Leases, Right-of-Use Assets and Related Liabilities

9 Months Ended

Sep. 30, 2022

Leases [Abstract]

Leases, Right-of-Use Assets and Related Liabilities

Leases, Right-of-Use Assets and Related Liabilities

The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in January 2029. The lease contains an option to extend the lease which management does not reasonably expect to exercise, so it is not included in the length of the term. The Company also has one production line piece of equipment with an operating lease that expires in 2024. As of September 30, 2022, right-of-use assets under operating leases totaling $1.7 million are included in "Operating right-of use assets," and the related lease liabilities totaling $2.2 million ($0.4 million in current and $1.7 million in long-term) are included in the Consolidated Balance Sheets.

The Company also has four finance leases for land under arrangements related to NW Iowa RNG. Under these contracts, the Company leases land from dairy farmers on which it has built three anaerobic digesters, and related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas is transported from the three digester sites to a central gas upgrade system located at the fourth site that upgrades the biogas to pipeline-quality RNG for sale. These leases expire at various dates between 2031 and 2050. The Company amended one of its leases in June 2022, which the Company treated as an existing lease modification due to an increase in the price per unit, resulting in an increase of the lease liability and right-of-use-asset by $0.8 million.

Since the Company elected the practical expedient to combine lease and non-lease components, all amounts paid to the lessors under these arrangements for cow manure and non-lease services are classified as lease payments and are included in the calculation of the right-of-use assets and lease liabilities. This results in significantly higher right-of-use assets and lease liabilities than if the Company did not elect this practical expedient. As of September 30, 2022, right-of-use assets under finance leases totaling $27.0 million are included in "Finance right-of-use assets," and related lease liabilities totaling $18.5 million are included in the Consolidated Balance Sheets.

The following four tables present the (a) costs by lease category, (b) other quantitative information, and (c) future minimum payments under non-cancelable financing and operating leases as they relate to the Company’s leases (in thousands), except for weighted averages:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Finance lease cost:
Amortization of right-of-use assets (1)	$	470	$	464	$	1,395	$	930
Interest on lease liabilities (1)	423		297		948		627
Operating lease cost	139		64		416		192
Short-term lease cost	—		377		1,449		1,003
Variable lease cost (2)	—		94		951		164
Total lease cost	$	1,032	$	1,296	$	5,159	$	2,916

(1)Amortization and interest on finance lease liabilities capitalized as construction-in-progress totaled $0.3 million and $2.0 million during the three and nine months ended September 30, 2022, respectively, and nil and $0.8 million during the three and nine months ended September 30, 2021, respectively. Total capitalized amounts of $2.8 million are included in "Property, plant and equipment, net" in the Consolidated Balance Sheets related to NW Iowa RNG facilities as of September 30, 2022.

(2)Represents amounts incurred in excess of minimum payments, including payments for common area expenses under our office and research facility lease, and additional amounts due under our NW Iowa RNG leases based on the number of cows maintained by the owners above the minimum required by the contracts of the respective facilities.

	Nine Months Ended September 30,
	2022		2021
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	627	$	627
Operating cash flows from operating leases	$	431	$	192
Finance cash flows from finance leases	$	4,316	$	5,975
Right-of-use asset obtained in exchange for new finance lease liabilities	$	834	$	28,416
Right-of-use asset obtained in exchange for new operating lease liabilities	$	—	$	1,611
Weighted-average remaining lease term, finance lease (months)	208		225
Weighted-average remaining lease term, operating leases (months)	66		88
Weighted-average discount rate - finance leases (1)	10%		5%
Weighted-average discount rate - operating leases (1)	5%		5%

(1)Our leases do not provide an implicit interest rate, we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.

Year ending December 31,	Operating Leases		Finance Leases
2022 (remaining)	$	303	$	1,772
2023	528		1,576
2024	305		2,730
2025	315		1,744
2026	324		1,760
2027 and thereafter	706		30,499
Total	2,481		40,081
Less: Amounts representing present value discounts	317		21,607
Total lease liabilities	2,164		18,474
Less: current portion	430		2,125
Long-term portion	$	1,734	$	16,349

Leases, Right-of-Use Assets and Related Liabilities

Leases, Right-of-Use Assets and Related Liabilities

The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in January 2029. The lease contains an option to extend the lease which management does not reasonably expect to exercise, so it is not included in the length of the term. The Company also has one production line piece of equipment with an operating lease that expires in 2024. As of September 30, 2022, right-of-use assets under operating leases totaling $1.7 million are included in "Operating right-of use assets," and the related lease liabilities totaling $2.2 million ($0.4 million in current and $1.7 million in long-term) are included in the Consolidated Balance Sheets.

The Company also has four finance leases for land under arrangements related to NW Iowa RNG. Under these contracts, the Company leases land from dairy farmers on which it has built three anaerobic digesters, and related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas is transported from the three digester sites to a central gas upgrade system located at the fourth site that upgrades the biogas to pipeline-quality RNG for sale. These leases expire at various dates between 2031 and 2050. The Company amended one of its leases in June 2022, which the Company treated as an existing lease modification due to an increase in the price per unit, resulting in an increase of the lease liability and right-of-use-asset by $0.8 million.

Since the Company elected the practical expedient to combine lease and non-lease components, all amounts paid to the lessors under these arrangements for cow manure and non-lease services are classified as lease payments and are included in the calculation of the right-of-use assets and lease liabilities. This results in significantly higher right-of-use assets and lease liabilities than if the Company did not elect this practical expedient. As of September 30, 2022, right-of-use assets under finance leases totaling $27.0 million are included in "Finance right-of-use assets," and related lease liabilities totaling $18.5 million are included in the Consolidated Balance Sheets.

The following four tables present the (a) costs by lease category, (b) other quantitative information, and (c) future minimum payments under non-cancelable financing and operating leases as they relate to the Company’s leases (in thousands), except for weighted averages:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Finance lease cost:
Amortization of right-of-use assets (1)	$	470	$	464	$	1,395	$	930
Interest on lease liabilities (1)	423		297		948		627
Operating lease cost	139		64		416		192
Short-term lease cost	—		377		1,449		1,003
Variable lease cost (2)	—		94		951		164
Total lease cost	$	1,032	$	1,296	$	5,159	$	2,916

(1)Amortization and interest on finance lease liabilities capitalized as construction-in-progress totaled $0.3 million and $2.0 million during the three and nine months ended September 30, 2022, respectively, and nil and $0.8 million during the three and nine months ended September 30, 2021, respectively. Total capitalized amounts of $2.8 million are included in "Property, plant and equipment, net" in the Consolidated Balance Sheets related to NW Iowa RNG facilities as of September 30, 2022.

(2)Represents amounts incurred in excess of minimum payments, including payments for common area expenses under our office and research facility lease, and additional amounts due under our NW Iowa RNG leases based on the number of cows maintained by the owners above the minimum required by the contracts of the respective facilities.

	Nine Months Ended September 30,
	2022		2021
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	627	$	627
Operating cash flows from operating leases	$	431	$	192
Finance cash flows from finance leases	$	4,316	$	5,975
Right-of-use asset obtained in exchange for new finance lease liabilities	$	834	$	28,416
Right-of-use asset obtained in exchange for new operating lease liabilities	$	—	$	1,611
Weighted-average remaining lease term, finance lease (months)	208		225
Weighted-average remaining lease term, operating leases (months)	66		88
Weighted-average discount rate - finance leases (1)	10%		5%
Weighted-average discount rate - operating leases (1)	5%		5%

(1)Our leases do not provide an implicit interest rate, we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.

Year ending December 31,	Operating Leases		Finance Leases
2022 (remaining)	$	303	$	1,772
2023	528		1,576
2024	305		2,730
2025	315		1,744
2026	324		1,760
2027 and thereafter	706		30,499
Total	2,481		40,081
Less: Amounts representing present value discounts	317		21,607
Total lease liabilities	2,164		18,474
Less: current portion	430		2,125
Long-term portion	$	1,734	$	16,349