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ARCHAEA ENERGY INC.

(LFG)
Delayed Nyse  -  04:00:01 2022-12-27 pm EST
26.00 USD   -.--%
2022ADRs End Mostly Higher, ArcelorMittal and BP Trade Actively
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2022Archaea Energy Inc. : Termination of a Material Definitive Agreement, Completion of Acquisition or Disposition of Assets, Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing, Material Modification to Rights of Security Holders, Changes in Control or Regis..
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2022Archaea Energy Inc. Announces Board Changes
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ARCHAEA ENERGY INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/10/2022 | 05:06pm EST
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 September 30, 2022, the Company owns, through wholly-owned entities or joint ventures, a diversified portfolio of 46 LFG recovery and processing projects across 20 states, including 13 operated projects that produce pipeline-quality RNG and 33 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 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 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 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 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; 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.
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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, 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. Additionally, the RNG
segment includes the Lightning JV, a consolidated VIE.

Pending Merger


On October 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 with
Delaware 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


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.
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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 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.

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 from July 1 to September 14,
2021 and from January 1 to September 14, 2021 and Aria's consolidated statement
of cash flows for the period from January 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 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, share-based
compensation, and additional internal and external accounting and legal and
administrative resources, including increased audit and legal fees.
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•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

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 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


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 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, 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 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 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.
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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 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 in
evaluating our operating performance. Each of these metrics is discussed below
under "Comparison of the Three and Nine Months Ended September 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 September 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 nine months ended September 30, 2022 to the combined operating results
of Legacy Archaea and Aria for the three and nine months ended September 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 ended
September 30, 2022" refer to the comparison of the three and nine months ended
September 30, 2022, to the three and nine months ended September 30, 2021.

As noted above, Legacy Archaea did not have significant revenues from operations
until the acquisition of Aria in September 2021. 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 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


_____________________________________________


(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 ended September 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 ended September 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 ended
September 30, 2021 of 53,454 MMBtu of RNG and 3,151 MWh of electricity.

RNG volumes increased for the three and nine months ended September 30, 2022
compared to the three and nine months ended September 30, 2021 on consolidated
basis due to the acquisition of Aria, the commencement of commercial operations
in April 2021 at our Boyd County RNG facility, and the commencement of
commercial operations at our Assai facility in late December 2021. Megawatts
sold increased for the three and nine months ended September 30, 2022 compared
to the three and nine months ended September 30, 2021 due to the purchase of the
PEI Power assets in April 2021, the acquisition of Aria, the acquisition of
additional LFG to renewable electricity facilities, and the July 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 September 30, 2022 and 2021:

                                                  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 ended September 30, 2022, respectively, as
compared to $12.0 million and $18.8 million for the three and nine months ended
September 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 ended September 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 ended September 30, 2022 as compared to revenue and other income for the
three and nine months ended September 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.
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Costs of sales increased by $70.1 million and $169.1 million for the three and
nine months ended September 30, 2022, respectively, as compared to $13.2 million
and $19.7 million for the three and nine months ended September 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 ended
September 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 ended
September 30, 2022 as compared to the three and nine months ended September 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 ended September 30, 2022, respectively, an increase of
$18.6 million and $52.8 million compared to the three and nine months ended
September 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 September 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 ended September 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
ended September 30, 2022, respectively, as compared to other expense of $11.9
million and $11.6 million for the three and nine months ended September 30,
2021, respectively, primarily due to the warrant liabilities increase in fair
value resulting in loss of $10.7 million for the three months ended
September 30, 2022 and a net decrease in fair value resulting in a net gain of
$2.3 million for the nine months ended September 30, 2022, compared with a
$10.5 million loss due to the increase in fair value during both the three and
nine months ended September 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 ended
September 30, 2022, respectively. In addition, interest expense increased by
$9.0 million and $15.3 million for the three and nine months ended September 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.
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During the three months ended September 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 of
September 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 of September 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.

On October 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 of September 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 of September 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 ended September 30, 2022, the Company received a total of
$22.9 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 September 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 of September 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


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.
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Summarized Cash Flows for the Nine Months Ended September 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 $ 811,386 Net increase in cash, cash equivalents and restricted cash $ 225,626 $ 169,304

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 ended September 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 ended September 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 ended
September 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 ended
September 30, 2021 was primarily attributable to $463.3 million related to the
acquisition of Aria, $31.5 million related to acquisition of PEI 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 ended September 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
ended September 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 of September 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
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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 $364.5 million as of September 30, 2022, with expected cash payments of $51.7 million in the remainder of 2022 and $312.8 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. On July 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 before January 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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