Archaea Energy Inc. (“Archaea,” “the Company,” or “we”) (NYSE:
LFG), an industry-leading renewable natural gas (“RNG”) company,
today announced preliminary1 financial and operating results for
the fourth quarter and pro forma full year 2021.
FINANCIAL HIGHLIGHTS
- Revenue of $58.4 million and net equity investment income of
$4.8 million for the three months ended December 31, 2021, and pro
forma2 revenue of $205.8 million and net equity investment income
of $18.0 million for the twelve months ended December 31,
2021.
- Net income3 of $3.7 million for the three months ended December
31, 2021 and a pro forma net loss of $77.4 million for the twelve
months ended December 31, 2021.
- Adjusted EBITDA4 of $16.4 million for the three months ended
December 31, 2021, and pro forma Adjusted EBITDA of $76.1 million
for the twelve months ended December 31, 2021. Pro forma Adjusted
EBITDA for the twelve months ended December 31, 2021 was above the
midpoint of the Company’s full year 2021 guidance range5.
- Produced and sold 1.53 million MMBtu of RNG for the three
months ended December 31, 2021 and 5.72 million MMBtu of RNG on a
pro forma basis for the twelve months ended December 31, 20216. Pro
forma RNG production sold for the twelve months ended December 31,
2021 exceeded the Company’s full year 2021 guidance5.
- Produced and sold 168 thousand MWh of electricity for the three
months ended December 31, 2021, and 872 thousand7 MWh of
electricity on a pro forma basis for the twelve months ended
December 31, 20216.
- Announced full year 2022 guidance including RNG production of
11.1–11.7 million MMBtu, electricity production of 850–950 thousand
MWh, Adjusted EBITDA8 of $125–$145 million, and capital
expenditures of $255–$285 million based on assumptions set forth
herein.
RECENT STRATEGIC ACCOMPLISHMENTS
- Achieved development milestones for key landfill and dairy
facilities:
- Produced first pipeline-quality RNG and achieved commercial
operations at our Assai facility in December 2021, completing the
project on an industry-leading timeline of less than two years and
within budget. The Assai facility, which is expected to reduce CO2
emissions by over 200 thousand metric tons annually, is now the
highest capacity operational RNG facility in the United
States.
- Produced first pipeline-quality RNG and achieved commercial
operations at our Soares dairy digester facility in January 2022,
successfully completing the first of four dairy projects within our
50%-owned Mavrix, LLC joint venture with BP Products North America
Inc. and demonstrating that the Company’s capabilities extend to
anaerobic digestion projects.
- Continued commercial success with multiple new long-term
agreements with creditworthy partners, moving the Company closer to
its goal of securing 70% of expected RNG production under
long-term, fixed-price contracts:
- Entered into a 21-year, fixed-price RNG purchase and sale
agreement with Northwest Natural Gas Company (“NW Natural”), a
subsidiary of NW Natural Holdings (NYSE: NWN), for the sale of
Environmental Attributes9 related to up to one million MMBtu of RNG
annually, beginning in 2022 and ramping up to the full annual
quantity in 2025.
- Entered into a 20-year, fixed-price RNG purchase and sale
agreement with FortisBC Energy Inc. (“FortisBC”), a subsidiary of
Fortis Inc. (NYSE: FTS), for the sale of up to approximately 7.6
million MMBtu of RNG annually, with sales expected to begin in 2022
and ramping up to the full annual quantity in 2025.
- Including these agreements, contracted RNG volumes under
executed long-term, fixed-price agreements total approximately 45%
of estimated long-term annual RNG production10.
- Expanded our backlog of high-quality RNG development projects
to 38 projects for which we have gas rights agreements in place:
- During the fourth quarter, we entered into a new joint venture,
and the joint venture acquired gas rights at two locations to
develop RNG facilities, with expected combined flows of
approximately 4,250 net standard cubic feet per minute (“scfm”) of
landfill gas to the RNG facilities following completion.
- Year-to-date 2022, entered into gas rights agreements to
develop RNG facilities at two sites and acquired a landfill gas to
electric project with RNG development rights, which are located on
sites with total expected combined flows of approximately 4,500 net
scfm of landfill gas to the RNG facilities following
completion.
- We expect to obtain gas development rights for an additional 10
landfill gas to RNG projects during 2022 from our growing pipeline
of high-probability development opportunities.
- Made several key appointments to our leadership and management
teams, including two key executive roles:
- Appointed Brian McCarthy, Archaea’s Co-Founder and Chief
Investment Officer (“CIO”), into an expanded role as Interim Chief
Financial Officer, to oversee the Company’s financial operations
and strategy during the Company’s search for a permanent Chief
Financial Officer.
- Appointed Edward P. Taibi as General Counsel and Executive Vice
President (“EVP”) Strategic Initiatives and Government Affairs to
lead the company’s legal and risk management functions and support
the Company’s strategic development efforts.
CEO COMMENTARY
“I’m proud of the financial and operational results we delivered
for 2021, driven by the extraordinary hard work and dedication of
the Archaea team,” said Nick Stork, Archaea’s Co-Founder and Chief
Executive Officer. “Mitigating the impacts of climate change
requires tackling the problem of methane, and Archaea is a leader
in transforming landfill emissions into non-intermittent renewable
energy, which drives decarbonization and air quality improvement
and displaces fossil natural gas. Our partnerships with landfill
owners, underpinned by the stability of cash flows from our
long-term commercial contracts, create a sustainable and
multi-decade solution that supports environmental and social
progress, especially for our projects’ neighbors. Our team has
never been more unified in our mission, and our ownership
mentality, entrepreneurial drive, and unparalleled gas processing
excellence enable us to rise to the challenge of our time.”
“In the span of only a few months, we achieved critical
construction and commercial milestones while expanding our project
backlog, successfully merging two private companies, completing a
complex de-SPAC transaction, and building our public company
functions to support our rapidly growing business. We achieved
commercial operations at our Assai facility, the highest capacity
operational RNG facility in the U.S., in under two years, a
timeline much shorter than industry averages. Completing Assai
successfully, early, and within budget is a huge testament to the
strength of our in-house technical and project development
professionals. We continued this momentum into early January and
showcased the breadth of our team’s capabilities across biogas
sources when we achieved commercial operations at our first dairy
RNG facility.”
“We matched these developmental milestones with noteworthy
commercial and strategic milestones. Our long-term agreement with
NW Natural, announced in November, highlights our ability to tailor
contract structures to meet our customers’ needs, in this case
utilizing the Environmental Attributes associated with our
low-carbon RNG. Our recently announced long-term agreement with
FortisBC, which recently received all necessary regulatory
approvals, further strengthens and expands our existing
partnership, and we believe this new contract is the largest RNG
supply contract signed to date. We look forward to continuing our
long-term partnerships with NW Natural and FortisBC as we help them
achieve their decarbonization and sustainability goals. Even more,
we are proud to link their customers, including homeowners and
businesses, to the good we do at our RNG facilities.”
“Looking toward the remainder of 2022, I am especially proud of
our plan to implement the Archaea V1 plant design. We expect V1 to
transform the RNG industry by bringing a differentiated
modularization and manufacturing approach to project design. V1 is
expected to reduce construction timelines and enhance project
economics, with world-class specs on methane recovery and uptime.
Meanwhile, V1’s modularity has allowed us to preorder equipment in
bulk, locking in key costs that would otherwise be subject to
inflationary prices. Visibility into our costs is a key strategic
advantage for Archaea and ultimately benefits the communities we
serve, our commercial partners, and our landfill partners.”
“Finally, we will continue to proactively capture as many of the
remaining economically attractive RNG development opportunities in
the U.S. as possible, acting quickly to cement our market leading
position and build the biggest backlog in the industry amid
increasing competition for attractive opportunities. We believe
that Archaea technology and the V1 plant design together make
Archaea the optimal partner for both landfill site owners and RNG
customers.”
SUMMARY AND REVIEW OF FINANCIAL RESULTS
The following results for the three months ended December 31,
2021 are presented on an actual (historical) basis, and full year
2021 results are presented on a pro forma basis.
Actual
Pro Forma
($ in thousands)
Three Months Ended December
31, 2021
Twelve Months Ended December
31, 2021
Revenue
$
58,359
$
205,758
Equity Investment Income, Net
4,774
17,979
Net Income (Loss)3
3,685
(77,449
)
Adjusted EBITDA4
16,350
76,112
RNG Production Sold (MMBtu)
1,529,483
5,720,833
Electricity Production Sold (MWh)7
168,230
871,508
RNG production sold for the three and twelve months ended
December 31, 2021 was positively impacted by production from our
Boyd County facility, which became operational in April 2021.
Electricity production sold for the three and twelve months ended
December 31, 2021 was positively impacted by the acquisition of PEI
Power LLC in April 2021 and the acquisition of four additional LFG
to renewable electricity facilities in October 2021.
Revenues and equity investment income, net for the three and
twelve months ended December 31, 2021 were positively impacted by
strong market pricing of Environmental Attributes, natural gas, and
electricity.
Net income for the three months ended December 31, 2021 was
primarily driven by strong market pricing, partially offset by
increased general and administrative expenses related to scaling
headcount for the future growth of our business, additional costs
related to operating as a public company, and due to the timing of
certain public company costs incurred.
Pro forma net loss for the twelve months ended December 31, 2021
was primarily driven by a loss from change in fair value of warrant
derivatives in the amount of $110.2 million, non-recurring costs
primarily related to our business combination transactions, and
increased general and administrative expenses, partially offset by
non-recurring gains related to the sale of LES Project Holdings LLC
(“LESPH”), including a gain on the extinguishment of debt in the
amount of $61.4 million and a gain on the disposal of assets in the
amount of $1.3 million, as well as strong market pricing.
Non-recurring costs, which primarily consisted of transaction
costs related to our business combinations, totaled approximately
$0.3 million and $22.7 million for the three and twelve months
ended December 31, 2021, respectively.
Adjusted EBITDA for the three and twelve months ended December
31, 2021 was positively impacted by strong market pricing of
Environmental Attributes, natural gas, and electricity, partially
offset by increased general and administrative expenses as
described above.
CAPITAL STRUCTURE AND LIQUIDITY
As of December 31, 2021, our liquidity position was $328.9
million, consisting of cash and cash equivalents of $77.9 million,
restricted cash of $15.2 million, and, after taking into
consideration our outstanding letters of credit, $235.8 million of
available borrowing capacity under our revolving credit
facility.
We expect to fund our development plan and related capital
expenditures through the utilization of existing sources of
liquidity and reinvestment of expected cash flows from our
operations. We may also opportunistically access the debt capital
markets from time to time to fund a portion of our development plan
and related capital expenditures, to provide additional capital for
acquisitions or incremental development projects, or for general
corporate purposes.
Capital Investments
Cash used in investing activities totaled $107.2 million for the
three months ended December 31, 2021. We had additions to property,
plant and equipment of $51.3 million, primarily related to the
procurement of components and equipment for projects under
development and the development of our Assai facility. We also
acquired certain assets for a total of $30.3 million, acquired
certain biogas rights for $7.6 million, and contributed $18.1
million into our equity method investments.
Cash used in investing activities for the twelve months ended
December 31, 2021 totaled $242.0 million on a pro forma basis,
excluding the acquisition of Aria. We had additions to property,
plant and equipment of $141.8 million on a pro forma basis,
primarily related to the development of our Assai and Boyd County
RNG facilities and procurement of components and equipment for
projects under development. Additionally, we acquired certain
assets for a total of $61.8 million, acquired certain biogas rights
for $7.8 million, and contributed $30.6 million into our equity
method investments on a pro forma basis.
Redemption of Warrants
In November 2021, we issued a notice to warrant holders to
redeem the approximately 11.9 million outstanding public warrants
and 250 thousand warrants that were issued in a private placement
(collectively, the “Redeemable Warrants”). Prior to the redemption
deadline on December 6, 2021, 9.4 million Redeemable Warrants were
exercised for cash, generating $107.7 million of proceeds to the
Company which were then used to repurchase 6.1 million shares of
our Class A common stock from Aria Renewable Energy Systems LLC at
a pre-negotiated price of $17.65 per share. Additionally, 2.7
million Redeemable Warrants were exercised on a cashless basis in
exchange for an aggregate of 1.0 million shares of our Class A
common stock. The net result of the redemption and related
exercises of Redeemable Warrants, combined with the net repurchase
of shares, was a net Class A and Class B common share count
increase of 4.2 million and elimination of the 12.1 million
Redeemable Warrants.
2022 FULL YEAR GUIDANCE AND DEVELOPMENT PLAN
We are providing the following financial and operational
guidance for full year 2022. All guidance is current as of the
published date and is subject to change.
($ millions, except production data)
Full Year 2022
RNG Production Sold (million MMBtu)
11.1
–
11.7
Electricity Production Sold (thousand
MWh)
850
–
950
Adjusted EBITDA8
$125
–
$145
Capital Expenditures
$255
–
$285
Our production guidance is based on current performance of our
operating assets, operating efficiency improvements expected to be
implemented during 2022, and incremental production expected from
the completion of projects in our 2022 development plan. We expect
to sell approximately 5.5 million MMBtu, or approximately 50% of
our expected 2022 RNG production sold, under our existing
long-term, fixed-price contracts. Maximum volumes which can be sold
under our existing long-term contracts total 7.4 million MMBtu for
2022.
Additionally, as of March 15, 2022, we have forward sold 15.9
million RINs expected to be generated in 2022 at an average price
of $3.13 per gallon, equivalent to an average price of $36.67 per
MMBtu on approximately 1.4 million MMBtu of RNG production11. RINs
forward sold under these agreements total more than 20% of expected
RIN generation from uncontracted RNG volumes in 2022.
Within our 2022 Adjusted EBITDA guidance range, we have assumed
RIN prices of $2.00 to $2.50 per gallon ($23.45 to $29.32 per
MMBtu) for uncontracted volumes in excess of the volumes forward
sold. We have also assumed general and administrative expenses of
approximately $45 million.
Within our capital expenditures projection, we plan to complete
20 projects in 2022, including 10 optimizations of existing RNG
facilities and 10 new build projects expected to be placed into
service. At the midpoint of our guidance range, we expect capital
investments of approximately $130 million in projects expected to
be placed into service in 2022, approximately $70 million in
projects expected to be completed in future years, approximately
$40 million in acquisition capital, approximately $25 million in
development capital for initiatives including carbon sequestration
and on-site solar projects, and approximately $5 million in
maintenance capital.
For RNG projects expected to be completed in 2022, we expect the
following impacts to our financial and operating results:
Project Type
2022 Incremental Production
(MMBtu)
2022 Incremental Adjusted
EBITDA ($ millions)
Incremental Annualized
Production* (MMBtu)
Incremental Annualized
Adjusted EBITDA* ($ millions)
Optimizations
1,030,000
$13
2,015,000
$25
New Builds**
920,000
8
4,930,000
65
Total Impact of Projects with Expected
2022 Completion Dates
1,950,000
$21
6,945,000
$90
* Estimated incremental annualized production and Adjusted
EBITDA after projects are completed and ramped to full flows.
Estimated incremental annualized Adjusted EBITDA assumes
fixed-price volumes sold under existing long-term contracts and a
$1.50/gallon D3 RIN price on uncontracted volumes post-2022. **
Includes new RNG plants expected to be built at electric sites and
greenfield sites.
We expect total incremental RNG production of 1.95 million MMBtu
in 2022 and corresponding incremental EBITDA of $21 million in 2022
as a result of completion of projects in our 2022 development plan.
Upon completion of projects and commencement of operations, we
expect a ramp up period of one month on average for optimization
projects and several months on average for new build RNG projects
to reach full expected production levels. Additionally, there is
generally a multi-month lag in the generation and monetization of
Environmental Attributes after a new RNG facility is placed into
operation.
On a long-term basis, after projects in our development plan
with expected 2022 completion dates are completed, ramped to full
flows, and monetizing Environmental Attributes, we expect total
incremental annualized RNG production of 6.95 million MMBtu and
corresponding annualized incremental Adjusted EBITDA of
approximately $90 million related to these projects.
2022 expected capital expenditures of $70 million, at the
midpoint of guidance, for projects scheduled to be completed in
future years relate primarily to orders of major equipment which
have been placed, or are expected to be placed, to reduce risks to
supply chain availability, timing, and pricing.
KEY APPOINTMENTS TO LEADERSHIP AND MANAGEMENT TEAMS
The Company recently appointed several new leadership and
management team members, including Brian McCarthy in an expanded
role as Interim Chief Financial Officer and CIO, Edward P. Taibi as
General Counsel and EVP Strategic Initiatives and Government
Affairs, Lawrence Ji as Senior Vice President (“SVP”) of Corporate
Development, Mark Mannion as SVP of Finance, Olivia McNamara as
Vice President (“VP”) of Health and Safety, and Chad Bellah in an
expanded role as Principal Financial Officer in addition to his
duties as Principal Accounting Officer.
As Interim Chief Financial Officer and CIO, Brian 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, the architect
of the Company’s long-term off-take partnerships, and served as
Archaea’s Chief Financial Officer from January 2019 to May 2021.
Mr. McCarthy will continue to drive Archaea’s vision forward by
resuming his participation in the finance division with the
Company’s newly added talent.
As General Counsel and EVP Strategic Initiatives and Government
Affairs, Edward P. Taibi will lead the Company’s legal and risk
management functions and support the Company’s strategic
development efforts. Mr. Taibi has significant experience in
corporate management, transaction structuring and execution,
complex legal matters, and public company governance and regulatory
matters. Mr. Taibi previously served as EVP for MacAndrews &
Forbes Incorporated, a diversified holding company with a portfolio
of investments across a wide range of industries, and as a mergers
and acquisitions and corporate finance attorney for Skadden, Arps,
Slate, Meagher & Flom LLP.
As SVP of Corporate Development, Lawrence Ji will be responsible
for leading a wide array of initiatives within finance and
corporate development for the Company. Mr. Ji brings a wealth of
finance and energy experience including roles at Citadel and
Magnetar Capital. Mr. Ji also previously held energy private equity
and investment banking roles.
As SVP of Finance, Mark Mannion will be responsible for the
Company’s financial planning and analysis (“FP&A”) initiatives.
Mr. Mannion has a strong track record of driving business
performance with functional expertise across FP&A, business
analytics, merger integration, and operational restructuring. Mr.
Mannion was previously Chief Financial Officer of Paradigm
Specialty Networks, a healthcare services company, and also held
senior roles at Aetna and Alvarez & Marsal.
As VP of Health and Safety, Olivia McNamara will be responsible
for the Company’s health and safety programs, initiatives, and
culture. Ms. McNamara has two decades of experience within health,
safety, and environmental roles at public companies across the
energy industry, including most recently Southwestern Energy and
WPX Energy. Ms. McNamara has valuable experience leading safety and
environmental projects for corporate-wide and field operations.
FOURTH QUARTER AND FULL YEAR 2021 CONFERENCE CALL AND
WEBCAST
We will host a conference call to discuss our financial and
operating results for fourth quarter and full year 2021 on
Thursday, March 17, 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 through our website at
www.archaeaenergy.com. After completion of the webcast, a replay
will be available for 12 months on our website.
1. Our fourth quarter and full year 2021 results as presented
herein are based on preliminary unaudited information and are
subject to revision. We have not filed our Annual Report on Form
10-K for the year ended December 31, 2021. As a result, all
financial results described in this earnings release should be
considered preliminary and are subject to change to reflect any
necessary adjustments or changes that are identified prior to the
time we file our Form 10-K. Accordingly, you should not place undue
reliance upon these preliminary results.
2. The Company has presented certain specified financial results
on a pro forma basis as it believes it provides more meaningful
information to investors. Financial information presented on a pro
forma basis gives effect to the business combinations and the
financing and other transactions related thereto as if they had
been completed on January 1, 2021. Except where indicated as pro
forma or “combined,” the Company’s results included in this release
include only the results of Archaea Energy LLC prior to the
business combinations closing on September 15, 2021 and the results
of the combined Company, which includes the operations of Archaea
Energy LLC and Aria Energy LLC (“Aria”), for the period from
September 15 to December 31, 2021. Company results prior to the
business combinations closing date do not include Aria’s results.
Aria’s financial information through September 14, 2021 is also
presented elsewhere in this release. Pro forma information has been
prepared for informational purposes only and does not purport to
represent what the actual results would have been had the business
combinations and related transactions occurred on January 1, 2021,
nor are they necessarily indicative of future results.
3. Net income (loss) as shown herein, both on an actual and on a
pro forma basis, is before net income (loss) attributable to
noncontrolling interest. For information regarding net income
(loss) attributable to Class A common stock, please see the
Preliminary Consolidated Statement of Operations included in this
release.
4. Non-GAAP financial measure. See “Use of Non-GAAP Financial
Measures” and “Reconciliation of Non-GAAP Measures” for further
details.
5. The Company previously provided guidance for RNG production
and Adjusted EBITDA on a combined basis, which included the results
of both Archaea Energy LLC and Aria for full year 2021, including
periods prior to the business combinations closing date on
September 15, 2021. The calculations of combined RNG production and
Adjusted EBITDA are equivalent to the calculations shown herein for
these metrics on a pro forma basis, and pro forma RNG production
and Adjusted EBITDA are materially consistent with combined RNG
production and Adjusted EBITDA, respectively.
6. Volumes produced and sold include production from our
wholly-owned facilities and our proportionate share of production
from our equity method investment facilities.
7. Electricity production for the year ended December 31, 2021
includes production of 203,276 MWh from LES Project Holdings, LLC
(“LESPH”) assets, which were sold by Aria on June 10, 2021.
8. A reconciliation of expected full year 2022 Adjusted EBITDA
to net income (loss), the closest U.S. GAAP financial measure,
cannot be provided without unreasonable efforts due to the inherent
difficulty in quantifying certain amounts, including changes in
fair value of derivatives, due to a variety of factors including
the unpredictability of underlying price movements, which may be
significant.
9. Environmental Attributes refer to federal, state, and local
government incentives in the United States, provided in the form of
Renewable Identification Numbers, 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.
10. Estimated long-term annual RNG production reflects potential
RNG production once all 38 projects in our development backlog, for
which gas rights agreements are in place, have been completed and
ramped up to full flows.
11. Conversion factor 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 U.S. generally accepted accounting principles (“GAAP”), this
press release contains non-GAAP financial measures. Adjusted EBITDA
is a non-GAAP financial measure that we use to facilitate
comparisons of operating performance across periods. Non-GAAP
measures should be viewed as a supplement to and not a substitute
for our U.S. GAAP measures of performance and the financial results
calculated in accordance with U.S. 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
our results as reported under U.S. GAAP and should be evaluated
only on a supplementary basis.
FORWARD-LOOKING STATEMENTS
This press release contains certain statements that may include
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). 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) the ability to recognize the anticipated benefits of the
business combinations and any transactions contemplated thereby,
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; (b) the possibility that Archaea
may be adversely affected by other economic, business and/or
competitive factors; (c) Archaea’s ability to develop and operate
new projects; (d) the reduction or elimination of government
economic incentives to the renewable energy market; (e) delays in
acquisition, financing, construction and development of new
projects; (f) the length of development cycles for new projects,
including the design and construction processes for Archaea’s
projects; (g) Archaea’s ability to identify suitable locations for
new projects; (h) Archaea’s dependence on landfill operators; (i)
existing regulations and changes to regulations and policies that
affect Archaea’s operations; (j) decline in public acceptance and
support of renewable energy development and projects; (k) demand
for renewable energy not being sustained; (l) impacts of climate
change, changing weather patterns and conditions, and natural
disasters; (m) the ability to secure necessary governmental and
regulatory approvals; (n) the Company’s expansion into new business
lines; and (o) other risks and uncertainties indicated in the
Registration Statement on Form S-1 (File No. 333-260094),
originally filed by Archaea with the Securities and Exchange
Commission (“SEC”) on October 6, 2021, as subsequently amended on
October 18, 2021 and declared effective by the SEC on October 21,
2021, including those under “Risk Factors” therein, and other
documents filed or to be filed by Archaea with the SEC.
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)
Notes Regarding Presentation of Financial
Information
Basis of Presentation
The Archaea Energy LLC merger with Rice Acquisition Corp.
(“RAC”) was accounted for as a reverse recapitalization with
Archaea Energy LLC and its subsidiaries (“Legacy Archaea”) deemed
the accounting acquirer, and therefore, there was no step-up to
fair value of any RAC assets or liabilities and no goodwill or
other intangible assets were recorded. Legacy Archaea is considered
the accounting acquirer of the business combinations because the
members of Legacy Archaea immediately prior to the closing of the
business combination (“Legacy Archaea Holders”) have the largest
portion of the voting power of the Company and Legacy Archaea’s
senior management comprise the majority of the executive management
of the Company. Additionally, Legacy Archaea Holders appointed the
majority of board members exclusive of the independent board
members.
The Aria Energy LLC (“Aria”) merger with RAC was accounted for
as an acquisition of a business with Legacy Archaea deemed the
accounting acquirer. The Aria merger was accounted for using the
acquisition method of accounting, with Aria deemed to be the
acquiree for accounting purposes. The Company also determined that
Aria is the Company's predecessor and therefore has included the
historical financial statements of Aria as predecessor. The Company
recorded the fair value of the net assets acquired and liabilities
assumed from Aria as of September 15, 2021, the closing date, and
goodwill was recorded. Certain data to complete the purchase price
allocation is not yet available, including but not limited to final
appraisals of certain assets acquired and liabilities assumed. The
Company will finalize the purchase price allocation during the
12-month period following the closing date, during which time the
estimated fair value of the assets and liabilities may be revised
as appropriate.
Principles of Consolidation
The consolidated financial statements of Archaea include the
assets, liabilities and results of operations of the Company and
its consolidated subsidiaries beginning on September 15, 2021. The
consolidated assets, liabilities and results of operations prior to
the September 15, 2021 reverse recapitalization are those of Legacy
Archaea, the accounting acquirer.
Predecessor Financial Statements
Since Aria is the predecessor to the Company, its consolidated
statements of operations for the periods from January 1 to
September 14, 2021 and the year ended December 31, 2020, and the
consolidated balance sheets as of September 14, 2021 and December
31, 2020 have been included for comparative purposes.
ARCHAEA ENERGY INC.
Preliminary Consolidated Statements of Operations
(Unaudited)
Year Ended December
31,
(in thousands, except shares and per share
data)
2021
2020
Revenues and Other Income
Energy revenue
$
67,871
$
—
Other revenue
5,817
6,523
Amortization of intangibles and
below-market contracts
3,438
—
Total Revenues and Other Income
77,126
6,523
Equity Investment Income, Net
5,653
—
Cost of Sales
Cost of energy
41,626
—
Cost of other revenues
4,862
4,752
Depreciation, amortization and
accretion
16,025
137
Total Cost of Sales
62,513
4,889
General and administrative expenses
43,827
4,371
Operating Income (Loss)
(23,561
)
(2,737
)
Other Income (Expense)
Interest expense, net
(4,797
)
(20
)
Gain (loss) on derivative contracts
(3,727
)
—
Other income (expense)
1,164
521
Total Other Income (Expense)
(7,360
)
501
Income (Loss) Before Income
Taxes
(30,921
)
(2,236
)
Income tax benefit
—
—
Net Income (Loss)
(30,921
)
(2,236
)
Net income (loss) attributable to
nonredeemable noncontrolling interests
(712
)
236
Net income (loss) attributable to Legacy
Archaea
(18,744
)
(2,472
)
Net income (loss) attributable to
redeemable noncontrolling interests
(6,312
)
—
Net Income (Loss) Attributable to Class
A Common Stock
$
(5,153
)
$
—
Net income (loss) per Class A common
share:
Net income (loss) – basic (1)
$
(0.09
)
$
—
Net income (loss) – diluted (1)
$
(0.09
)
$
—
Weighted average shares of Class A Common
Stock outstanding:
Basic (1)
56,465,786
—
Diluted (1)
56,465,786
—
(1) Class A Common Stock is outstanding beginning September 15,
2021 due to the reverse recapitalization transaction described
above.
ARCHAEA ENERGY INC.
Preliminary Consolidated Balance Sheets (Unaudited)
(in thousands, except shares and per share
data)
December 31,
2021
December 31,
2020
ASSETS
Current Assets
Cash and cash equivalents
$ 77,860
$ 1,496
Restricted cash
15,206
—
Accounts receivable, net
37,010
1,780
Inventory
9,164
—
Prepaid expenses and other current
assets
21,225
4,730
Total Current Assets
160,465
8,006
Property, plant and equipment, net
350,583
52,368
Intangible assets, net
638,471
8,693
Goodwill
29,211
2,754
Equity method investments
262,738
—
Other non-current assets
9,721
2,460
Total Assets
$ 1,451,189
$ 74,281
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - trade
$ 11,096
$ 14,845
Current portion of long-term debt, net
11,378
1,302
Accrued and other current liabilities
46,279
8,270
Total Current Liabilities
68,753
24,417
Long-term debt, net
331,396
14,773
Derivative liabilities
67,424
—
Below-market contracts
142,630
—
Asset retirement obligations
4,677
306
Other long-term liabilities
5,316
3,294
Total Liabilities
620,196
42,790
Commitments and Contingencies
Redeemable Noncontrolling
Interests
993,301
—
Equity
Members' Equity
—
34,930
Members' Accumulated Deficit
—
(4,156)
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; 65,122,200 shares issued and
outstanding as of December 31, 2021 and no shares issued and
outstanding as of December 31, 2020
7
—
Class B common stock, $0.0001 par value;
190,000,000 shares authorized; 54,338,114 shares issued and
outstanding as of December 31, 2021 and no shares issued and
outstanding as of December 31, 2020
5
—
Additional paid in capital
—
—
Accumulated deficit
(162,320)
—
Total Stockholders' Equity
(162,308)
—
Nonredeemable noncontrolling interests
—
717
Total Equity
(162,308)
31,491
Total Liabilities, Redeemable
Noncontrolling Interests and Equity
$ 1,451,189
$ 74,281
ARIA ENERGY LLC AND
SUBSIDIARIES (Predecessor) Preliminary Consolidated
Statements of Operations (Unaudited)
(in thousands)
January 1 to September 14,
2021
Year Ended December 31,
2020
Revenues and Other Income
Energy revenue
$
120,250
$
132,580
Construction revenue
32
9,983
Amortization of intangibles and
below-market contracts
(2,693
)
(3,682
)
Total Revenues and Other Income
117,589
138,881
Equity Investment Income, net
19,777
9,298
Cost of Sales
Cost of energy
56,291
72,519
Cost of other revenues
30
9,507
Depreciation, amortization and
accretion
15,948
30,564
Total Cost of Sales
72,269
112,590
Gain on disposal of assets
(1,347
)
—
Impairment of assets
—
25,293
General and administrative expenses
33,737
20,782
Operating Income (Loss)
32,707
(10,486
)
Other Income (Expense)
Interest expense, net
(10,729
)
(19,305
)
Gain (loss) on derivative contracts
1,129
(135
)
Gain on extinguishment of debt
61,411
—
Other income
2
3
Total Other Income (Expense)
51,813
(19,437
)
Net Income (Loss)
84,520
(29,923
)
Net income attributable to noncontrolling
interest
289
78
Net Income (Loss) Attributable to
Controlling Interest
$
84,231
$
(30,001
)
ARIA ENERGY LLC AND
SUBSIDIARIES (Predecessor) Preliminary Consolidated Balance
Sheets (Unaudited)
(in thousands)
September 14, 2021
December 31,
2020
ASSETS
Current Assets
Cash and cash equivalents
$
4,903
$
14,257
Accounts receivable
27,338
20,727
Inventory
9,015
7,770
Prepaid expenses and other current
assets
3,834
3,768
Assets held for sale
—
70,034
Total Current Assets
45,090
116,556
Property and equipment, net
63,829
70,759
Intangible assets, net
117,737
126,922
Equity method investments
86,200
77,993
Other noncurrent assets
882
689
Total Assets
$
313,738
$
392,919
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - trade
$
2,439
$
1,570
Current portion of long-term debt, net
90,430
102,831
Accrued and other current liabilities
25,210
25,736
Liabilities held for sale
—
12,534
Total Current Liabilities
118,079
142,671
Long-term debt, net
—
136,593
Derivative liabilities
—
1,268
Below-market contracts
3,935
5,769
Asset retirement obligations
3,580
3,408
Other long-term liabilities
5,351
5,150
Total Liabilities
130,945
294,859
Commitments and contingencies
Equity
Controlling interest
Class A units
299,327
299,327
Class B units
19,327
19,327
Class C units
1
1
Retained loss
(134,726
)
(218,957
)
Accumulated other comprehensive loss
(1,136
)
(1,349
)
Total Controlling Interest
182,793
98,349
Noncontrolling interest
—
(289
)
Total Equity
182,793
98,060
Total Liabilities and Equity
$
313,738
$
392,919
Reconciliation of Non-GAAP Measures
Adjusted EBITDA
The following table reconciles Adjusted EBITDA to net income for
the three months ended December 31, 2021:
(in thousands)
Three Months Ended December
31, 2021
Net Income
$
3,685
Adjustments:
Interest expense
3,191
Depreciation, amortization and
accretion
11,948
EBITDA
18,824
Net derivative activity
(6,686
)
Amortization of intangibles and
below-market contracts
(1,473
)
Amortization of equity method investments
basis difference
2,636
Depreciation and amortization adjustments
for equity method investments
1,484
Share-based compensation
2,184
Acquisition transaction costs
298
Actuarial gain on postretirement plan
(917
)
Adjusted EBITDA
$
16,350
The following table reconciles pro forma Adjusted EBITDA to pro
forma net loss for the twelve months ended December 31, 2021:
(in thousands)
Pro Forma Twelve Months
Ended December 31, 2021
Pro Forma Net Loss
$
(77,449
)
Adjustments:
Interest expense
23,149
Depreciation, amortization and
accretion
44,832
EBITDA
(9,468
)
Net derivative activity
110,162
Amortization of intangibles and
below-market contracts
(5,071
)
Amortization of equity method investments
basis difference
10,518
Depreciation and amortization adjustments
for equity method investments
5,906
Share-based compensation
5,071
Gain on disposal of assets
(1,347
)
Gain on extinguishment of debt
(61,411
)
Acquisition transaction costs
22,669
Actuarial gain on postretirement plan
(917
)
Pro Forma Adjusted EBITDA
$
76,112
Adjusted EBITDA is commonly used as a supplemental financial
measure by our management and external users of our consolidated
financial statements to assess the financial performance of our
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 U.S.
GAAP and is not necessarily comparable to similarly titled measures
reported by other companies.
We believe Adjusted EBITDA provides relevant and useful
information to management, investors, and other users of our
financial information in evaluating the effectiveness of our
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, and
non-recurring costs related to our business combinations. We
believe the exclusion of these items enables investors and other
users of our financial information to assess our 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 included in our equity earnings from our
equity method investments. These adjustments should not be
understood to imply that we have control over the related
operations and resulting revenues and expenses of our equity method
investments. We do not control our equity method investments;
therefore, we do 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 U.S. GAAP financial measure, cannot
be provided without unreasonable efforts due to the inherent
difficulty in quantifying certain amounts, including changes in
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/20220316006135/en/
ARCHAEA Investors and Media
Megan Light mlight@archaea.energy 346-439-7589 Blake Schreiber
bschreiber@archaea.energy 346-440-1627
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