Increasing Full Year 2022 Adjusted EBITDA
Guidance
Archaea Energy Inc. (“Archaea,” “the Company,” or “we”) (NYSE:
LFG), an industry-leading renewable natural gas (“RNG”) company,
today announced financial and operating results for the second
quarter and first half of 2022.
FINANCIAL HIGHLIGHTS
- Revenue of $77.2 million and net equity investment income of
$2.7 million for the three months ended June 30, 2022 and revenue
of $134.1 million and net equity investment income of $4.1 million
for the six months ended June 30, 2022.
- Net income1 of $32.6 million for the three months ended June
30, 2022 and a net loss of $0.5 million for the six months ended
June 30, 2022.
- Net income per Class A Common Share of $0.27 for the three
months ended June 30, 2022 and $0.05 for the six months ended June
30, 2022.
- Adjusted EBITDA2 of $30.1 million for the three months ended
June 30, 2022 and $50.7 million for the six months ended June 30,
2022.
- Produced and sold 2.04 million MMBtu of RNG for the three
months ended June 30, 2022 and 3.58 million MMBtu of RNG for the
six months ended June 30, 2022.3
- Produced and sold 159 thousand MWh of electricity for the three
months ended June 30, 2022 and 324 thousand MWh of electricity for
the six months ended June 30, 2022.3
- Increased full year 2022 Adjusted EBITDA guidance4 range to
$132.5 million – $147.5 million.
- Increased full year 2022 capital expenditures (excluding
acquisition costs) guidance range to $325 million – $365 million,
from $255 million – $285 million previously, to begin development
on recent additions to the Company’s development backlog.
- Reaffirmed full year 2022 electricity production sold guidance
of 850 thousand – 950 thousand MWh.3
- Updated full year 2022 RNG production sold guidance range to
10.4 million – 11.4 million MMBtu.3
- Successfully closed an amendment to the Company’s5 Revolving
Credit and Term Loan Agreement, resulting in total aggregate
commitments of $1.1 billion, an increase of approximately $630
million as compared to the original facilities. The amendment also
includes an uncommitted $200 million accordion feature.
RECENT STRATEGIC ACCOMPLISHMENTS
- Added 54 high-quality RNG development projects to the Company’s
peer-leading development backlog year to date:
- INGENCO Acquisition – In July
2022, closed the previously announced acquisition of NextGen Power
Holdings LLC (together with its subsidiaries, “INGENCO”). The
acquisition includes 14 landfill gas to electric (LFGTE) plants and
related gas rights at high-quality landfill sites with strong
growth potential and permitted waste acceptance for over 40 years
on average. The Company expects to build Archaea V1 RNG facilities
on 11 INGENCO sites that do not currently have RNG plants.
- Lightning Renewables Joint Venture with
Republic – In May 2022, announced the formation of a
landmark joint venture (“JV”), Lightning Renewables, LLC
(“Lightning Renewables”), with Republic Services, Inc. (“Republic”)
(NYSE: RSG), one of the largest providers of environmental services
in the United States, to jointly invest approximately $1.1 billion
to develop 39 RNG facilities at landfill locations owned or
operated by Republic across the United States. Archaea holds a 60%
ownership interest in Lightning Renewables. Archaea will develop,
engineer, construct, and operate the RNG facilities within the JV.
Additionally, Archaea will receive fees for engineering,
procurement, and construction management (“EPC”) during development
and construction and fees for operation and maintenance services
after completion.
- Initial Capital Funding of Lightning Renewables: In July 2022,
the Company funded its initial capital contribution of $222.5
million to Lightning Renewables, which included the Company’s net
contribution to the JV for the acquisition of Fort Wayne.
- Launched Upfront Permitting, Zoning and Engineering Initiative
on Lightning Renewables Projects: Archaea and the JV entered into a
new service agreement under their existing EPC contract allowing
for upfront permitting, zoning, and engineering work across all 40
Lightning Renewables RNG development projects. Archaea believes
this systematic and expedited approach to pre-construction
activities will reduce execution and timing risk on project
development.
- Fort Wayne Acquisition Adds 40th Project to Lightning
Renewables: In July 2022, the JV successfully acquired an
additional site (“Fort Wayne”) located in Fort Wayne, Indiana for
$38 million. The acquisition includes a medium-BTU facility and
landfill gas rights. The Company plans to build a new RNG plant on
site that will have an initial capacity of 6,400 scfm at the date
of commercial operation (“COD”) and will be expandable to 9,600
scfm as flows continue to grow. With the addition of Fort Wayne,
Lightning Renewables now has the rights to develop a total of 40
RNG facilities at landfills owned or operated by Republic across
the United States.
- In the second quarter, the Company won three competitive
Request for Proposal (RFP) processes to develop new RNG facilities
at government-owned landfills. Once corresponding gas rights
agreements are signed, these projects will increase the Company’s
current backlog from 88 to 91 RNG development projects.
- Continued commercial success in executing RNG sales agreements
with creditworthy partners, in alignment with the Company’s goal of
securing 70% of expected RNG production sold under long-term,
fixed-price contracts:
- Expanded Commercial Partnership with
Énergir – In August 2022, announced a new long-term RNG
purchase and sale agreement with Énergir L.P. (“Énergir”). Under
the agreement, which is subject to Québec regulatory approval,
Énergir expects to purchase 2.15 million gigajoules (approximately
2.04 million MMBtu) of RNG and the associated Environmental
Attributes6 generated by Archaea annually from certain RNG
production facilities in its portfolio for a fixed price for a
period of 20 years. The agreement is expected to commence in
October 2023.
- New Commercial Partnership with
UGI – In July 2022, announced a medium-term RNG purchase and
sale agreement with UGI Utilities, Inc. (“UGI Utilities”), a
wholly-owned subsidiary of UGI Corporation (NYSE: UGI). Under the
agreement, UGI Utilities will purchase 331,785 MMBtu of RNG and the
associated Environmental Attributes generated by Archaea annually
from its Assai RNG facility for a fixed price for a period of 5
years. Deliveries under the agreement commenced on July 1, 2022.
This is the Company’s first contract with a regulated utility in
Pennsylvania and demarcates the opening of a new market for
potential long-term contracts.
- Achieved development and operational milestones at key RNG
facilities, in alignment with the Company’s 2022 guidance and
development plan:
- Executing on 2022 Optimizations with
Encouraging Results Year to Date – Completed initial
optimization work at five legacy Aria facilities, with a focus on
CO2 separation systems and nitrogen rejection unit (NRU) upgrades,
which are essential components of the Archaea V1 plant design,
translating into improved operational performance at these existing
RNG facilities. On average, methane recovery increased almost 10%
upon completion of the initial optimization projects and is
expected to further increase after completing the remaining
optimization work at these and other legacy sites within the
Company’s portfolio.
- Advancing 2022 New-builds with Recent and
Upcoming Completions – Progress made on new build projects
as the Company nears the unveiling of its first Archaea V1 plant:
- Costa View Dairy Digester Facility: Produced first
pipeline-quality RNG and achieved commercial operations at the
Costa View dairy digester facility in May 2022, successfully
completing the second of four dairy projects within the Company’s
50%-owned Mavrix, LLC joint venture with BP Products North America
Inc.
- Deploying Archaea V1 Plants: The first Archaea V1 plants are
expected to come online beginning this fall.
- Mitigating Exposure to Supply Chain and
Inflation Risks – The Company continues to benefit from
previously announced supply chain initiatives, particularly
advanced bulk-ordering for major equipment and subcomponents, to
minimize the risks of rising costs and delivery lead times.
- Brian McCarthy, Archaea’s Co-Founder, Interim Chief Financial
Officer, and Chief Investment Officer, was named Chief Financial
Officer in August 2022.
CEO COMMENTARY
“Today we released operating and financial results for the
second quarter and first half of 2022 that collectively reflect the
hard work and dedication of the Archaea team over our short tenure
as a public company,” said Nick Stork, Archaea’s Co-Founder and
Chief Executive Officer. “The first half of this year was a crucial
time in our pursuit of cementing a runway to successfully increase
our estimated long-term production and annual earnings power.
Moving forward, it is time for us to leverage the foundation we’ve
established and successfully execute on our development plan. With
every day that goes by, our team proves that we have positioned
ourselves as a distinctive renewable energy platform that will
continue to reshape the RNG industry.
We continue to see meaningful benefits from our optimization
program, which has not only improved the operational performance of
our existing RNG asset base, but has also substantiated key
subsystems included within our Archaea V1 plant design. We have
also made progress on our new-build projects, with an additional
dairy digester RNG facility recently coming online. We are also
seeing the increasing value of our differentiated commercial
strategy amidst continued price volatility in the short-term
transportation markets, as we have continued to sign additional
long-term, fixed-price contracts. Our recently announced contracts
with Énergir and UGI underscore the demand for sizable volumes of
RNG that are structured in a way that caters to the specific energy
needs and environmental goals of customers. Archaea remains one of
the few RNG producers that can meet these demands.
I cannot overstate the transformative nature of the two
strategic transactions we announced in the second quarter of this
year. In July, we funded our first capital contribution to the
Lightning Renewables JV, expanded the Lightning Renewables JV to a
total of 40 projects with the Fort Wayne acquisition, and
successfully closed the acquisition of INGENCO. We look forward to
seeing the impact of both INGENCO and the Lightning Renewables JV
on the future growth and success of our business. To position these
assets and our broader project development backlog for continued
execution, we successfully upsized and amended our credit facility
and term loan despite today’s challenging capital markets
environment. We believe that the over $600 million of incremental
commitments from our lender group underscores confidence in our
differentiated business model and ability to advance the
development of our robust project backlog.
As I’ve mentioned already, our efforts during the second half of
this year are focused on execution. We are ready to demonstrate our
unmatched gas processing, project development, and operational
expertise with the imminent unveiling and commissioning of our
inaugural Archaea V1 plants, while also completing our near-term
optimization projects. We are increasingly confident that Archaea
V1’s standardized and modularized design will prove itself to be
the cornerstone of our success by reducing project development
costs and timelines and enabling more efficient operating
performance. It is the collective responsibility of the Archaea
team to execute on our mission to construct, commission, and
operate these facilities.
Our team is proud of what we have achieved to date, and we are
prepared to achieve the next important phase of our development
program.”
SUMMARY AND REVIEW OF FINANCIAL RESULTS
The following results for the three months and six months ended
June 30, 2022 are presented on a consolidated basis.
($ in thousands)
Three Months Ended June 30,
2022
Six Months Ended June 30,
2022
Revenue
$
77,219
$
134,116
Equity Investment Income, Net
2,693
4,122
Net Income (loss)1
32,624
(548
)
Adjusted EBITDA2
30,095
50,672
RNG Production Sold3 (MMBtu)
2,037,765
3,577,797
Electricity Production Sold3 (MWh)
158,803
324,383
RNG production sold for the three months and six months ended
June 30, 2022 was positively impacted by incremental production
from the Assai and Soares RNG facilities which were completed in
December 2021 and January 2022, respectively, and increased methane
recovery and RNG production from completed optimization
initiatives. RNG production sold for the six months ended June 30,
2022 was also negatively impacted by downtime at certain facilities
related to winter weather and maintenance activities during the
first quarter.
Electricity production sold for the three months and six months
ended June 30, 2022 was positively impacted by efficiency
improvements across the asset portfolio and incremental production
from our PEI Power facility. Electricity production sold for the
six months ended June 30, 2022 was also negatively impacted by
winter seasonality in the first quarter.
Revenues for the three months and six months ended June 30, 2022
were positively impacted by RNG production from Assai, strong
market pricing of Environmental Attributes, natural gas, and
electricity, and forward sales of certain Environmental Attributes
which reduces market pricing risk. Net equity investment income for
the three months and six months ended June 30, 2022 was positively
impacted by lower income tax expenses in the second quarter
compared to the first quarter of 2022.
Net income for the three months and six months ended June 30,
2022 was primarily driven by strong market pricing of Environmental
Attributes, natural gas, and electricity, and gains from changes in
fair value of warrant derivatives, partially offset by higher cost
of sales due to higher gas costs, electric utility costs, and
employee costs, as well as higher royalties due to higher energy
revenues. Net income for the six months ended June 30, 2022 was
also positively impacted by reduced general and administrative
expenses in the second quarter compared to the first quarter due to
reduced acquisition and other transaction costs and severance
costs.
Adjusted EBITDA for the three months and six months ended June
30, 2022 was positively impacted by strong market pricing of
Environmental Attributes, natural gas, and electricity, and to a
lesser extent, negatively impacted by higher cost of sales and
higher royalties as described above.
Timing Adjustment for a Settled RIN Transaction
Under generally accepted accounting principles (“GAAP”), the
timing of revenue recognition for stand-alone Renewable
Identification Numbers (“RINs”) sales contracts is tied to the
delivery of the RIN to our counterparties and not the production of
the RIN. The Company had approximately 3.0 million RINs generated
by June 2022 RNG production that were delivered under forward RIN
sale agreements in July 2022 at a weighted-average price of $3.15.
To reflect this and match the RIN revenue to the month of
production, the Company included a $7.0 million Adjusted EBITDA
add-back (“Settled RIN adjustment”), which represents the net cash
value (proceeds minus expenses) of this settled, forward sold RIN
transaction. The related revenues and associated royalty expenses
will be recognized in the third quarter of 2022. The Company
anticipates the quarterly financial impact of these monetization
timing delays to be mitigated over time as it continues to bring
additional RNG facilities online and enter into new contracts.
COMPLETION OF AMENDMENT AND UPSIZE OF TERM LOAN AND REVOLVING
CREDIT FACILITY
On June 30, 2022, the Company announced that it successfully
closed an amendment to its Revolving Credit and Term Loan
Agreement. Aggregate commitments now total $1.1 billion, an
increase of approximately $630 million from the original
facilities, and consist of a $400 million senior secured term loan
credit facility and a $700 million senior secured revolving credit
facility (together, the “Amended Facilities”). The interest rate
for the Amended Facilities is equal to the secured overnight
financing rate (“SOFR”) plus 275 basis points for the revolving
credit facility and SOFR plus 325 basis points for the term loan
credit facility. The Amended Facilities also include an uncommitted
$200 million accordion feature. The maturity date of the Amended
Facilities remains unchanged at September 15, 2026.
Available capacity under the Amended Facilities, along with
available cash, were used to fund the Company’s acquisition of
INGENCO and initial capital contribution to Lightning Renewables.
Available capacity under the Amended Facilities is also expected to
be used to fund capital expenditures related to the Company’s
development plan and other permitted investments, to provide
working capital, and for other general corporate purposes.
CAPITAL STRUCTURE AND LIQUIDITY
As of June 30, 2022, Archaea’s liquidity position was $861.4,
consisting of cash and cash equivalents of $213.3 million,
restricted cash of $21.9 million, and $626.2 million of available
borrowing capacity under the revolving credit facility after taking
into consideration outstanding letters of credit.
The Amended Facilities described above, along with the Company’s
other existing sources of liquidity, are expected to be sufficient
to fund the Company’s development capital needs for the foreseeable
future, including capital expenditures related to Lightning
Renewables, projects related to INGENCO, and core development
projects, thereby eliminating the need for additional external
capital in the near-term based on the Company’s current development
plans and backlog.
Capital Investments
Total cash used in investing activities was $67.1 million for
the three months ended June 30, 2022. Archaea spent $66.5 million
on development activities. Development activities in the three
months ended June 30, 2022 were related to construction and
optimization across the Company’s various plants and projects in
development. The Company also made contributions to equity method
investments totaling $4.0 million and received return of investment
in equity method investments of $3.3 million.
Total cash used in investing activities was $133.6 million for
the six months ended June 30, 2022. Archaea spent $127.9 million on
development activities and $7.0 million, net of cash acquired,
primarily related to the acquisition of landfill gas right assets.
Development activities in the six months ended June 30, 2022 were
related to construction and optimization across the Company’s
various plants and projects in development. The Company also made
contributions to equity method investments totaling $8.0 million
and received return of investment in equity method investments of
$7.4 million.
Well-Positioned to Support Recent Increase in Debt Funding and
Near-Term Leverage
The Company believes it is capable of supporting the near-term
increase in its leverage profile as a result of its Amended
Facilities. The Company’s long-term debt profile is supported by
long-term, fixed-price contracts in place today, which have a
weighted average remaining contract term of 18.7 years and
cumulative fixed-price value of up to $6.5 billion over the
remaining life of the contracts. This provides the Company with
multi-decade visibility into a sizable, predictable cash flow
profile that can readily service its near-term debt levels.
2022 FULL YEAR GUIDANCE
Archaea is increasing its Adjusted EBITDA and capital
expenditures guidance for full year 2022. In addition, the Company
is reaffirming its electricity production sold volumes guidance and
reducing its RNG production sold volumes guidance for full year
2022. All guidance is current as of the published date and is
subject to change.
($ millions, except production data)
Full Year 2022
RNG Production Sold3 (million MMBtu)
10.4
–
11.4
Electricity Production Sold3 (thousand
MWh)
850
–
950
Adjusted EBITDA4
$132.5
–
$147.5
Capital Expenditures7
$325
–
$365
Within the 2022 Adjusted EBITDA guidance range, the Company
estimates that approximately 3.0 million MMBtu at the midpoint of
its expected 2022 RNG production sold will be subject to market
pricing in the second half of 2022. For the second half of 2022,
the Company assumes D3 RIN prices of $2.85 to $2.95 per gallon
($33.42 to $34.59 per MMBtu8) for volumes expected to be subject to
market pricing. For projections beyond the second half of 2022, the
Company’s D3 RIN pricing assumptions remain unchanged at $1.50 per
gallon ($17.59 per MMBtu).
Within its 2022 Adjusted EBITDA guidance range, the Company is
also reaffirming its expected general and administrative expenses
of approximately $55 million, which includes expected headcount
additions related to the INGENCO acquisition and Lightning
Renewables JV.
The Company is revising its expected 2022 RNG production sold
guidance to 10.4 million to 11.4 million MMBtu due to winter
weather and maintenance activities in the first half of 2022 and
unanticipated delays in zoning at optimization sites with
significant landfill gas being flared or combusted. These delays
are expected to be mitigated in the near-term. Annualized
production as of July 2022 was approximately 10 million MMBtu per
year, without the impact of significant optimization and new build
projects that are expected to be placed into service in the second
half of 2022.
The Company’s 2022 capital expenditures projection increased by
$70 million to $80 million to reflect the impact of favorable
additions to its development backlog. Excluding the incremental
capital expenditures from these future projects, and capital paid
for acquisitions year to date 2022, Archaea does not expect any
material changes to its previous baseline 2022 capital expenditures
guidance range provided on March 17, 2022 of $255 million to $285
million.
At the midpoint of its guidance range, the Company continues to
expect capital investments of approximately $130 million during
2022 for projects expected to be placed into service in 2022.
BRIAN MCCARTHY NAMED CHIEF FINANCIAL OFFICER
The Company recently named Brian McCarthy its Chief Financial
Officer, a role he has held on an interim basis since March 2022.
Mr. McCarthy will lead the Company’s financial operations and
strategy as well as the Company’s commercial strategy, investments,
and business development. Mr. McCarthy is a Co-Founder of Archaea
and served as legacy Archaea’s Chief Financial Officer from January
2019 to May 2021.
SECOND QUARTER 2022 CONFERENCE CALL AND WEBCAST
Archaea will host a conference call to discuss financial and
operating results for second quarter and first half of 2022 and to
provide an update on strategic priorities on Tuesday, August 16,
2022 at 11 a.m. Eastern Time / 10 a.m. Central Time. A listen-only
webcast of the call and an accompanying slide presentation may be
accessed at www.archaeaenergy.com. After completion of the webcast,
a replay will be available for 12 months on the Company’s
website.
1. Unless otherwise specified, net income
(loss) as shown herein is before net income (loss) attributable to
redeemable noncontrolling interest. For information regarding net
income (loss) attributable to Class A Common Stock, please see the
Consolidated Statements of Operations included in this release.
2. Non-GAAP financial measure. See “Use of
Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP
Measures” for further details.
3. Volumes produced and sold include
production from the Company’s wholly-owned facilities and its
proportionate share of production from its equity method investment
facilities.
4. A reconciliation of expected full year
2022 Adjusted EBITDA to net income (loss), the closest GAAP
financial measure, cannot be provided without unreasonable efforts
due to the inherent difficulty in quantifying certain amounts,
including share-based compensation expense, which is affected by
factors including future personnel needs and the future price of
our Class A Common Stock, and changes in fair value of warrant
derivatives, due to a variety of factors including the
unpredictability of underlying price movements, which may be
significant.
5. Through Archaea Energy Operating LLC, a
subsidiary of the Company.
6. Environmental Attributes refer to
federal, state, and local government incentives in the United
States, provided in the form of RINs, Renewable Energy Credits,
Lower Carbon Fuel Standard credits, renewable thermal certificates,
rebates, tax credits, and other incentives to end users,
distributors, system integrators and manufacturers of renewable
energy projects, that promote the use of renewable energy.
7. Excluding acquisition costs.
8. Conversion factor of 11.727 RINs per
MMBtu.
ABOUT ARCHAEA
Archaea Energy Inc. is one of the largest RNG producers in the
U.S., with an industry-leading platform and expertise in
developing, constructing, and operating RNG facilities to capture
waste emissions and convert them into low carbon fuel. Archaea’s
innovative, technology-driven approach is backed by significant gas
processing expertise, enabling Archaea to deliver RNG projects that
are expected to have higher uptime and efficiency, faster project
timelines, and lower development costs. Archaea partners with
landfill and farm owners to help them transform potential sources
of emissions into RNG, transforming their facilities into renewable
energy centers. Archaea’s differentiated commercial strategy is
focused on long-term contracts that provide commercial partners a
reliable, non-intermittent, sustainable decarbonizing solution to
displace fossil fuels.
Additional information is available at
www.archaeaenergy.com.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial statements in accordance
with GAAP, this release contains non-GAAP financial measures.
Adjusted EBITDA is a non-GAAP financial measure that Archaea uses
to facilitate comparisons of operating performance across periods.
Non-GAAP measures should be viewed as a supplement to and not a
substitute for the Company’s GAAP measures of performance and the
financial results calculated in accordance with GAAP and
reconciliations from these results should be carefully
evaluated.
Non-GAAP measures have limitations as an analytical tool and
should not be considered in isolation or in lieu of an analysis of
the Company’s results as reported under GAAP and should be
evaluated only on a supplementary basis.
FORWARD-LOOKING STATEMENTS
This release contains certain statements that may include
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Statements that do not
relate strictly to historical or current facts are forward-looking
and usually identified by the use of words such as “anticipate,”
“estimate,” “could,” “would,” “should,” “will,” “may,” “forecast,”
“approximate,” “expect,” “project,” “intend,” “plan,” “believe” and
other similar words. Forward-looking statements may relate to
expectations for future financial performance, business strategies
or expectations for Archaea’s business. Specifically,
forward-looking statements may include statements concerning market
conditions and trends, earnings, performance, strategies, prospects
and other aspects of Archaea’s business. Forward looking statements
are based on current expectations, estimates, projections, targets,
opinions and/or beliefs of Archaea, and such statements involve
known and unknown risks, uncertainties and other factors.
The risks and uncertainties that could cause those actual
results to differ materially from those expressed or implied by
these forward looking statements include, but are not limited to:
(a) Archaea’s ability to successfully integrate INGENCO and other
future acquisitions; (b) the ability to recognize the anticipated
financial, strategic, and operational benefits of the business
combinations, the INGENCO acquisition, the Lightning Renewables JV,
and other future acquisitions or strategic transactions, which may
be affected by, among other things, competition, the ability of
Archaea to grow and manage growth profitably and retain its
management and key employees; (c) the possibility that Archaea may
be adversely affected by other economic, business and/or
competitive factors, including rising inflation and interest rates;
(d) Archaea’s ability to develop and operate new projects,
including the projects contemplated from the INGENCO assets and
Lightning Renewables; (e) the reduction or elimination of
government economic incentives to the renewable energy market; (f)
delays in acquisition, financing, construction and development of
new or planned projects; (g) the length of development cycles for
new projects, including the design and construction processes for
Archaea’s projects; (h) Archaea’s ability to identify suitable
locations for new projects; (i) Archaea’s dependence on landfill
operators; (j) existing regulations and changes to regulations and
policies that affect Archaea’s operations; (k) decline in public
acceptance and support of renewable energy development and
projects; (l) demand for renewable energy not being sustained; (m)
impacts of climate change, changing weather patterns and
conditions, and natural disasters; (n) the ability to secure
necessary governmental and regulatory approvals; (o) Archaea’s
expansion into new business lines; and (p) other risks and
uncertainties described in Archaea’s Annual Report on Form 10-K for
the year ended December 31, 2021, including those under “Risk
Factors” therein, Archaea’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2022 and other documents filed or
to be filed by Archaea with the Securities and Exchange
Commission.
Accordingly, forward-looking statements should not be relied
upon as representing Archaea’s views as of any subsequent date.
Archaea does not undertake any obligation to update forward-looking
statements to reflect events or circumstances after the date they
were made, whether as a result of new information, future events,
or otherwise, except as may be required under applicable securities
laws.
(Financial Tables and Supplementary
Information Follow)
ARCHAEA ENERGY INC.
Consolidated Statements of
Operations (Unaudited)
Three Months Ended June
30,
Six months ended June
30,
(in thousands, except shares and per
share
2022
2021
2022
2021
Revenues and Other Income
Energy revenue
$
71,235
$
3,059
$
124,151
$
3,059
Other revenue
3,215
2,068
4,428
3,722
Amortization of intangibles and
below-market contracts
2,769
—
5,537
—
Total Revenues and Other
$
77,219
$
5,127
$
134,116
$
6,781
Equity Investment Income, Net
2,693
—
4,122
—
Cost of Sales
Cost of energy
46,699
3,148
75,278
3,148
Cost of other revenues
2,317
1,199
3,940
2,360
Depreciation, amortization and
accretion
13,730
886
26,219
935
Total Cost of Sales
62,746
5,233
105,437
6,443
General and administrative expenses
18,883
7,884
45,236
11,042
Operating Income (Loss)
(1,717
)
(7,990
)
(12,435
)
(10,704
)
Other Income (Expense)
Interest expense, net
(3,712
)
(13
)
(6,366
)
(19
)
Gain (loss) on warrants and derivative
contracts
38,095
—
18,180
—
Other income (expense)
87
73
202
294
Total Other Income (Expense)
34,470
60
12,016
275
Income (Loss) Before Income
32,753
(7,930
)
(419
)
(10,429
)
Income tax expense
129
—
129
—
Net Income (Loss)
32,624
(7,930
)
(548
)
(10,429
)
Net income (loss) attributable to
nonredeemable noncontrolling interests
—
(168
)
—
(254
)
Net income (loss) attributable to Legacy
Archaea
—
(7,762
)
—
(10,175
)
Net income (loss) attributable to
redeemable noncontrolling interests
10,674
—
(4,071
)
—
Net Income (Loss) Attributable to Class
A Common Stock
$
21,950
$
—
$
3,523
$
—
Net income (loss) per Class A common
share:
Net income (loss) – basic (1)
$
0.27
$
—
$
0.05
$
—
Net income (loss) – diluted (1)
$
(0.18
)
$
—
$
(0.12
)
$
—
Weighted average shares of Class A Common
Stock outstanding:
Basic (1)
80,522,737
—
73,488,555
—
Diluted (1)
83,445,455
—
76,203,753
—
(1) Class A Common Stock is outstanding
beginning September 15, 2021 due to the reverse recapitalization
transaction described in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2021.
ARCHAEA ENERGY INC.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except shares and per share
data)
June 30, 2022
December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents
$
213,315
$
77,860
Restricted cash
21,864
15,206
Accounts receivable, net
29,841
37,010
Inventory
11,050
9,164
Prepaid expenses and other current
assets
33,952
21,225
Total Current Assets
310,022
160,465
Property, plant and equipment, net
460,340
350,583
Intangible assets, net
627,223
638,471
Goodwill
29,835
29,211
Equity method investments
263,336
262,738
Operating lease right-of-use assets
4,654
—
Other non-current assets
17,113
9,721
Total Assets
$
1,712,523
$
1,451,189
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - trade
$
38,272
$
11,096
Current portion of long-term debt, net
21,568
11,378
Current portion of operating lease
liabilities
923
—
Accrued and other current liabilities
63,607
46,279
Total Current Liabilities
124,370
68,753
Long-term debt, net
548,900
331,396
Derivative liabilities
52,730
67,424
Below-market contracts
135,210
142,630
Asset retirement obligations
4,830
4,677
Long-term operating lease liabilities
3,952
—
Other long-term liabilities
2,590
5,316
Total Liabilities
872,582
620,196
Commitments and Contingencies
Redeemable Noncontrolling
Interests
606,608
993,301
Stockholders' Equity
Preferred stock, $0.0001 par value;
10,000,000 authorized; none issued and outstanding
—
—
Class A Common Stock, $0.0001 par value;
900,000,000 shares authorized; 80,717,757 shares issued and
outstanding as of June 30, 2022 and 65,122,200 shares issued and
outstanding as of December 31, 2021
8
7
Class B Common Stock, $0.0001 par value;
190,000,000 shares authorized; 39,060,418 shares issued and
outstanding as of June 30, 2022 and 54,338,114 shares issued and
outstanding as of December 31, 2021
4
5
Additional paid in capital
392,118
—
Accumulated deficit
(158,797
)
(162,320
)
Total Stockholders' Equity
233,333
(162,308
)
Total Liabilities, Redeemable
Noncontrolling Interests and Stockholders’ Equity
$
1,712,523
$
1,451,189
Reconciliation of Non-GAAP Measures
Adjusted EBITDA
The following table reconciles Adjusted EBITDA to net income
(loss) for the three and six months ended June 30, 2022:
(in thousands)
Three Months Ended June 30,
2022
Six Months Ended June 30,
2022
Net Income (loss)
$
32,624
$
(548
)
Adjustments:
Interest expense
3,712
6,366
Depreciation, amortization and
accretion
13,730
26,219
Income tax expense
129
129
EBITDA
$
50,195
$
32,166
Net derivative activity
(38,095
)
(18,180
)
Amortization of intangibles and
below-market contracts
(1,103
)
(2,206
)
Amortization of equity method investments
basis difference
2,571
5,141
Depreciation and amortization adjustments
for equity method investments
1,579
3,173
Income tax expense for equity method
investments
151
1,693
Share-based compensation expense
3,170
8,923
Acquisition and other transaction costs(1)
and severance costs
4,621
12,956
Settled RIN adjustment (2)
7,006
7,006
Adjusted EBITDA
$
30,095
$
50,672
(1) Other transaction costs include
expenses related to certain joint ventures, R&D expenses and
the Ares secondary offering.
(2) Adjustment for gross profit on RINs
generated from June gas production which will be recognized in the
Company’s third quarter 2022 consolidated statement of operations.
See “Summary and Review of Financial Results — Timing Adjustment
for a Settled RIN Transaction” for more information.
Adjusted EBITDA is commonly used as a supplemental financial
measure by Archaea’s management and external users of its
consolidated financial statements to assess the financial
performance of its assets without regard to financing methods,
capital structures, or historical cost basis. Adjusted EBITDA is
not intended to represent cash flows from operations or net income
(loss) as defined by GAAP and is not necessarily comparable to
similarly titled measures reported by other companies.
Archaea believes Adjusted EBITDA provides relevant and useful
information to management, investors, and other users of its
financial information in evaluating the effectiveness of its
operating performance in a manner that is consistent with
management’s evaluation of financial and operating performance.
Adjusted EBITDA is calculated by taking net income (loss),
before taxes, interest expense, and depreciation, amortization and
accretion, and adjusting for the effects of certain non-cash items,
other non-operating income or expense items, and other items not
otherwise predictive or indicative of ongoing operating
performance, including gains and losses on disposal of assets,
impairment charges, debt forbearance costs, net derivative
activity, non-cash share-based compensation expense, acquisition
and other transaction costs, severance costs, and Settled RIN
timing adjustment. Archaea believes the exclusion of these items
enables investors and other users of its financial information to
assess its sequential and year-over-year performance and operating
trends on a more comparable basis and is consistent with
management’s own evaluation of performance.
Adjusted EBITDA also includes adjustments for equity method
investment basis difference amortization and the depreciation and
amortization expense and income tax expense included in the
Company’s equity earnings from its equity method investments. These
adjustments should not be understood to imply that Archaea has
control over the related operations and resulting revenues and
expenses of its equity method investments. Archaea does not control
its equity method investments; therefore, it does not control the
earnings or cash flows of such equity method investments. The use
of Adjusted EBITDA, including adjustments related to equity method
investments, as an analytical tool should be limited
accordingly.
A reconciliation of expected full year 2022 Adjusted EBITDA to
net income (loss), the closest GAAP financial measure, cannot be
provided without unreasonable efforts due to the inherent
difficulty in quantifying certain amounts, including changes in
share-based compensation expense, which is affected by factors
including future personnel needs and the future price of our Class
A Common Stock, and fair value of warrant derivatives, due to a
variety of factors including the unpredictability of underlying
price movements, which may be significant.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220815005715/en/
ARCHAEA Megan Light mlight@archaea.energy 346-439-7589
Blake Schreiber bschreiber@archaea.energy 346-440-1627
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