lfg-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

_____________________________

Commission File Number:

001-39644

_____________________________

Archaea Energy Inc.

(Exact name of registrant as specified in its charter)

_____________________________


Delaware			85-2867266
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

4444 Westheimer Road, Suite G450

Houston, Texas 77027

(Address of principal executive offices and zip code)

(346) 708-8272

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

LFG

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2022, there were 80,717,757 shares of Class A Common Stock and 39,060,418 shares of Class B Common Stock issued and outstanding.

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TABLE OF CONTENTS
		Page
Commonly Used Terms and Definitions		3

Forward-Looking Statements		5

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Archaea Energy Inc.

	Consolidated Balance Sheets – As of June 30, 2022 and December 31, 2021	6

	Consolidated Statements of Operations – Three and six months ended June 30, 2022 and 2021	7

	Consolidated Statements of Equity – Three and six months ended June 30, 2022 and 2021	8

	Consolidated Statements of Cash Flows – Six months ended June 30, 2022 and 2021	10

	Notes to Unaudited Consolidated Financial Statements	11

	Aria Energy LLC (Predecessor)

	Consolidated Statement s of Operations – Three and six months ended June 30, 2021	33

	Consolidated Statement s of Comprehensive Income – Three and six months ended June 30, 2021	34



	Consolidated Statement of Cash Flows – Six months ended June 30 , 2021	35

	Notes to Unaudited Consolidated Financial Statements	36

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Mine Safety Disclosures	54

Item 5.	Other Information	54

Item 6.	Exhibits	55

	SIGNATURES	56

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Commonly Used Terms and Definitions

Unless the context otherwise requires, the terms “Archaea” and the “Company” refer to Archaea Energy Inc. and its consolidated subsidiaries. In addition, the following company or industry-specific terms and abbreviations are used throughout this Quarterly Report on Form 10-Q (this “Report”):

Archaea Merger: The transactions executed pursuant to the Archaea Merger Agreement

Archaea Merger Agreement: The Business Combination Agreement, dated April 7, 2021, as subsequently amended, pursuant to which, among other things, RAC acquired Legacy Archaea

Aria: Aria Energy LLC, a Delaware limited liability company, and its subsidiaries

Aria Holders: The members of Aria immediately prior to the Closing

Aria Merger: The transactions executed pursuant to the Aria Merger Agreement

Aria Merger Agreement: The Business Combination Agreement, dated as of April 7, 2021, as subsequently amended, pursuant to which, among other things, RAC acquired Aria

Atlas: Atlas Point Energy Infrastructure Fund, LLC, a Delaware limited liability company

Business Combination Agreements: The Aria Merger Agreement and the Archaea Merger Agreement

Business Combinations: The transactions executed pursuant to the Business Combination Agreements

CARB: California Air Resource Board

Class A Common Stock: Class A Common Stock, par value $0.0001 per share, of the Company

Class A Opco Units: Class A Units of Opco

Class B Common Stock: Class B Common Stock, par value $0.0001 per share, of the Company

Closing: The closing of the Business Combinations

Closing Date: The closing date of the Business Combinations, which was September 15, 2021

Environmental Attributes: Federal, state and local government incentives in the United States, provided in the form of RINs, RECs, RTCs, LCFS credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy

EPA: The U.S. Environmental Protection Agency

GAAP: Accounting principles generally accepted in the United States of America

INGENCO: NextGen Power Holdings LLC and its subsidiaries

Initial Public Offering: RAC’s initial public offering, which was consummated on October 26, 2020

Legacy Archaea: Archaea Energy LLC, a Delaware limited liability company, and its subsidiaries

Legacy Archaea Holders: The members of Legacy Archaea immediately prior to the Closing

LCFS: Low Carbon Fuel Standard

LFG: Landfill gas

Lightning JV: Lightning Renewables, LLC, a joint venture with Republic Services Renewable Energy, LLC

MMBtu: One million British thermal units

MWh: Megawatt hour(s)

Opco: LFG Acquisition Holdings LLC, a Delaware limited liability company, which was formerly named Rice Acquisition Holdings LLC

Private Placement Warrants: The 6,771,000 warrants originally issued to Sponsor and Atlas in a private placement that closed simultaneously with the consummation of the Initial Public Offering

RAC: Rice Acquisition Corp., prior to the consummation of the Business Combination

RECs: Renewable Energy Credits

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RINs: Renewable Identification Numbers

RNG: Renewable natural gas

RTCs: Renewable thermal certificates

SEC: U.S. Securities and Exchange Commission

Sponsor: Rice Acquisition Sponsor LLC, a Delaware limited liability company

VIE: Variable interest entity

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Forward-Looking Statements

The information in this Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “should,” “will,” “may,” “forecast,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words. Forward-looking statements may relate to expectations for future financial performance, business strategies or expectations for the Company’s business. Specifically, forward-looking statements may include statements concerning market conditions and trends, earnings, performance, strategies, prospects and other aspects of the business of the Company. Forward-looking statements are based on current expectations, estimates, projections, targets, opinions and/or beliefs of the Company, and such statements involve known and unknown risks, uncertainties and other factors.

The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to:

•the Company’s ability to successfully integrate INGENCO and other future acquisitions;

•the Company’s ability to recognize the anticipated financial, strategic and operational benefits of the Business Combinations, the INGENCO acquisition, the Lightning JV, and other future acquisitions and strategic transactions, which may be affected by, among other things, competition and the ability of the Company to grow and manage growth profitably and retain its management and key employees;

•the possibility that the Company may be adversely affected by general economic, business and/or competitive factors, including rising inflation and interest rates;

•the Company’s ability to develop and operate new projects, including the projects contemplated from the INGENCO assets and the Lightning JV;

•the reduction or elimination of government economic incentives to the renewable energy market;

•the execution of the Company’s contracting strategy and exposure to natural gas and Environmental Attribute prices for uncontracted volumes;

•delays in acquisition, financing, construction, and development of new or planned projects;

•the length of development cycles for new projects, including the design and construction processes for the Company’s projects;

•the Company’s ability to identify suitable locations for new projects;

•the Company’s dependence on landfill operators;

•existing regulations and changes to regulations and policies that affect the Company’s operations;

•decline in public acceptance and support of renewable energy development and projects;

•demand for renewable energy not being sustained;

•impacts of climate change, changing weather patterns and conditions, and natural disasters;

•the ability to secure necessary governmental and regulatory approvals;

•political instability and fears or actual acts of terrorism or war, including the armed conflict in Ukraine;

•the Company’s expansion into new business lines; and

•other risks and uncertainties described in the section entitled “Risk Factors” in Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report”) or in the section entitled “Risk Factors” in Part II, Item 1A in this Report.

Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARCHAEA ENERGY INC.

Consolidated Balance Sheets

(Unaudited)


(in thousands, except shares and per share data)	June 30, 2022		December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	213,315	$	77,860
Restricted cash	21,864		15,206
Accounts receivable, net	29,841		37,010
Inventory	11,050		9,164
Prepaid expenses and other current assets	33,952		21,225
Total Current Assets	310,022		160,465
Property, plant and equipment, net	460,340		350,583
Intangible assets, net	627,223		638,471
Goodwill	29,835		29,211
Equity method investments	263,336		262,738
Operating lease right-of-use assets	4,654		—
Other non-current assets	17,113		9,721
Total Assets	$	1,712,523	$	1,451,189
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - trade	$	38,272	$	11,096
Current portion of long-term debt, net	21,568		11,378
Current portion of operating lease liabilities	923		—
Accrued and other current liabilities	63,607		46,279
Total Current Liabilities	124,370		68,753
Long-term debt, net	548,900		331,396
Derivative liabilities	52,730		67,424
Below-market contracts	135,210		142,630
Asset retirement obligations	4,830		4,677
Long-term operating lease liabilities	3,952		—
Other long-term liabilities	2,590		5,316
Total Liabilities	872,582		620,196
Commitments and Contingencies
Redeemable Noncontrolling Interests	606,608		993,301
Stockholders’ Equity
Preferred stock, $0.0001 par value; 10,000,000 authorized; none issued and outstanding	—		—
Class A Common Stock, $0.0001 par value; 900,000,000 shares authorized; 80,717,757 shares issued and outstanding as of June 30, 2022 and 65,122,200 shares issued and outstanding as of December 31, 2021	8		7
Class B Common Stock, $0.0001 par value; 190,000,000 shares authorized; 39,060,418 shares issued and outstanding as of June 30, 2022 and 54,338,114 shares issued and outstanding as of December 31, 2021	4		5
Additional paid in capital	392,118		—
Accumulated deficit	(158,797)		(162,320)
Total Stockholders’ Equity	233,333		(162,308)


Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	1,712,523	$	1,451,189

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except shares and per share data)	2022		2021		2022		2021
Revenues and Other Income
Energy revenue	$	71,235	$	3,059	$	124,151	$	3,059
Other revenue	3,215		2,068		4,428		3,722
Amortization of intangibles and below-market contracts	2,769		—		5,537		—
Total Revenues and Other Income	77,219		5,127		134,116		6,781
Equity Investment Income, Net	2,693		—		4,122		—
Cost of Sales
Cost of energy	46,699		3,148		75,278		3,148
Cost of other revenues	2,317		1,199		3,940		2,360
Depreciation, amortization and accretion	13,730		886		26,219		935
Total Cost of Sales	62,746		5,233		105,437		6,443
General and administrative expenses	18,883		7,884		45,236		11,042
Operating Income (Loss)	(1,717)		(7,990)		(12,435)		(10,704)
Other Income (Expense)
Interest expense, net	(3,712)		(13)		(6,366)		(19)
Gain (loss) on warrants and derivative contracts	38,095		—		18,180		—
Other income (expense)	87		73		202		294
Total Other Income (Expense)	34,470		60		12,016		275
Income (Loss) Before Income Taxes	32,753		(7,930)		(419)		(10,429)
Income tax expense	129		—		129		—
Net Income (Loss)	32,624		(7,930)		(548)		(10,429)
Net income (loss) attributable to nonredeemable noncontrolling interests	—		(168)		—		(254)
Net income (loss) attributable to Legacy Archaea	—		(7,762)		—		(10,175)
Net income (loss) attributable to redeemable noncontrolling interests	10,674		—		(4,071)		—
Net Income (Loss) Attributable to Class A Common Stock	$	21,950	$	—	$	3,523	$	—
Net income (loss) per Class A Common Stock:
Net income (loss) – basic (1)	$	0.27	$	—	$	0.05	$	—
Net income (loss) – diluted (1)	$	(0.18)	$	—	$	(0.12)	$	—
Weighted average shares of Class A Common Stock outstanding:
Basic (1)	80,522,737		—		73,488,555		—
Diluted (1)	83,445,455		—		76,203,753		—

_________________________________________

(1) Class A Common Stock is outstanding beginning September 15, 2021 due to the reverse recapitalization transaction as described in “Note 4 - Business Combinations and Reverse Recapitalization.”

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.

Consolidated Statements of Equity

(Unaudited)


			Total Equity
							Total Stockholders’ Equity
(in thousands)	Redeemable Noncontrolling Interests		Members’ Equity		Members’ Accumulated Deficit		Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Accumulated Deficit		Nonredeemable Noncontrolling Interests		Total Equity
Balance - December 31, 2021	$	993,301	$	—	$	—	$	7	$	5	$	—	$	(162,320)	$	—	$	(162,308)

Warrant exercises	—		—		—		—		—		1,555		—		—		1,555
Exchange of Class A Opco Units and Class B Common Stock for Class A Common Stock	(317,827)		—		—		1		(1)		317,827		—		—		317,827
Deferred tax impacts from exchange for Class A Common Stock transactions	—		—		—		—		—		780		—		—		780
Share-based compensation expense	—		—		—		—		—		8,923		—		—		8,923
Shares withheld for taxes on net settled awards	—		—		—		—		—		(1,762)		—		—		(1,762)
Net income (loss)	(4,071)		—		—		—		—		—		3,523		—		3,523

Adjustment of redeemable noncontrolling interests to redemption amount	(64,795)		—		—		—		—		64,795		—		—		64,795
Balance - June 30, 2022	$	606,608	$	—	$	—	$	8	$	4	$	392,118	$	(158,797)	$	—	$	233,333


			Total Equity
							Total Stockholders’ Equity
(in thousands)	Redeemable Noncontrolling Interests		Members’ Equity		Members’ Accumulated Deficit		Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Accumulated Deficit		Nonredeemable Noncontrolling Interests		Total Equity
Balance - December 31, 2020	$	—	$	34,930	$	(4,156)	$	—	$	—	$	—	$	—	$	717	$	31,491
Share-based compensation expense	—		178		—		—		—		—		—		—		178
Net income (loss)	—		—		(10,175)		—		—		—		—		(254)		(10,429)
Members’ equity contributions	—		70		—		—		—		—		—		—		70
Balance - June 30, 2021	$	—	$	35,178	$	(14,331)	$	—	$	—	$	—	$	—	$	463	$	21,310

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.

Consolidated Statements of Equity

(Unaudited)


			Total Equity
							Total Stockholders' Equity
(in thousands)	Redeemable Noncontrolling Interest		Members' Equity		Members' Accumulated Deficit		Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Accumulated Deficit		Nonredeemable Noncontrolling Interests		Total Equity
Balance - March 31, 2022	$	861,448	$	—	$	—	$	8	$	4	$	122,075	$	(180,747)	$	—	$	(58,660)
Warrant exercises	—		—		—		—		—		1,555		—		—		1,555
Exchange of Class A Opco Units and Class B Common Stock for Class A Common Stock	(3,135)		—		—		—		—		3,135		—		—		3,135
Deferred tax impacts from exchange for Class A Common Stock transactions	—		—		—		—		—		780		—		—		780
Share-based compensation expense	—		—		—		—		—		3,170		—		—		3,170
Shares withheld for taxes on net settled awards	—		—		—		—		—		(976)		—		—		(976)

Net income (loss)	10,674		—		—		—		—		—		21,950		—		21,950
Adjustment of redeemable noncontrolling interest to redemption amount	(262,379)		—		—		—		—		262,379		—		—		262,379


Balance - June 30, 2022	$	606,608	$	—	$	—	$	8	$	4	$	392,118	$	(158,797)	$	—	$	233,333


			Total Equity
							Total Stockholders' Equity
(in thousands)	Redeemable Noncontrolling Interest		Members' Equity		Members' Accumulated Deficit		Class A Common Stock		Class B Common Stock		Additional Paid-in Capital		Accumulated Deficit		Nonredeemable Noncontrolling Interests		Total Equity
Balance - March 31, 2021	$	—	$	35,032	$	(6,569)	$	—	$	—	$	—	$	—	$	631	$	29,094
Share-based compensation expense	—		146		—		—		—		—		—		—		146
Net income (loss)	—		—		(7,762)		—		—		—		—		(168)		(7,930)

Balance - June 30, 2021	$	—	$	35,178	$	(14,331)	$	—	$	—	$	—	$	—	$	463	$	21,310

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
(in thousands)	2022		2021
Cash flows from operating activities
Net income (loss)	$	(548)	$	(10,429)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation, amortization and accretion expense	26,219		935
Amortization of debt issuance costs	1,404		14
Amortization of intangibles and below-market contracts	(2,206)		—
Bad debt expense	76		9
Return on investment in equity method investments	8,910		—
Equity in earnings of equity method investments	(4,122)		—
Total (gains) losses on derivatives, net	(18,180)		—
Net cash received (paid) in settlement of derivatives	(200)		—
Forgiveness of Paycheck Protection Loan	—		(201)
Share-based compensation expense	8,923		179

Changes in operating assets and liabilities:
Accounts receivable	7,129		441
Inventory	(1,886)		—
Prepaid expenses and other current assets	2,737		(618)
Accounts payable - trade	17,974		1,961
Accrued and other liabilities	11,458		180
Other non-current assets	(969)		—
Other long-term liabilities	(27)		19
Net cash provided by (used in) operating activities	56,692		(7,510)
Cash flows from investing activities
Acquisition of Aria, net of cash acquired	1,876		—
Acquisition of assets and businesses	(7,013)		(31,527)
Additions to property, plant and equipment and progress payments	(127,889)		(56,609)

Contributions to equity method investments	(8,027)		—
Return of investment in equity method investments	7,422		—
Net cash used in investing activities	(133,631)		(88,136)
Cash flows from financing activities
Borrowings on line of credit agreement	—		8,578
Repayments on line of credit agreement	—		(1,522)
Proceeds from long-term debt, net of issuance costs	225,339		123,641
Repayments of long-term debt	(2,875)		(314)

Payment of acquisition contingent consideration	(1,650)		—
Capital contributions	—		70


Taxes paid on net share settled stock-based compensation awards	(1,762)		—

Net cash provided by financing activities	219,052		130,453
Net change in cash, cash equivalents and restricted cash	142,113		34,807
Cash, cash equivalents and restricted cash - beginning of period	93,066		1,496
Cash, cash equivalents and restricted cash - end of period	$	235,179	$	36,303

Supplemental cash flow information
Cash paid for interest	$	8,834	$	2,333
Non-cash investing activities
Accruals of property, plant and equipment and biogas rights incurred but not paid	$	36,499	$	10,965

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Organization and Description of Business

Archaea Energy Inc. (“Archaea” or the "Company"), a Delaware corporation (formerly named Rice Acquisition Corp.), is one of the largest RNG producers in the U.S., with an industry-leading RNG platform primarily focused on capturing and converting waste emissions from landfills and livestock farms into low-carbon RNG and electricity. As of June 30, 2022, Archaea owns, through wholly-owned entities or joint ventures, a diversified portfolio of 32 LFG recovery and processing facilities across 18 states, including 13 operated facilities that produce pipeline-quality RNG and 19 LFG to renewable electricity production facilities, including one non-operated facility and one facility that is not operational.

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 grant the rights to utilize gas produced at their sites and to construct and operate facilities on their sites to produce RNG and renewable electricity.

On September 15, 2021, Archaea consummated the business combinations pursuant to (i) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Aria Merger Agreement”), by and among Rice Acquisition Corp., a Delaware corporation (“RAC”), Rice Acquisition Holdings LLC, a Delaware limited liability company and direct subsidiary of RAC (“RAC Opco”), LFG Intermediate Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Opco (“RAC Intermediate”), LFG Buyer Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Intermediate (“RAC Buyer”), Inigo Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Aria Merger Sub”), Aria Energy LLC, a Delaware limited liability company (“Aria”), and Aria Renewable Energy Systems LLC, a Delaware limited liability company, pursuant to which, among other things, Aria Merger Sub was merged with and into Aria, with Aria surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Aria Merger Agreement, the “Aria Merger”), and (ii) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Archaea Merger Agreement”), by and among RAC, RAC Opco, RAC Intermediate, RAC Buyer, Fezzik Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Archaea Merger Sub”), Archaea Energy LLC, a Delaware limited liability company, and Archaea Energy II LLC, a Delaware limited liability company (“Legacy Archaea”), pursuant to which, among other things, Archaea Merger Sub was merged with and into Legacy Archaea, with Legacy Archaea surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Archaea Merger Agreement, the “Archaea Merger” and, together with the Aria Merger, the “Business Combinations”). Legacy Archaea was determined to be the accounting acquirer of the Business Combinations, and Aria was determined to be the predecessor to the Company. Unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer, for periods prior to the completion of the Business Combinations, to Legacy Archaea and its subsidiaries and, for periods upon or after the completion of the Business Combinations, to Archaea Energy Inc. and its subsidiaries, including Legacy Archaea and Aria Energy LLC.

Archaea has retained its “up-C” structure, whereby (i) all of the equity interests in Aria and Legacy Archaea are held indirectly by Opco through RAC Buyer and RAC Intermediate, (ii) Archaea’s only assets are its equity interests in Opco, and (iii) Sponsor, Atlas, the RAC independent directors, the Legacy Archaea Holders and the Aria Holders own or owned economic interests directly in Opco. In connection with the consummation of the Business Combinations, Rice Acquisition Holdings LLC was renamed LFG Acquisition Holdings LLC. In accordance with Accounting Standards Codification (“ASC”) 810 - Consolidation, Opco is considered a VIE with Archaea as its sole managing member and primary beneficiary. As such, Archaea consolidates Opco, and the remaining unitholders that hold economic interests directly in Opco are presented as redeemable noncontrolling interests on the Company’s financial statements.

Subsequent to the Business Combinations, transactions impacting the ownership of Class A Opco Units resulted from warrant exercises, repurchases from Aria Renewable Energy Systems LLC, redemption of certain other Class A Opco Units in exchange for Class A Common Stock, and issuances related to vested restricted stock units (“RSUs”). The ownership structure of Opco upon closing of the Business Combinations and as of June 30, 2022, which gives rise to the redeemable noncontrolling interest at Archaea, is as follows:

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ARCHAEA ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	June 30, 2022			September 15, 2021
Equity Holder	Class A Opco Units	% Interest		Class A Opco Units	% Interest
Archaea	80,717,757	67.4	%	52,847,195	45.9	%
Total controlling interests	80,717,757	67.4	%	52,847,195	45.9	%
Aria Holders	—	—	%	23,000,000	20.0	%
Legacy Archaea Holders	33,350,385	27.8	%	33,350,385	29.0	%
Sponsor, Atlas and RAC independent directors	5,710,033	4.8	%	5,931,350	5.2	%
Total redeemable noncontrolling interests	39,060,418	32.6	%	62,281,735	54.1	%
Total	119,778,175	100.0	%	115,128,930	100.0	%

Holders of Class A Opco Units other than Archaea have the right (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.

NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

These unaudited, interim, consolidated financial statements and notes are prepared in accordance with GAAP for interim reporting and in accordance with the rules and regulations of the SEC. These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the results for the interim periods presented. The Company’s accounting policies conform to GAAP and have been consistently applied in the presentation of financial statements. The Company’s consolidated financial statements include all wholly-owned subsidiaries and all VIEs with respect to which the Company determined it is the primary beneficiary. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the 2021 Annual Report.

The Archaea Merger with RAC was accounted for as a reverse recapitalization with Legacy Archaea deemed the accounting acquirer, and therefore, there was no step-up to fair value of any RAC assets or liabilities and no goodwill or other intangible assets were recorded. The Aria Merger was accounted for using the acquisition method of accounting with Aria deemed to be the acquiree for accounting purposes. The Company also determined that Aria is the Company’s predecessor and therefore has included the historical financial statements of Aria as predecessor beginning on page 32.

Principles of Consolidation

As the Company completed its Business Combinations on September 15, 2021, these unaudited consolidated financial statements for the three and six months ended June 30, 2022 and as of December 31, 2021 include the assets, liabilities and results of operations of the combined results of the businesses of Legacy Archaea and Aria as operated by the Company after the Business Combinations; whereas, the unaudited results of operations for the three and six months ended June 30, 2021 are those of Legacy Archaea, the accounting acquirer.

The Company has determined that Opco is a VIE and the Company is the primary beneficiary. Therefore, the Company consolidates Opco, and ownership interests of Opco not owned by the Company are reflected as redeemable noncontrolling interests due to certain features of the redemption right. See “Note 15 - Nonredeemable and Redeemable Noncontrolling Interest and Stockholders’ Equity.” Entities that are majority-owned by Opco are consolidated. Certain investments in entities are accounted for as equity method investments and included separately in the Company’s consolidated balance sheets.

All intercompany balances and transactions have been eliminated.

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ARCHAEA ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements.

Revenue Recognition

The Company generates revenues from the production and sales of RNG, Power, and associated Environmental Attributes, as well as from the performance of other landfill energy operations and maintenance (“O&M”) services. The Company also manufactures and sells customized pollution control equipment and performs associated maintenance agreement services. Prior to the January 1, 2022 adoption of ASC 842 - Leases as discussed in “Note 3 - Recently Issued and Adopted Accounting Standards,” a portion of the Company’s revenue was accounted for under ASC 840 - Leases and a portion under ASC 606 - Revenue from Contracts with Customers based on requirements of GAAP. Under ASC 840, lease revenue is recognized generally upon delivery of RNG and electricity. Under ASC 606, revenue is recognized when (or as) the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service either when (or as) its customer obtains control of the product or service, including RNG, electricity and their related Environmental Attributes. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products or services. Based on the terms of the related sales agreements, the amounts recorded under ASC 840 as lease revenue are generally consistent with revenue recognized under ASC 606. After the January 1, 2022 adoption of ASC 842, revenue is accounted for solely under ASC 606 as our facilities no longer meet the definition of leased assets under ASC 842.

Business Combinations

For business combinations that meet the accounting definition of a business, the Company determines and allocates the purchase price of an acquired company to the tangible and intangible assets acquired, the liabilities assumed, and noncontrolling interest, if applicable, as of the date of acquisition at fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and can include estimates of future biogas production, commodity prices, operating and development costs, and a risk-adjusted discount rate. Revenues and costs of the acquired companies are included in the Company’s operating results from the date of acquisition.

The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, and these estimates and assumptions are inherently uncertain and subject to refinement during the measurement period not to exceed one year from the acquisition date. As a result, any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined. The Company’s acquisitions are discussed in “Note 4 - Business Combinations and Reverse Recapitalization.”

NOTE 3 – Recently Issued and Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous generally accepted accounting principles and the new requirements under Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases with a term greater than 12 months classified as operating leases under previous GAAP.

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ARCHAEA ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Upon adoption of Topic 842 as of January 1, 2022, the Company recognized $5.1 million of right-of-use (“ROU”) assets and lease liabilities on its consolidated balance sheet related to operating leases existing on the adoption date. Prior period financial statements were not adjusted. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations or consolidated statement of cash flows. See “Note 11 - Leases” for additional information.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance for a limited period of time to ease the transition from the London Inter-Bank Offered Rate (“LIBOR”) to an alternative reference rate. The guidance intends to address certain concerns relating to accounting for contract modifications and hedge accounting. These optional expedients and exceptions to applying GAAP, assuming certain criteria are met, are allowed through December 31, 2022. The Company is currently evaluating the provisions of this update and has not yet determined whether it will elect the optional expedients. The Company does not expect the transition to an alternative rate to have a material impact on its business, operations or liquidity.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires all entities to recognize and measure contract assets and liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The guidance aims to improve comparability for revenue contracts with customers by providing consistent recognition and measurement guidance for all revenue contracts with customers. ASU 2021-08 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company will adopt this ASU as of January 1, 2023 and does not expect the adoption to have a material impact on its financial condition, results of operations, or cash flows.

NOTE 4 – Business Combinations and Reverse Recapitalization

Formation of the Lightning JV

On May 5, 2022, the Company and Republic Services, Inc. (“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. The Company holds a 60% ownership interest in the Lightning JV, and the Company’s initial capital funding of $222.5 million was paid into the Lightning JV on July 5, 2022. Concurrent with the initial funding, the Lightning JV completed the acquisition of landfill gas rights and underlying assets at an additional Republic-owned landfill for $37.9 million, bringing the total number of RNG development projects within the Lightning JV to 40. The Lightning JV did not conduct any activities impacting the financial results of the Company for the three and six months ended June 30, 2022.

Reverse Recapitalization

Legacy Archaea is considered the accounting acquirer of the Business Combinations because the Legacy Archaea Holders have the largest portion of the voting power of the Company and Legacy Archaea’s senior management comprise the majority of the executive management of the Company. Additionally, the Legacy Archaea Holders appointed the majority of board members exclusive of the independent board members. The Archaea Merger represents a reverse merger and is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, RAC is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Archaea Merger is treated as the equivalent of Legacy Archaea issuing shares for the net assets of RAC, accompanied by a recapitalization. The net assets of RAC were stated at historical cost, no goodwill or other intangible assets were recorded.

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ARCHAEA ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Aria Merger

As discussed in “Note 1 - Organization and Description of Business,” Aria was acquired as part of the Business Combinations consummated on September 15, 2021 to complement the Company’s existing RNG assets and for its operational expertise in the renewable gas industry. The Aria Merger represented an acquisition of a business and was accounted for using the acquisition method, whereby all of the assets acquired and liabilities assumed were recognized at their fair value on the acquisition date, with any excess of the purchase price over the estimated fair value recorded as goodwill.

As of June 30, 2022, the Company has completed the allocation of the consideration. During the six months ended June 30, 2022, the final consideration adjustment of $1.9 million was determined and received from the Aria Holders which had the effect of reducing goodwill. In addition, other purchase price adjustments of $2.5 million in the aggregate were recorded for the six months ended June 30, 2022 which had the effect of increasing goodwill.

NOTE 5 – Revenues

The following table disaggregates revenue by significant product type and operating segment for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Revenue by Product Type
RNG, including RINs and LCFS credits	$	55,086	$	821	$	89,883	$	821
RNG O&M service (1)	242		—		532		—
Power, including RECs	14,893		2,238		31,759		2,238
Power O&M service (1)	953		—		1,851		—
Equipment and associated services	2,808		2,068		4,022		3,722
Other (1)	468		—		533		—
Total	$	74,450	$	5,127	$	128,580	$	6,781


Revenue by Operating Segment
RNG	$	55,328	$	821	$	90,415	$	821
Power	15,846		2,238		33,610		2,238
Corporate and Other	3,276		2,068		4,555		3,722
Total	$	74,450	$	5,127	$	128,580	$	6,781

_____________________________________________

(1) Includes revenues earned from the Company’s joint ventures, see “Note 20 - Related Party Transactions.”

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ARCHAEA ENERGY INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Contract Assets and Contract Liabilities

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from equipment sales projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to customers, as the amounts cannot be billed under the terms of the contracts. There were no credit allowances for contract assets as of June 30, 2022 or December 31, 2021. Contract liabilities from contracts arise when amounts invoiced to customers exceed revenues from equipment sales recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from customers on certain equipment contracts. Contract liabilities decrease as revenue is recognized from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when such revenue is expected to be recognized.

Contract assets and liabilities consisted of the following as of June 30, 2022 and December 31, 2021:


(in thousands)	June 30, 2022		December 31, 2021
Contract assets (included in Prepaid expenses and other current assets)	$	168	$	87
Contract liabilities (included in Accrued and other current liabilities)	$	(270)	$	(505)

The decrease in contract liabilities during the six months ended June 30, 2022 was primarily due to the timing of milestone billings along with revenues recognized that were included in December 31, 2021 contract liabilities.

Costs to Obtain Customer Contracts

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer when the economic benefit and amortization period exceeds one year. Only those costs that are directly related to the acquisition of customer contracts and that would not have been incurred if the customer contract had not been obtained are deferred as assets. As of June 30, 2022, $2.5 million was recorded for costs to obtain customer contracts and included in other non-current assets on the Company’s consolidated balance sheet. Amortization will begin when the related contract commences.

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

Remaining unsatisfied performance obligations as of June 30, 2022 relate to certain of the Company’s RNG and Environmental Attributes contracts. The Company applies the optional exemptions in ASC 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations. Firm contracts for fixed-price, fixed-quantity sales of RNG and Environmental Attributes based on minimum contractual volumes are reflected in the table below when their original expected term is in excess of one year. The following table summarizes the revenue the Company expects to recognize over next 21 years on these firm sales contracts as of June 30, 2022:


(in thousands)
Remainder of 2022	$	42,026
2023-2024	262,001
2025-2026	429,996
2027-2028	441,067
2029-2030	434,641
2031-2032	418,453