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ARCHAEA ENERGY INC.

(LFG)
  Report
Delayed Nyse  -  04:00 2022-09-23 pm EDT
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ARCHAEA ENERGY INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/15/2022 | 05:50pm EDT
The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this Report. 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 section entitled "Risk Factors" in Part I, Item 1A in the 2021
Annual Report and the sections entitled "Risk Factors" in Part II, Item 1A and
"Forward-Looking Statements" appearing elsewhere in this Report.

Overview

Archaea is one of the largest RNG producers in the U.S., with an industry-leading RNG platform primarily focused on capturing and converting waste emissions from landfills and livestock farms into low-carbon RNG and electricity. As of June 30, 2022, the Company owns, through wholly-owned entities or joint ventures, a diversified portfolio of 32 LFG recovery and processing projects across 18 states, including 13 operated projects that produce pipeline-quality RNG and 19 LFG to renewable electricity production facilities.


Archaea develops, designs, constructs, and operates RNG facilities. Archaea,
through wholly-owned entities or joint ventures, has 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. Archaea's development backlog includes
38 cumulative projects as of June 30, 2022 and increased to 88 cumulative
projects as of July 31, 2022 primarily due to the Lightning JV and INGENCO
transaction, with the total backlog including planned optimizations of certain
operating RNG facilities over time and opportunities to build new RNG facilities
on sites with existing renewable electricity facilities and on greenfield sites.

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 fixed price
contracts with creditworthy counterparties, which are designed to provide
revenue certainty.

Certain long-term off-take contracts were accounted for as operating leases
prior to January 1, 2022 and have no minimum lease payments. The rental income
under these leases was recorded as revenue when the RNG was 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 as transportation fuel. These RINs are able to be separated and sold
independently 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 RINs are transferred to a third party. The remaining
RIN sales are under a combination of short-term spot price contracts and forward
sold fixed-price contracts independent from RNG sales, and revenue is recognized
upon transfer of control to a third-party customer. 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 in California.


There is a general lag in the generation and sale of RINs 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 under the EPA'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 qualified RINs. RINs are generated monthly for the previous month's
production. 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 fuel pathway application. Following

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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 fuel 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.

Our Segments


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. We expect our
future long-term growth to be driven primarily by additional projects within the
RNG segment, and we expect to build new RNG facilities on the majority of our
sites with existing LFG to renewable electricity projects over time.

In addition, we hold interests in other entities that are accounted for using
the equity method of accounting, including Mavrix, LLC, which owns and operates
five separate RNG facilities, and Saturn Renewables, LLC, which owns gas rights
at two landfills, both of which are included in the RNG segment, as well as the
Sunshine electric project included in the Power segment.

The Business Combinations


On September 15, 2021, RAC completed the Business Combinations to acquire Legacy
Archaea and Aria. Following the Closing, RAC changed its name from "Rice
Acquisition Corp." to "Archaea Energy Inc.," and Rice Acquisitions Holdings LLC
was renamed "LFG Acquisition Holdings LLC" (also referred to herein as "Opco").

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, which was reduced by $1.9 million in March 2022 for the final
adjustment under the terms set forth in the Aria Merger Agreement. The initial
Aria Merger consideration consisted of cash consideration of $377.1 million paid
to Aria Holders and equity consideration in the form of 23.0 million Class A
Opco Units and 23.0 million shares of Class B Common Stock. In addition, $91.1
million of Aria debt was repaid in connection with the Aria Merger.

Archaea has retained its "up-C" structure, whereby all of the equity interests
in Aria and Legacy Archaea are indirectly held by Opco and Archaea Energy Inc.'s
only assets are its equity interests in Opco. 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, and 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.

Legacy Archaea is considered the "Successor." As such, the consolidated assets,
liabilities and results of operations prior to the September 15, 2021 reverse
recapitalization are those of Legacy Archaea (the accounting acquirer), and the
Company's consolidated financial statements include the assets, liabilities and
results of operations of Aria beginning on September 15, 2021.
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The Aria Merger represents a business combination in which Aria was determined
to be the acquired company. Due to Aria's historical operations compared to
Legacy Archaea and the relative fair values, Aria was determined to be the
"Predecessor." Aria's consolidated statements of operations and consolidated
statements of comprehensive income for the three and six months ended June 30,
2021 and Aria's consolidated statement of cash flows for the six months ended
June 30, 2021 have been included in "Financial Statements" in Part 1, Item 1 of
this Report to enhance comparability for readers.

Factors Affecting the Comparability of Our Financial Results

Our 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 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 on September 15, 2021
only include Legacy Archaea, the accounting acquirer, whereas our results
beginning on September 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, including the INGENCO acquisition and the Lightning
JV. In addition to significant growth and expansion in operations, the Company
has raised a significant amount of capital through financing transactions to
fund a portion of that growth, which may also impact the comparability of our
historical results to our future results.

•As a result of the Business Combinations, and subsequent acquisitions, joint
ventures and other transactions, the Company has hired and will need to hire
additional personnel and implement procedures and processes to address expanded
facilities, as well as public company regulatory requirements and customary
practices. The Company expects to incur additional annual expenses as a public
company that Legacy Archaea and Aria 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.

•As a corporation, the Company is subject to U.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 to U.S. federal income tax at an entity level.
Accordingly, the net income in Legacy Archaea and Aria's historical financial
statements does not reflect the full tax expense the Company would have incurred
if it were subject to U.S. federal income tax at an entity level during such
periods.

Recent Events

Operational Highlights

Below are key recent development and operational events:


?Formed the landmark Lightning JV with Republic to jointly invest approximately
$1.1 billion to develop a total of 40 RNG projects across the U.S. that will be
located at various landfill sites owned or operated by Republic. Initial funding
occurred in July 2022 as discussed in "Note 4 - Business Combinations and
Reverse Recapitalization" in this Report.

?During the second quarter of 2022, the Company signed several new bundled RNG
sales contracts for RNG and its associated Environmental Attributes, including a
long-term fixed-price RNG agreement with Energir L.P ("Energir") and a
medium-term fixed-price RNG agreement with UGI Utilities, Inc. ("UGI"). The
agreement with Energir is for the sale of 2.15 gigajoules (approximately 2.04
million MMBtus) annually for a period of 20 years beginning approximately
October 2023 and is subject to Quebec regulatory approval. The agreement with
UGI is for the sale of 331,785 MMBtus annually for a period of 5 years beginning
July 1, 2022.
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?Completed initial optimization work at five legacy Aria facilities, with a
focus on CO2 separation systems and nitrogen rejection unit upgrades, which are
essential components of the Company's V1 plant design, translating into improved
operational performance at these existing RNG facilities. On average, methane
recovery increased almost 10% upon completion of the initial optimization
projects and is expected to further increase after completing the remaining
optimization work at these and other legacy sites within the Company's
portfolio.

?Produced first pipeline-quality RNG and achieved commercial operations at the Costa View dairy digester facility in May 2022, successfully completing the second of four dairy projects within the Company's 50%-owned Mavrix joint venture with BP Products North America Inc.

Term Loan and Revolver Amendment


On June 30, 2022, the Company amended its Revolving Credit and Term Loan
Agreement to, among other things, increase its total commitment by approximately
$630 million to a total of $1.1 billion and provide for a $400 million Term Loan
and a $700 million Revolver. See "Note 10 - Debt" in this Report for additional
information on the Revolver and the Term Loan.

INGENCO Acquisition


On April 26, 2022, a wholly owned subsidiary of the Company, Archaea
Infrastructure, LLC, entered into a definitive purchase and sale agreement (the
"INGENCO Purchase Agreement") to purchase INGENCO, which owned 14 LFG to
renewable electricity facilities. The consideration paid upon the July 2022
closing of the transaction was $230.5 million and was funded with cash on hand
and borrowings under the Term Loan and Revolver. The acquisition includes gas
rights for the 14 LFG to energy sites, which have a number of existing long-term
agreements in place.

Lightning JV Formation

On May 5, 2022, the Company and Republic announced the formation of the
Lightning JV to develop 39 RNG projects across the U.S. that will be located at
various landfill sites owned or operated by Republic. The joint venture will
develop and construct RNG facilities that will convert LFG into pipeline-quality
RNG that can be used for a variety of applications.

Pursuant to the terms of the contribution agreement, dated May 4, 2022, a wholly
owned subsidiary of the Company, Zeus Renewables LLC ("Zeus"), and a wholly
owned subsidiary of Republic, Republic Services Renewable Energy, LLC
("Investco"), will contribute approximately $780 million and $300 million,
respectively, over approximately five years to six years in exchange for newly
issued limited liability company interests of the Lightning JV (the "Lightning
JV Membership Interests"), with Zeus and Investco holding 60% and 40%,
respectively, of the outstanding Lightning JV Membership Interests. In July
2022, the Company made its initial capital contribution of $222.5 million to the
Lightning JV, which was funded with borrowings under the Revolver. Concurrent
with the funding, the Lightning JV paid $37.9 million to acquire an additional
site ("Fort Wayne") located in Fort Wayne, Indiana. The purchase of Fort Wayne
includes the landfill gas rights to a Republic-owned landfill site and a
medium-BTU facility.

Cash on hand from operations of the Lightning JV (less certain customary
reserves) will be distributed quarterly to Zeus and Investco, as the members, in
accordance with their membership percentages, and no later than 10 days
following the final commercial operations date of all approved LFG projects
(excluding any subsequently abandoned), the Lightning JV will distribute all
unused capital contributions to Zeus and Investco in proportion to their capital
contributions.

The Lightning JV, Investco and Archaea Operating LLC, a wholly owned subsidiary
of the Company, have entered into certain other arrangements relating to the
Lightning JV that govern, among other things, the grant by Republic of landfill
gas rights and real property rights at 40 of Republic's landfills to the
Lightning JV, the process and timeline for development at those landfills by the
Lightning JV, the production and sale of RNG and related Environmental
Attributes by the Lightning JV, the payment of royalties to Republic and, in
exchange for a fee to be paid to Archaea Operating LLC, engineering,
procurement, construction management services and O&M services to be provided to
the Lightning JV.

Key Factors Affecting Operating Results


The Company's business strategy includes growth primarily through the upgrade
and expansion of existing RNG production facilities, building new RNG production
facilities at sites of our existing LFG to renewable electricity production
facilities, development and construction of greenfield RNG development projects
for which we already have
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gas development agreements in place, and the procurement of LFG rights and LFG
to renewable electricity production facilities to develop additional 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.

The Company's performance and future success depend on several factors that
present significant opportunities but also pose risks and challenges. For
information regarding the key factors affecting our performance and future
success, see "Key Factors Affecting Operating Performance" within "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Part II, Item 7 of the 2021 Annual Report. In addition to those discussed in
Part I, Item 1A. "Risk Factors" of the 2021 Annual Report, these factors
include: the demand for RNG, renewable electricity and Environmental Attributes;
electricity prices and the costs of raw materials and labor; the regulatory
landscape, which affects demand for our products by providing market
participants with incentives to purchase RNG, renewable electricity and
Environmental Attributes and which may also affect our development or operating
costs; and seasonality.

Results of Operations

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 of RNG and MWh of electricity sold and
Adjusted EBITDA in evaluating our operating performance. Each of these metrics
is discussed below under "Comparison of the Three and Six Months Ended June 30,
2022 and 2021."

Key Components of Results of Operations


See "Key Components of Results of Operations" within "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Part II, Item
7 of the 2021 Annual Report for information regarding the key components of our
results of operations, which are revenue, cost of sales, general and
administrative expenses and equity earnings.

Comparison of the Three and Six Months Ended June 30, 2022 and 2021


The following discussion pertains to the results of operations, financial
condition, and changes in financial condition of the Successor. Legacy Archaea
(the Successor) did not have operational RNG and Power assets until commercial
RNG and Power operations commenced in the fiscal quarter ended June 30, 2021 and
did not have significant revenues from operations until the acquisition of Aria.
A majority of the Company's revenues prior to March 31, 2021 were comprised of
sales of customized pollution control equipment and maintenance agreement
services. As such, to provide more meaningful comparisons, the following
discussion also compares certain of the Company's operating results for the
three and six months ended June 30, 2022 to the combined operating results of
Legacy Archaea and Aria for the three and six months ended June 30, 2021. Such
combined information (which is referred to in this Report as "on a combined
basis") is the sum of the historical financial results of Legacy Archaea and
Aria and does not include the impact of purchase accounting.

In this section, any increases or decreases "for the three and six months ended June 30, 2022" refer to the comparison of the three and six months ended June 30, 2022, to the three and six months ended June 30, 2021.


As noted above, Legacy Archaea did not have significant revenues from operations
until the the acquisition of Aria. As such, any segment comparison would not be
informative and has not been included for comparison purposes.
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Volumes Sold
                                                                Three Months Ended June 30,                                                  Six Months Ended June 30,
                                                   2022                      2021                   Change                  2022                      2021                      Change
RNG Sold (MMBtu)(1)(2)                           1,755,145                  47,592                1,707,553               3,016,500                  47,667                     2,968,833
Electricity Sold (MWh)(1)(2)                       142,977                  47,847                   95,130                 290,404                  47,847                       242,557


_____________________________________________


(1) Volumes sold represent the consolidated Successor volumes only (excluding
volumes sold by the Company's equity method investments). On a combined basis,
during the three and six months ended June 30, 2021, the Company sold 1,137,988
MMBtu and 2,152,379 MMBtu of RNG, respectively, and 146,772 MWh and 251,296 MWh
of electricity, respectively.

(2) Volumes sold exclude the Company's equity method investments' net volumes
sold during the three and six months ended June 30, 2022 of 282,620 MMBtu and
561,297 MMBtu of RNG, respectively, and 15,826 MWh and 33,979 MWh of
electricity, respectively.

Volumes increased for the three and six months ended June 30, 2022 compared to
the three and six months ended June 30, 2021 on consolidated basis due to the
acquisition of Aria, commencement of commercial operations in April 2021 at our
Boyd County RNG facility, the purchase of the PEI Power assets in April 2021,
the acquisition of additional LFG to renewable electricity facilities, and the
commencement of commercial operations at our Assai facility, offset by downtime
at certain facilities related to winter weather in the first quarter of 2022.
The increase on a combined basis occurred due to the same factors discussed
above, excluding the acquisition of Aria.

As of June 30, 2022, we had 3.0 million RINs generated by June production that were committed and settled in July 2022 under short-term forward RIN sales contracts at a weighted-average price of $3.15. The related revenues and associated royalty expenses will be recognized in the third quarter of 2022.

Set forth below is a summary of selected financial information for the three and six months ended June 30, 2022 and 2021:


                                                  Three Months Ended June 30,                               Six Months Ended June 30,
(in thousands)                             2022                2021            $ Change             2022               2021             $ Change
Revenues and other income             $   77,219            $  5,127        

$ 72,092 $ 134,116 $ 6,781 $ 127,335 Costs of sales

                            62,746               5,233            57,513            105,437              6,443             98,994
Equity investment income (loss)            2,693                   -             2,693              4,122                  -              4,122
General and administrative expenses       18,883               7,884            10,999             45,236             11,042             34,194
Operating income (loss)                   (1,717)             (7,990)            6,273            (12,435)           (10,704)            (1,731)
Other income (expense), net               34,470                  60            34,410             12,016                275             11,741
Net income (loss)                     $   32,624            $ (7,930)         $ 40,554          $    (548)         $ (10,429)         $   9,881

Revenues and Other Income


Revenues and other income were approximately $77.2 million and $134.1 million
for the three and six months ended June 30, 2022, respectively, as compared to
$5.1 million and $6.8 million for the three and six months ended June 30, 2021,
respectively, an increase of $72.1 million and $127.3 million, respectively. The
increased revenues are primarily attributable to the acquisition of Aria
resulting in a $48.1 million and $91.7 million increase for the three and six
months ended June 30, 2022, respectively, the strong market pricing of
Environmental Attributes, natural gas and electricity, and the commencement of
commercial operations at our Assai RNG facility, and other acquisitions made in
late 2021, partially offset by downtime at certain facilities related to winter
weather in the first quarter of 2022.

Revenues and other income increased on a combined basis for the three and six
months ended June 30, 2022 as compared to revenue and other income for the three
and six months ended June 30, 2021 primarily due to the strong market pricing of
Environmental Attributes natural gas and electricity, the commencement of
commercial operations at our Assai RNG facility, and other acquisitions made in
late 2021, partially offset by downtime at certain facilities related to winter
weather in the first quarter of 2022.
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Cost of Sales


Costs of sales increased by $57.5 million and $99.0 million for the three and
six months ended June 30, 2022, respectively, as compared to $5.2 million and
$6.4 million for the three and six months ended June 30, 2021, respectively,
primarily due to the acquisition of Aria resulting in increases of $36.3 million
and $70.0 million for the three and six months ended June 30, 2022,
respectively, the commencement of commercial operations at our Assai RNG
facility, additional royalty and marketing expenses, and increased utility and
gas costs.

Costs of sales on a combined basis increased for three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021 primarily due to operational costs at our Assai RNG facility following the commencement of operations, higher utility prices, as well as increased depreciation and amortization expense as a result of those operations and the step-up in value of the Aria assets due to purchase accounting.

General and Administrative Expenses


General and administrative expenses were $18.9 million and $45.2 million for the
three and six months ended June 30, 2022, respectively, an increase of
$11.0 million and $34.2 million compared to the three and six months ended
June 30, 2021, respectively. The increase is primarily due to higher employee
costs, including share-based compensation expenses, associated with higher
headcount and contractors and consultants costs as our business has expanded and
we became a public company. Additionally, expenses for the three months ended
June 30, 2022 include $3.6 million for non-recurring legal and professional fees
and other non-recurring costs primarily associated with the formation of the
Lightning JV and the acquisition of INGENCO, and expenses for the six months
ended June 30, 2022 include $8.9 million in severance related costs, including
accelerated share-based compensation expense, and $6.0 million related to
non-recurring legal and professional fees associated with the executive
transition, the Ares Secondary Offering, the formation of the Lightning JV, and
the acquisition of INGENCO.

Other Income (Expense)

Other income was $34.5 million and $12.0 million for the three and six months
ended June 30, 2022, respectively, as compared to other income of $0.1 million
and $0.3 million for the three and six months ended June 30, 2021, respectively,
primarily due to the decrease in fair value on the Private Placement Warrant
liabilities resulting in gains of $37.0 million and $13.0 million for the three
and six months ended June 30, 2022, respectively, compared with no Private
Placement Warrants outstanding during the three and six months ended June 30,
2021, and gains in fair value on the interest rate swap of $1.0 million and $4.6
million for the three and six months ended June 30, 2022, respectively, offset
in part by the increase in interest expense of $3.7 million and $6.3 million for
the three and six months ended June 30, 2022, respectively.

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, certain acquisition and other
transaction expenses, severance expenses, non-cash share-based compensation
expense and Settled RIN adjustment (as defined below). We believe the exclusion
of these items enables investors and other users of our financial information to
assess our sequential and quarter-over-quarter performance and operating trends
on a more comparable basis and is consistent with management's own evaluation of
performance.

Under GAAP, the timing of revenue recognition for stand-alone RIN sales
contracts is tied to the delivery of the RINs to our counterparty and not the
production of the RINs. The Company had approximately 3.0 million RINs generated
by June 2022 RNG production that were delivered under forward RIN sale
agreements in July 2022 at a weighted-average price of $3.15. To reflect this
and match the RIN revenue to the month of production, Adjusted EBITDA for both
the three and six months ended June 30, 2022 includes a $7.0 million add-back
("Settled RIN adjustment"), which represents the net cash value (proceeds minus
expenses) of this settled, forward sold RIN transaction. The related revenues
and associated royalty expenses will be recognized in the third quarter of 2022.
The Company anticipates the quarterly financial impact of these monetization
timing delays to be mitigated over time as it continues to bring additional RNG
facilities online and enter into new contracts.
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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:

                                              Three Months Ended June 30,                 Six Months Ended June 30,
(in thousands)                                 2022                  2021                  2022                 2021
Net income (loss)                        $       32,624          $   (7,930)         $        (548)         $  (10,429)
Adjustments
Interest expense                                  3,712                  13                  6,366                  19
Depreciation, amortization and accretion         13,730                 886                 26,219                 935
Income tax expense                                     129                   -                    129                   -
EBITDA                                   $       50,195          $   

(7,031) $ 32,166 $ (9,475) Net derivative activity

                         (38,095)                  -                (18,180)                  -
Amortization of intangibles and
below-market contracts                           (1,103)                  -                 (2,206)                  -
Amortization of equity method
investments basis difference                      2,571                   -                  5,141                   -
Depreciation and amortization
adjustments for equity method
investments                                       1,579                   -                  3,173                   -
Income tax expense for equity method
investments                                         151                   -                  1,693                   -
Share-based compensation expense                  3,170                 146                  8,923                 178
Acquisition and other transaction costs
and severance costs (1)                           4,621                   -                 12,956                   -

Settled RIN adjustment (2)                           7,006                   -                  7,006                   -
Adjusted EBITDA                          $          30,095       $     (6,885)       $         50,672       $     (9,297)


__________________________________________


(1) Other transaction costs include expenses related to certain joint ventures,
R&D expenses, and the Ares Secondary Offering.
(2) Adjustment for gross profit on RINs generated from June gas production which
will be recognized in the Company's third quarter 2022 consolidated statement of
operations.

Liquidity and Capital Resources

Sources and Uses of Funds


The Company's primary uses of cash have been to fund construction of RNG
facilities and acquisitions of complementary businesses and assets and LFG
rights. The Company is expected to primarily finance its project development
activities with cash on hand, cash expected to be generated from operations and
available funding under the Revolver. 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 discussed in "Recent
Events," the Company has significantly expanded and accelerated the pace of
developing its project backlog. The Company is in the process of optimizing the
pace and timing of its long-term project development backlog as a result of
recent additions to its backlog related to the Lightning JV and the
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acquisition of INGENCO. Capital expenditures guidance for 2022 (excluding acquisition costs) has increased to a range of $325 million to $365 million, to begin development on recent additions to the Company's development backlog.


During the three months ended June 30, 2022, we borrowed a total of
$50.0 million under the Revolver to provide funding for ongoing operations and
capital expenditures. As of June 30, 2022, we had the cash balance described in
the paragraph below and approximately $580.5 million of outstanding
indebtedness, including $400.0 million of outstanding borrowings under the Term
Loan and $130.5 million outstanding on our Assai Notes (as defined below). We
also had $626.2 million of available borrowing capacity under the Revolver as of
June 30, 2022. On July 5, 2022 and July 14, 2022, we borrowed $220.0 million and
$75.0 million, respectively, under the Revolver. Following these borrowings,
available borrowing capacity under the Revolver was approximately
$331.2 million. We expect the Revolver along with the Company's other existing
sources of liquidity will be sufficient to fund the Company's development
capital needs for the foreseeable future, including capital expenditures related
to the Lightning JV, projects related to INGENCO, and core development projects,
thereby eliminating the need for additional external capital in the near-term
based on the Company's current development plans and backlog.

Further accelerating our growth plans may require additional cash requirements,
which would likely be funded with additional debt or equity issuances. We may,
to the extent market conditions are favorable, incur additional debt or issue
equity securities 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 corporate purposes. The Company
cannot predict with certainty the timing, amount and terms of any future
issuances of any such securities or whether they occur at all.

Cash


As of June 30, 2022, the Company had $213.3 million of unrestricted cash and
cash equivalents, which is expected to provide ample liquidity to fund our
current operations and a portion of our near-term development projects. As of
June 30, 2022, we also had $21.9 million of restricted cash for permitted
payments and required reserves related to the Assai RNG facility, including
future principal and interest payments for the Assai Notes. During the three
months ended June 30, 2022, the Company received a total of $9.3 million in
distributions from restricted cash.

Term Loan and Revolver


On June 30, 2022, the Company amended its Revolving Credit and Term Loan
Agreement which included a Revolver with an initial commitment of $250 million
and a Term Loan with an initial commitment of $220 million. The amendment, among
other things, increased the aggregate total commitment from the original
syndicate of lenders plus two additional lenders by approximately $630 million
to a total of $1.1 billion and provides for a $400 million Term Loan and a
$700 million Revolver. In addition, on June 1, 2022, the benchmark interest rate
was revised to SOFR plus 2.75% for the Revolver and SOFR plus 3.25% for the Term
Loan. The maturity date of the Revolver and Term Loan remains unchanged at
September 15, 2026.

As of June 30, 2022, the Company has outstanding borrowings under the Term Loan
of $400.0 million at an effective interest rate of 4.89% and has drawn down a
total of $50.0 million under the Revolver. As of June 30, 2022, the Company had
issued letters of credit under the Credit Facilities of $23.8 million, and thus
reducing the borrowing capacity of the Revolver to $626.2 million. Under the
Company's updated 2022 capital expenditure budget, we expect to utilize a
portion of available capacity under the Revolver to fund our near-term
development projects.

In July 2022, the Company drew an additional $295.0 million under the Revolver
and used these proceeds along with incremental Term Loan proceeds from the June
30, 2022 amendment to fund its initial capital contribution in the Lightning JV
and the acquisition of INGENCO.


See "Note 10 - Debt" in this Report for additional information on the Revolver and the Term Loan.


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Assai Energy 3.75% and 4.47% Senior Secured Notes


On January 15, 2021, Assai 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 on each payment date and the 3.75% Notes mature on
September 30, 2031. On April 5, 2021, Assai 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, the "Assai Notes"). Interest is payable
quarterly in arrears on each payment date, and the 4.47% Notes mature on
September 30, 2041.

Summarized Cash Flows for the Six Months Ended June 30, 2022 and 2021:


                                                                     Six Months Ended June 30,
(in thousands)                                                       2022                     2021
Cash provided by (used in) operating activities             $       56,692               $     (7,510)
Cash used in investing activities                           $     (133,631)              $    (88,136)
Cash provided by financing activities                       $      219,052               $    130,453

Net increase in cash, cash equivalents and restricted cash $ 142,113

              $     34,807


Cash Provided by (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 provided by operating activities increased by $64.2 million for the
six months ended June 30, 2022, which was primarily related to higher revenues,
offset in part by higher cost of energy associated with the increased level of
operations and higher general and administrative expenses due to increases in
employee costs as we continue to build our business. Changes in other working
capital accounts were approximately $36.4 million and related to the timing of
revenue receipts and increases in accounts payable and accrued liability
balances.

Cash Used in Investing Activities


We continue to have significant cash outflows for investing activities as we
expand our business, make acquisitions, and develop projects. Total cash used in
investing activities was $133.6 million for the six months ended June 30, 2022.
We spent $127.9 million on development activities and $7.0 million, net of cash
acquired, primarily related to the acquisition of landfill gas right assets.
Development activities in the six months ended June 30, 2022 are related to
supply chain purchases, deposits on long-lead items, and construction and
optimization at our various plants, including additional costs at Assai. We also
made contributions to equity method investments totaling $8.0 million and
received return of investment in equity method investments of $7.4 million.

Cash used in investing activities of $88.1 million for the six months ended June 30, 2021 was primarily attributable to the acquisition of PEI Power LLC, acquiring biogas rights, and construction at the Assai and Boyd County production facilities.

Cash Provided by Financing Activities


Cash used provided by financing activities for the six months ended June 30,
2022 is primarily attributable additional funding under the Term Loan and
Revolver of $225.3 million, net of issuance costs, offset by scheduled
repayments of long-term debt and payment of contingent consideration related to
the Boyd County acquisition resulting in net cash payments of $4.5 million.

Cash provided by financing activities of $130.5 million for the six months ended
June 30, 2021 was comprised primarily of proceeds from issuance of the Assai
Notes and borrowings under the Company's line of credit agreement.

Material Cash Requirements

The Company has various long-term contractual commitments pertaining to certain of its biogas rights agreements that

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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. As of June 30, 2022,
the expected annual minimum royalty and landfill gas rights payments are
approximately $8.0 million, and the annual commitment will 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 $274.1 million as of June 30, 2022, with expected cash payments of $161.9 million in the remainder of 2022 and $112.2 million in 2023 and beyond.


On May 5, 2022, the Company and Republic announced the formation of the
Lightning JV. The Company and Republic have agreed to contribute to the
Lightning JV approximately $780 million and $300 million, respectively, over
approximately five to six years. The Company made its initial capital
contribution of $222.5 million on July 5, 2022. Contributions to the Lightning
JV are subject to annual budget approval by the Lightning JV's board of
directors and are further subject to adjustment based on actual amounts spent by
the Lightning JV through the completion of development of RNG projects.

Critical Accounting Policies and Estimates


The preparation of the Company's financial statements in accordance with GAAP
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. Because these estimates can vary depending on the
situation, actual results may differ from the estimates and assumptions used in
preparing the financial statements.

The Company considers critical accounting estimates to be those that involve a
significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on the Company's financial condition or results
of operations. See "Significant Accounting Policies - Critical Accounting
Policies and Estimates" included within "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7 of the 2021
Annual Report for a discussion of our critical accounting estimates; there have
been no material changes to the Company's critical accounting estimates as
disclosed therein.

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" in this Report.

Inflation

The Company does not believe that inflation had a material impact on our business, revenues or operating results during the periods presented. If inflationary trends continue, our business and operating results could be adversely affected.

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