Archaea Energy Inc. Reports Fourth Quarter and Full Year 2021 Results and Provides Full Year 2022 Guidance
HOUSTON–(BUSINESS WIRE)–Archaea Energy Inc. (“Archaea,” “the Company,” or “we”) (NYSE: LFG), an industry-leading renewable natural gas (“RNG”) company, today announced preliminary1 financial and operating results for the fourth quarter and pro forma full year 2021.
FINANCIAL HIGHLIGHTS
- Revenue of $58.4 million and net equity investment income of $4.8 million for the three months ended December 31, 2021, and pro forma2 revenue of $205.8 million and net equity investment income of $18.0 million for the twelve months ended December 31, 2021.
- Net income3 of $3.7 million for the three months ended December 31, 2021 and a pro forma net loss of $77.4 million for the twelve months ended December 31, 2021.
- Adjusted EBITDA4 of $16.4 million for the three months ended December 31, 2021, and pro forma Adjusted EBITDA of $76.1 million for the twelve months ended December 31, 2021. Pro forma Adjusted EBITDA for the twelve months ended December 31, 2021 was above the midpoint of the Company’s full year 2021 guidance range5.
- Produced and sold 1.53 million MMBtu of RNG for the three months ended December 31, 2021 and 5.72 million MMBtu of RNG on a pro forma basis for the twelve months ended December 31, 20216. Pro forma RNG production sold for the twelve months ended December 31, 2021 exceeded the Company’s full year 2021 guidance5.
- Produced and sold 168 thousand MWh of electricity for the three months ended December 31, 2021, and 872 thousand7 MWh of electricity on a pro forma basis for the twelve months ended December 31, 20216.
- Announced full year 2022 guidance including RNG production of 11.1–11.7 million MMBtu, electricity production of 850–950 thousand MWh, Adjusted EBITDA8 of $125–$145 million, and capital expenditures of $255–$285 million based on assumptions set forth herein.
RECENT STRATEGIC ACCOMPLISHMENTS
-
Achieved development milestones for key landfill and dairy facilities:
- Produced first pipeline-quality RNG and achieved commercial operations at our Assai facility in December 2021, completing the project on an industry-leading timeline of less than two years and within budget. The Assai facility, which is expected to reduce CO2 emissions by over 200 thousand metric tons annually, is now the highest capacity operational RNG facility in the United States.
- Produced first pipeline-quality RNG and achieved commercial operations at our Soares dairy digester facility in January 2022, successfully completing the first of four dairy projects within our 50%-owned Mavrix, LLC joint venture with BP Products North America Inc. and demonstrating that the Company’s capabilities extend to anaerobic digestion projects.
-
Continued commercial success with multiple new long-term agreements with creditworthy partners, moving the Company closer to its goal of securing 70% of expected RNG production under long-term, fixed-price contracts:
- Entered into a 21-year, fixed-price RNG purchase and sale agreement with Northwest Natural Gas Company (“NW Natural”), a subsidiary of NW Natural Holdings (NYSE: NWN), for the sale of Environmental Attributes9 related to up to one million MMBtu of RNG annually, beginning in 2022 and ramping up to the full annual quantity in 2025.
- Entered into a 20-year, fixed-price RNG purchase and sale agreement with FortisBC Energy Inc. (“FortisBC”), a subsidiary of Fortis Inc. (NYSE: FTS), for the sale of up to approximately 7.6 million MMBtu of RNG annually, with sales expected to begin in 2022 and ramping up to the full annual quantity in 2025.
- Including these agreements, contracted RNG volumes under executed long-term, fixed-price agreements total approximately 45% of estimated long-term annual RNG production10.
-
Expanded our backlog of high-quality RNG development projects to 38 projects for which we have gas rights agreements in place:
- During the fourth quarter, we entered into a new joint venture, and the joint venture acquired gas rights at two locations to develop RNG facilities, with expected combined flows of approximately 4,250 net standard cubic feet per minute (“scfm”) of landfill gas to the RNG facilities following completion.
- Year-to-date 2022, entered into gas rights agreements to develop RNG facilities at two sites and acquired a landfill gas to electric project with RNG development rights, which are located on sites with total expected combined flows of approximately 4,500 net scfm of landfill gas to the RNG facilities following completion.
- We expect to obtain gas development rights for an additional 10 landfill gas to RNG projects during 2022 from our growing pipeline of high-probability development opportunities.
-
Made several key appointments to our leadership and management teams, including two key executive roles:
- Appointed Brian McCarthy, Archaea’s Co-Founder and Chief Investment Officer (“CIO”), into an expanded role as Interim Chief Financial Officer, to oversee the Company’s financial operations and strategy during the Company’s search for a permanent Chief Financial Officer.
- Appointed Edward P. Taibi as General Counsel and Executive Vice President (“EVP”) Strategic Initiatives and Government Affairs to lead the company’s legal and risk management functions and support the Company’s strategic development efforts.
CEO COMMENTARY
“I’m proud of the financial and operational results we delivered for 2021, driven by the extraordinary hard work and dedication of the Archaea team,” said Nick Stork, Archaea’s Co-Founder and Chief Executive Officer. “Mitigating the impacts of climate change requires tackling the problem of methane, and Archaea is a leader in transforming landfill emissions into non-intermittent renewable energy, which drives decarbonization and air quality improvement and displaces fossil natural gas. Our partnerships with landfill owners, underpinned by the stability of cash flows from our long-term commercial contracts, create a sustainable and multi-decade solution that supports environmental and social progress, especially for our projects’ neighbors. Our team has never been more unified in our mission, and our ownership mentality, entrepreneurial drive, and unparalleled gas processing excellence enable us to rise to the challenge of our time.”
“In the span of only a few months, we achieved critical construction and commercial milestones while expanding our project backlog, successfully merging two private companies, completing a complex de-SPAC transaction, and building our public company functions to support our rapidly growing business. We achieved commercial operations at our Assai facility, the highest capacity operational RNG facility in the U.S., in under two years, a timeline much shorter than industry averages. Completing Assai successfully, early, and within budget is a huge testament to the strength of our in-house technical and project development professionals. We continued this momentum into early January and showcased the breadth of our team’s capabilities across biogas sources when we achieved commercial operations at our first dairy RNG facility.”
“We matched these developmental milestones with noteworthy commercial and strategic milestones. Our long-term agreement with NW Natural, announced in November, highlights our ability to tailor contract structures to meet our customers’ needs, in this case utilizing the Environmental Attributes associated with our low-carbon RNG. Our recently announced long-term agreement with FortisBC, which recently received all necessary regulatory approvals, further strengthens and expands our existing partnership, and we believe this new contract is the largest RNG supply contract signed to date. We look forward to continuing our long-term partnerships with NW Natural and FortisBC as we help them achieve their decarbonization and sustainability goals. Even more, we are proud to link their customers, including homeowners and businesses, to the good we do at our RNG facilities.”
“Looking toward the remainder of 2022, I am especially proud of our plan to implement the Archaea V1 plant design. We expect V1 to transform the RNG industry by bringing a differentiated modularization and manufacturing approach to project design. V1 is expected to reduce construction timelines and enhance project economics, with world-class specs on methane recovery and uptime. Meanwhile, V1’s modularity has allowed us to preorder equipment in bulk, locking in key costs that would otherwise be subject to inflationary prices. Visibility into our costs is a key strategic advantage for Archaea and ultimately benefits the communities we serve, our commercial partners, and our landfill partners.”
“Finally, we will continue to proactively capture as many of the remaining economically attractive RNG development opportunities in the U.S. as possible, acting quickly to cement our market leading position and build the biggest backlog in the industry amid increasing competition for attractive opportunities. We believe that Archaea technology and the V1 plant design together make Archaea the optimal partner for both landfill site owners and RNG customers.”
SUMMARY AND REVIEW OF FINANCIAL RESULTS
The following results for the three months ended December 31, 2021 are presented on an actual (historical) basis, and full year 2021 results are presented on a pro forma basis.
|
|
Actual |
|
Pro Forma |
|||
|
($ in thousands) |
Three Months Ended |
|
Twelve Months Ended |
|||
|
Revenue |
$ |
58,359 |
|
$ |
205,758 |
|
|
Equity Investment Income, Net |
|
4,774 |
|
|
17,979 |
|
|
Net Income (Loss)3 |
|
3,685 |
|
|
(77,449 |
) |
|
Adjusted EBITDA4 |
|
16,350 |
|
|
76,112 |
|
|
|
|
|
|
|||
|
RNG Production Sold (MMBtu) |
|
1,529,483 |
|
|
5,720,833 |
|
|
Electricity Production Sold (MWh)7 |
|
168,230 |
|
|
871,508 |
|
RNG production sold for the three and twelve months ended December 31, 2021 was positively impacted by production from our Boyd County facility, which became operational in April 2021. Electricity production sold for the three and twelve months ended December 31, 2021 was positively impacted by the acquisition of PEI Power LLC in April 2021 and the acquisition of four additional LFG to renewable electricity facilities in October 2021.
Revenues and equity investment income, net for the three and twelve months ended December 31, 2021 were positively impacted by strong market pricing of Environmental Attributes, natural gas, and electricity.
Net income for the three months ended December 31, 2021 was primarily driven by strong market pricing, partially offset by increased general and administrative expenses related to scaling headcount for the future growth of our business, additional costs related to operating as a public company, and due to the timing of certain public company costs incurred.
Pro forma net loss for the twelve months ended December 31, 2021 was primarily driven by a loss from change in fair value of warrant derivatives in the amount of $110.2 million, non-recurring costs primarily related to our business combination transactions, and increased general and administrative expenses, partially offset by non-recurring gains related to the sale of LES Project Holdings LLC (“LESPH”), including a gain on the extinguishment of debt in the amount of $61.4 million and a gain on the disposal of assets in the amount of $1.3 million, as well as strong market pricing.
Non-recurring costs, which primarily consisted of transaction costs related to our business combinations, totaled approximately $0.3 million and $22.7 million for the three and twelve months ended December 31, 2021, respectively.
Adjusted EBITDA for the three and twelve months ended December 31, 2021 was positively impacted by strong market pricing of Environmental Attributes, natural gas, and electricity, partially offset by increased general and administrative expenses as described above.
CAPITAL STRUCTURE AND LIQUIDITY
As of December 31, 2021, our liquidity position was $328.9 million, consisting of cash and cash equivalents of $77.9 million, restricted cash of $15.2 million, and, after taking into consideration our outstanding letters of credit, $235.8 million of available borrowing capacity under our revolving credit facility.
We expect to fund our development plan and related capital expenditures through the utilization of existing sources of liquidity and reinvestment of expected cash flows from our operations. We may also opportunistically access the debt capital markets from time to time to fund a portion of our development plan and related capital expenditures, to provide additional capital for acquisitions or incremental development projects, or for general corporate purposes.
Capital Investments
Cash used in investing activities totaled $107.2 million for the three months ended December 31, 2021. We had additions to property, plant and equipment of $51.3 million, primarily related to the procurement of components and equipment for projects under development and the development of our Assai facility. We also acquired certain assets for a total of $30.3 million, acquired certain biogas rights for $7.6 million, and contributed $18.1 million into our equity method investments.
Cash used in investing activities for the twelve months ended December 31, 2021 totaled $242.0 million on a pro forma basis, excluding the acquisition of Aria. We had additions to property, plant and equipment of $141.8 million on a pro forma basis, primarily related to the development of our Assai and Boyd County RNG facilities and procurement of components and equipment for projects under development. Additionally, we acquired certain assets for a total of $61.8 million, acquired certain biogas rights for $7.8 million, and contributed $30.6 million into our equity method investments on a pro forma basis.
Redemption of Warrants
In November 2021, we issued a notice to warrant holders to redeem the approximately 11.9 million outstanding public warrants and 250 thousand warrants that were issued in a private placement (collectively, the “Redeemable Warrants”). Prior to the redemption deadline on December 6, 2021, 9.4 million Redeemable Warrants were exercised for cash, generating $107.7 million of proceeds to the Company which were then used to repurchase 6.1 million shares of our Class A common stock from Aria Renewable Energy Systems LLC at a pre-negotiated price of $17.65 per share. Additionally, 2.7 million Redeemable Warrants were exercised on a cashless basis in exchange for an aggregate of 1.0 million shares of our Class A common stock. The net result of the redemption and related exercises of Redeemable Warrants, combined with the net repurchase of shares, was a net Class A and Class B common share count increase of 4.2 million and elimination of the 12.1 million Redeemable Warrants.
2022 FULL YEAR GUIDANCE AND DEVELOPMENT PLAN
We are providing the following financial and operational guidance for full year 2022. All guidance is current as of the published date and is subject to change.
|
($ millions, except production data) |
Full Year 2022 |
||
|
RNG Production Sold (million MMBtu) |
11.1 |
– |
11.7 |
|
Electricity Production Sold (thousand MWh) |
850 |
– |
950 |
|
Adjusted EBITDA8 |
$125 |
– |
$145 |
|
Capital Expenditures |
$255 |
– |
$285 |
Our production guidance is based on current performance of our operating assets, operating efficiency improvements expected to be implemented during 2022, and incremental production expected from the completion of projects in our 2022 development plan. We expect to sell approximately 5.5 million MMBtu, or approximately 50% of our expected 2022 RNG production sold, under our existing long-term, fixed-price contracts. Maximum volumes which can be sold under our existing long-term contracts total 7.4 million MMBtu for 2022.
Additionally, as of March 15, 2022, we have forward sold 15.9 million RINs expected to be generated in 2022 at an average price of $3.13 per gallon, equivalent to an average price of $36.67 per MMBtu on approximately 1.4 million MMBtu of RNG production11. RINs forward sold under these agreements total more than 20% of expected RIN generation from uncontracted RNG volumes in 2022.
Within our 2022 Adjusted EBITDA guidance range, we have assumed RIN prices of $2.00 to $2.50 per gallon ($23.45 to $29.32 per MMBtu) for uncontracted volumes in excess of the volumes forward sold. We have also assumed general and administrative expenses of approximately $45 million.
Within our capital expenditures projection, we plan to complete 20 projects in 2022, including 10 optimizations of existing RNG facilities and 10 new build projects expected to be placed into service. At the midpoint of our guidance range, we expect capital investments of approximately $130 million in projects expected to be placed into service in 2022, approximately $70 million in projects expected to be completed in future years, approximately $40 million in acquisition capital, approximately $25 million in development capital for initiatives including carbon sequestration and on-site solar projects, and approximately $5 million in maintenance capital.
For RNG projects expected to be completed in 2022, we expect the following impacts to our financial and operating results:
|
Project Type |
2022 |
2022 |
Incremental |
Incremental |
|
Optimizations |
1,030,000 |
$13 |
2,015,000 |
$25 |
|
New Builds** |
920,000 |
8 |
4,930,000 |
65 |
|
Total Impact of Projects with Expected 2022 Completion Dates |
1,950,000 |
$21 |
6,945,000 |
$90 |
* Estimated incremental annualized production and Adjusted EBITDA after projects are completed and ramped to full flows. Estimated incremental annualized Adjusted EBITDA assumes fixed-price volumes sold under existing long-term contracts and a $1.50/gallon D3 RIN price on uncontracted volumes post-2022.
** Includes new RNG plants expected to be built at electric sites and greenfield sites.
We expect total incremental RNG production of 1.95 million MMBtu in 2022 and corresponding incremental EBITDA of $21 million in 2022 as a result of completion of projects in our 2022 development plan. Upon completion of projects and commencement of operations, we expect a ramp up period of one month on average for optimization projects and several months on average for new build RNG projects to reach full expected production levels. Additionally, there is generally a multi-month lag in the generation and monetization of Environmental Attributes after a new RNG facility is placed into operation.
On a long-term basis, after projects in our development plan with expected 2022 completion dates are completed, ramped to full flows, and monetizing Environmental Attributes, we expect total incremental annualized RNG production of 6.95 million MMBtu and corresponding annualized incremental Adjusted EBITDA of approximately $90 million related to these projects.
2022 expected capital expenditures of $70 million, at the midpoint of guidance, for projects scheduled to be completed in future years relate primarily to orders of major equipment which have been placed, or are expected to be placed, to reduce risks to supply chain availability, timing, and pricing.
KEY APPOINTMENTS TO LEADERSHIP AND MANAGEMENT TEAMS
The Company recently appointed several new leadership and management team members, including Brian McCarthy in an expanded role as Interim Chief Financial Officer and CIO, Edward P. Taibi as General Counsel and EVP Strategic Initiatives and Government Affairs, Lawrence Ji as Senior Vice President (“SVP”) of Corporate Development, Mark Mannion as SVP of Finance, Olivia McNamara as Vice President (“VP”) of Health and Safety, and Chad Bellah in an expanded role as Principal Financial Officer in addition to his duties as Principal Accounting Officer.
As Interim Chief Financial Officer and CIO, Brian McCarthy will lead the Company’s financial operations and strategy as well as the Company’s commercial strategy, investments, and business development. Mr. McCarthy is a Co-Founder of Archaea, the architect of the Company’s long-term off-take partnerships, and served as Archaea’s Chief Financial Officer from January 2019 to May 2021. Mr. McCarthy will continue to drive Archaea’s vision forward by resuming his participation in the finance division with the Company’s newly added talent.
As General Counsel and EVP Strategic Initiatives and Government Affairs, Edward P. Taibi will lead the Company’s legal and risk management functions and support the Company’s strategic development efforts. Mr. Taibi has significant experience in corporate management, transaction structuring and execution, complex legal matters, and public company governance and regulatory matters. Mr. Taibi previously served as EVP for MacAndrews & Forbes Incorporated, a diversified holding company with a portfolio of investments across a wide range of industries, and as a mergers and acquisitions and corporate finance attorney for Skadden, Arps, Slate, Meagher & Flom LLP.
As SVP of Corporate Development, Lawrence Ji will be responsible for leading a wide array of initiatives within finance and corporate development for the Company. Mr. Ji brings a wealth of finance and energy experience including roles at Citadel and Magnetar Capital. Mr. Ji also previously held energy private equity and investment banking roles.
As SVP of Finance, Mark Mannion will be responsible for the Company’s financial planning and analysis (“FP&A”) initiatives. Mr. Mannion has a strong track record of driving business performance with functional expertise across FP&A, business analytics, merger integration, and operational restructuring. Mr. Mannion was previously Chief Financial Officer of Paradigm Specialty Networks, a healthcare services company, and also held senior roles at Aetna and Alvarez & Marsal.
As VP of Health and Safety, Olivia McNamara will be responsible for the Company’s health and safety programs, initiatives, and culture. Ms. McNamara has two decades of experience within health, safety, and environmental roles at public companies across the energy industry, including most recently Southwestern Energy and WPX Energy. Ms. McNamara has valuable experience leading safety and environmental projects for corporate-wide and field operations.
FOURTH QUARTER AND FULL YEAR 2021 CONFERENCE CALL AND WEBCAST
We will host a conference call to discuss our financial and operating results for fourth quarter and full year 2021 on Thursday, March 17, 2022 at 11 a.m. Eastern Time / 10 a.m. Central Time. A listen-only webcast of the call and an accompanying slide presentation may be accessed through our website at www.archaeaenergy.com. After completion of the webcast, a replay will be available for 12 months on our website.
1. Our fourth quarter and full year 2021 results as presented herein are based on preliminary unaudited information and are subject to revision. We have not filed our Annual Report on Form 10-K for the year ended December 31, 2021. As a result, all financial results described in this earnings release should be considered preliminary and are subject to change to reflect any necessary adjustments or changes that are identified prior to the time we file our Form 10-K. Accordingly, you should not place undue reliance upon these preliminary results.
2. The Company has presented certain specified financial results on a pro forma basis as it believes it provides more meaningful information to investors. Financial information presented on a pro forma basis gives effect to the business combinations and the financing and other transactions related thereto as if they had been completed on January 1, 2021.
Contacts
ARCHAEA
Investors and Media
Megan Light
mlight@archaea.energy
346-439-7589
Blake Schreiber
bschreiber@archaea.energy
346-440-1627
