as you heard Jennifer mention earlier on the call, we're very focused on cost controls this year. We think we have all of the resources that we need in R&D, or at least the breadth of capabilities there for 2024. We don't expect to be growing SG&A during the course of the year. Our expectation is that, we have the team in place, we have the size of the team in place that we need to achieve our goals, and so we expect to end the year either flat or down, both on a headcount basis and on a cost basis relative to where we ended 2023.

Okay. Those numbers are clearly coming down. That's nice to hear. All right, thanks.

Thank you.

Our next question comes from Pavel Molchanov from Raymond James.

Thanks for taking the question. Given the recent opening of LanzaJet’s Freedom Pines, I guess it's not producing yet. Can you talk about the role of Freedom Pines in your guidance for 2024, if any?

Thanks for the question, Pavel. We don't have revenues inside our guidance for 2024 based on LanzaJet. However, they will start producing later this year. And we are progressing joint projects. That's really the key as I mentioned. That first commercial plant anchors all of the feasibility work of the joint projects that I mentioned during the call. We've got projects with Tadweer, with Air New Zealand and multiple others that are based on integrated LanzaTech, LanzaJet technology that actually takes some type of waste residue or CO2 and converts it all the way through SAF. So that's where you'll see our revenues in 2024. They'll be based on feasibility and engineering work to develop that portfolio of joint waste to SAF projects.

Okay, can we get an update on steel and oil, just a kind of an operational status? And also same question I asked earlier, what is the role of steel and oil in the guidance?

Yeah, so that's a great question. And let me start with, we started the plant in December, but they needed to shut down one of the blast furnaces so they couldn't supply gas. So we stopped the operation after showing that everything was working well. And we've just restarted it just now. So the inoculator is starting up. In 2024, you will see two types of revenue from steel and oil. One is some licensing revenues, microbe revenues, engineering support revenues. But what you also see is off-take revenues. We will start to also provide ethanol to CarbonSmart partners out of steel and oil. We will have actually -- unlike China, we will have secured supplies dedicated to LanzaTech to be sold into the CarbonSmart market. So you will see both types of revenues.

Okay, very clear. And then lastly, Section 45X for biofuels will be kicking in in 2025, right? SAF being part of that. As you think about your business development in the US, will any projects be direct beneficiaries of the new Section 45 credit in 2025 or 2026?

That is correct. We expect, first of all, the Georgia facility to be a beneficiary, because they will be able to leverage that. And they will also -- we won't have a second plant running by 2025 in the US, but we do have a planned one that includes the potential credit. We will also see us benefit from other non-SAF 45 credits. We are developing projects where the hydrogen 45V comes into play. So we're actually leveraging the 45 family, shall we say, to enable us to do more projects here in the US. And you'll be hearing more about that in the next few months, the projects that we are now taking through our feasibility stage here.

And then lastly, just kind of a quick housekeeping question. What do you expect in-house CapEx to be in 2024?

I'm going to send that over to Goeff.

Thanks, Pavel. Good to talk to you. We expected our internal CapEx to be fairly consistent with 2023. We're not looking at any significant changes to CapEx, and we'll continue to keep a close eye on it to see if we can actually reduce it further.

Got it. Thanks very much.

Your next question comes from Ryan Pfingst with B. Riley FBR.

Good morning. So with 2024 revenue weighted to the second half, could you just talk about how strong your visibility is and if you see potential risk to some of that slipping into 2025?

Hey, Ryan, nice to talk to you. As we look at the forecasting and just thinking through our forecasting methodology, certainly we had time -- we had slippage in 2023, so I can't tell you that we certainly won't have any, but we do have good visibility into all the projects. We've taken -- injected some additional conservative timing into the pipeline at this point in time in our forecasting in order to try and take into account any of that. All of our projects are identified projects, named projects in the current forecast. So these are specific opportunities that we've been working through our pipeline, through that funnel over the last few years. So we've got strong relationships with these companies. We are close to them. We're tracking them on a daily and weekly basis. So we feel confident about them, and we do feel that there's additional upside opportunities that could come into the pipeline and come into the funnel during the course of the year. We had a good track record of that over the last couple of years as well, but those aren't factored into the forecast. Again, those would be upsides, but in terms of the forecast that we do have and the timing associated with it, we did still back half-weighted. We do expect strong quarter-over-quarter growth throughout the year, but we do have good insight and good visibility into all the opportunities.

Got it. That’s helpful. And then how are you thinking about potentially raising outside capital ahead of reaching EBITDA and cash flow positive likely next year?

Yes. No, thanks for the question on that too. As I noted in my prepared remarks, we believe we've got sufficient liquidity to execute on our near-term objectives. I should reiterate that we ended the year with more than $120 million in cash and equivalents. And even at our burn rate from last quarter, that takes us well into 2025. Beyond that, we've got various levers in terms of both CapEx and OpEx that we can utilize in quick fashion if we want to look to extend that runway, including the cost reduction actions that we've taken over the last couple of months. So again, I think we have sufficient liquidity to execute our near-term objectives, but as always, we're going to remain opportunistic and flexible as we drive to accelerate growth and reduce our time to profitability.

Makes sense. Thank you. I'll turn it back.

Our next question comes from Jeffrey Campbell with Seaboard Partners. Please proceed.

Good morning. You've called out CarbonSmart as a specific fourth quarter 2023 shortfall item and what was approximately $18 million guidance miss. Yet the press release describes 2024 CarbonSmart outlook as incremental growth for reasons that you've articulated in the call. How do we put these two ideas together as we think about 2024? It apparently was a big line item in fourth quarter 2023, but it's incremental in 2024.

Yes, let me start by addressing that. Thank you for the question, Jeff. We took a very conservative approach, as Goeff mentioned to our forecasting. And what happened in the fourth quarter were certification misses, and we're still waiting for guidance from the European Commission, for example, on how to handle these fuels. So we decided not to put that upside into our forecast because of the fact that the regulatory environment is such that we can't guarantee when it will come through. And that's essentially what happened in the fourth quarter, and we just are not prepared to put it all in. We are working with our partners to help them with certification. We are working with our partners also in ensuring that we have ethanol available to us should the certifications come through. But we have taken a very, very conservative view as to whether the governments will come through with all of the appropriate guidance because these recycled carbon fuels, taking a still no gas and putting it into the fuel pool is not something anybody has done before. Carbon capture and reuse is not something that anybody is doing commercially. So we just want to make sure the government -- we don't try to get ahead of government legislation.

Okay, thank you. And just further to that point, when those favorable regulations come to pass, will the immediate effect just primarily be pricing or do you see it having some effect on demand as well?

It will be both because these fuels will then be mandated and that means that they will be required to be put into the pool in some countries. And so, that will increase the price but it will also increase demand. And that is also why we're so focused on making sure we have reserved offtake from our various commercial plants. By having reserved offtake, we will stay ahead of the demand and we'll be able to supply product.

Okay. The US has broken through with Freedom Pines, but otherwise the states don't seem to be an important region for LanzaTech at this time, based on your description of the regions that are. Do you see anything on the horizon to create project interest in the US? And I'm kind of thinking about your nascent agreement with Technip, I want to ask this question.

Yes. no, that's a great question. We have multiple projects in the pipeline in the US. As I mentioned, the IRA really makes a big difference for us. And so, it impacts both SAF projects, integrated projects with LanzaJet. It impacts hydrogen supply for a couple of projects that we're developing right now in the Gulf Coast. I'm not at liberty to mention our partners' names, but I would say that over the next six months, you will see a number of projects walking through the pipeline in the US. And we look forward to discussing those with you.

Okay, great. And for my final question, just kind of a higher level one. To what extent do you think the project decision delays that you've talked about have been driven by current economics? And you mentioned interest rates deal and so forth? [indiscernible] some visible ESG fatigue that seems to be becoming more visible globally.

Yes. No, that's right. So I would say it's both, right? Because ESG fatigue, as you call it, or what we call people leaning back and out of investing in new technologies, new approaches that are based on carbon reductions, we see a lot of weakening there and that does create delays. On the capital side, we talked about interest rates, but we also talked about the cost of steel. The cost of steel is still higher than it was pre-COVID, right? And even though the prices are coming back down, 20% increase in the cost of steel is significant in a project that's $100 million, right? So I think the cost is actually an important driver, and because of that, one of the things we prioritize is both partnerships with suppliers so that we can reduce the cost of our supply chain, but also we've worked very hard on reducing the cost of some of our technology. So we've devoted some time to that. So those are the things that have slowed us down, but we are starting to see pick-up, and there's a lot of interest in dealing with EPS requirements in the future, mandates around power to act CO2 projects in Europe. So we're starting to see a little bit of a tailwind now coming out of this. But yes, hopefully that addresses your question.

Yes. That was very helpful color. I appreciate it. Thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jennifer for any closing remarks.

Thanks to everybody for joining us. It's been our first year in the market and we're very excited about the progress we've made. And clearly there's a lot more work to be done, but we really appreciate all of your support. We think 2024 will be an important year for us, and we look forward to reporting on our progress at the next quarterly meeting. And thank you for your time.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.