LanzaTech Global, Inc. (LNZA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to LanzaTech Global Inc. Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Later in the call, there will be a question-and-answer session. [Operator Instructions] Also, today's call is being recorded. [Operator Instructions] And now at this time, I'll 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 the LanzaTech Global Inc. Second Quarter of 2024 Earnings Conference Call. On the call today, I am 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 second quarter of 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 June 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 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 current 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 financial measures to their most directly comparable GAAP measures. Today's call will begin with remarks from Jennifer, providing an overview of our operations, our recent financial results and our business outlook. Jeff will then review in greater detail our financial results and financial outlook. Jennifer will then 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 4 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 LanzaTech, 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 India resulted in equipment revenue associated with the order of long deal 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 continues to be active with existing customers such as lululemon, REI and Coty, bringing new products online and our commercially available CarbonSmart™ yarns becoming part of brand supply chain rather than only being used in limited one-off collections. IKEA recently disclosed a long step in collaboration with us to develop new manufacturing routes to the products from industry emissions specifically focusing on polypropylene materials, and we also completed our first pure-play CarbonSmart™ field 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 chemicals 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 LanzaTech by nearly 2/3 to 37%, up from 23% without the need for any capital contribution for LanzaTech. LanzaTech 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 half 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 the new project with NTPC, which is India's largest power generation utility company. NTPC and Jakson Green, their engineering, procurement and construction partner is 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 IndianOil Corporation. We're expanding that ability within PPC to a feedstock stream or 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 exam of the elusive Power-to-X made real. As mentioned earlier, we continue to realize the value of our LanzaTech shareholding through our increased ownership in and continued collaboration with LanzaTech. By way of background, this increase in LanzaTech 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 stand-alone business 4 years ago. Our agreement with LanzaTech allowed them to develop the world's first commercial ATJ plan and allows them to further sublicense the ATJ technology that was originally developed by LanzaTech in collaboration with the Pacific North West National Lab and the U.S. Department of Energy. With LanzaTech success in licensing the ATJ technology in June, we received the first of what is anticipated to be a total of 3 additional tranches of LanzaTech common stock. The first time received in June increased our LanzaTech ownership of 37%, up from 23% and was related to a sublicense issued to Jet Zero Australia. Jet Zero Australia is developing Australia's first ethanol to sustainable aviation fuel plan and LanzaTech Freedom Pines Fuels facility located in Soperton, Georgia is the reference plant for the project. We expect to receive the other 2 tranches of shares as LanzaTech further commercial sublicenses our technology and which is projected to result in an ownership stake in LanzaTech above 50%, subject to dilution from potential LanzaTech equity financing events. Given the projects and opportunities LanzaTech is working on, we have a line of sight to upcoming sublicensing events and expect an additional equity tranche within the next 6 months with the third expected during 2025. Adding to the benefit of our increased ownership percentage is that we believe LanzaTech 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 LanzaTech Freedom Pines Fuel facility from the development of an execution on a robust pipeline of ATJ sublicensing opportunities and from the recent additions of multiple world-class co-investors, including Airbus, Groupe ADP, Microsoft's Climate Innovation Fund, MUFG, Southwest Airlines. LanzaTech 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 platform 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 of gases, including those rich in CO2 to carbon and biogas can all be converted to SAF in this way. The robust pipeline of opportunities that exist 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 LanzaTech 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 near 0.2% of global aviation fuel volumes were SAF, but this is expected to jump to 1% in 2026 and the 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 in. This support traffic build-out of technologies like LanzaTech that can flexibly use locally available feedstock to sue regional conditions. CirculAir builds on the undeniable momentum behind scaling SAF production globally and the large opportunities set available to our 2 companies. You'll hear more about CirculAir in the coming months as we expect to announce some important current projects with LanzaTech. I also want to take a few moments to give an update on Project SECURE and major initiatives, 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 U.S. Department of Energy's Office of Green Energy Demonstrations. The award is for the construction of a new LanzaTech Gas Fermentation Facility, which will be integrated with Technip Energies, Hummingbird® ethanol-to-ethylene technology and an existing Steam cracker in the U.S. 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 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 green 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 is 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 of 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 enabled our customer to increase the 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 users 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 various 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 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 produce 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, 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 to stand out. Number one, we have a commercially proven endurance technology with 6 commercially operating facilities were 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 plans with existing partners. Number 2, the flexibility of our technology, our ability to utilize a diverse range of waste feedstocks such as municipal and industrial waste, agriculture and forest residues and investor of 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 Jeff.

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 5 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 a 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 at 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 development 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 events of the ATJ technology, the Q2 equity grant to LanzaTech was the first of what is anticipated to be a total of 3 additional tranches of 15 million shares for each of the first 3 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 start-up 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 and was fairly in line with the $1 million we did in the 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 to ramp in this revenue category in the back half of the year. Turning now to cost of revenue. We reported $5.5 million in the second quarter of 2024 as compared to $10.8 million for second quarter 2023. Cost of revenue for this quarter was largely comprised of head count 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 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 3 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. 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 of 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 1 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 breach the FPA by selling LanzaTech shares that was obligated to hold for the benefit of LanzaTech under the FPA. We are alleging that, 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 of maturity consideration, which can be satisfied in cancer shares and approximately $2.5 million in share consideration payable in cash. It's important to note that it is our position to shareholder breach the contract before the maturity date can be accelerated, and the shareholders sold its shares without complying with the procedures in the FPA, which includes paying LanzaTech 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 is 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 in 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 of 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 the second quarter of 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 and 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 count on for those. 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, Jeff. While many countries are already moving to the 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 set of entry 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 gives materials and 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 economies that companies have to operate within it profitably. We at LanzaTech are steadfast in our focus to drive the profitability as quickly as possible. I want to close by coming back to the 5 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 to add new customers and progress projects through our biorefining development pipeline, and I am especially excited about the commencement of our CarbonSmart fuel cells. Third, we increased our ownership in LanzaTech by 14%, up to 37% from 23%. Fourth, we announced a $40 million investment from a new investor, Carbon Direct Capital, which will help from 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 expectation the scale-up of carbon abatement solutions. We are very pleased to welcome them on this journey with us and fifth and final, will 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 what is it exactly what we're doing. With that, let's open the call up for questions.

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

This is a quarter that could produce dozens of questions, but I'll limit myself before, 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?

Jeff, thanks for limiting your questions before, and that is encouraging to start with. We -- 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. So -- 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 offtake. 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 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 ICC 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 an 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 in a smooth path and made our first sale.

Okay. Great. Yes. Earlier in your prepared remarks, you 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 a LanzaCO2 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 gray 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 to green electrons, and it's just a question of building out the green electrolyzers as well.

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

Yes, that is actually a great question. We have worked as independent companies in developing projects that go from waste all the way to sustainable aviation fuel. And as you can imagine, that slows down the process. And so what we are agreeing to do here is to have a single phase to the customer so that the agreement, the proposals, all of the techno-economics are all done with a single phase 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 things 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 then the LanzaJet. By doing it all as one phase 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.

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

Just a few for me, maybe tagging off at Jeff on Jakson Green. Curious just from a different angle. On the second-generation bioreactor, is there anything about that second generation reactor that helped to make this project pencil out? Or is it just kind of a natural progression and timing match up?

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 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, I 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 is just like general latency? Just kind of curious on any additional detail for that.

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