Q1 2023 OPAL Fuels Inc Earnings Call
Speaker 1: You you.
Speaker 1: I.
Operator: Good day, and thank you for standing by. Welcome to the OPAL Fuels Q1 2023 Earnings Call. At this time, participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Todd Firestone. Please go ahead.
Speaker 2: first quarter 2023 earnings call. At this time, participants are in elicit only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message and your hand is raised.
Speaker 2: To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Todd Firestone. Please go ahead. Thank you.
Todd Firestone: Thank you. Good morning, everyone. Welcome to the OPAL Fuels Q1 2023 Earnings Conference Call. With me today are co-CEOs Adam Comora and Jonathan Maurer, Ann Anthony, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for Q1 2023 yesterday afternoon. Those results are available on the investor relations section of our website at opalfuels.com. The presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind you that our remarks, including answers to your questions, contain forward-looking statements which involve risks, uncertainties, and assumptions. Forward-looking statements are not a guarantee of performance. Actual results could differ materially from what is contained in such statements.
Speaker 3: Thank you and good morning everyone. Welcome to the Opel Fuels first quarter 2023 earnings conference call. With me today are co-CEOs Adam Kimora from General Kimora and Anne Anthony, Opel's chief financial officer.
Speaker 3: Opal Fuels released financial and operating results for the first quarter of 2023 yesterday afternoon. Those results are available in the investor relations section of our website at opalfuels.com.
Speaker 3: Presentation and access to the webcast for this call are also available on our website. Your completion of today's call and replay will be available for 90 days.
Speaker 3: Before we begin, I'd like to remind you that our remarks and complete 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.
Todd Firestone: Several factors that could cause or contribute to such differences are described on slides two and three of our presentation. These forward-looking statements reflect our views as of the date of this call, and OPAL Fuels 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, Adjusted EBITDA. A definition of non-GAAP measures, views, and a reconciliation of these measures to the nearest GAAP measure is included in the appendix of the release and presentation. Adam will begin today's call by providing an overview of the quarter's results, recent highlights, and update on our strategic and operational priorities. John will then give a commercial and business development update, after which Anne will review financial results for the quarter.
Speaker 3: Several factors that could cause or contribute to such differences are described on slides 2 and 3 of our presentation.
Speaker 3: These forward-looking statements reflect our views as of the date of this call. And Opal Fuel does not undertake any obligations or 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 adjusted EBITDA, a definition of non-GAAP measures, views, and a reconciliation of these measures.
Speaker 3: So the nearest gap measure is included in the appendix of the release and presentation.
Speaker 3: Adam will begin today's call by providing an overview of the quarter's results, recent highlights and update on our strategic and operational priorities. John will then give a commercial and business development update, after which, and review financial results for the quarter. We'll then open the call for questions. And now I'll turn the call over to Adam Zamora, co-CEO of Local2. Adam Zamora, Global2.com
Todd Firestone: We will then open the call for questions. Now I will turn the call over to Adam Comora, Co-CEO of OPAL Fuels.
Adam Comora: Good morning, everyone, and thank you for being here for OPAL Fuels' Q1 2023 Earnings Call. I'd like to highlight several points from this Q1's results. First, we continue to execute on our strategic and operational priorities. Our Q1 RNG production volumes were consistent with our expectations and keeps us on track to meet our full year forecast of production from our operating facilities. OPAL Fuels continues to lead the RNG market with best-in-class facilities and operations, which is absolutely critical as landfill and other feedstock owners evaluate which companies they want to award gas rights to and partner with if they choose to invest capital. To that end, our advanced development pipeline continues to mature and grow, and we are pleased to share some details on two of these projects recently disclosed in 8-K filings.
Speaker 4: Good morning everyone and thank you for being here for Opal Fuels first quarter 2023 earnings call. I'd like to highlight several points from this quarter's results. First, we continue to execute on our strategic and operational priorities. Our first quarter RNG production volumes were consistent with our expectations.
Speaker 4: and keeps us on track to meet our full year forecast of production from our operating facilities. Opal Fuels continues to lead the R&G market with best-in-class facilities and operations, which is absolutely critical as landfill and other feedstock owners evaluate which companies they want to award gas rights to and partner with if they choose to invest capital.
Speaker 4: To that end, our advanced development pipeline continues to mature and grow, and we are pleased to share some details on 2 of these projects recently disclosed in 8k filings.
Adam Comora: We recently announced two newly executed gas rights agreements on landfill RNG projects, which include one landfill with WM located in Illinois and another with a municipality in Florida. Both of these projects are greenfield new business wins where OPAL Fuels secured gas rights for RNG projects and not conversion of projects where OPAL Fuels had existing gas rights or an existing landfill gas to electric project. The WM project will be 100% owned by OPAL Fuels, and we expect it to have nameplate capacity in the range of 600,000 to 700,000 annual MMBtu. We are completing design and development work, including the pipeline interconnect, and are hopeful to put it into construction during Q3.
Speaker 4: We recently announced 2 newly executed gas rights agreements on landfill RNG projects, which include 1 landfill with WM located in Illinois and another with a municipality in Florida. Both of these projects are Greenfield new business wins where Opel Fuels secured gas rights for RNG projects and not conversion of projects where Opel Fuels had existing gas rights or an existing landfill.
Adam Comora: This project had previously been included in our advanced development pipeline, it is important to note the most uncertain timing from a project moving from the advanced development pipeline into construction is typically finalized in the gas rights agreement. We are excited about this new project with WM. We have a good longstanding partnership with WM across our business segments and hope to continue to expand this relationship. We are also excited to talk about our most recently executed gas rights agreement with a municipality in Florida. OPAL Fuels will own 100% of this project, and we expect the nameplate capacity to be slightly over 1 million annual MMBtus of production. This project has an accelerated development schedule with anticipated construction start next month and commercial operations starting towards the end of 2024.
Speaker 4: in the 3rd quarter. This project had previously been included in our advanced development pipeline, but it is important to note the most uncertain timing from a project moving from the advanced development pipeline into construction is typically finalized in the gas rights agreement. We are excited about this new project with WM.
Speaker 4: We have a good, long-standing partnership with WM across our business segments and hope to continue to expand this relationship.
Speaker 4: We're also excited to talk about our most recently executed gas rights agreement with the municipality in Florida.
Speaker 4: Hopeful Fuels will own 100% of this project, and we expect the nameplate capacity to be slightly over 1 million annual MMBTUs of production.
Speaker 4: This project has an accelerated development schedule with anticipated construction start next month and commercial operations starting towards the end of 2024. This project was not included in our previously disclosed advanced development pipeline and is a great example of opal fuels continuing to find very attractive greenfield opportunities.
Adam Comora: This project was not included in our previously disclosed advanced development pipeline and is a great example of OPAL Fuels continuing to find very attractive greenfield opportunities. These two projects give us confidence we will meet our guidance of placing at least 2 million MMBtus into construction during 2023. In addition, we have multiple projects with nationally recognized landfill owners and other partners that we anticipate moving forward in the coming months, and we look forward to giving you more color as those are finalized. As we discussed during our call in March, we see 2023 continuing to unfold as a contrast to 2022, when our new plant construction starts were slower than we would have liked, but we were experiencing a favorable environmental credit and commodity pricing environment.
Speaker 4: These 2 projects give us confidence we will meet our guidance of placing at least 2M MMPTUs into construction during 2023.
Speaker 4: In addition, we have multiple projects with nationally recognized landfill owners and other partners that we anticipate moving forward in the coming months, and we look forward to giving you more color as those are finalized.
Speaker 4: As we discussed during our call in March, we see 2023 continuing to unfold in contrast to 2022 when our new plant construction starts were slower than we would have liked, but we were experiencing a favorable environmental credit and commodity pricing environment. In contrast to 2022, we believe the progress we are making
Adam Comora: In contrast to 2022, we believe the progress we are making on these new projects underpins strong growth in 2024 and beyond, which should lead to long-term value creation for OPAL Fuels shareholders. As for the headwinds in 2023, I wanted to speak about the current RIN market and our current approach on monetizing our RINS, which has an impact on our reported GAAP results. As a reminder, GAAP does not allow us to record revenues on minted RINS and LCFS from RNG we produce and dispense until those credits are actually sold and transferred.
Speaker 4: which has an impact on our reported gap results.
Adam Comora: Ann will go into a little more detail on the call, but we do believe it is important to highlight for investors in our Adjusted EBITDA calculation what the value of Stored Gas and credits are that are placed or minted in the quarter but not sold as it better matches the expenses recorded under GAAP in the quarter. The Renewable Fuel Standard was created to encourage the growth of cellulosic biofuels. The EPA continues to reiterate this goal throughout the language in the proposed Set Rule announced in December of last year. Despite this guiding principle, the proposed rule in December had volumes the market believed were too low versus anticipated D3 RIN production and prices suffered, dropping from the mid $3 range for much of 2022 to hitting a low of around $1.90 in January of this year.
Speaker 4: until those credits are actually sold and transferred.
Speaker 4: And we'll go into a little more detail in the call, but we do believe it is important to highlight for investors in our adjusted EBITDA calculation what the value of stored gas and credits are that are placed or minted in the quarter, but not sold as it better matches the expenses recorded under GAP in the quarter.
Speaker 4: The Renewable Fuel Standard was created to encourage the growth of cellulosic biofuels. And the EPA continues to reiterate this goal throughout the language in the proposed set rule announced in December of last year. Despite this guiding principle, the proposed rule in December had volumes the market believed were too low versus anticipated D3-Rin production.
Speaker 4: And prices suffered dropping from the mid three dollar range for much of 2022 to hitting a low of around a dollar ninety in January of this year.
Adam Comora: Given the EPA has not yet finalized the Set Rule, which includes volume obligations for D3 RINs, effectively the demand side of D3 RINs, we are still cautiously optimistic they will revise the numbers higher in line with anticipated growth of RNG production when they issue the final rule expected in June. Given this view, we have taken a slower approach to selling our RINs in H1 2023 until there is better clarity in rule finalization. Holding some of our produced RIN credit inventory has the effect of dampening reported GAAP results in a given period and inflating quarterly results when they would be sold. We believe the Adjusted EBITDA metric is helpful to better understand our current period earnings and reduce volatility from the actual timing of sales.
Speaker 4: Given the EPA has not yet finalized the set rule, which includes volume obligations for D3 RINs, effectively the demand side of D3 RINs, we are still cautiously optimistic they will revise the numbers higher in line with the anticipated growth of RNG production when they issue the final rule expected in June . Given this view, we have taken a slower approach to selling our RINs in the first half of 2023 until there is better clarity and rule finalization.
Speaker 4: Holding some of our produced RIN credit inventory has the effect of dampening reported gap results in a given period and inflating quarterly results when they would be sold. We believe the adjusted EBITDA metric is helpful to better understand our current period earnings and reduce volatility from the actual timing of sales.
Adam Comora: In addition to finalizing the final RVO numbers, we also await final rulemaking on the eRIN pathway, which could be a material tailwind to our existing portfolio of projects and new landfill gas to electric projects. We also await the potential effects of multi-year RVOs as it could lead to multi-year contracting opportunities and smoothing out year-to-year volatility in RIN prices. Current D3 RIN pricing has come off its lows and were recently trading at $2.15 per gallon. On LCFS, we remain optimistic on credit pricing and the direction that CARB is heading on proposed program changes to be finalized for 2024. CARB is giving clear signals to the market they would like to encourage more investment by supporting pricing, which will likely include stronger compliance targets, creating incremental demand for LCFS credits. LCFS prices have begun to move higher in 2023 and now sit in the mid-$80 per credit.
Speaker 4: In addition to finalizing the final RVO numbers, we also await final rulemaking on the E-RIM pathway, which could be a material tailwind to our existing portfolio projects and new landfill gas to electric projects.
Speaker 4: We also await the potential effects of multi-year audios as it could lead to multi-year contracting opportunities and smoothing out year-to-year volatility in ring prices. Current D3 ring pricing has come off its lows and will recently trading at $2.15 per gallon. On LCFS, we remain optimistic on credit pricing.
Speaker 4: and the direction that CARB is having on proposed program changes to be finalized for 2024. CARB is giving clear signals to the market they would like to encourage more investment by supporting pricing which will likely include stronger compliance targets creating incremental demand for LCFF's credits.
Adam Comora: Finally, I want to add that demand for RNG continues to be very strong across multiple end markets. We're particularly encouraged by how many new fleets are testing and talking about the 15-liter Cummins engine. Although material traction for adoption starts later in the year as fleets move through testing, we think this product has great potential to expand the market for RNG within the heavy-duty transportation market. We would remind everyone, the heavy-duty transportation market in the US uses approximately 45 billion gallons of diesel per year, and RNG currently has just over 1% market share. We see great potential for demand in trucking to outpace supply, which has positive future implications on pricing, given RNG is currently priced at such a steep discount to diesel fuel with the sustainability benefits of zero scope one and zero scope two emissions.
Speaker 4: LCFS prices have begun to move higher in 2023 and now sit in the mid $80 per credit. Finally, I want to add that demand for RNG continues to be very strong across multiple end markets.
Speaker 4: where particularly encouraged by how many new fleets are testing and talking about the 15-liter commonsvention. Although material traction for adoption starts later in a year as fleets move through testing, we think this product has great potential to expand the market for RNG within the heavy duty transportation market.
Speaker 4: We would remind everyone the heavy-duty transportation market in the US uses approximately 45 billion gallons of diesel per year and R&G currently has just over 1% market share.
Speaker 4: We see great potential for demand and trucking to outpace supply, which has positive future implications on pricing given RNG is currently priced in such a steep discount to diesel fuel with the sustainability benefits of 0 scope 1 and 0 scope 2 emissions.
Adam Comora: Separately, the voluntary market is evidencing increased interest with new growing mandates from regulatory authorities for RNG to be used in power generation. We think it's a great time to be OPAL Fuels. The industry is still in the early innings of growth, and OPAL Fuels continues to be a partner of choice for new projects. There is growing customer interest and demand in the products we produce and sell, which bodes well for future pricing and economics. There are strong federal and state-level policies supporting investment in our industry, and there is increased knowledge and participation from capital providers across the balance sheet, helping us capitalize on this exciting opportunity. With that, I'll turn it over to John.
Speaker 4: Separately, the voluntary market is evidencing increased interest with new growing mandates from regulatory authorities for RNG to be used in power generation. We think it's a great time to be Opal Fuels. The industry is still in the early innings of growth and Opal Fuels continues to be a partner of choice for new projects. There is growing customer interest and demand in the products we produce in cell, which bodes well for future pricing and economics.
Speaker 4: There are strong federal and state-level policies supporting investment in our industry, and there is increased knowledge and participation from capital providers across the balance sheet helping us capitalize on this exciting opportunity.
Speaker 4: state level policy supporting investment in our industry and there is increased knowledge and participation from capital providers across the balance sheet helping to capitalize on this exciting opportunity. With that, I'll turn it over to John .
Jonathan Maurer: Thank you, Adam. Good morning, everyone. I want to start out by saying that we are very focused on executing on our business plan, including maximizing output from our operating projects, commissioning our construction projects, moving other advanced development projects into construction, as well as adding to our prospective opportunities funnel. Our operating projects are performing well. We have seven projects in operation representing approximately four million MMBtu of nameplate RNG capacity. At Noble Road, New River, and Pine Bend, three of our more recent landfill RNG projects to come online, gas production continues to increase as the trash increases. As Adam said, we are meeting our output projections. Our construction projects are moving forward and are largely on track. We currently have six RNG projects in construction, representing another 4.7 million MMBtu of nameplate capacity.
Speaker 2: Thank you, Adam. Good morning, everyone. I want to start out by saying that we're very focused on executing on our business plan, including maximizing output from our operating projects, commissioning our construction projects, moving other advanced development projects into construction, as well as adding to our prospective opportunities funnel.
Speaker 2: Our operating projects are performing well. Yes, seven projects in operation representing approximately 4 million NNBT of NNP play RNG capacity.
Speaker 2: At Noble Road, New River, and Pine Bend, three of our more recent Lanthill R&G projects to come online, gas production continues to increase as the trash increases.
Speaker 2: As Adam said, we are meeting our output projections. Our construction projects are moving forward and are largely on track.
Speaker 2: We currently have six RNG projects in construction representing another 4.7 million MMVTU of Named Plate capacity.
Jonathan Maurer: Consistent with what we said last quarter, Emerald is expected to be online in the next several months, and Prince William in Q4. The two dairy projects we expect to be commissioned in H1 2024, and the Northeast Landfill later in 2024. We have experienced some delays associated with permitting. Sapphire COD is delayed into H1 2024 as a result of delays by permitting authorities. Our advanced development pipeline is growing. These projects are ones we have qualified and that we reasonably expect can be in construction within the next 12 to 18 months. We now have more than 9.3 million MMBtu of biogas across our 20 projects in our advanced development pipeline, which now includes our recently announced municipal project in Polk County, Florida. We expect to place Polk into construction next month.
Speaker 2: consistent with what we said last quarter, Emerald is expected to be online in the next several months. And Prince William in the fourth quarter. The two Gary projects we expect to be commissioned in the first half of 2024, and the Northeast Lampville later in 2024. We have experienced some delays associated with permitting.
Speaker 2: SAFIRCO de-is delayed into the first half of 2024 as a result of delays by permitting authorities.
Speaker 2: Our advanced development pipeline is growing. These projects are ones we have qualified and that we've reasonably expect can be in construction within the next 12 to 18 months. We now have more than 9.3 million MMV2 of biogas across our 20 projects in our advanced development pipeline.
Speaker 2: which now includes our recently announced municipal project in Polk County Florida.
Jonathan Maurer: Our ADP includes opportunities for electric projects that are well-positioned to take advantage of the recently announced eRIN pathway that is being finalized. Other ADP projects are advancing towards construction as well. We continue to expect to meet our goal of putting at least 2.0 million MMBtu of projects into construction this year. Our ADP does not include the additional opportunities we continue to evaluate and qualify. Polk County was recently on our prospective projects list until it jumped forward this past month to our ADP. We have added other opportunities to our prospective project lists as well. We are one of the larger and more experienced operators in the space, and our successful operating projects, as well as our integrated platform, continue to aid us in discussions as we seek out new projects.
Speaker 2: We expect to place bulk into construction next month. Our ADP includes opportunities for electric projects that are well positioned to take advantage of the recently announced E-RIN pathway that is being finalized. Other ADP projects are advancing towards construction as well. We expect to place bulk into construction as well.
Speaker 2: We continue to expect to meet our goal of putting at least 2.0 million MMBTU of projects into construction this year.
Speaker 2: Our ADT does not include the additional opportunities we continue to evaluate and qualify.
Speaker 2: Old County was recently on our perspective projects list until it jumped forward this past month to our ADP. We have added other opportunities to our perspective project list as well. We are one of the larger and more experienced operators in the space.
Speaker 2: Full County was recently on our perspective projects list until it jumped forward this past month to our ADP. We have added other opportunities to our perspective project list as well. We're one of the larger and more experienced operators in the space. And our successful operating projects.
Jonathan Maurer: All of the foregoing represents significant momentum for OPAL's growth. It provides visibility to continued production and earnings growth beyond 2024. In our Fuel Station Services segment, there are a couple of highlights to call out. First, there can be lumpiness in third-party fuel station construction revenues, as revenues are recorded on percentage completion and timing of equipment delivery of construction activity in a quarter can vary. Our contracted backlog remains very healthy at approximately $65 million, which we expect to be realized and completed over the next 12 months. We are also seeing the tail effects of inflationary pressures from 2022 on projects that are now being completed, and see normalizing margins in this segment as we move through 2023. It should also be noted the earlier effects we described from holding back RIN sales and Stored Gas also affects this segment.
Speaker 2: as well as our integrated platform, continue to aid us in discussions as we seek out new projects. All of the foregoing represents significant momentum for OPAL's growth and provides visibility to continued production and earnings growth beyond 2024.
Speaker 2: In our fuel station services segment, there are a couple of highlights to call out.
Speaker 2: First, there can be lumpiness in third-party fuel station construction revenues, as revenues are recorded on percentage completion and timing of equipment delivery of construction activity in a quarter can vary. Our contracted backlog remains very healthy at approximately $65 million.
Speaker 2: Which we expect to be realized and completed over the next 12 months. We are also seeing the tail effects of inflationary pressures from 2022. On projects that are now being completed and see normalizing margins in this segment. As we move through 2023.
Speaker 2: It should also be noted the earlier effects we described from holding back rinse sales and stored gas also affects the second.
Jonathan Maurer: Ann will describe in a little more detail our reclass of this segment, which now includes fuel sales from stations we own and the RNG marketing and dispensing fees the stations receive by dispensing the RNG. Of the $10.3 million Stored Gas and inventory credits we add back to Adjusted EBITDA, approximately two million would be attributable to the Fuel Station Services segment. From an overall transportation fuel market perspective, we are all excited about the introduction of the new 15-liter engine. As this happens, we do expect to see a slight pause or slowdown in new fuel station construction order activity as the 12-liter engine is being phased out and fleets are putting together their order books with new engines. Our Fuel Station Services segment experiences similar challenges working with permitting authorities and utility providers, which have stretched out construction project timing in that segment.
Speaker 2: And we'll describe in a little more detail our reclass of this segment. So now includes fuel sales from stations we own and the RNG marketing and dispensing fees to stations received by dispensing the RNG.
Speaker 2: Of the 10.3 million dollars stored gas and inventory credits we add back to adjusted EBITDA, approximately 2 million would be attributable to the fuel station services segment.
Speaker 2: about the introduction of the new 15-liter engine.
Speaker 2: As this happens, we do expect to see a slight pause or slowdown in new fuel station construction order activity.
Speaker 2: As the 12 liter engine is being phased out and fleets are putting together their order books with new engines. Our fuel station service segment experiences similar challenges working with permitting authorities. And utility providers which have stretched out construction project timing.
Speaker 2: phased out and fleets are putting together their order books with new engines. Our fuel station service segment experiences similar challenges working with permitting authorities and utility providers which have stretched out construction project timing in that segment.
Jonathan Maurer: Right now, we are on track to commence construction on 39 fueling stations this year, approximately 16 OPAL Fuel Zone stations, and another 23 for third parties. Our overall RNG fuel dispensing volumes are expected to grow to approximately 56 million gallons this year from nearly 30 million gallons in 2022. In our renewable power segment, we continue to focus on the potential opportunities stemming from the proposed eRIN pathway for our 17 landfill gas to electric projects, representing about 124 MW of nameplate capacity. We still see approximately six of these projects as candidates for conversion to RNG projects, while the majority are expected to remain electric projects. As we mentioned last quarter, the eRIN pathway stands to substantially increase the value of our landfill gas to electric projects, and ultimately, depending on eRIN sharing arrangements and RIN price.
Speaker 2: Right now we are on track to commence construction on 39 fueling stations this year. Approximately 16 Opal fuel zone stations. And another 23 for third parties.
Speaker 2: Our overall RNG fuel dispensing volumes are expected to grow to approximately 56 million gallons this year from nearly 30 million gallons in 2022. In our renewable power segment, we continue to focus on the potential opportunities for renewable energy.
Speaker 2: Stemming from the proposed E-RIN pathway for our 17 landfill gas to electric projects. Representing about 124 megawatts of nameplate capacity.
Speaker 2: We still see approximately 6 of these projects as candidates for conversion to RNG projects.
Speaker 2: While the majority are expected to remain electric projects. As we mentioned last quarter, the E-RIN pathway stands to substantially increase the value of our landfill gas to electric projects. And ultimately, depending on E-RIN sharing arrangements and RIN price. We expect updated guidance from the EPA on this topic.
Jonathan Maurer: We expect updated guidance from the EPA on this topic next month. That said, we are accelerating preparation of our facilities to meet this market opportunity. I will now turn the call over to Ann to discuss our Q1 financial results.
Ann Anthony: Thank you, John. Good morning to all the participants on today's call. Last night, we filed our earnings press release, which detailed our quarterly results for the period ending 31 March 2023. We anticipate filing our 10-Q in the next few days. The biggest driver of the quarter's results is our decision to defer selling some RINs in inventory, as well as environmental attribute pricing, which has been lower year to date compared to Q1 and full year 2022, resulting in lower GAAP results for Q1 2023. Before we talk about Q1 results, I would like to note that we are now presenting revenues and expenses associated with our CNG tolling business, along with RNG marketing and dispensing revenues in the Fuel Station Services segment, as opposed to the RNG Fuel segment where we reported them previously.
Speaker 5: Last night, we filed our earnings press release, which detailed our quarterly results for the period ending March 31, 2023.
Speaker 5: We anticipate filing our 10Q in the next few days. The biggest driver of the quarter's results is our decision to defer selling some rings in inventory, as well as environmental attribute pricing, which has been lower year to date, compared to the first quarter and full year 2022.
Speaker 5: resulting in lower gap results for the first quarter of 23. Before we talk about first quarter results, I'd like to note that we are now presenting revenues and expenses associated with our CMG tolling business, along with RNG marketing and dispensing revenues in the fuel station services segment.
Ann Anthony: Including dispensing results in the Fuel Station Services segment better aligns how we think about the business segments as it differentiates between our upstream and downstream portions of our business. This change facilitates easier comparisons to peers in our space. Each quarter, we will recast 2022 results to provide an apples to apples comparison to 2023. Now let's talk about our results. For the Q1, RNG production remained the same as the Q4 2022, coming in at 0.6 million MMBtus, which represents volume net to OPAL Fuels after adjusting for our equity ownership across projects. Compared to the Q1 2022, RNG production was up approximately 50%. Revenues for the Q1 were $43 million, a 12% decrease compared to the Q1 2022.
Speaker 5: as opposed to the RNG fuel segment where we reported them previously.
Speaker 5: including dispensing results in the fuel station services segment that are aligned how we think about the business segments as it differentiates between our upstream and downstream portions of our business and this change facilitates easier comparisons to peers in our space. Each quarter we will recast 2022 results
Speaker 5: to provide an apples to apples comparison to 2023.
Speaker 5: Now, let's talk about our results for the 1st quarter. RNG production remained the same as the 4th quarter of 2022. Coming in at 0.6MMBtus, which represents volume net to opal fuels after adjusting for our equity ownership across projects.
Speaker 5: Compared to the first quarter of 2022, R&D production was up approximately 50%. Revenues for the quarter were $43 million, a 12% decrease compared to the first quarter of 2022. The primary drivers here are our decision to hold RINs in inventory.
Ann Anthony: The primary drivers here are our decision to hold RINs in inventory, along with the lower price we've seen primarily for RINs year-over-year, offset by the higher production. In Q1 2022, we sold RINs at an average price of $3.23. As we told you last month, we are only selling a portion of environmental credits at these price levels, and during Q1, we transacted at a net average price of $2.38, which included a final forward sale contract we entered into last year, as well as a spot trade.
Speaker 5: We are only selling a portion of environmental credits at these price levels. And during the first quarter, we transacted at a net average price of $2.38, which included a final forward sale contract we entered into last year as well as at Spot Trade.
Ann Anthony: The impact of lower prices, if production was held constant, and we assume that we sell all available credits, equates to approximately $6 million of revenue that was not achieved based on the year-over-year price differential. Net loss for Q1 before considering the impacts of preferred dividends was $7.3 million, compared to $4.5 million for Q1 of 2022. In addition to our strategic decision to limit the sales of credits that we just discussed, in our Fuel Station Services segment, we experienced a low revenue quarter compared to our backlog and continued to see inflationary pressures flow through stations and construction. We expect that these trends will reverse over the balance of the year. I'd also like to note that OPAL Fuels is not heavily exposed to the volatility of natural gas as some of our peers are.
Speaker 5: The impact of lower prices if production was held constant and we assume that we sell all available credits equates to approximately $6 million of revenue that was not achieved based on the year-over-year price differential.
Speaker 5: Net loss for the first quarter before considering the impacts of preferred dividends was $7.3 million compared to $4.5 million for the first quarter of 2022. In addition to our strategic decision to limit the sales of credits that we just discussed, the
Speaker 5: In our fuel station services segment, we experienced a low revenue quarter compared to our backlog and continued to see inflationary pressures flow through stations and construction.
Speaker 5: We expect that these trends will reverse over the balance of the year.
Ann Anthony: We do see benefits in our upstream revenues, which offsets higher operating expenses when the commodity cost rises. We are not exposed to significant commodity volatility in our downstream fueling business as the cost of natural gas is a pass-through to our customer, along with other costs such as utilities and taxes. Q1 Adjusted EBITDA was $8.7 million compared to $4.1 million last year. We have included a $10.3 million adjustment for the value of both Stored Gas and unsold environmental attributes at the market price as of 31 March to better illustrate the performance of the business when we match production and expenses occurring in the same period. The ultimate actual sale price of these environmental credits may be different than the quarter-end price used in Adjusted EBITDA. As of 31 March, we had $148.9 million of outstanding borrowings.
Speaker 5: I'd also like to note that Opal Fuels is not heavily exposed to the volatility of natural gas as some of our peers are. We do see benefits in our upstream revenues, which offsets higher operating expenses when the commodity cost rises, but we are not exposed to significant commodity volatility in our downstream fueling business as the cost of natural gas is a pass-through to our customer.
Speaker 5: $5.7 million compared to $4.1 million last year. We have included a $10.3 million adjustment for the value of both stored gas and unsold environmental attributes at the market price as of March 31st to better illustrate the performance of the business when we match production and expenses occurring in the same period.
Speaker 5: The ultimate actual sale price of these environmental credits may be different than the quarter end price used in Adjust-to-be-the-dock.
Ann Anthony: In March, we repaid $22.8 million related to our renewable power project financing. Our second term loan, which we closed last August, and which will finance a portion of RNG projects that are or shortly will be in construction, remains undrawn. As of 31 March, our liquidity position was $181.8 million, including $33.3 million of cash and cash equivalents, $6.6 million of restricted cash, $37 million of short-term investments, and $105 million of undrawn capacity under our term loans. Restricted cash declined principally due to the settlement of the Meteora put last January, as well as continued investment in construction projects where we had to contribute our equity upfront and spend it as construction occurred as a condition to unlock capacity under the second term loan. We expect these existing sources of liquidity to be sufficient to fund the company's construction and development capital needs for the next 12 months.
Speaker 5: As of March 31st, we had $148.9 million of outstanding borrowings. In March, we repaid $22.8 million related to our renewable power project financing. Our second term loan, which we closed last August , and which will finance a portion of RNG projects that are, or shortly will be, in construction, remains undrawn.
Speaker 5: As of March 31st, our liquidity position was $181.8 million, including $33.3 million of cash and cash equivalents, $6.6 million of restricted cash, $37 million of short-term investments, and $105 million of undrawn capacity under our term lows.
Restricted cash declined principally due to the settlement of the Meteora put last January , as well as continued investment in construction projects where we had had to contribute our equity up front and spend it as construction occurred as a condition to unlock capacity under the second term loan.
We expect these existing sources of liquidity to be sufficient to fund the company's construction and development capital needs for the next 12 months. As we wrap up, I'll reiterate what Adam and John have already said. We're very pleased with production results in the first quarter, along with our progress in the development of the advanced development pipeline.
Ann Anthony: As we wrap up, I'll reiterate what Adam and John have already said. We're very pleased with production results in the first quarter, along with our progress in the development of the advanced development pipeline, that in-construction project timelines remain substantially in line with our prior expectations. We continue to focus on execution and anticipate environmental market conditions will continue to improve over the coming weeks. This will translate to continued growth in financial results in 2023 and beyond. With that, I'll turn it back to John and Adam for concluding remarks.
and the in-construction project timelines remain substantially in line with our prior expectation. We continue to focus on execution and anticipate environmental market conditions will continue to improve over the coming weeks. This will translate to continued growth in financial results in 2023 and beyond.
Jonathan Maurer: Thank you, Ann. In closing, we remain committed to furthering OPAL's vertically integrated mission to build and operate best-in-class RNG facilities and renewable power facilities that deliver industry-leading, reliable, and cost-effective renewable solutions to displace fossil fuels and mitigate climate change. With that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.
With that, I'll turn it back to John and Adam for concluding remarks. Thank you, Anne. In closing, we remain committed to furthering Opals vertically integrated missions.
to build and operate best-in-class RNG facilities and renewable power facilities.
That deliver industry leading, reliable. And cost effective renewable solutions. To displace fossil fuels.
and mitigate climate change. And with that, I'll turn the call over to the Operator for Q&A. Thank you all for your interest in Opal Fules.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the roster. Our first question comes from Derrick Whitfield from Stifel.
Thank you. At this time, we will conduct the question in the answer session. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the roster.
Derrick Whitfield: Good morning, all, and congrats on some nice additions to your development pipeline.
Our first question comes from Derek Whitfield from Steeple. Good morning, Al. Congrats on some nice additions to your development pipeline.
Jonathan Maurer: Good morning, Derrick. Thank you.
Derrick Whitfield: For my first question, I wanted to focus on the add backs to Adjusted EBITDA, as that has been an area of focus in investor discussions this morning. Could you perhaps elaborate on the accounting considerations for this calculation and comment on what the add back would be at current environmental attribute pricing, which is noticeably higher for both D3 and LCFS?
Good morning, Garrett. Thank you. For my first question, I wanted to focus on the ad backs to adjusted EBITDA. That has been an area of focus in investor discussions this morning. Could you perhaps elaborate on the accounting considerations for this calculation?
and comment on what the add-back would be at current environmental attribute pricing, which is noticeably higher for both D3 and LCFS.
Jonathan Maurer: Sure, Derrick. Thanks for that question. It's a little bit absurd in some respects that our auditors don't allow us to account for all of this gas production that we do from our RNG projects until we physically sell the RIN and deliver it to a counterparty. When we make a choice, as we are now, based on the current market conditions to slow play our RINs out into the market as we see price more opportunity for price to go up than down, it's almost as if the gas doesn't exist. If the auditors allowed us to show it as inventory, it would solve a lot of these issues. We're in the position of really trying to report through our Adjusted EBITDA as opposed to in our revenue and net income, what the effects of this gas production is.
Sure, Derek, thanks for that question. You know, it's a little bit absurd in some respects that our auditors don't allow us to account for all of this gas production that we do from our RNG projects until we physically...
sell the RIN and deliver it to a counterparty. So when we make a choice, as we are now, based on the current market conditions, to slow play our RINs out into the market as we see price, you know, as we move forward,
More opportunity for price to go up than down
It's almost as if the gas doesn't exist.
If the auditors allowed us to show this inventory, it would solve a lot of these issues. So we're in the position of really trying to report through our adjusted EBITDA as opposed to in our revenue and net income what the effects of this gas production is.
Jonathan Maurer: As you can see in our calculation to Adjusted EBITDA, we have a $10.3 million add back. That is gas that relates to or credits that relate to gas for projects that have not yet been certified, it's credits associated with gas that we have not yet minted credits for. For which we've produced the gas, but not minted the credits, and it relates to credits that have been minted and are just being held in inventory. We really do this to try to, first off, match as best as possible the value of our production in the quarter with the expenses so that you have the timing differential.
So, you can see in our addresses our calculation to adjust to the EBITDA we have a $10.3 million app back. That is gas, that relates to our credit, that relates to gas.
for projects that have not yet been certified. It's gas for, um, I'm sorry, credits associated with gas that we have not yet minted credits for. So, for which we've produced the gas but not minted the credits. And it relates to credits that have been minted are just being held in inventory.
And we really do this to try to first off match as best as possible the value of our production in the quarter with the expenses so that
Jonathan Maurer: You can imagine if we didn't do this, we could have, in one quarter such as this, a very low revenue and net income, and then next quarter, say, we sell all of these, extraordinarily high one, which would make it very lumpy. Really that's what we're trying to do. I want to point out in our press release that we had a correction here, just some fat fingers in putting numbers in, that we reported in the results of operations section RNG pending certification and unsold environmental credits, which is exactly what we're talking about right now. 5.9 million RINs in credits pending certification. That number is 4.2, and we'll issue an update to that to make sure that we get it right. The unsold credits of 5.1 million continue to be correct. It was really the 5.9 that was incorrect, which should be 4.2.
such as this, a very low revenue and net income, and then next quarter say we sell all of these, an extraordinarily high one, which would make it very lumpy. So really that's what we're trying to do. I want to point out in our press release that
We had a correction here, just some bad fingers in putting numbers in, that we reported in the results of operations section R&G pending certification and unsold environmental credits, which is exactly what we're talking about right now.
5.9 million RINs in credits pending certification. That number is 4.2 and we'll issue an update to that to make sure that we get it right. The unsold credits of 5.1 million continue to be correct. It was really the 5.9.
Jonathan Maurer: To get from these RINs or credits that are being held either pending certification or just unsold, to move that to EBITDA, really, we value that at kind of the current quarter-end price. Then we deduct from that royalty amounts and amounts attributable to our partners that aren't exactly OPAL pieces. The 10.3 adjustment we have, which is correct, is the result of those numbers. I will just add that to the extent that these unsold credits or credits pending certification are not sold next quarter, that will likely have some sort of mark-to-market adjustment. What we are going to do for the next quarter and quarters to come is make sure we put this into a table so it is a little clearer for everybody exactly what these are. It is not very different from what some of our competitors report.
That was incorrect, which should be 4.2. So, you know, to get from these RINs that are, or credits that are being held, either pending certification or just unsold, to move that to EVA doc really...
We value that at kind of the current quarter-end price. So, and then we deduct from that royalty amounts and amounts attributable to our partners that aren't exactly oval pieces. And the 10.3 adjustment we have, which is correct.
would be the result of those numbers. I'll just add that to the extent that these unsold credits or credit pending certification are not sold next quarter, that will likely have some sort of mark-to-market adjustment.
But what we're going to do for the next quarter and quarters to come is make sure we put this into a table so it's a little clearer for everybody exactly what these are. It's not very different from what some of our competitors report. For example,
Jonathan Maurer: For example, Montauk does a similar type of calculation and others do as well, and it's really just attributable to that accounting oddity of producing this valuable RNG, but not being able to show it anywhere in our financial statements.
and others do as well. And it's really just attributable to that accounting oddity of producing this valuable RNG but not being able to show it anywhere in our financial statements.
Derrick Whitfield: Terrific, thanks. That makes sense. Perhaps for my follow-up, I wanted to lean into your prepared remarks on the progression of your backlog, both near and medium term. For 2023, it appears Emerald and Prince William are progressing on the schedule you laid out in Q4. Sapphire is a smidge behind. With your reaffirmed guidance, would it be safe to assume Sapphire is expected to have minimal impact on 2023? Perhaps for the benefit of a more fulsome discussion, if we think about Sapphire being pushed modestly to the right and projects in Polk County and Illinois being added to the slate, could you offer a glimpse on how you are positioned for 2024 on a plus minus basis versus Q4 commentary?
Terrific, thanks, and that makes sense. Perhaps for my follow-up, I wanted to lean into your prepared remarks on the progression of your backlog, both near and medium term. For 2023, it appears Emerald and Prince William are progressing on the schedule you laid out in Q4, and Sapphire is a smidge behind.
With your reaffirmed guidance, would it be safe to assume Sapphire is expected to have minimal impact on 2023? And perhaps for the benefit of a more fulsome discussion, if we think about Sapphire being pushed modestly to the right and projects in Polk County and Illinois being added to the slate, could you offer a glimpse on how you're positioned for 2024 on a plus-minus basis versus key-four commentary?
Adam Comora: Yeah. Thanks for the question, Derrick. This is Adam here. I just want to touch quickly on Sapphire. It's pretty interesting for a lot of the landfills. I was just down at WasteExpo. A lot of the landfill or environmental service companies are starting to talk about PFAS and looking at how PFAS regulations could be looked at in the industry. Our Sapphire project, that's why that permit got delayed by several months, where a lot of these permitting agencies are now looking at PFAS levels and how to measure and how to test them. Most of the PFAS that is being looked at is from the liquids management that comes out of landfills.
Yeah, thanks for the question Derek. This is Adam here. I just wanted to touch quickly on Sapphire. You know, it's, it's pretty interesting for a lot of the landfills. And, you know, it's just down at Waste Expo.
A lot of the landfill or environmental service companies, you know, we're starting to talk about PFAS and looking at how PFAS regulations could be looked at in the industry. And our SAFIRE project, that's why that permit got delayed by several months.
where a lot of these permitting agencies are now looking at PFAS levels and how to measure and how to test them. And most of the PFAS that is being looked at is from the liquids management that comes out of landfills. IT is still, it is still primarily sensitive toorient so you should be blocked during the
Adam Comora: Some of these permitting agencies, and there are different ones, are starting to try and figure out how they test and measure it on RNG projects, which we don't think will be tremendously impactful except for the slight couple of months delay. We've been engaged with that permit agency and feel good that progress is being made. They're sort of getting their arms around it, how to measure it from our flares to be certain that they're measuring it and tracking it. As it pertains to our RINs coming in from the Polk County project, which obviously we're really excited about, and do see that coming online at the end of next year. We're going to hold off right now on giving volume guidance for 2024.
you know, some of these permitting agencies and their different ones are starting to try and figure out how they test and measure it on RNG projects, which we don't think will be tremendously impactful except for the slight couple of months delay.
you know, we've been engaged with that permit agency and feel good that progress is being made and, you know, they've sort of got, they're sort of getting their arms around it, how to measure it from our
from our flares to be certain that they're measuring it and tracking it. As it pertains to our ends coming in from the Polk County project, which obviously we're really excited about.
And you see that coming online at the end of next year. We're gonna hold off right now on giving volume guidance for 24. But certainly you're right, there are some positives and negatives between that project accelerated.
Adam Comora: Certainly you're right, there are some positives and negatives between that project accelerating and the couple of months delay on Sapphire.
Derrick Whitfield: Terrific. Thanks for your time and comments.
in the couple of months delay on Sapphire. Perfect. Thanks for your time and comments. Our next question comes from Matthew Blair from TPH.
Operator: Our next question comes from Matthew Blair from TPH&Co..
Matthew Blair: Hey, good morning. Thanks for taking my questions. Adam and John, I was hoping you could talk a little bit more about the eRIN potential. Adam, I think you mentioned it could provide material upside. I believe our very rough estimate is anywhere from $50 to 80 million of potential EBITDA. What's the right framework to think about eRIN upside? Could you also talk about how far along you are in discussions with auto OEMs on the RIN sharing agreements?
Hey, good morning. Thanks for taking my questions. Adam and John , I was hoping you could talk a little bit more about the EPRIN potential. Adam, I think you mentioned it could provide material upside. I believe our very rough estimate is anywhere from 50 to 80 million of potential EBITDA.
What's the right framework to think about E-RIN upside? And you also talk about how far along you are in discussions with auto OEMs on the RIN sharing agreements. Yeah, thanks very much for the question. This is Adam again. You know, it's pretty interesting. We do think that, and we are very supportive of E-RINs being included in the renewable fuel standard.
Adam Comora: Yeah. Thanks very much for the question. This is Adam again. It's pretty interesting. We do think that, we are very supportive of eRINs being included in the Renewable Fuel Standard. We do see it as a material tailwind both to our existing portfolio and the development of new landfill gas to electric projects. On the flip side of that, for 2023, we think that's the reason why there's been a downdraft in current D3 RIN pricing. The industry believes the EPA may have been too low in their estimated RINs created from eRINs, and also low in their forecasted volumes from RNG projects that are coming online. We remain constructive and do believe that the eRINs make sense and will be very supportive for our business.
And we do see it as a material tailwind, both to our existing portfolio and the development of new landfill gas to electric projects. You know, on the flip side of that for 2023, we think that's the reason why there's been a downdraft in current P3 ring pricing, Because
You know, the industry believes the EPA may have been too low in their estimated RINs created from eRINs and also low in their forecasted volumes from RNG projects that are coming online. So, we remain… Excellent, thank you so much. Yeah, great. Alright, thanks, what else do we have? Thanks,C Assessment, deployments. Okay.
Adam Comora: There has been some noise in the market where it is still uncertain whether or not the eRINs will get approved in June, and whether or not the EPA may take several months more to try and finalize that piece of the rulemaking. That would likely have the effect of raising RIN prices. Because again, I think that's where a lot of the oversupply concern was coming from. We'll see how that plays out in the next month. As far as our progress, we have been engaged with various OEMs and aligning ourselves to be able to participate should the eRIN get finalized and approved here in June. We're pretty far along in those discussions, and we would expect to participate if it does in fact get finalized.
constructive and do believe that the E-RINs make sense and will be very supportive for our business. There has been some noise in the market where it is still uncertain whether or not the E-RINs will get approved in June and whether or not the EPA may take several months more to try and find out.
And as far as our progress, we have been engaged with various OEMs and aligning ourselves to be able to participate should the ERIN get finalized and approved here in June . So we're pretty far along in those discussions and we would expect to participate if it does in fact get done.
Jonathan Maurer: Matthew, let me just add one thing that I think can help people think about the value of eRIN. I think what's under discussion is not really how they calculate the RIN to kilowatt-hour conversion, it's really how they're implementing the program. A rough calculation is that at a 270 RIN price, the eRIN is worth about $330 a megawatt-hour. That $330 obviously has to be shared with the OEM. If you're sharing at 50/50, you're at $165 a megawatt-hour. As you get more electric vehicles out in the market competing for what might be a limited amount of this renewable biogas based electricity, that sharing, we expect, will go up over time. Perhaps as much as to where the RIN sharing is now with dispensing, which is about 90/10 or 85/15.
implementing the program. But a rough calculation is that at a 270 RIN price that the E-RIN is worth about $330 a megawatt hour.
And that $330 obviously has to be shared with the OEM. So if you're sharing at 50-50, you're at $165 a megawatt hour as you get more, um.
electric vehicles out of the market competing for what might be a limited amount of this renewable biogas-based electricity. That sharing we expect will go up over time.
perhaps as much as to where the RIN sharing is now with dispensing, which is about 90, 10, or 85, 15. And so once you get to that point, as you start to look at those numbers, you can throw that value onto an electric.
Jonathan Maurer: Once you get to that point, as you start to look at those numbers, you can throw that value onto an electric project or an electric portfolio from landfill or other biogas sources to get a sense of value. We agree that we're very encouraged by this, and we see a lot of additional value.
project or an electric portfolio from landfill or other bio-gas sources to get a sense of value. We agree that we're very encouraged by this and we see a lot of additional value.
Matthew Blair: Sounds good. Yeah, the 165 per MWh net to OPAL would be above our expectations. Okay, my follow-up is on your Fuel Station Services segment. If I look at the gross margin of about $half million, add back the $2 million from the held back RINS, that overall profitability was a little bit less than our expectations. Ann, I think you mentioned that it doesn't sound like your downstream fueling volume or fueling profitability was affected by high natural gas prices in the quarter due to the pass-through. Could you talk a little bit more about profitability in this segment? Did it come in line with your expectations? Was it muted in Q1? What's the outlook going forward?
Sounds good. Yeah, the 165 per megawatt hour net to OPAL would be above our expectations.
Okay, and then my follow up is on your fuel station services segment.
If I look at the gross margin of about a half million and then add back the 2 million
From the held back rinse that overall profitability was a little bit less than our expectations and I think you mentioned that It doesn't sound like your downstream fueling volumes or fueling profitability was affected by high natural gas prices in the quarter due to the The the pass through but could you talk a little bit more about profitability in this segment?
Ann Anthony: Sure. Thank you for your question, Matt. I think we've talked before about inflationary pressures. We talked about that in Q4. We've seen a little bit of that, call it the tail end effect, if you will, still rippling through the business. I think the other piece to remember, and we did mention this, is we saw, I think, a little bit of a slower pace in terms of construction than what we had originally anticipated, right? This business, this percentage of completion, can be chunky. Again, whether it's utility delays, whether it's permitting delays, whether it's a piece of equipment doesn't show up, that can impact ultimately how we show revenue and how that ripples through the P&L, regardless if even if we're firing on 1,000 cylinders.
Did it come in line with your expectations? Was it muted in Q1? And what's the outlook going forward? Sure. So, and thank you for your question, Matt. I think, you know, we've talked before about inflationary pressures. We talked about that in Q4. We've seen a little bit of that, you know, call it the tail end effect, if you will, still rippling through the business.
I think the other piece to remember, we did mention this, is we saw a little bit of a slower pace in terms of construction than what we had originally anticipated. So it's business-specific and complete, so it can be tricky.
And, you know, again, whether it's utility delays, whether it's permitting delays, whether it's a piece of equipment doesn't show up, that can impact ultimately how we show revenue and how that ripples through the P&L. Regardless, even if we're firing on a thousand cylinders, we do expect that margins and revenues will continue to improve throughout the year because we think, again, it's a stationary.
Ann Anthony: We do expect that margins and revenues will continue to improve throughout the year because we think, again, this inflationary pressure piece is muting and starting to get behind us.
Matthew Blair: Thanks for your comments.
Operator: Our next question comes from Marty Malloy from Johnson Rice & Company.
Marty Malloy: Good morning. I just wanted to ask about the 2023 full-year guidance you provided on the last call. Is the guidance for Adjusted EBITDA, the $85 to $95 million, and the CapEx guidance, $220 to $240 million, is that still intact or has that been changed?
Johnson Rice company. Good morning. I just wanted to ask about the, uh, 2023 full year guidance you provided on the last call is the, the guidance for adjusted EBITDA 85 to 95 million and the capex guidance.
Adam Comora: Yeah. Thank you, Marty. This is Adam Comora here. We're not changing our guidance for 2023. As John had mentioned in the prepared comments, our operating projects are performing well and on track to meet our full-year targets. Another critical piece of our guidance, and really what we believe is one of the long-term value drivers of our business, is how many RNG projects we place into construction. Our guidance of 2 million MMBtus into construction, we feel really good about, with its really strong visibility on the first 1.7 to 5 million MMBtus, and are excited about what's happening in our advanced development pipeline and hope to be able to share some additional projects soon.
Is that still intact or has that been changed? Thank you, Martin. This is Adam here. We are not changing our guidance for 2023. As John had mentioned in the prepared comments, our operating projects are performing well. Come join us when everything is beating
and on track to meet our full year targets. Another critical piece of our guidance, and really what we believe is one of the long-term value drivers of our business is how many RNG projects we place into construction, and our guidance of two million MMDTUs into construction, we feel really good about with its really strong visibility on...
on the first 1.7, 1.75 million MMBTUs and are excited about what's happening in our advanced development pipeline and hope to be able to share some additional projects soon. I'd say we also remain cautiously optimistic on the environmental credit pricing environment.
Adam Comora: I'd say we also remain cautiously optimistic on the environmental credit pricing environment, both in terms of RIN pricing and LCFS pricing, as we do believe that there are positive structural changes that'll be implemented to the LCFS program. We're hopeful that the EPA is listening to industry in terms of where they set the volumes. I'd also say, as Ann was just mentioning, we do see some improving trends over the course of the year in our Fuel Station Services segment. We do think that there will be some timing pickups on the revenues there. If you look at our contracted backlog of about $56 million or so, typically that gets realized or recognized over 12 months. We're always signing up new business as well.
both in terms of RIN pricing and LCFS pricing, as we do believe that there are positive structural changes that will be implemented to the LCFS program. And we're hopeful that the EPA is listening to industry in terms of where they set the volumes.
of about 56 million or so. Typically that gets realized or recognized over 12 months and we're always signing up new business as well. So you can look at that on a quarterly run rate and perhaps think that there could be some timing pickup in that segment of the business.
Adam Comora: You can look at that on a quarterly run rate and perhaps think that there could be some timing pickup in that segment of the business. One thing I would also caution on is we are in early stages of our growth, and these projects, the new projects that are coming online and are commissioning are, if you have a 4, 6, 8-week delay in commissioning, that could potentially have what looks to be an outsized impact in a given quarter, when in reality, it's pretty immaterial to the long-term intrinsic value of this business. Especially considering these are typically at least 20-year life assets, and one of the things we love about the business is the recurring EBITDA and free cash flow nature once these projects are operational. We feel good about how we started out the year, and are not currently changing guidance.
You know, one thing I would also caution on is we are in early stage or early stages of our growth and these projects, the new projects that are coming online and we're in our commissioning.
you know, if you have a four, six, eight week delay in commissioning, that could potentially have, you know, what looks to be an outsized impact in a given quarter, when in reality, it's pretty immaterial to the long-term intrinsic value of this business, especially considering these are, you know, typically, you know, at least 20 year lives.
Marty Malloy: Okay. For my follow-up question, I wanted to ask about the Cummins 15-liter engine, as that enters the market. Could you maybe talk about the potential for that to add new customers for you all through your fuel stations and maybe what the impact is for some of your key customers in terms of the timing of how that enters their fleets?
And then for my follow-up question, I wanted to ask about the Cummins 15 liter engine and as that could you maybe, enters the market, could you maybe talk about
My follow up question I want to ask about the, the common 15 meter engine and as that could you maybe enters enters the market? Could you maybe talk about. The potential for that to add.
new customers for you all through your fuel stations and maybe what the impact is for some of your key customers in terms of the timing of how that enters their fleets? Yeah, it's a good question. We're really excited about that introduction. I should also say we're technologically agnostic to what...
Adam Comora: Yeah. It's a good question. We're really excited about that introduction. I should also say we're technologically agnostic to what trucks ultimately get adopted by our fleets. I think you guys are also aware that we're building some hydrogen fueling stations, the potential for an eRIN pathway could make renewable electricity really exciting for these fleets. We're looking at what it would take to build large-scale electric charging stations. As it pertains to the 15-liter engine, the reason why we're so excited about it is we do think it opens up a large segment of the over-the-road and logistics trucking population.
what it would take to build large-scale electric charging stations. But as it pertains to the 15-liter engine, the reason why we're so excited about it is we do think it opens up a large segment of the over-the-road and logistics trucking population. And quite frankly, the 12-liter engine has a huge impact on the
Adam Comora: Quite frankly, the 12-liter engine has been an enormous success for a lot of our customers, and we think the 15-liter likely improves upon that, both in terms of fuel economy and there were some over-the-road trucking firms that were concerned about driver satisfaction and didn't want to bring them from a 15-liter diesel engine into a 12-liter engine. We think that a lot of those companies are testing and looking to expand. We see the potential for a lot of broader adoption as that happens and we see more and more companies seeking out RNG for the sustainability benefits and the operational benefits for running those trucks. We think there's a real good opportunity to continue to expand into new customers, build out new fueling infrastructure, and quite frankly, the potential for pricing power given the financial discount that RNG currently enjoys over diesel.
has been an enormous success for a lot of our customers. And we think the 15 liter likely improved upon that, both in terms of fuel economy, and there were some over the road trucking firms that were concerned about driver satisfaction and didn't wanna bring them from a 15 liter diesel engine into a 12 liter engine. And we think that a lot of those companies are testing and looking to...
opportunity to continue to expand into new customers, build out new fueling infrastructure, and quite frankly, the potential for pricing power given the financial discount that R&G currently enjoys over diesel. So we think a lot of that attraction comes from the
Adam Comora: We think a lot of that attraction comes in H2 as people move through their testing, but see a lot of new opportunity for it.
Marty Malloy: Great. Thank you. I'll turn it back.
Jonathan Maurer: Thanks, Marty.
Operator: Our next question comes from Ryan Pfingst from B. Riley.
Ryan Pfingst: Hey, good morning, guys. Just to go back to something we spoke about a bit on the last call, were you able to provide any more color around the ITC embedded in your guidance for this year? If starting construction on the Polk and WM projects basically net out against the push out of the Sapphire project, would that be a good way to think about it?
The next question comes from Ryan Finkst from B Riley.
Hey, good morning guys. Just to go back to something we spoke about a bit on the last call. Are you able to provide any more color around the ITC embedded in your guidance for this year?
It started construction on the Polk and W. M. projects basically net out against the push out of the project. That'd be a good way to think about it.
Ann Anthony: Hey, Ryan, it's Ann. Again, we're still waiting for final guidance from IRS around ITC. I think, again, we would prefer to not really provide any additional color. On your second question, though, you can only claim the ITC once the project is actually deemed to be in service. I think there's still some guidance needed on exactly what that means from a facts and circumstances perspective. Given that we potentially would be putting it into construction into 2023, it wouldn't be finished in 2023. If anything, I think it potentially becomes additive in later years, but we won't see that benefit this year.
Hey Ryan, it's Ann. So again, we're still waiting for final guidance from IRS around ITC. So I think, again, we would prefer to not really provide any additional color. On your second question, though, you can only claim the ITC once the project is actually, you know,
And I think there's still some guidance needed on exactly what that means from a facts and circumstances perspective. But given that we, you know, potentially would be putting it into construction into 23, we wouldn't be finished in 23. So if anything, I think it potentially becomes additive in later years, but we won't see that benefit this year.
Jonathan Maurer: Ryan, this is John. I'll just add that similar to what Derrick said at the top of the question and answer period, that there is somewhat of an offset here by putting those projects into construction and putting them into construction sooner. We'll see some pickup there in timing relative to what we might have otherwise thought of somewhat offsetting the Sapphire delay, from a pure operations point of view.
into construction and putting them into construction sooner, we'll see some pickup there in timing relative to what we might have otherwise thought of someone offsetting the sapphire delay.
Ryan Pfingst: Right. All things equal, wouldn't Sapphire moving to 2024 then reduce the potential ITC benefit to be gained in 2023?
from a cure operation point. Right, so all things equal, wouldn't Sapphire moving to 24 then reduce the potential IPC.
From a care operation point Right so so all things equal wouldn't sapphire Moving to 24 then reduce the potential you see benefit
Right. So, so all things equal, wouldn't SAPPHIRE moving to 24 then reduce the potential IPC to be gained in 23?
Jonathan Maurer: Yes.
Ann Anthony: In theory, yes.
Ryan Pfingst: Okay, great. That's all for me, I'll turn it back. Thanks.
Jonathan Maurer: Thanks, Ryan.
Yes. Okay, great. That's all for me. I'll turn it back to you. Thanks, Brian . Our next question comes from William Griffin from UBS. Great, thanks very much. First question is just going back to the guidance. Could you.
Operator: Our next question comes from William Griffin from UBS.
William Griffin: Great. Thanks very much. First question is just going back to the guidance. Could you remind us what D3 RIN pricing assumption was embedded in the EBITDA guidance, and what would you need to hit the lower end?
remind us what D3 RIN pricing assumption was embedded in the EBITDA guidance and what would you need kind of to hit the lower end? Yeah, it's 225 is what was embedded in the guidance.
what D3 RIN pricing assumption was embedded in the EBITDA guidance and what would you need to hit the lower end? Yeah, 225 is what was embedded in the guidance.
Ann Anthony: Yeah. $2.25 is what was embedded in the guidance.
William Griffin: Got it. All right. Appreciate that. Then just on the permitting delays, could you just elaborate a little bit there on what the underlying issue is? Is there anything that can be done to improve the permitting process going forward, either on your end, or do you see it improving naturally over time?
Got it. All right. Appreciate that. And then just on the permitting delays, could you just elaborate a little bit there on kind of what the underlying issue is and is there anything that can be done to improve the permitting process going forward either on your end or do you see it improving naturally over time? Yeah, the one that impacted SAFIRE's timing was this issue of PFAS, which is relatively new.
Adam Comora: Yeah. The one that impacted Sapphire's timing was this issue of PFAS, which is relatively new issue that landfills are experiencing. Given that our projects sit on landfills and process landfill gas, I think depending on where you are, these permitting agencies wanted to take a look at it. It really just had to do with how to measure and test for PFAS coming off of our either renewable natural gas facilities. I think it's a little bit of a learning curve that was going on with this specific permitting agencies, and it looks like there is progress being made. That's really what impacted that permit.
issue that landfills are experiencing. And given that our projects sit on landfills and process landfill gas, I think, depending on where you are, these permitting agencies wanted to take a look at it.
And it really just has to do with how to measure and test for PFAS coming off of our either renewable natural gas facilities. So I think it's a little bit of a learning curve that was going on with this specific permitting agencies. And it looks like...
William Griffin: All right. I appreciate the time. Thank you.
Jonathan Maurer: Thanks, Will.
Operator: Our next question comes from Craig Shere from TD Cowen.
Craig Shere: Hi. Thanks for taking the questions. First on the eRINs opportunity, are there any PPAs on power projects would need to be broken to convert to the eRIN opportunity? Would you then need to share some of the windfall with landfill gas hosts?
Our next question comes from Craig Shearer from Thuy Brothers.
Hi, thanks for taking the questions.
So first on the ERIN opportunity, are there any PPAs on power projects that would need to be broken to convert to the ERIN opportunity? And would you then need to share some of the windfall with landfill gas hosts? This is John . Thanks for the question, Craig.
Jonathan Maurer: This is John. Thanks for the question, Craig. The final ruling about sharing with the landfill host is not really set. However, there's no requirement that you have to break a existing PPA to get the RIN. The RIN credit for eRINs is stackable on top of your existing PPA. We're comfortable with the way that it's been written, and we don't see any change coming to that.
Craig Shere: Great. Thanks for that. Did you see any temporary California gas market dislocation effect in Q1? To what extent are you seeing improving downstream pricing and margin opportunity given this wide delta between gas and diesel?
Great, thanks for that. And did you see any temporary California gas market dislocation effect in the first quarter? And to what extent are you seeing improving downstream pricing and margin opportunity given this wide delta between gas and diesel?
Adam Comora: Yeah. This is Adam Comora here. Yeah, I think as Dan was describing earlier, we do not have any impacts from volatility in natural gas prices. We don't have our downstream fueling contracts tied to a spread to diesel or any impact between those two commodities. Overall, our business has generally benefited from rising natural gas prices because we still get the fossil brown commodity value on the gas that we produce. From an overall marketing perspective for the downstream business, we benefit when natural gas prices are lower because then there's a better economic incentive to switch from diesel over to CNG or RNG. What we've been alluding to in previous presentations and conference calls is that renewable natural gas is currently basically priced as fossil natural gas for transportation fuel customers.
Yeah, this is Adam for here. Yeah, I think as they have been subscribing earlier we do not have any impacts from Volatility in natural gas prices. We don't have our downstream um, stream of fueling contracts tied to a spread to diesel or
any impact between those two commodities. Overall, our business has generally benefited from rising natural gas prices because we still get the fossil brown commodity value on the gas that we produce. From an overall marketing perspective for the downstream business.
We benefit when natural gas prices are lower because then there's a better economic incentive to switch from diesel over to CNG or RNG. And what we've been alluding to in previous presentations and conference calls is that renewable natural gas is currently basically pricing...
Adam Comora: All the value that we get from these molecules is really by creating these environmental credits and selling them to obligated parties. Because of the differential between natural gas and oil on an energy equivalency, that's where we're excited, where we feel like there's a little bit of pricing power and headroom as more and more fleets switch over and demand continues to build for RNG as that transportation fuel.
That's where we're excited where we feel like there's a little bit of pricing power and headroom as more and more fleets switch over and demand continues to build for RNG as that transportation fuel. For more information on RNG and RNG.org, visit www.rng.org
That's where we're excited where we feel like there's a little bit of pricing power and headroom as more and more fleets switch over and demand continues to build for RNG as that transportation fuel. Great. Thank you.
Craig Shere: Great. Thank you.
Operator: I would now like to turn it back to Adam Comora for closing remarks.
Adam Comora: Okay. We thank everybody for joining us today and your participation in the OPAL Fuels Q1 2023 earnings call. We look forward to continuing engagement and dialogue. I wish everybody to have a great day.
I would now like to turn it back to Adam Camorra for closing remarks. Okay. We thank everybody for joining us today and your participation in the Opal Fuels first quarter 2023 earnings call. We look forward to continuing engagement and dialogue and I wish everybody to have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
I have.
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