Archaea Energy Inc. Class A

Good morning and welcome to the Arkea Energy third quarter 2021 earnings column webcast. This event is being recorded. If you'd like to ask a question after the company's presentation, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. I would now like to turn the call over to Megan Light, Vice President of Investor Relations. To begin, please go ahead.

Thank you, and good morning, everyone. Welcome to Arkea Energy, Inc.' 's third quarter 2021 earnings conference call. With me today are Nick Stork, Arkea's chief executive officer, and Eric Javity, Arkea's chief financial officer. Arkea released financial and operating results for the third quarter 2021 yesterday afternoon, and those results are available on the investor relations section of our website at ArkeaEnergy.com. The presentation and access to the webcast for this call are also available on our website, and after completion of this call, a replay will be available for 12 months. Before we begin, I'd like to remind you that our remarks on this call, including answers to your questions, contain forward-looking statements which involve risks, uncertainties, and assumptions. Forward-looking statements are not a guarantee of performance, and actual results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are described on slide 2 of our presentation. These forward-looking statements reflect our views as of the date of this call, and ARKEA does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain discussion of certain non-GAAP measures, including but not limited to combined financial results and adjusted EBITDA. A definition of non-GAAP measures used and a reconciliation of these measures to the nearest GAAP measure is included in the appendix to the presentation. We believe the non-GAAP measures presented provide relevant and useful information in evaluating the effectiveness of our operating performance in a manner that is consistent with management's evaluation of financial and operating performance. Non-GAAP financial measures should be considered in addition to the results prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP results. The call agenda is shown on slide three. Nick will begin today's call by providing an overview of ARKEA, reviewing our strategic priorities, and highlighting our competitive positioning. Eric will then review our financial results for the third quarter and discuss full year guidance. We will then open the call for questions. And now, I will turn the call over to Nick Stork, ARKEA's Chief Executive Officer.

Good morning, and thank you for being here for ARKEA's inaugural quarterly earnings call. Given our relatively short tenure as a public company, we thought it'd be helpful to spend some time today providing a more detailed overview of the company, progress toward our strategic goals, and our competitive positioning. We're excited about what we're building at Arkea and the opportunities ahead of us. Let's look at slide five. As you all know, we closed the previously announced business combinations between Rice Acquisition Corp., or RAC, Arkea Energy LLC, and Aria Energy LLC on September 15th. The combined company was renamed Arkea Energy Inc., and our stock began trading under the New York Stock Exchange under the ticker LFG on September 6th. We appreciate the shareholders' support leading into the special meeting and continuing after the transactions close. Arkea is one of the largest and fastest-growing producers of R&G in the U.S., and we are on track to be the largest producer in the U.S. in 2022. Our businesses focus on producing RNG from landfill gas, which is one of the lowest cost, most predictable, and longest-term feedstocks used to produce renewable energy. We have an industry-leading platform of over two dozen operating sites, including 10 landfill gas to RNG facilities and 17 landfill gas to electric facilities. And we have a substantial runway for future growth, with approximately 35 development projects in our portfolio today. and this includes RNG upgrades, electric RNG conversions, and greenfield RNG projects. This backlog of projects alone gives us a multi-year runway of low-risk growth. We have about 250 employees, including approximately 100 world-class plant operators around the country who have a strong record of safety and environmental compliance. We also have a gas processing team made of what we believe to be the best minds in the industry. And a senior leadership team with extensive experience in biogas and across the energy industry. We've been intently preparing to integrate the company since the transaction was announced and to execute on our growth plans and strategic priorities. And those efforts have accelerated since the close. RK's story is an execution story, and we have positioned ourselves to hit the ground running and to deliver on our strategic priorities. Turning to slide six, I'd like to review our strategic priorities. First, we are dedicated to optimizing our existing asset base. to increase the Utah generating power of those assets. As we continue to assess the operating performance of our facilities, we've identified additional meaningful opportunities to increase uptime, methane recovery, and gas flows into our plants. As a result, we have a handful more upgrades and conversion opportunities in our development plan today than we previously anticipated. We intend to upgrade almost all of our operating RNG facilities with the goal of increasing plant uptime and methane recovery, and in some cases, dramatically improving plant capacity, which will increase the amount of RNG produced from these facilities. We intend to capture every molecule that we can from existing plants. Upgrade projects range in scope from optimizing equipment to building new plants on existing operating sites, and we expect a meaningful amount of uplift from these projects. We're also working with landfill owners at several sites to create increase the amount of landfill gas flowing into our plants, which will enable us to produce more RNG, and we intend to add additional RNG facilities by converting the majority of our landfill gas to electric facilities over time. RNG is the highest value used for landfill gas, particularly with our capital efficient approach. Some of our electric facilities have substantial gas flows, and we expect electric RNG conversions to be a material contributor to EVA drug growth in the coming years. Beyond our existing asset base, we also have the right to develop a number of greenfield R&G projects. Our next project scheduled to come online, Project ASAI, is nearing completion. ASAI is an R&G plant under construction at the Keystone Sanitary Landfill in Dunmore, Pennsylvania, and expected to be the world's largest R&G facility when completed. ASAI is a marquee project for us, one that highlights elements of our go-forward approach to project development and construction. has been a key focus of our team's efforts in the third quarter and continuing into the fourth quarter. We have installed all major equipment for the project, and we are in the late stages of commissioning. We expect Project DECI to be completed in the first quarter of 2022, approximately two years after signing a development agreement. And that development timeline is a major achievement in our industry. We expect a ramp-up period of several months after completion and a run rate production between 4 and 5.5 million MMBTU of RNG annually. which equates to a very attractive build multiple of approximately three times on the estimated run rate EBITDA contribution from the project. Beyond project design, we have additional greenfield development projects of various sizes in our development portfolio. Our development plan will require execution on a scale that has never been done in the R&G industry before. We are confident in our ability to execute on our development plan, and today we see timing as the most meaningful driver of uncertainty in our model. The settlement elements remain outside of our control, like permitting, zoning, pipeline interconnection, that may impact project timing. However, we are extremely confident that the long-term earnings power of our project backlog is locked in. We have been building out teams, processes, and the supply chain to facilitate execution, and that's our focus on removing the development risks to the extent that we can. We're making significant investments in equipment and people, to help facilitate rapid development over the next two to three years and beyond. And we have additional work to do in this area as we trend towards internalization of our supply chain. We are also committed to increasing our project development portfolio beyond the approximately 35 projects I mentioned earlier. We've recently added five projects to our portfolio, We executed an agreement that grants us the rights to develop a new R&G facility in Pennsylvania, and we acquired four operating landfill gas for electric projects that we intend to convert to R&G facilities over time. While we intend to grow our portfolio development projects primarily through gas rights agreements, we may also strategically acquire assets when we're able to do so in a disciplined way and an attractive process. Our recent acquisition is a great example. We acquired these facilities at an expected pro forma multiple about three and a half times, including both acquisition costs and the total capital cost we estimate to spend to convert these projects to RNG facilities. Beyond the five new projects, our pipeline of development opportunities remains robust, and our team is as busy as ever working to sign additional gas rights agreements with landfill owners. The total market opportunity is significant. Today, only 13% convert gas to RNG, while over half of the landfills have no landfill gas to electric or RNG projects. We believe there are 300 to 500 landfills that are ideal for RNG development based on flows and location, and several hundred more candidates that we expect to be attractive at our future development costs, providing a significant runway for long-term growth. Another pillar to our value proposition is our differentiated commercial strategy, which relies on securing long-term fixed-price contracts with creditworthy counterparties for the majority of our RNG production volumes. We expect to lock up at least 70% of our RNG volumes under long-term contracts, with terms of at least 10 to 20 years. Doing so would significantly reduce our exposure to market pricing, which can be volatile, and increase the predictability of our project returns and financial results. Project ASAI is not only a great example of our approach to project development and construction, but also to a commercial strategy, with 80% of the projected volumes contracted under long-term fixed-price contracts. We made additional progress toward our contracting goals this week when we signed a 21-year fixed price contract with Northwest Natural with environmental attributes related to up to 1 million MMBTU of our RNG production annually. This is the first contract in our portfolio with a U.S. natural gas utility, and it's a testament to the growing voluntary market for RNG demand, which is driven by decarbonization targets. This contract begins next year and ramps up to the full annual quantity of 1 million MMBTU in 2025. We look forward to a multi-decade partnership with Northwest Natural. We anticipate the secular shift to a more circular, sustainable economy will drive additional growth and demand for long-term contracted R&D volumes. And we expect additional commercial progress in the near term. Our target customers are entities that use natural gas in their infrastructure today for power, thermal, or industrial or other uses. And these that want to or are required to decarbonize and reduce their emissions by displacing conventional natural gas. I'll turn now to slide seven. I'll walk through why I believe Archaea is competitively positioned to secure additional development projects and commercial contracts. First, our team's extensive knowledge and expertise. As I mentioned earlier, we have an incredible gas processing team, and we believe we're the only R&D developer with in-house gas processing Our understanding of gas separation at the molecular level enabled us to build plants with a high tolerance for variance in inlet gas conditions. We have incredible people throughout the organization, and our leadership team has decades of experience in biogas, RNG, and across the energy industry. Additionally, I have experience as a landfill owner, which provides a unique understanding of the concerns and priorities of long-term landfill partners. Landfill owners can trust that we have the ability and track record be able to reliably build and operate projects, converting landfill gas from a cost center to a profit center, and providing them with stable long-term cash flow streams. Second, we are developing a standardization and modularization approach to project development and construction. We are developing what we call RTO version 1 design for RNG projects, which consists of standard plant design on skids of various sizes for various gas flows with largely interchangeable subcomponents. Like it's been hours talking about the design, its technical advantages, and the revolutionary impact we expect to have on the industry, we'll do a deeper dive closer to the implementation. Today, I'll keep it to a couple of highlights. We expect the ARCA version 1 design to have industry-leading methane recovery rates, increased ease of serviceability, and ability to process a wider range of inlet gas conditions, all of which increases expected RNG production volumes. We estimate the design will cost approximately 40% less than industry averages and will enable us to construct projects faster and with lower execution risk. Our speed to market and lower execution risks are significant competitive advantages and also increase customer confidence and our ability to reliably produce their volumes. Our third competitive advantage is our scale. As I mentioned before, we are developing projects on a scale that has not been achieved before in the industry. We've been building teams, processes, and supply chains to facilitate our desired pace of project development, and we are continuing to build with the goal of being able to execute on a scale that has not been achieved in the industry before. For landfill owners, this means that we can work through our backlog of development projects faster and potentially bring their facilities online sooner. For customers, this rapid development program, combined with their 10 operating sites today, provides a great deal of commercial flexibility. We have a portfolio of R&G production that we can use to track volumes, reducing site-specific execution and operating risk for our customers. We also have flexible, uncontracted volumes in our portfolio, which means we can tailor contracts to customers' needs and timelines. The fourth major competitive advantage is our strong balance sheet. With over $400 million of liquidity as of September 30th, and cash flows expect to be generated from operations, we expect to be able to fund a substantial portion of our approximately 35 development projects. Project funding has been a source of risk in our industry due to its fragmented nature, a number of small developers, and exposure to environmental attributes that are variable priced and have political risk. Our liquidity position reduces any near-term risk of not being able to execute on a project because of lack of funding. And our commercial strategy bolsters our strong financial position by providing a stable, predictable cash flow stream that we can reinvest to grow in our business. These advantages put us in a great position to win additional business and to increase our cash flow generating ability. What we have accomplished as a company over the past few months is remarkable, and I'm proud of our team and even more excited about what we intend to accomplish going forward. And with that, I'll turn the call over to Eric Javity, our Chief Financial Officer, to discuss our financial results.