Earnings Call Transcript - LNZA Q1 2024

Operator, Operator

Good morning, everyone, and welcome to today's LanzaTech Global First Quarter 2024 Earnings Conference Call. Today's call is being recorded, and I will be available for any assistance you may need. Now, I will turn things over to Omar El-Sharkawy, Vice President of Corporate Development. Please go ahead.

Omar El-Sharkawy, Vice President of Corporate Development

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.

Jennifer Holmgren, CEO

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 five 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 Technip Energy's transformational technologies to produce sustainable ethylene from captured 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 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 a strategic and historic milestone not just for LanzaJet, but for the growing SAF economy at large as the 10 million gallons per facility bring in a 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 most 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 projects 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. 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 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 captured carbon dioxide emissions at an ethylene cracker operating at a major petrochemical facility in the U.S. In turn, this sustainable production will reduce the carbon intensity of the existing ethylene production. Ethylene has a massive global market projected to reach $200 billion annually by 2030 and 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 foams to jet fuel. However, ethylene production is also a major source of 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 for ethylene production. The modular design of Project SECURE is intended to be easily deployed to 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 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 sources, including municipal solid waste and agricultural residues. The inauguration and start-up of LanzaJet's facility, the world's first biorefinery that transforms ethanol into sustainable aviation 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. We've made good progress on the opportunities in our commercial pipeline that focus on integrated solutions using waste gas and residues through the SAF by pairing LanzaTech gas fermentation technology with the LanzaTech alcohol-to-jet process. In particular, we are in Abu Dhabi to take quantified solids through the SAF and our project in New Zealand, where we are working with the New Zealand government to process predominantly forestry residues through the SAF, both contributing to engineering services revenue during the first quarter. Our Project Dragon in the U.K., which is taking industrial waste gas through the SAF, is in advanced engineering with the front-end engineering and design completed and preliminary permissions granted for the SAF unit. We continue to utilize the funding received from the U.K. Department to bring that project to final investment decision (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 must 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 (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 that airlines can pay to meet their obligations has been significantly increased as a result of the mandate, further supporting SAF processes in this market. In addition to our role as a feedstock provider for waste-based ethanol for SAF production, we are extremely proud of our strategic ownership stake in 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-dilutive to LanzaTech at this time. Additionally, LanzaJet's recent capital raise does not impact the mechanism by which LanzaTech issued additional LanzaJet shares to increase our ownership percentage as the other co-investors build their own plants using LanzaJet SAF technology. Moving to Slide 8 on our commercial project pipeline, our total operating project count stands at eight, which includes both commercial-scale and demonstration-scale projects. Please note that for the purposes of the project funnel, we have now separated out the LanzaJet project 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 project is currently in commissioning and start-up and is on track for production in the second quarter of this year. The total installed production capacity across our licensed operating six 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 the atmosphere. The full commercial plants in China continue to perform, and we're making 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 nine net additions of qualified project opportunities into the first phase of the pipeline in the first quarter and one 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 associated with those projects to materialize around 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 closely with our 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 offtake supply agreements with our partners in China and Europe to satisfy the growing carbon smart demand in 2024 and 2025. We're focused on sales into the global chemicals market with revenue in the first quarter coming from several of these customers. We also remain optimistic about revenue upside for CarbonSmart ethanol in the low-carbon fuels market, specifically regarding the negotiations settled at the European Commission and how the first certifications are treated. Positive technical guidance continues to be provided by the commission, and while it is not yet final, the latest expectations suggest 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 our global headcount to remain below 400 people, which is below the total headcount 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.

Geoff Trukenbrod, CFO

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 and JDA & Contract research revenue of $4.3 million, both showed year-on-year growth in the first quarter. On 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 to 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 from 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-over-year in the first quarter, coming in at $29.6 million, largely reflective of the one-time 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 severance costs associated with the previously announced reorganization. As Jennifer noted, the executive reorganization that we announced last quarter is complete and 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 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, which 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 that 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 stood in the way at the end of the quarter, resulting in a temporary 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. 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 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 for 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 is 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 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 strong quarter-over-quarter revenue growth 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 adjusted EBITDA losses of $65 million to $80 million. We anticipate 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 we are working on to address the growing demand for SAF, including the projects we are co-developing with LanzaJet and the broader need for waste-based 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?

Jennifer Holmgren, CEO

Thank you, Geoff. Our performance is not just a set of numbers. It's a tangible indication 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 of the economy. This quarter was a pivotal quarter, and I want to close by returning to the five 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 in enormous demand for waste-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 are 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, Operator

We go first this morning to Leo Mariani at ROTH MKM.

Leo Mariani, Analyst

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 Q2 versus Q1 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 significant ramp to hit that guidance this year?

Geoff Trukenbrod, CFO

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 suggest that we expect a large ramp in the back half of the year. We did reiterate our guidance. So we expect to be in those revenue ranges 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 have already moved into as well as the other components of our revenue.

Leo Mariani, Analyst

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 one-time costs in there, some severance and maybe some others. Could you quantify what the one-time costs are? And then is your expectation for those key costs to start dropping here in the second quarter?

Geoff Trukenbrod, CFO

Yes, Leo. There are two aspects here. One was the SG&A and R&D costs, which were largely personnel costs. In Q4, those costs were slightly down. As you recall, we cut back our bonuses associated with 2023, resulting in a reduction in costs in Q4 of last year. Normalized for Q1, it's slightly up. There were also some one-time costs, including severance costs associated with the reorganization that we announced. I won't get into specifics of the severance costs, but we do expect those to be one-time and that will trail off for the rest of the year.

Leo Mariani, Analyst

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

Operator, Operator

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

Jason Gabelman, Analyst

I wanted to ask about the project pipeline and some growth that you mentioned, with nine 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 if that will be lumpy again as well, I should say, quarter-to-quarter.

Jennifer Holmgren, CEO

Let me address that. Our project pipeline, just because it's in an early stage for us, will be a little lumpy. However, we are adding projects both to the top of the funnel and getting projects through to final investment decision (FID). We do expect to see construction this year. The projects that are being added to the front of the funnel are tough for me to discuss the specific partners because a lot of those are still unnamed partners. However, we are starting to see interest from companies to replicate projects. We've done that in China, and we have four projects with the same partner, and we're starting to fill up the pipeline with partnerships related to companies that are building their own plants.

Jason Gabelman, Analyst

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 expectation? And any other color around that in terms of growth from '24 to '25?

Geoff Trukenbrod, CFO

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. Our expectation is that the company will continue to grow significantly year-over-year. As we grow the top line and the associated gross profit, that will drive our ability to reach profitability. But again, we haven't been specific about guidance for anything beyond 2024.

Operator, Operator

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

Thomas Meric, Analyst

A couple for me on the SAF market. Firstly, what's your assessment of the current SAF feedstocks in terms of supply, demand, and 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 GREET model, if anything stood out to you there? And then one follow-up on Brookfield after that.

Jennifer Holmgren, CEO

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 significantly 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 we are very well-positioned, since all we use are waste feedstocks. However, I would also say that generally, these types of feedstocks can be more expensive. 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 excited about how that's happening globally. We also expect that e-fuels, CO2 plus hydrogen, are being incentivized disproportionally in favor of trying to create that industry. As you know, with coupling LanzaTech, we can use CO2 feedstock because it provides a pathway for us to make ethanol; that ethanol can then 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 about when these things are going to be ready. They are 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 suggest. The second thing I would say to your question regarding the GREET model is that the bottom line is it enables corn ethanol, if certain measures are utilized to reduce its carbon intensity, to qualify for production of sustainable aviation fuel. So we think it's a big win for corn producers and corn ethanol producers here in the United States, as it shows a path that allows them to also participate in a market that was difficult for them due to the absence of a clear picture on how they could reduce their carbon emissions.

Thomas Meric, Analyst

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

Jennifer Holmgren, CEO

Right. So we do have a very robust pipeline of projects that can go into our Brookfield pipeline. What we are doing is focusing on the very first one for a reason. This will be our first project, and defining all the parameters needed for the transfer is something we're doing in close collaboration with them. We are understanding each other on what makes a good project and what they need to see for them to pick it up. While we have a robust pipeline that we are moving along on certain parameters, like getting gas agreements and others, we are focusing on only one project so that we are clear on how to transfer. The other thing I think is quite important is with the Brookfield pipeline; we are able to look at projects in North America and Europe, but we're also starting to see a lot of interest in North America, which is very exciting. We are thrilled to leverage the Brookfield partnership to enable those projects to move forward.

Operator, Operator

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

Jeffrey Campbell, Analyst

Congratulations on all the positive developments. I wanted to ask a few questions about 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?

Jennifer Holmgren, CEO

So the output of the plant is tied 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.

Jeffrey Campbell, Analyst

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

Jennifer Holmgren, CEO

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

Jeffrey Campbell, Analyst

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

Jennifer Holmgren, CEO

So we can go both smaller and larger. What we're starting to do is create standard sizes. So the 50,000 tonnes is one of our standard sizes, as you know, Jeff, because we use that in multiple of our projects. We also have one that's approximately half that size that we're now using as a standard, and then we can also go bigger. 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. This allows us to do the engineering package and work with Technip in a way that goes much faster than trying to customize size for every opportunity. So if that answers your question, that is exactly what we're doing, and that $50,000 size is part of that strategy.

Jeffrey Campbell, Analyst

No, that's a great answer, and I appreciate the color on moving away from bespoke. If I heard 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?

Geoff Trukenbrod, CFO

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

Jeffrey Campbell, Analyst

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

Jennifer Holmgren, CEO

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

Operator, Operator

We go next now to Steve Byrne of Bank of America.

Steve Byrne, Analyst

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?

Jennifer Holmgren, CEO

Let me start with that. Thank you for the question, Steve, and you noted some very good points. First of all, you're correct that petrochemical complexes are often long on hydrogen, allowing us to utilize some of that off the cracker for our integration. The second thing worth noting in terms of variable cost is green hydrogen will be the biggest driver of cost. Integrating directly into a cracker means we can use CO2 from that plant. We have examined that gas closely, including its contaminants. This presents a favorable integration opportunity for us. Importantly, most crackers in the petrochemical complex also integrate with further downstream production, whether it be polyethylene, MEG for polyester, or EDA. This means that our ethylene can be utilized effectively alongside the rest of the ethylene produced in the cracker. We believe this integration is an ideal way to reduce CO2 emissions while producing materials from CO2.

Steve Byrne, Analyst

Yes, that makes sense. I'd like to take a similar question on the off gas from an ethanol plant. You mentioned a while ago about the ethanol industry 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 plant be 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.

Jennifer Holmgren, CEO

Absolutely. To start, you're correct that we can utilize the CO2. Approximately 45% of the carbon that goes into an ethanol production facility comes off as CO2. You stated it might be harder due to the CO2 dominance, but if we focus on hydrogen availability, a lot of corn ethanol production in the United States Midwest is surrounded by wind farms. Therefore, there is access to renewable power and thus, renewable hydrogen. Utilizing that CO2 to make more ethanol would reduce the carbon intensity of the original ethanol while also enabling us to produce SAF. It's a substantial win, and we're very excited to partner with the industry to increase yield from the same inputs by utilizing CO2. This resonates with everything LanzaTech does: maximizing product output from existing raw materials.

Operator, Operator

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

Jennifer Holmgren, CEO

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 and legislation are yet to be fully aligned with the innovative processes that we are championing. It's important to remember that movement creates friction. As the first of its kind in this space, we've chosen to lean into that friction because we believe that is where true progress is made. Thank you again for joining us. Thank you for your support and for giving us the opportunity to show what we can do with carbon that is already above ground.

Operator, Operator

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.