ARCHAEA ENERGY INC. The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations, estimates, and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" appearing elsewhere in this Annual Report. Overview Archaea is one of the largest RNG producers in theU.S. , with an industry-leading RNG platform primarily focused on capturing and converting waste emissions from landfills and anaerobic digesters into low-carbon RNG and electricity. As ofDecember 31, 2021 , the Company owns, through wholly-owned entities or joint ventures, a diversified portfolio of 29 LFG recovery and processing projects across 18 states, including 11 operated projects that produce pipeline-quality RNG and 18 LFG to renewable electricity projects. See " - Our Production Facilities and Projects" for additional detail. Archaea designs, constructs, and operates RNG facilities. We have entered into long-term agreements with biogas site hosts which give us the rights to utilize gas produced at their sites and to construct and operate facilities on their sites to produce RNG and renewable electricity. As ofDecember 31, 2021 , Archaea's development backlog includes 35 cumulative 38
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projects, including planned upgrades of certain operating RNG facilities over time, opportunities to convert most of our renewable electricity facilities into RNG facilities, and greenfield RNG development opportunities. Our differentiated commercial strategy is focused on selling the majority of our RNG volumes under long-term, fixed-price contracts to creditworthy partners, including utilities, corporations, and universities, helping these entities reduce greenhouse gas emissions and achieve decarbonization goals while utilizing their existing gas infrastructure. We seek to mitigate our exposure to commodity and Environmental Attribute pricing volatility by selling a majority of our RNG and related Environmental Attributes under long-term contracts which are designed to provide revenue certainty. Our RNG production started during 2021 as a result of the acquisition of Aria in connection to the Business Combinations and the commencement of operations inApril 2021 at theBoyd County facility. We have long-term off-take contracts with creditworthy counterparties for the sale of RNG and related Environmental Attributes. Certain long-term off-take contracts are accounted for as operating leases and have no minimum lease payments. The rental income under these leases is recorded as revenue when the RNG is delivered to the customer. RNG not covered by off-take contracts is sold under short-term market based contracts. When the performance obligation is satisfied through the delivery of RNG to the customer, revenue is recognized. We usually receive payments from the sale of RNG production within one month after delivery. We also earn revenue by selling RINs, which are generated when producing and selling RNG. These RINs are able to be separated and sold independent from the RNG produced. When the RNG and RIN are sold on a bundled basis under the same contract, revenue is recognized when the RNG is produced and the RNG and associated RIN are transferred to a third party. The remaining RIN sales were under short-term contracts independent from RNG sales, and revenue is recognized when the RIN is transferred to a third party. We also generate and sell LCFS credits at some of our RNG projects through off-take contracts similar to RINs. LCFS is state level program administered by the CARB. LCFS credits are generated as the RNG is sold as vehicle fuel inCalifornia . There is a general lag in the generation and sale of RIN and LCFS credits subsequent to a facility being placed into operation. While each new facility is eligible to register under the federal Renewable Fuel Standard ("RFS") upon initial production and pipeline injection, Archaea has external parties certify its plants underEPA's voluntary Quality Assurance Plan ("QAP") in order to maximize the value of its D3 RINs. The initial QAP review generally requires evaluation of up to 90 days of operational data prior to achieving Q-RIN status. Once registration is obtained from the EPA and Q-RIN status achieved, Archaea can generate RINs. RINs are generated monthly for the previous month of production, after which the RINs may be sold. Quarterly and annual reports are required to maintain RFS registration and Q-RIN status for each facility. LCFS registration requires a minimum of 90 days operational data for a provisional pathway application. Following the application submission, there is a mandatory third-party validation period ranging from three to six months. During this time, LCFS credits can be generated for the facility using a temporary carbon intensity (CI) score, which is typically higher than the expected certified CI for our facilities. Following successful pathway validation, the facility is eligible to generate LCFS credits using the new provisional CI score. LCFS credits are generated on a quarterly basis for the previous quarter of production. Credits are then available to be sold. Quarterly and annual reports are required to maintain LCFS registration and certified CI for each facility.
The Business Combinations and Related Transactions
OnApril 7, 2021 , RAC entered into the Business Combination Agreements. On the Closing Date, RAC completed the Business Combinations to acquire Legacy Archaea and Aria. Following the Business Combinations closing, RAC changed its name from "Rice Acquisition Corp. " to "Archaea Energy Inc. ," also referred to herein as the "Company."Rice Acquisitions Holdings LLC was renamed "LFG Acquisition Holdings LLC ," also referred to herein as "Opco." In connection with the Business Combinations closing, the Company completed a private placement of 29,166,667 shares of Class A Common Stock and 250,000 warrants (each warrant exercisable for one share of Class A Common Stock at a price of$11.50 ) for gross proceeds of$300 million . The Company and Opco issued 33.4 million Class A Opco Units and 33.4 million shares of Class B Common Stock on the Closing Date to Legacy Archaea Holders to acquire Legacy Archaea. Aria was acquired for total initial consideration of$863.1 million , subject to certain future adjustments set forth in the Aria Merger Agreement. The Aria Closing Merger Consideration consisted of cash consideration of$377.1 million paid to Aria Holders and equity consideration in the form 39
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of 23.0 million newly issued Class A Opco Units and 23.0 million newly issued shares of the Company's Class B Common Stock, par value$0.0001 per share, and$91.1 million for repayment of Aria debt. Archaea has retained its "up-C" structure, whereby all of the equity interests in Aria and Legacy Archaea are indirectly held by Opco and the Company's only assets are its equity interests in Opco. The up-C structure allows the Legacy Archaea Holders, the Aria Holders, and the Sponsor to retain their equity ownership through Opco, an entity that is classified as a partnership forU.S. federal income tax purposes, in the form of Class A Opco Units, and provides potential future tax benefits for Archaea when those holders of Class A Opco Units ultimately exchange their Class A Opco Units and shares of the Company's Class B Common Stock for shares of Class A Common Stock in the Company. Opco is considered a VIE for accounting purposes, and the Company, as the sole managing member of Opco, is considered the primary beneficiary. As such, the Company consolidates Opco, and the unitholders that hold economic interests directly at Opco are presented as redeemable noncontrolling interests in the Company's financial statements. Holders of Class A Opco Units (other than Archaea) have a redemption right, subject to certain limitations, to redeem Class A Opco Units (and a corresponding number of shares of Class B Common Stock) for, at Opco's option, (i) shares of Class A Common Stock on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, or (ii) a corresponding amount of cash.
Predecessor and Successor Reporting
Legacy Archaea is considered the accounting acquirer of the Business Combinations for accounting purposes because Legacy Archaea Holders have the largest portion of the voting power of the combined company, Legacy Archaea's executive management comprise the majority of the executive management of the combined company, and the Legacy Archaea Holders appointed the majority of board members exclusive of the independent board members. The Archaea Merger represents a reverse merger and is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, RAC is treated as the "acquired" company for financial reporting purposes. Accordingly, for accounting purposes, the Archaea Merger is treated as the equivalent of Legacy Archaea issuing shares for the net assets of RAC, accompanied by a recapitalization. The net assets of RAC are stated at historical cost. No goodwill or other intangible assets are recorded. Legacy Archaea is also considered the "Successor". As such, the consolidated assets, liabilities and results of operations prior to theSeptember 15, 2021 reverse recapitalization are those of Legacy Archaea, the accounting acquirer. The consolidated financial statements include the assets, liabilities and results of operations of the Company and its consolidated subsidiaries beginning onSeptember 15, 2021 , which includes approximately 3.5 months of the combined results of the businesses of Legacy Archaea and Aria as operated by the Company after the Closing Date throughDecember 31, 2021 . The Aria Merger represents a business combination in which Aria was determined to be the acquiree, and Aria's identifiable assets acquired and liabilities assumed are measured at their acquisition date fair value. Additionally, due to Aria's historical operations compared to Legacy Archaea and the relative fair values, Aria was determined to be the "Predecessor". As Predecessor, Aria's historical financial statements have been included to enhance comparability for readers, and we have also included a discussion of the Aria's operations, financial condition and changes in financial condition for the periodJanuary 1 to September 14, 2021 and the year endedDecember 31, 2020 .
Factors Affecting the Comparability of Our Financial Results
Our future results of operations will not be comparable to our Successor or our Predecessor's historical results of operations for the reasons described below:
•The Company's future results of operations and financial position may not be comparable to Legacy Archaea's or Aria's historical results as a result of the Business Combinations and the Company's ongoing development activities. Our results prior to the closing of the Business Combinations onSeptember 15, 2021 only include Legacy Archaea, the accounting acquirer, whereas our results beginning onSeptember 15, 2021 include the combined operations of Legacy Archaea and Aria as managed by the Company. In addition, both Legacy Archaea and Aria have experienced significant growth and expansion over the last two years, and the Company expects to continue to grow significantly through organic growth projects and acquisitions. 40
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•Legacy Archaea was formed in November of 2018 and did not have significant assets, liabilities or operations until its acquisition ofBioFuels San Bernardino Biogas, LLC in September of 2019, to acquire the LFG rights agreements with two landfills located inSan Bernardino County, California . Subsequent to this acquisition, Legacy Archaea purchased a 72.2% controlling interest in GCES, an original equipment manufacturer of air, water, and soil remediation pollution control systems, inFebruary 2020 , and after the Business Combinations, the Company acquired an additional 27.8% controlling interest to obtain 100% ownership of GCES. InNovember 2020 , Legacy Archaea acquired all of the outstanding membership interests in the Boyd County LFG to RNG facility inAshland, Kentucky . InApril 2021 , Legacy Archaea purchased 100% of the outstanding membership interests inPEI Power LLC ("PEI"), a biogas fuel combustion power generating facility inArchbald, PA. •As a result of the Business Combinations, the Company has hired and will need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. The Company expects to incur additional annual expenses as a public company that Legacy Archaea did not historically incur for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. •There are differences in the way the Company will finance its operations as compared to the way our Successor or Predecessor financed its operations, which were primarily through equity and project debt financing. The Company received approximately$175 million in net proceeds from the Business Combinations, the PIPE Financing, and debt issuance after payment of the Aria Merger cash consideration and transaction expenses to fund the Company's future growth projects. Upon consummation of the Business Combination, Archaea Borrower entered into a$470 million Revolving Credit and Term Loan Agreement (the "New Credit Agreement") which provides for a senior secured revolving credit facility (the "Revolver") with an initial commitment of$250 million and a senior secured term loan credit facility (the "Term Loan" and, together with the Revolver, the "Facilities") with an initial commitment of$220.0 million . As ofDecember 31, 2021 , we had approximately$352.0 million of outstanding indebtedness, including$218.6 million of outstanding borrowings under the Term Loan and$133.4 million outstanding on our Assai Notes, and also had$235.8 million of available borrowing capacity and outstanding letters of credit of$14.2 million as ofDecember 31, 2021 under the Revolver. The Company expects to fund our 2022 capital program through its project development activities with cash on hand from the proceeds of the Business Combinations and available funding under our credit facility as discussed below under "New Credit Facility." Further, the Company may also determine to issue long-term debt securities to fund a portion of its capital program if market conditions allow. The Company cannot predict with certainty the timing, amount and terms of any future issuances of any such debt securities or whether they occur at all. The amount and timing of the future funding requirements will depend on many factors, including the pace and results of our acquisitions and project development efforts. •As a corporation, the Company is subject toU.S. federal income and applicable state taxes to the extent it generates positive taxable income. Legacy Archaea and Aria and their subsidiaries (with the exception of one partially-owned subsidiary which filed income tax returns as a C corporation) are and were generally not subject toU.S. federal income tax at an entity level. Accordingly, the consolidated and combined net income in Legacy Archaea and Aria's historical financial statements for periods prior to the consummation of the Business Combinations does not reflect the full tax expense the Company would have incurred if it were subject toU.S. federal income tax at an entity level during such periods.
Other Significant Acquisitions
OnNovember 10, 2020 , Legacy Archaea acquired all the outstanding membership interests of a high-Btu facility inAshland, Kentucky that had not previously been properly commissioned to process LFG to pipeline specification RNG. InApril 2021 , the facility commenced commercial operations.
Assai and PEI
OnJanuary 6, 2020 , Legacy Archaea began the development of its Assai biogas project on the site of theKeystone Sanitary Landfill inDunmore, Pennsylvania , in theScranton metro area. Assai commenced commercial operations onDecember 30, 2021 , with production expected to scale up over several months. Assai is the highest capacity operational RNG facility in the world. 41
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OnApril 7, 2021 , Legacy Archaea completed the acquisition of PEI. PEI's assets include LFG rights, a pipeline, and a biogas fuel combustion power generating facility with a combined capacity of approximately 85 MW located inArchbald, Pennsylvania . We intend to transport LFG from the associated landfill at PEI to Assai in the future. GCES OnJanuary 14, 2020 , Legacy Archaea purchased a controlling position of GCES. Historically located inConroe, Texas , GCES is an original equipment manufacturer of air, water, and soil remediation pollution control systems. GCES manufactures equipment that will be used in the Company's RNG projects in addition to selling equipment to third parties. As ofDecember 31, 2021 , the Company has obtained 100% ownership of GCES. In 2022, GCES will relocate its production facility to a new location within theHouston metroplex.
LFG to Electricity Facilities
OnOctober 28, 2021 , Archaea acquired all the outstanding membership interests inFrontier Operation Services, LLC andJL-E Financial Holdings, LLC , which own and operate four LFG to renewable electricity facilities located inWinterville, Georgia ;Rochelle, Illinois ;Graham, Washington ; andSmithfield, North Carolina .
Our Production Facilities and Projects
Archaea has a broad base of operational production facilities and a robust backlog of RNG development opportunities. As ofDecember 31, 2021 , we own, through wholly-owned entities or joint ventures, a diversified portfolio of 29 LFG recovery and processing facilities across 18 states, including 11 operated facilities that produce pipeline-quality RNG and 18 LFG to renewable electricity production facilities, including one non-operated facility and one facility that is not operational. Prior to the consummation of the Business Combinations, the RNG projects were included in Legacy Archaea's or Aria's RNG operating segment, and Power projects were included in Aria's Power operating segment, except for the PEI project, which was included in Legacy Archaea's Power operating segment. Over the next several years, we intend to convert certain current LFG to renewable electricity production facilities to RNG production facilities and upgrade certain existing RNG production facilities. These facilities have existing gas development agreements in place in addition to site leases, zoning, air permits, and much of the critical infrastructure that is needed to develop RNG projects. We also plan to develop and construct our portfolio of greenfield development opportunities, for which we also already have gas development agreements in place. Our development backlog as ofDecember 31, 2021 includes 35 cumulative upgrade, conversion, and greenfield projects, and we are planning to secure additional RNG development opportunities through long-term agreements with biogas site hosts. Additional production facility and project data is provided in Item 1. Business of this Annual Report on Form 10-K.
Key Factors Affecting Operating Results
The Company's performance and future success depend on several factors that present significant opportunities but also pose risks and challenges, including those discussed below and in Item 1A. "Risk Factors" of this Annual Report on Form 10-K. The Company's business strategy includes growth primarily through the upgrade and expansion of existing RNG production facilities, conversion of LFG to renewable electricity production facilities to RNG production facilities, development and construction of greenfield RNG development projects for which we already have gas development agreements in place, and the procurement of LFG rights to develop additional greenfield RNG projects. We are also evaluating other potential sources of biogas and exploring the development of wells for carbon sequestration, the use of on-site solar-generated electricity to meet energy needs for RNG production, and the use of RNG as a feedstock for low-carbon hydrogen. Until commercial RNG operations commenced in the fiscal quarter endedJune 30, 2021 , Legacy Archaea's revenues were derived primarily from the sale of customized pollution control systems to third-party customers. With the acquisition of Aria and as our RNG and other projects continue to become commercially operational, the Company expects that a majority of our revenues will be generated from the sale of RNG and renewable electricity, primarily under long-term off-take agreements, along with the Environmental Attributes that are derived from these products. Following the Business Combinations, until the Company can generate sufficient revenue from RNG, renewable electricity and Environmental Attributes, the Company is expected to primarily finance its project development activities with its existing cash and financing arrangements currently in place. See "Liquidity and Capital Resources - New Credit Facility," for further 42
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discussion of our existing financing arrangements. The amount and timing of the future funding requirements will depend on many factors, including the pace and results of our acquisitions and project development efforts.
Market Trends and Exposure to Market-Based Pricing Fluctuations
Future revenues will depend to a substantial degree upon the demand for RNG, renewable electricity and Environmental Attributes, all of which are affected by a number of factors outside our control. To manage exposure to market-based pricing fluctuations, the Company seeks to sell a majority of expected RNG production volumes under long-term off-take agreements with fixed pricing to counterparties with strong credit profiles. The credit profiles of the buyers of RNG are subject to change and are outside our control. Future expenses will depend to a substantial degree upon electricity prices and the costs of raw materials and labor. These costs, too, are subject to a number of factors outside our control. Regulatory Landscape We operate in an industry that is subject to and currently benefits from environmental regulations. Government policies can increase the demand for our products by providing market participants with incentives to purchase RNG, renewable electricity and Environmental Attributes. These government policies are continuously being modified, and adverse changes in such policies could have the effect of reducing the demand for our products. For more information, see our risk factor titled "Existing regulations and policies, and future changes to these regulations and policies, may present technical, regulatory and economic barriers to the generation, purchase and use of renewable energy, and may adversely affect the market for credits associated with the production of renewable energy." Government regulations applicable to our renewable energy projects have generally become more stringent over time. Complying with any new government regulations may result in significant additional expenses or related development costs for us. Seasonality To some extent, we experience seasonality in our results of operations. Short-term sales of RNG may be impacted by higher consumption of vehicle fuels by some of our customers in the summer months, when buses and other fleet vehicles use more fuel to power their air conditioning systems, which typically translates to an increased volume of fuel delivered in the summer months. In addition, natural gas commodity prices tend to be higher in the fall and winter months, due to increased overall demand for natural gas for heating during these periods. Revenues generated from our renewable electricity projects in the northeastU.S. , all of which sell electricity at market prices, are affected by warmer and colder weather, and therefore a portion of our quarterly operating results and cash flows are affected by pricing changes due to regional temperatures. These seasonal variances are managed in part by certain off-take agreements at fixed prices. Cold weather can cause our plants to experience freeze-offs and power outages, resulting in more downtime than under warm weather conditions. Shipping delays for replacement parts and construction materials may also be more frequent during the winter months leading to incremental downtime or construction delays. In addition, lower ambient temperatures result in lower biogas production from our anaerobic digesters and may result in changes to landfill gas composition during the winter months which have the potential to cause incremental downtime. Our energy production can also be affected during the summer months, as very warm temperatures can dry out a landfill if the landfill owner is unable to keep the landfill covered, which in turn reduces the LFG generated at the site.
Impacts of COVID-19
To date, the COVID-19 pandemic and preventative measures taken to contain or mitigate the pandemic have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruptions in the financial markets both globally and inthe United States . In response to the COVID-19 pandemic and related mitigation measures, the Company began implementing changes in its business inMarch 2020 to protect its employees and customers, and to support appropriate health and safety protocols. These measures resulted in additional costs, which we expect will continue through 2022 as we continue to work to address employee safety. As of the date of this Annual Report, such business changes and additional costs have not been, individually or in the aggregate, material to us. We are considered an essential company under theU.S. Federal Cybersecurity and Infrastructure Security Agency guidance and the various state or local jurisdictions in which we operate. 43
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Several vaccines have been authorized for use against COVID-19 inthe United States and internationally. As a result of distribution of the vaccines, various federal, state and local governments have begun to ease the movement restrictions and public health initiatives while continuing to adhere to enhanced safety measures, such as physical distancing and face mask protocols. However, uncertainty continues to exist regarding the severity and duration of the pandemic, the speed and effectiveness of vaccine and treatment developments and deployment, potential mutations of COVID-19, and the effect of actions taken and that will be taken to contain COVID-19 or treat its effect, among others. As a result, we remain uncertain of the ultimate effect COVID-19 could have on our business and operations. Results of Operations Basis of Presentation Our revenues are primarily generated from the production and sale of RNG and renewable electricity along with the Environmental Attributes. RNG and renewable electricity generate valuable Environmental Attributes that can be monetized under international, federal, and state initiatives. The Environmental Attributes that we derive and sell include RINs and state low-carbon fuel credits, which are generated from the conversion of biogas to RNG which is used as a transportation fuel, as well as from RECs generated from the conversion of biogas to renewable electricity. Our RINs, RECs, and LCFS are sold with the sale of RNG and renewable electricity or sold separately. In addition to revenues generated from our product sales, we also generate revenues by providing O&M services to certain of our JV production facilities and biogas site partners and by constructing and selling equipment through our GCES subsidiary. The Company reports segment information in two segments: RNG and Power. Prior to the Business Combinations, the Company managed RNG as its primary business operations, which is to construct and develop biogas facilities on landfill sites for production of RNG. Our Power segment generates revenue by selling renewable electricity and associated Environmental Attributes. In addition, we hold interests in other entities that are accounted for using the equity method of accounting, including Mavrix, which owns and operates four separate RNG facilities included in the RNG segment, and the Sunshine electric project included in the Power segment. We expect our future growth to be driven primarily by additional projects within the RNG segment, and we expect to convert the majority of our LFG to renewable electricity projects to RNG projects over time.
Key Metrics
Management regularly reviews a number of operating metrics and financial measurements to evaluate our performance, measure our growth and make strategic decisions. In addition to traditional GAAP performance and liquidity measures, such as revenue, cost of sales, net income and cash provided by operating activities, we also consider MMBtu and MWh sold and Adjusted EBITDA in evaluating our operating performance. Each of these metrics is discussed below.
Key Components of Results of Operations
As a result of the Business Combinations, prior year amounts are not comparable to current year amounts or expected future trends. The historical financial statements included herein are the financial statements of Legacy Archaea for the year endedDecember 31, 2020 .
Revenue
The Company generates revenues from the production and sales of RNG, Power, and Environmental Attributes, as well as the performance of other landfill energy O&M services and the sale of customized pollution control equipment and associated maintenance agreement services. Whenever possible, we seek to mitigate our exposure to commodity and Environmental Attribute pricing volatility. We seek to sell a significant portion of our RNG production volumes under long-term, fixed-price arrangements with creditworthy partners. We also sell a portion of our volumes under short-term agreements, and many of these volumes generate Environmental Attributes that we also monetize. Until commercial RNG operations for Legacy Archaea commenced in the fiscal quarter endedJune 30, 2021 , revenues were historically comprised of sales of customized pollution control equipment and maintenance agreement services. Revenues in Legacy Archaea's RNG segment commenced in the second quarter of 2021 with commercial operations at ourBoyd County facility, and increased beginning inSeptember 2021 due to the Business Combinations and the inclusion of Aria for approximately 3.5 months in the Company's results for the year endedDecember 31, 2021 . Revenues in our 44
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Power segment commenced with the PEI acquisition in the second quarter of 2021, and increased beginning inSeptember 2021 due to the Business Combinations and the inclusion of Aria effectiveSeptember 15, 2021 in the Company's results.
Cost of Sales
Cost of sales is comprised primarily of royalty payments to landfill owners as stipulated in our gas rights agreements and labor, parts and outside services required to operate and maintain equipment utilized in generating energy from our owned project facilities and from our landfill sources. Other costs directly related to the production of electricity and RNG are transportation costs associated with moving gas into pipelines, transmission costs of moving power between the ISOs, and electricity consumed in the process of gas production. Our payments to biogas site hosts are primarily in the form of royalties based on realized revenues or, in some select cases, based on production volumes. Prior to the Business Combinations, cost of sales was historically comprised primarily of personnel compensation and benefits, insurance and raw materials, and parts and components for manufacturing equipment for sale. Environmental Attributes are a form of government incentive and not a result of the physical attributes of the biogas or electricity production. Therefore, no cost is allocated to the Environmental Attribute when it is generated, regardless of whether it is transferred with the biogas or electricity produced or held by the Company. Additionally, Environmental Attributes, once obtained through the production and sale of biogas or electricity, may be separated and sold separately. Cost of sales also includes depreciation, amortization, and accretion expense on our power and gas processing plants, amortization of intangible assets relating to our gas and power rights agreements, and the accretion of our asset retirement obligations. Depreciation and amortization is recognized using the straight-line method over the underlying assets' useful life. Accretion expense is recognized based on the effective yield method.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel related costs (including salaries, bonuses, benefits, and share-based compensation) for our executive, finance, human resource, marketing, IT and other administrative departments and fees for third-party professional services, including consulting, legal and accounting services. These expenses also include insurance, software, and other corporate related costs. No depreciation or amortization expenses are allocated to general and administrative expenses. We expect our general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of theSEC , legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.
Equity Earnings
We hold interests in other entities that are accounted for using the equity method of accounting, including Mavrix, which owns and operates four separate RNG facilities, the Sunshine electric project, andSaturn Renewables, LLC , which owns gas rights at two landfills.
Successor Comparison of the Year Ended
The following discussion pertains to our results of operations, financial condition, and changes in financial condition of the Successor, which includes only Legacy Archaea for dates prior toSeptember 15, 2021 and the operations of both Legacy Archaea and Aria fromSeptember 15, 2021 throughDecember 31, 2021 . Any increases or decreases "for the year endedDecember 31, 2021 " refer to the comparison of the year endedDecember 31, 2021 , to the year endedDecember 31, 2020 .
In 2020, Legacy Archaea did not have operational assets and as such, the RNG and Power segments did not exist. As such, any segment comparison would not be informative and has not been included for comparison purposes.
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Set forth below is a summary of volumes sold for the years endedDecember 31, 2021 and 2020: 2021 2020 RNG sold (MMBtu) 1,482,124 - Electricity sold (MWh) 309,083 - Volumes increased in 2021 compared to 2020 due to the commencement of commercial operations inApril 2021 at ourBoyd County facility, the purchase of the PEI power assets inApril 2021 , and the acquisition of Aria. The volumes sold table above excludes volumes sold by the Company's equity method investments.
Set forth below is a summary of selected financial information for the years
ended
(in thousands) 2021 2020 $ Change Revenues and other income$ 77,126 $ 6,523 $ 70,603 Costs of sales 62,513 4,889 57,624 Equity investment income (loss) 5,653 - 5,653 General and administrative expenses 43,827 4,371 39,456 Operating income (loss) (23,561) (2,737) (20,824) Other income (expense), net (7,360) 501 (7,861) Net income (loss)$ (30,921) $ (2,236) $ (28,685) Revenues and Other Income Revenues and other income were approximately$77.1 million for the year endedDecember 31, 2021 , an increase of$70.6 million . The increased revenues are primarily attributable to the commencement of commercial operations inApril 2021 at ourBoyd County facility, the purchase of the PEI power assets, and the acquisition of Aria resulting in a$57.7 million increase, partially offset by a reduction of pollution control equipment sales.
Cost of Sales
Costs of sales increased by$57.6 million for the year endedDecember 31, 2021 primarily due to the commencement of commercial operations inApril 2021 at ourBoyd County facility, the purchase of the PEI power assets, and the acquisition of Aria resulting in a$38.5 million increase.
Equity Investment Income (Loss)
Equity investment income increased due to the acquisition of Aria resulting in
ownership in Mavrix and
General and Administrative Expenses
General and administrative expenses increased by
Other Income (Expense)
Other expense increased by$7.9 million primarily due to the increase in interest expense of$4.8 million and the increase in fair value of the warrant liabilities from the date of the Business Combinations through either the date of exercise, if applicable, orDecember 31, 2021 for the remaining Private Placement Warrants resulting in a loss of$3.0 million .
Adjusted EBITDA
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 net derivatives activity,
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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. 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 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.
The table below sets forth the reconciliation of Net income (loss) to Adjusted EBITDA: (in thousands) 2021 2020 Net income (loss)$ (30,921) $ (2,236) Adjustments: Interest expense 4,797 20 Depreciation, amortization and accretion 16,025 137 EBITDA (10,099) (2,079) Net derivative activity 3,727 - Amortization of intangibles and below-market contracts (1,479) - Amortization of equity method investments basis difference 3,068 -
Depreciation and amortization adjustments for equity method investments
1,745 -
Share-based compensation 5,071 -
Acquisition transaction costs 3,045 -
Actuarial (gain) loss on postretirement plan (917) -
Adjusted EBITDA $ 4,161 $ (2,079)
Predecessor Discussion
Key Components of Results of Operations
Energy Revenue
A significant majority of Aria's owned projects operate under long-term off-take agreements with investment grade and other creditworthy counterparties that have a weighted average remaining life of approximately 5 years for Power projects and approximately 10 years for RNG projects as ofSeptember 14, 2021 . Power that is not covered by long-term off-take agreements is sold either under short-term bilateral agreements or in the wholesale markets. For electricity, these are markets organized and maintained by ISOs and RTOs (e.g., NYISO inNew York , ISO-NE inNew England andPJM Interconnection, L.L.C. ("PJM") in the easternUnited States ). These ISOs and RTOs are well established organizations, regulated by states andFERC . For power sold in the wholesale markets, Aria schedules the output in the day-ahead markets and receives the market price determined by the ISO or RTO through balancing the supply and demand for each day. In most cases, Aria implements an optimization of the output sold in wholesale markets by using transmission to move the power into the ISO which offers better prices for RECs. 47
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For RNG, Aria has long-term off-take agreements with creditworthy counterparties. Some contracts have fixed price off-take arrangements, while the remaining sell natural gas and Environmental Attributes and are subject to market price changes.
Aria also generates revenue through the sale of Environmental Attributes. These Environmental Attributes include RECs, RINs and LCFS credits created from the sale of electricity and RNG as a transportation fuel. In most cases, RECs are sold to competitive energy suppliers or utilities. RINs are generally sold to energy companies, and Aria includes revenues from the sale of these Environmental Attributes in Energy revenue. REC revenue is recognized at the time power is produced where an active market exists and a sales agreement is in place for the credits. RIN revenue is recognized when the fuel is produced or transferred to a third party when a sales agreement is in place.
Construction Revenue
Construction revenue is derived from the installation of RNG plants owned by the nonconsolidated joint ventures. Aria recognizes revenue over time based on costs incurred and a fixed profit mark-up per construction agreement. Any intercompany profit is eliminated. Cost of Energy Cost of energy is comprised primarily of labor, parts and outside services required to operate and maintain equipment utilized in generating energy from project facilities and landfill sources. Other costs directly related to the production of electricity and RNG are transportation costs associated with moving gas into pipelines, transmission costs of moving power between the ISOs, electricity consumed in the process of gas production, and royalty payments to landfill owners as stipulated in gas rights agreements.
Cost of Construction
Cost of construction is comprised primarily of labor, equipment and other costs associated with construction contracts revenue incurred to date.
General and Administrative Expenses
General and administrative expenses include offices rentals and costs relating to labor, legal, accounting, treasury, information technology, insurance, communications, human resources, procurement, utilities, property taxes, permitting and other general costs.
Gain (Loss) on Derivative Contracts
Aria used interest rate swaps and caps to manage the risk associated with
interest rate cash flows on variable rate borrowings. Changes in the fair values
of interest rate swaps and realized losses were recognized as a component of
interest expense. The interest rate swaps were measured at fair value by
discounting the net future cash flows using the forward London Inter-Bank
Offered Rate ("LIBOR") curve with the valuations adjusted by the counterparties'
credit default hedge rate.
Changes in the fair values of natural gas swap are recognized in gain (loss) on
derivative contracts and realized losses are recognized as a component of cost
of energy expense. Valuation of the natural gas swap was calculated by
discounting future net cash flows that were based on a forward price curve for
natural gas over the life of the contract, with an adjustment for the
counterparty's credit default hedge rate.
Predecessor Comparison of the Period From
The following discussion pertains to the Predecessor results of operations, financial condition, and changes in financial condition. Any increases or decreases "for the period fromJanuary 1 to September 14, 2021 " refer to the comparison of the period fromJanuary 1 to September 14, 2021 , to the year endedDecember 31, 2020 . 48
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Set forth below is a summary of Aria's volumes sold for the period fromJanuary 1 to September 14, 2021 and the year endedDecember 31, 2020 (excluding volumes sold by Aria's equity method investments): January 1 to September 14, 2021 Year Ended December 31, 2020 RNG sold (MMBtu) 2,983,816 4,325,757 Electricity sold (MWh) 469,299 863,959 RNG volumes decreased for the period fromJanuary 1 to September 14, 2021 compared to the year endedDecember 31, 2020 primarily due to the shorter operating period and scheduled maintenance at the KC LFG and SWACO facilities. Power volumes decreased for the period fromJanuary 1 to September 14, 2021 compared to the year endedDecember 31, 2020 primarily due the shorter operating period and the sale ofLES Project Holdings LLC ("LESPH") inJune 2021 . Set forth below is a summary of Aria's certain financial information for the period fromJanuary 1 to September 14, 2021 and the year endedDecember 31, 2020 : January 1 to September 14, Year Ended (in thousands) 2021 December 31, 2020 $ Change Revenues and other income $
117,589
72,269 112,590 (40,321)
Equity investment income (loss) 19,777 9,298 10,479
General and administrative expenses 33,737 20,782 12,955
Operating income (loss) 32,707 (10,486) 43,193
Other income (expense), net 51,813 (19,437) 71,250
Net income (loss) $ 84,520 $ (29,923) $ 114,443
Revenues and Other Income
Revenue and other income decreased by $21.3 million for the period from January
1 to September 14, 2021 as result of the shorter operating period, lower LESPH
revenue as a result of its sale in June 2021 and lower construction revenue,
partially offset by higher RIN, natural gas, and power commodity pricing.
Cost of Sales
Cost of sales decreased
Equity Investment Income (Loss), Net
Equity investment income increased by$10.5 million for the period fromJanuary 1 to September 14, 2021 as a result of Mavrix income being higher, RIN and gas pricing, and the addition of the South Shelby RNG facility, partially offset by the effect of the shorter operating period.
General and Administrative Expenses
General and administrative expenses increased by
Other Income (Expense), Net
Other income (expense), net increased by
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Liquidity and Capital Resources (Successor)
Sources and Uses of Funds
Legacy Archaea historically funded its operations and growth with equity and debt financing. The Company's primary uses of cash have been to fund construction of RNG facilities and acquisitions of complementary businesses and LFG rights. The Company is expected to primarily finance its project development activities with cash on hand from the proceeds of the Business Combinations, available funding under our credit facility as discussed below under "New Credit Facility," and, if we accelerate our growth plans, additional debt or share issuances. Further, the Company may also determine to issue long-term debt securities to fund a portion of its capital program if market conditions allow. The Company cannot predict with certainty the timing, amount and terms of any future issuances of any such debt securities or whether they occur at all. The amount and timing of the future funding requirements will depend on many factors, including the pace and results of our acquisitions and project development efforts. Under the Company's base 2022 capital expenditure budget, we expect to allocate$130 million to fund optimization projects and new build projects that are expected to be completed in 2022. As ofDecember 31, 2021 , we had the cash balance described in the paragraph below and approximately$352.0 million of outstanding indebtedness, including$218.6 million of outstanding borrowings under the Term Loan and$133.4 million outstanding on our Assai Notes, and also had$235.8 million of available borrowing capacity under the Revolver. We expect that existing cash and cash equivalents, positive cash flows from operations and available borrowings under our credit facility will be sufficient to support our working capital, capital expenditures and other cash requirements for at least the next twelve months. Accelerating our growth plans may require additional cash requirements, which would likely be funded with debt or share issuances. We may, to the extent market conditions are favorable, incur additional debt to, among other things, finance future acquisitions of businesses, assets, or biogas rights, fund development of projects in our backlog, respond to competition, or for general financial reasons alone.
Cash
As ofDecember 31, 2021 , Archaea had$77.9 million of unrestricted cash and cash equivalents included in$91.7 million of total working capital, which together are expected to provide ample liquidity to fund our current operations and a portion of our near-term development projects. As ofDecember 31, 2021 , we also had$15.2 million of restricted cash for payment primarily of construction-related costs for the Assai RNG facility.
In
To minimize dilution to our existing stockholders as a result of warrant exercises, we used cash proceeds received from exercises of Redeemable Warrants to repurchase 6,101,449 shares of Class A Common Stock fromAria Renewable Energy Systems LLC at a pre-negotiated price of$17.65 per share for a total cost of$107.7 million . For more information regarding our warrants and the redemption notice, see "Note 13 - Derivatives Instruments" to our Consolidated Financial Statements included herein. New Credit Facilities On the Closing Date and upon consummation of the Business Combinations, Archaea Borrower, entered into a$470 million New Credit Agreement with a syndicate of lenders co-arranged byComerica Bank . The New Credit Agreement provides for the Revolver with an initial commitment of$250 million and a Term Loan with an initial commitment of$220 million . Pursuant to the New Credit Agreement, Archaea Borrower has the ability, subject to certain conditions, to draw upon the Revolver on a revolving basis up to the amount of the Revolver then in effect. On the Closing Date, the Company received total proceeds of$220 million under the Term Loan. As ofDecember 31, 2021 , the Company has outstanding borrowings under the Term Loan of$218.6 million at an effective interest rate of 3.35% and has not drawn on the Revolver. As ofDecember 31, 2021 , the Company had issued letters of credit under the New Credit Agreement of$14.2 million , and thus reducing the borrowing capacity of the Revolver to$235.8 million . Under the Company's base 2022 capital expenditure budget, we expect to utilize a portion of available capacity under the Revolver to fund our near-term development projects. Prior to the Archaea Merger, Legacy Archaea had certain other secured promissory notes and credit facilities in place which were extinguished at the closing of the Business Combinations. 50
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Summarized Cash Flows for the Years Ended
(in thousands) 2021
2020
Cash used in operating activities$ (28,112) $ (5,834) Cash used in investing activities$ (694,551) $ (42,319) Cash provided by financing activities$ 814,233 $ 49,226 Net increase in cash, cash equivalents and restricted cash$ 91,570
Cash Used in Operating Activities
The Company generates cash from revenues and uses cash in its operating activities and for general and administrative expenses.
Total cash used in operating activities increased by$22.3 million for the year endedDecember 31, 2021 , which was primarily related to higher general and administrative expenses due to increases in employee costs as we continue to build our business, and operating costs associated with the additions ofBoyd County and PEI. Changes in other working capital accounts were approximately$24.7 million and related to the timing of revenue receipts, payable payments and combined company insurance programs.
Cash Used in Investing Activities
We continue to have significant cash outflows for investing activities as we expand our business and develop projects. Total cash used in investing activities was$694.6 million for the year endedDecember 31, 2021 . In addition to the Aria Merger, we spent$147.3 million on development activities and$61.8 million , net of cash acquired, primarily related to the acquisition of a pipeline that will transport gas to our Assai facility and the acquisition of four operating LFG to renewable electricity facilities. Development activities in 2021 are related to construction at our various plants, including Assai and theBoyd County facility, as well as biogas rights acquisitions of$7.8 million . We also made contributions to equity method investments totaling$22.2 million . For the year endedDecember 31, 2021 , cash used in investing activities by Aria and Legacy Archaea, together, was$242.0 million , including purchases of property, plant and equipment totaling$141.8 million , primarily related to the development of our Assai and Boyd County RNG facilities, purchases of equipment for future development projects and certain asset acquisitions. Also during the year endedDecember 31, 2021 , Aria and Legacy Archaea acquired certain assets for$61.8 million , acquired biogas rights for$7.8 million , and contributed$30.6 million into equity method investments. During the quarter endedDecember 31, 2021 , purchases of property, plant and equipment totaled$51.3 million , which were primarily related to the development of our Assai facility and equipment purchased for future development projects. Cash used in investing activities of$42.3 million for the year endedDecember 31, 2020 was primarily attributable to acquiring a majority position in GCES, acquiring biogas rights, and construction at the Assai production facility.
Cash Provided by Financing Activities
The results of cash provided by financing activities is primarily attributable to cash proceeds from the Business Combinations, including the PIPE Financing and proceeds from the RAC trust account, borrowings from long-term debt under the 3.75% Notes, the 4.47% Notes, and the New Credit Agreement, offset by certain debt repayments. This resulted in net cash proceeds of$815.9 million . In addition, total proceeds of$107.7 million from the exercise of Redeemable Warrants were used to repurchase 6,101,449 shares of Class A Common Stock fromAria Renewable Energy Systems LLC .
Cash provided by financing activities of
Operating Leases
The Company has entered into various operating leases for our corporate headquarters, other office space, warehouse, and facilities with third parties for periods ranging from one to eleven years. The Company also entered into a related-party office lease as a result of its acquisition of interest GCES in 2020. During the year endedDecember 31, 2021 , the Company paid$0.2 million under this related-party lease which expires inMay 2022 . 51
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Long Term Debt
Assai Energy 3.75% and 4.47% Senior Secured Notes
OnJanuary 15, 2021 ,Assai Energy, LLC ("Assai Energy") entered into a senior secured note purchase agreement with certain investors for the purchase of$72.5 million in principal amount of 3.75% Senior Secured Notes (the "3.75% Notes"). Interest on the 3.75% Notes is payable quarterly in arrears, and the 3.75% Notes mature onSeptember 30, 2031 . OnApril 5, 2021 , Assai Energy entered into an additional senior secured note purchase agreement with certain investors for the purchase of$60.8 million in principal amount of its 4.47% Senior Secured Notes (the "4.47% Notes" and, together with the 3.75% Notes, collectively the "Assai Notes"). Interest is payable quarterly in arrears, and the 4.47% Notes mature onSeptember 30, 2041 . As ofDecember 31, 2021 , Assai Energy received total proceeds of$133.4 million from the Assai Notes of which approximately$30 million was used to complete the acquisition of PEI. The remaining proceeds were used to fund the development of our Assai production facility.Wilmington Trust, National Association is the collateral agent for the secured parties for the Assai Notes. The Assai Notes are secured by all Assai plant assets and plant revenues and a pledge of the equity interests of Assai Energy. Cash received from the Assai Notes is restricted for use on Assai related costs and cannot be used for general corporate purposes.
New Credit Facilities
On the Closing Date and upon consummation of the Business Combinations, Archaea Borrower entered into a$470 million New Credit Agreement with a syndicate of lenders co-arranged byComerica Bank . The New Credit Agreement provides for the Revolver with an initial commitment of$250 million and a Term Loan with an initial commitment of$220 million . Pursuant to the New Credit Agreement, Archaea Borrower has the ability, subject to certain conditions, to draw upon the Revolver on a revolving basis up to the amount of the Revolver then in effect. On the Closing Date, the Company received total proceeds of$220 million under the Term Loan. As ofDecember 31, 2021 , the Company has outstanding borrowings under the Term Loan of$218.6 million at an effective interest rate of 3.35% and has not drawn on the Revolver. As ofDecember 31, 2021 , the Company had issued letters of credit under the New Credit Agreement of$14.2 million , and thus reducing the borrowing capacity of the Revolver to$235.8 million .
Debt activity for the year ended
December 31, December 31,
(in thousands) 2020 Borrowings Repayments 2021
Comerica Bank - Specific Advance Facility
Note $ 4,319 $ 675 $ (4,994) $ -
Comerica Bank - Previous Revolver - 12,478 (12,478) -
Comerica Term Loan 12,000 - (12,000) -
New Credit Agreement - Term Loan - 220,000 (1,375) 218,625
New Credit Agreement - Revolver - - - -
Wilmington Trust - 4.47% Term Note (1) - 60,828 - 60,828
Wilmington Trust - 3.75% Term Note (1) - 72,542 - 72,542
Promissory Notes - 30,000 (30,000) -
Kubota Corporation - Term Notes 46 - (46) -
Total $ 16,365 $ 396,523 $ (60,893) $ 351,995 _________________________________
(1) Borrowings were used primarily for construction of the Assai facility.
See "Note 11 - Debt" in the Notes to Consolidated Financial Statements for additional information on the Company's debt instruments.
Material Cash Requirements
The Company has various long-term contractual commitments pertaining to certain of its biogas rights agreements that include annual minimum royalty and landfill gas rights payments. Annual minimum royalty and landfill gas rights payments generally begin when production commences and continue through the period of operations. For 2022, the expected annual minimum royalty and landfill gas rights payments are$5.4 million , and the annual commitment will 52
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increase as production commences from new facilities under development with biogas rights agreements that include minimum payment terms.
The Company has purchase commitments related to construction services and
equipment purchases for the development and upgrade of facilities of
Significant Accounting Policies
This management's discussion and analysis of financial condition and results of operations are based on our consolidated financial statements. Our financial statements have been prepared in conformity with GAAP. For a discussion of our significant accounting policies, see "Note 2 - Basis of Presentation and Summary of Significant Accounting Policies."
Critical Accounting Policies and Estimates
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The estimates and assumptions used in our financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results form the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates and assumptions used in preparing the financial statements. We identify the most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. Our critical accounting policies are associated with acquisition accounting and the judgment used in determining the fair value of identified assets acquired and liabilities assumed.
Accounting for Business Combinations
The Company applies Accounting Standards Codification ("ASC") 805, Business
Combinations, when accounting for acquisitions of a business under GAAP.
Identifiable assets acquired, liabilities assumed and noncontrolling interest,
if applicable, are recorded at their estimated fair values at the acquisition
date. Significant judgment is required in determining the acquisition date fair
value of the assets acquired and liabilities assumed, predominantly with respect
to property, plant and equipment and intangible assets consisting of biogas
contracts, existing purchase and sales contracts, trade names and customer
relationships. Evaluations include numerous inputs, including forecasted cash
flows that incorporate the specific attributes of each asset including future
natural gas and electric prices, future Environmental Attribute pricing, cost
inflation factors, and discount rates. For property, plant, and equipment, we
consider the remaining useful life of equipment, current replacement costs for
similar assets, and comparable market transactions. The Company evaluates all
available information, as well as all appropriate methodologies, when
determining the fair value of assets acquired, liabilities assumed, and
noncontrolling interest, if applicable, in a business combination. In addition,
once the appropriate fair values are determined, the Company must determine the
remaining useful life for property, plant and equipment and the amortization
period and method of amortization for each finite-lived intangible asset. The
estimates of fair values of assets impact future depreciation and amortization
and the initial amount of goodwill recorded.
Recent Accounting Pronouncements
For a description of the Company's recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see "Note 3 - Recently Issued and Adopted Accounting Standards" of the consolidated financial statements appearing in this Annual Report Form on 10-K.
Inflation
The Company does not believe that inflation had a material impact on our business, revenues or operating results during the periods presented.
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