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
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 has an extensive RNG development backlog for which gas rights agreements are currently in place, 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 toJanuary 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 which could be in the month of production or subsequent months based on the terms of the customer contracts. 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 when RNG is sold as vehicle fuel inCalifornia . 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 theEPA'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; however, control may transfer and revenues may be recognized before the RINs are generated based on the terms of the customer contracts. Quarterly and annual reports are required to maintain RFS registration and Q-RIN status for each facility. 44
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LCFS registration requires a minimum of 90 days operational data for a provisional fuel 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 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, includingMavrix, LLC , which owns and operates five separate RNG facilities, andSaturn 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. Additionally, the RNG segment includes the Lightning JV, a consolidated VIE.
Pending Merger
OnOctober 16, 2022 , the Company and Opco entered into the Merger Agreement with Parent, Merger Sub, and Opco Merger Sub, pursuant to which Merger Sub will be merged with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent, and Opco Merger Sub will be merged with and into Opco with Opco continuing as the surviving company and a wholly owned subsidiary of Parent. As a result of the Merger, (i) at the Effective Time, each share of Class A Common Stock outstanding immediately prior to the Effective Time (subject to certain exceptions, including shares of Class A Common Stock owned by stockholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance withDelaware law) will automatically be converted into the right to receive the Per Share Price in cash, subject to applicable withholding taxes, and (ii) at the Opco Merger Effective Time, each Class A Opco Unit outstanding immediately prior to the Opco Merger Effective Time that is held by a holder other than the Company or any of its subsidiaries will automatically be converted into the right to receive the Per Share Price in cash, subject to applicable withholding taxes. Also, at the Effective Time, each share of Class B Common Stock will be automatically cancelled and extinguished without any conversion thereof or consideration paid therefor. In addition, immediately following the Opco Merger Effective Time, each of the Private Placement Warrants will be redeemed for cash in accordance with the terms of the Warrant Agreement, as amended in connection with the Company's entry into the Merger Agreement. The parties are targeting closing the Merger by the end of 2022, subject to customary closing conditions, including approval by the Company's stockholders and receipt of regulatory approvals. Upon closing of the Merger, the Class A Common Stock will no longer be listed on any public market. See "Note 21 - Subsequent Events" in this Report for more information regarding the Merger.
The Business Combinations
OnSeptember 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. ," andRice 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 inMarch 2022 for the final adjustment under the terms set forth in the Aria Merger Agreement. The initialAria 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. 45
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Archaea has retained its "up-C" structure, whereby all of the equity interests in Aria and Legacy Archaea are indirectly held byOpco andArchaea 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 theSeptember 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 onSeptember 15, 2021 . 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 period fromJuly 1 to September 14, 2021 and fromJanuary 1 to September 14, 2021 and Aria's consolidated statement of cash flows for the period fromJanuary 1 to September 14, 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 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, 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, share-based compensation, and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. 46
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•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 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 toU.S. federal income tax at an entity level during such periods. Recent Events INGENCO Acquisition OnApril 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 theJuly 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 a number of existing long-term gas rights agreements in place which increase the Company's backlog of RNG development opportunities. See discussion in "Note 4 - Business Combinations and Reverse Recapitalization" in this Report.
Lightning JV Formation
OnMay 5, 2022 , the Company and Republic announced the formation of the Lightning JV to develop 39 RNG projects across theU.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, datedMay 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 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. InJuly 2022 , the Company made its initial capital contribution of$222.5 million to the Lightning JV, which was funded with borrowings under the Revolver, and Investco made its initial capital contribution of$88.5 million . Investco also contributed landfill gas rights with an estimated fair value of$184.2 million . Concurrent with and utilizing the initial capital contribution funding, the Lightning JV paid$37.9 million to acquire an additional site ("Fort Wayne") located inFort Wayne, Indiana . The purchase ofFort 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 toArchaea 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 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. 47
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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 OperationsKey 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 in evaluating our operating performance. Each of these metrics is discussed below under "Comparison of the Three and Nine Months EndedSeptember 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 Nine Months Ended
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 endedJune 30, 2021 and did not have significant revenues from operations until the acquisition of Aria. A majority of the Company's revenues prior toMarch 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 nine months endedSeptember 30, 2022 to the combined operating results of Legacy Archaea and Aria for the three and nine months endedSeptember 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 nine months endedSeptember 30, 2022 " refer to the comparison of the three and nine months endedSeptember 30, 2022 , to the three and nine months endedSeptember 30, 2021 . As noted above, Legacy Archaea did not have significant revenues from operations until the acquisition of Aria inSeptember 2021 . As such, any segment comparison would not be informative and has not been included for comparison purposes. 48
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Volumes Sold
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 Change 2022 2021 Change RNG Sold (MMBtu)(1)(2) 2,121,603 222,591 1,899,012 5,138,103 258,316 4,879,787 Electricity Sold (MWh)(1)(2) 243,581 70,988 172,593 533,988 118,835 415,153
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(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 nine months endedSeptember 30, 2021 , the Company sold 1,101,247 MMBtu and 3,241,685 MMBtu of RNG, respectively, and 157,291 MWh and 408,587 MWh of electricity, respectively. (2) Volumes sold exclude the Company's equity method investments' net volumes sold during the three and nine months endedSeptember 30, 2022 of 296,454 MMBtu and 857,751 MMBtu of RNG, respectively, and 16,379 MWh and 50,358 MWh of electricity, respectively, and during both the three and nine months endedSeptember 30, 2021 of 53,454 MMBtu of RNG and 3,151 MWh of electricity. RNG volumes increased for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 on consolidated basis due to the acquisition of Aria, the commencement of commercial operations inApril 2021 at our Boyd County RNG facility, and the commencement of commercial operations at our Assai facility in lateDecember 2021 . Megawatts sold increased for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 due to the purchase of thePEI Power assets inApril 2021 , the acquisition of Aria, the acquisition of additional LFG to renewable electricity facilities, and theJuly 2022 acquisition of INGENCO. The increase on a combined basis occurred due to the same factors discussed above, excluding the acquisition of Aria.
Set forth below is a summary of selected financial information for the three and
nine months ended
Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2022 2021 $ Change 2022 2021 $ Change Revenues and other income$ 104,993 $ 11,986 $ 93,007 $ 239,109 $ 18,768 $ 220,341 Costs of sales 83,334 13,235 70,099 188,771 19,678 169,093 Equity investment income, net 2,945 879 2,066 7,067 879 6,188 General and administrative expenses 30,478 11,889 18,589 75,714 22,933 52,781 Operating income (loss) (5,874) (12,259) 6,385 (18,309) (22,964) 4,655 Other income (expense), net (18,304) (11,918) (6,386) (6,288) (11,642) 5,354 Net income (loss)$ (24,235) $ (24,177) $ (58) $ (24,783) $ (34,606) $ 9,823 Revenues and Other Income Revenues and other income were approximately$105.0 million and$239.1 million for the three and nine months endedSeptember 30, 2022 , respectively, as compared to$12.0 million and$18.8 million for the three and nine months endedSeptember 30, 2021 , respectively, an increase of$93.0 million and$220.3 million , respectively. The increased revenues are primarily attributable to the acquisition of Aria resulting in a$53.3 million and$145.0 million increase for the three and nine months endedSeptember 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 and 2022. Revenues and other income increased on a combined basis for the three and nine months endedSeptember 30, 2022 as compared to revenue and other income for the three and nine months endedSeptember 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 and 2022. 49
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Costs of sales increased by$70.1 million and$169.1 million for the three and nine months endedSeptember 30, 2022 , respectively, as compared to$13.2 million and$19.7 million for the three and nine months endedSeptember 30, 2021 , respectively, primarily due to the acquisition of Aria resulting in increases of$38.5 million and$108.5 million for the three and nine months endedSeptember 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 nine months endedSeptember 30, 2022 as compared to the three and nine months endedSeptember 30, 2021 primarily due to operational costs at our Assai RNG facility following the commencement of operations, higher utility and gas prices, and higher royalty and marketing expenses, 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$30.5 million and$75.7 million for the three and nine months endedSeptember 30, 2022 , respectively, an increase of$18.6 million and$52.8 million compared to the three and nine months endedSeptember 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 endedSeptember 30, 2022 include$10.7 million for non-recurring legal and professional fees and other non-recurring costs primarily associated with the Merger, the formation of the Lightning JV and the acquisition of INGENCO, and expenses for the nine months endedSeptember 30, 2022 include$9.5 million in severance related costs, including accelerated share-based compensation expense, and$17.0 million related to non-recurring legal and professional fees associated with the executive transition, the Ares Secondary Offering, the Merger, the formation of the Lightning JV, and the acquisition of INGENCO. As part of the Merger, the Company expects to incur material non-recurring expenses, including banker fees and legal fees.
Other Income (Expense)
Other expense was$18.3 million and$6.3 million for the three and nine months endedSeptember 30, 2022 , respectively, as compared to other expense of$11.9 million and$11.6 million for the three and nine months endedSeptember 30, 2021 , respectively, primarily due to the warrant liabilities increase in fair value resulting in loss of$10.7 million for the three months endedSeptember 30, 2022 and a net decrease in fair value resulting in a net gain of$2.3 million for the nine months endedSeptember 30, 2022 , compared with a$10.5 million loss due to the increase in fair value during both the three and nine months endedSeptember 30, 2021 , and due to the interest rate swap gains in fair value of$2.8 million and$7.4 million for the three and nine months endedSeptember 30, 2022 , respectively. In addition, interest expense increased by$9.0 million and$15.3 million for the three and nine months endedSeptember 30, 2022 , respectively, primarily due to increased borrowings.
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 acquisition of INGENCO. 50
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During the three months endedSeptember 30, 2022 , we borrowed a total of$345.0 million under the Revolver to provide funding for acquisitions, ongoing operations and capital expenditures and funding of the Lightning JV. As ofSeptember 30, 2022 , we had the cash balance described in the paragraph below and approximately$921.5 million of outstanding indebtedness, including$397.5 million of outstanding borrowings under the Term Loan and$129.0 million outstanding on our Assai Notes (as defined below). We also had$278.9 million of available borrowing capacity under the Revolver as ofSeptember 30, 2022 . 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. OnOctober 16, 2022 , we entered into the Merger Agreement, pursuant to which, among other things, we have agreed to various covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the Effective Time. Outside of certain limited exceptions, we may not take, authorize, commit, resolve, or agree to do certain actions without Parent's consent, including acquiring businesses and disposing of significant assets and incurring expenditures above specified thresholds. We do not believe these restrictions will prevent us from meeting our ongoing costs of operations, working capital needs, or capital expenditure requirements.
Cash
As ofSeptember 30, 2022 , the Company had$299.5 million of unrestricted cash and cash equivalent including cash of$191.4 million of the Lightning JV VIE, which is expected to provide ample liquidity to fund our current operations, the Lightning JV current operations, and a portion of our near-term development projects. As ofSeptember 30, 2022 , we also had$19.2 million of restricted cash primarily for permitted payments and required reserves related to the Assai RNG facility, including future principal and interest payments for the Assai Notes. During the nine months endedSeptember 30, 2022 , the Company received a total of$22.9 million in distributions from restricted cash.
Term Loan and Revolver
OnJune 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, onJune 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 atSeptember 15, 2026 . As ofSeptember 30, 2022 , the Company had outstanding borrowings under the Term Loan of$397.5 million at an effective interest rate of 5.88% and had outstanding borrowings under the Revolver of$395.0 million at an effective interest rate of 5.46%. As ofSeptember 30, 2022 , the Company had issued letters of credit under the Credit Facilities of$26.1 million , and thus reducing the borrowing capacity of the Revolver to$278.9 million . Under the Company's 2022 capital expenditure budget, we expect to utilize a portion of available capacity under the Revolver to fund our near-term development projects.
See "Note 10 - Debt" in this Report for additional information on the Revolver and the Term Loan.
Assai Energy 3.75% and 4.47% Senior Secured Notes
OnJanuary 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 onSeptember 30, 2031 . OnApril 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 onSeptember 30, 2041 . 51
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Summarized Cash Flows for the Nine Months EndedSeptember 30, 2022 and 2021: Nine Months Ended September 30, (in thousands) 2022 2021 Cash provided by (used in) operating activities $ 77,157$ (54,710) Cash used in investing activities$ (499,889) $ (587,372) Cash provided by financing activities $
648,358
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$131.9 million for the nine months endedSeptember 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$42.5 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$499.9 million for the nine months endedSeptember 30, 2022 . We spent$225.9 million on development activities and$274.6 million , net of cash acquired, primarily related to the acquisition of INGENCO, Ft. Wayne and other landfill gas right assets. Development activities in the nine months endedSeptember 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$10.8 million and received return of investment in equity method investments of$9.5 million . Cash used in investing activities of$587.4 million for the nine months endedSeptember 30, 2021 was primarily attributable to$463.3 million related to the acquisition of Aria,$31.5 million related to acquisition ofPEI Power LLC , and approximately$88.4 million acquiring biogas rights and construction at the Assai and Boyd County production facilities.
Cash Provided by Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2022 is primarily attributable to additional funding under the Term Loan and Revolver of$573.8 million , net of issuance costs, and cash contributions from the Lightning JV noncontrolling interest owner of$88.5 million , offset by scheduled repayments of long-term debt of$9.6 million . Cash provided by financing activities of$811.4 million for the nine months endedSeptember 30, 2021 was comprised primarily of proceeds from the Business Combinations, including the PIPE Financing and proceeds from the RAC trust account, and borrowings from long-term debt under the Assai Notes and borrowings under the Company's line of credit agreement, offset by certain debt repayments.
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. As ofSeptember 30, 2022 , the expected annual minimum royalty and landfill gas rights payments are approximately$8.5 million , and the annual commitment will increase as production commences from new facilities under development with biogas rights 52
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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
OnMay 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. OnJuly 5, 2022 , the Company made its initial capital contribution of$222.5 million . 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. The Company's required 2023 capital contribution of$174.3 million , subject to adjustment as discussed above, is payable on or beforeJanuary 31, 2023 .
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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