OPAL Fuels Inc. (formerly ArcLight Clean Transition Corp. II) — Q2 2022 Form 10-Q
Business context and reporting period
This filing covers the quarter and six months ended June 30, 2022. The reported financial statements are for ArcLight, a special-purpose acquisition company (SPAC), before its July 21, 2022 business combination with OPAL Fuels. They do not report OPAL Fuels’ operating results; the filing says ArcLight had no operating revenue or operations before the transaction.
The business combination closed after quarter-end. ArcLight became a Delaware corporation named OPAL Fuels Inc.; its Class A shares began trading as OPAL and warrants as OPALW. The transaction included substantial shareholder redemptions and a PIPE investment.
Financial results and liquidity
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Operating revenue | $0 | $0 |
| General and administrative expense | $1.734 million | $3.125 million |
| Net income | $3.287 million | $7.173 million |
| Net income per share | $0.08 | $0.18 |
| Net cash used in operating activities | Not presented for the quarter | $592,399 |
- Net income was largely driven by noncash gains from the decrease in warrant-liability fair value: $4.325 million for Q2 and $9.577 million for the first half. The first-half result also included $440,421 of gains on trust investments and a $279,890 gain on settlement of underwriting fees. These results are not a measure of OPAL Fuels’ operating profitability or margins.
- At June 30, cash was $219,127, versus $811,526 at year-end 2021; management reported working capital of approximately $662,000. Trust-account investments were $311.616 million, largely designated for the transaction and redemptions, rather than ordinary operating liquidity.
- Total liabilities were $22.516 million, including $16.219 million of derivative warrant liabilities and $6.193 million of deferred legal fees. The balance sheet reported a $21.650 million shareholders’ deficit and $311.516 million of redeemable Class A shares as temporary equity. No long-term debt obligations were reported as of June 30. The filing also discloses a $1 million non-interest-bearing sponsor promissory note entered into in May; its funding and balance-sheet treatment are not clearly explained in the supplied filing text.
Material changes versus the prior comparable period
Q2 2022 net income of $3.287 million contrasted with a $11.616 million net loss in Q2 2021. For the first half of 2022, net income of $7.173 million contrasted with a $11.935 million net loss for January 13–June 30, 2021. The 2021 six-month comparison begins at the company’s inception and is not a full comparable six-month operating period. The swing mainly reflects warrant fair-value changes: a $4.325 million gain in Q2 2022 versus an $11.226 million loss in Q2 2021.
Deferred underwriting commissions of approximately $10.9 million were waived after the underwriters withdrew from the transaction. The filing recorded approximately $10.6 million through shareholders’ equity and approximately $280,000 as a gain in the statement of operations.
Outlook, transaction developments, risks and unusual items
- Transaction close: Holders redeemed 27,364,124 public shares for approximately $274.2 million, or about $10.00 per share. The PIPE generated $110.806 million of gross proceeds, below the original $125 million commitment.
- Post-quarter financing: On August 4, 2022, a subsidiary entered a secured facility providing up to $100 million of delayed-draw term loans for RNG project construction and up to $5 million for a debt-service reserve. The facility matures August 4, 2027; interest is adjusted Term SOFR plus 3.5% initially and 3.75% after conversion or September 30, 2024, as specified in the agreement.
- Potential share repurchase: A forward purchase agreement with Meteora may require the company to buy up to 2 million shares at $10.02 each six months after closing, subject to conditions. Up to $20.04 million was to be placed in escrow; Meteora may instead sell shares in the market under the agreement’s terms.
- Earnout terms: The business-combination agreement provides for two potential 5 million-share-and-unit tranches if annual EBITDA exceeds $238 million for 2023 and $446 million for 2024, respectively. These are transaction earnout thresholds, not management guidance.
- Controls: Management concluded disclosure controls were ineffective at June 30 due to a material weakness in accounting for complex share and warrant features. The weakness led to restatements of the March 2021 balance sheet and Q1 and Q2 2021 interim statements. Management reported additional review procedures and ongoing remediation efforts.
- Legal and other uncertainty: The company received two shareholder demand letters alleging omissions in the transaction registration statement, denied the allegations, and said additional claims could follow. Management stated the COVID-19 pandemic’s specific impact was not readily determinable. The filing supplies no operating forecast or formal guidance for OPAL Fuels.
Most important facts for investors to verify
- Review OPAL Fuels’ post-combination filings for actual revenue, profitability, operating cash flow, liquidity and debt; the figures in this 10-Q are for the pre-combination SPAC.
- Confirm final transaction funding and capitalization, including redemptions, PIPE proceeds, share issuances and any dilution from warrants or earnouts.
- Check the status, borrowing and covenants of the post-quarter credit facilities, and the potential cash obligation under the Meteora agreement.
- Track remediation of the material weakness and whether subsequent filings identify further accounting errors or restatements.
- Review developments in the shareholder claims and the company’s updated risk disclosures.