Q3 2023 OPAL Fuels Inc Earnings Call
Speaker 1: Good morning, and welcome to the Opal Fuel's third quarter 2023 earnings call-in webcast. At this time, all 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 need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. As a reminder, today's conference call is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to the Opel fuels third quarter 2023 earnings call and webcast.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone you will then hear an automated message advising your hand. This race to withdraw your question. Please press star one again.
As a reminder, today's conference call is being recorded I would now like to turn the call over to Todd Firestone Vice President of Investor Relations. Please go ahead.
Speaker 2: Thank you and good morning, everyone. Welcome to the Opal Fuels 3rd Quarter 2023 Earnings Conference Call. With me today are co-CEOs Adam Kimura and Jonathan Moore, Anne Anthony and Scott Contino, who will serve as Opal's Interim Chief Financial Officer.
Thank you and good morning, everyone welcome to the Apple fuels third quarter 2023 earnings Conference call with me today are co CEO of Alcoa and got the more NFC and Scott Casino, who will serve as <unk> interim Chief Financial Officer.
Speaker 2: Opal Fuels released financial and operating results for the third quarter 2023 yesterday afternoon, and those results are available on the investor relations section of our website at opalfuels.com.
<unk> released financial and operating results for the third quarter 2023 yesterday afternoon, and those results are available on the Investor Relations section of our website at <unk> Dot com.
Speaker 2: 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 and actual results could differ materially from what is contained in such statements.
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 and actual results could differ.
Materially from what is contained in such statements.
Factors that could cause or contribute to such differences are disclosed on slide two of three of our presentation.
These forward looking statements reflect our views as of the date of this call local appeal 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 a definition of non-GAAP measures used in the reconciliation of these measures to the nearest GAAP measure is included the appendix of the release and presentation.
Adam will begin today's call by providing an overview of the quarter's results recent highlights an update on strategic and operational priorities.
Tom will then give a commercial and business development update after which Scott will review financial results. We will then open the call for questions and now I'll turn the call over to Adam <unk> co CEO of <unk>.
Thank you Todd good morning, everyone and thank you for being here for Opel fuels third quarter 2023 earnings call.
First I would like to introduce Scott <unk>, who will serve as our interim CFO.
Scott has been with forward Istar for over 25 years and has worked with the Opel companies for all of that period Scott.
Scott was also CFO, Paul up until the spring of 2021, and he has an intimate knowledge of the business and the people we feel confident in his abilities to stand in while we continue our permanent CFO search.
Also want to thank Ann Anthony for her service and was instrumental in helping take Copel public in our capital raising initiatives, we wish her well in her future endeavors.
Moving on I'd like to highlight several points from this quarter's results and recent developments.
First in September we closed on a $500 million credit facility, which streamlines and simplifies our balance sheet and provides a clear funding pathway for our in construction projects in execution on the next phase of our growth plan.
Second we recently announced the joint venture with South Jersey industries to construct and operate R&D facilities.
We have started construction on the first project the Atlantic R&D facility in AG Harbor Township, New Jersey, we expect commercial operations to commence in mid 2025, we hope to expand this JV with additional projects shortly.
Third we brought online one of our largest R&D projects in North America, Our Emerald project in Michigan.
<unk>, 50% share of this $2 6 million Btu designed capacity facility is under our JV with GSO and have now through its ramp up period and have received its EPA pathway registration.
We anticipate generating returns and begin selling them in December.
For post the updated set rule in June when prices have continued to strengthen with prices now in the $3 50 per gallon range.
We think supply demand dynamics will continue to support constructive prices through year end and into 2024.
Finally, we are encouraged by the Green shoots we are seeing in the downstream fuel station service business based on very positive feedback from numerous major fleets testing the new common 15 liter natural gas engine, we spend a lot of time discussing our R&D production growth and trends on that side of the business, but there are significant potential.
For our fuel station services business to grow substantially over the next several years based on what we're seeing and hearing the Oems are just now starting to take orders for deliveries in the back half of 2024 and it is something we are starting to get excited about here at <unk> as we look to 2025 and beyond.
We also want to highlight several new disclosures after corresponding with the SEC, including separating the reporting of RMG pending monetization from adjusted EBITDA and additional disclosures regarding production capacity metric. These enhanced disclosures should aid investors and they are thinking about the near and long term earnings power.
Of the business.
For adjusted EBITDA, we will no longer be matching the value of the RMG and environmental credits we produce in the same period, we recognized after that production.
Revenue net income and adjusted EBITDA will now just reflect the credits that are sold and transferred into period.
RMG pending monetization now presented in a separate table includes the volume of stored gas, which we call R&D pending certification and the inventory of unsold environmental credits held for sale at the end of the period.
This table will also detail the environmental credit trading activity in a period.
John will elaborate later on the additional disclosures, we are providing regarding production capacity metrics, which will provide clarity on organic growth potential at our operating R&D facilities.
I'll turn it over to John.
Hi.
Thank you Adam and good morning, everyone.
We're pleased with our accomplishments this quarter importantly, we put the Emerald RMG project online as one of the largest facilities of its kind in the U S.
We now have eight RMG projects in operation with an annual design capacity of five 2 million btu more than tripling our capacity over the past two years.
Third quarter production continues to be aligned with expectations LNG production was $2 8 million <unk> used for the nine months ended September 32023, a one third increase from the same period last year.
In addition to our operating projects. We currently have six R&D projects in construction, representing an additional $4 4 million <unk>.
<unk> of design capacity.
As Adam mentioned, we added Atlantic our first SJI joint venture project to our in construction RMG portfolio.
This project will contribute $4 3 million Btu of annual design capacity net to Opel we.
We expect the Atlantic to commence commercial operations in mid 2025.
Moving on to our advanced development pipeline, we continue to make progress. We now have seven 9 million Btu of identified biogas and our advanced development pipeline, we continue to target, placing 2 million F&B to use of projects into construction in 2023.
Together, our operating and construction projects represent nine 6 million Btu of design capacity.
Adding in our advanced development pipeline, we have $17 5 million Btu.
Annual designed capacity in operations construction and advanced development.
This quarter, we are providing additional detail on how we measure the production output at our LNG and renewable power projects.
We have often discussed the annual design capacity of our facilities, which represents the amount of biogas. These facilities are designed to process.
We are now adding two new metrics.
Design capacity utilization and utilization of inlet gas.
And with design capacity utilization measures the percentage of quantity of gas available at the end of the diverse facilities compared with a design capacity of these facilities for the relevant period.
We generally expect our LNG facilities to begin somewhere in the 70% to 80% range of endless design capacity utilization and expect same store sales growth and increasing inland design capacity utilization rates as all of our R&D facilities aren't opening growing landfills and we continue to make improvements in gas.
Section at the well fields.
Second utilization of inlet gas measures, how productive we are in converting the gas coming into the RMG facility into product RMG.
It's simply the volume of actual production for a given period divided by the volume of inlet gas.
This metric should be relatively stable between 80% 90%.
With fluctuations based on the efficiency of the system.
Planned and unplanned downtime at the plant as.
As well as the quality of the gas E methane content.
Which can be aided by well fuel and gas collection management.
We think both of these metrics should clear up some details regarding the period end or year end design capacity statistics, and also give investors a sense of organic growth potential at our facilities.
I wanted to shift gears now and address construction delays that we've seen in the past.
We're pleased to report that we have obtained two major permits and as a result.
The timing associated with the completion of these construction projects.
Increased level of certainty.
In particular, we have received the air permits for both the Sapphire in pulp projects, which were major elements outside of our control.
As a result these projects are now on track to reach commercial operations in Q3, and Q4 next year respectively.
Prince William continues to be on track for Q1 2024 commercial operations as previously reported.
Before we move on to the financial results in the quarter I also want to take the opportunity to say thank you to an XI was a pleasure to work with and perhaps and can say a few words before we pass the call over to our interim CFO Scott container.
Sure.
Thank you John and Adam and good morning, everyone I wanted to take a minute to thank everyone. I have worked with both within alcohol and externally.
It's been a very rewarding experience to see such an exciting transformation.
Such a short period of time I wish everyone. The very best of luck and we'll continue this year you won from the sidelines I hope that I get a chance to work with all of you again very soon.
Great. Thanks, again, and with that I'll turn it over to Scott to go a little more detail on the financial results.
Thank you John and good morning to all the participants on today's call.
Last night, we filed our earnings press release, which details our quarterly results for the period ending September 32023, our 10-Q will be filed later today.
The biggest driver of the quarter's results was environmental attribute pricing and the monetization of <unk> and inventory.
Looking at the third quarter results compared to the second quarter of 2023, RMG production increased two zero point $7 million in Btu's from 0.6 million F&B to use.
The increase is largely due to increased inlet design capacity utilization and utilization of inlet gas.
Along with a partial month of startup at Emerald.
<unk> production was $2 1 million F&B to use for the nine months ended September 32023, compared to $1 5 million and <unk> to use for the comparable period last year.
Revenue in the third quarter was $71 million as compared to $55 million in the second quarter.
The main driver of the higher revenues was the sale of $8 4 million Rins at an average realized sales price of $2 83 per gallon.
As compared to the second quarter, where we elected to delay selling in a depressed <unk> price environment.
Net income for the third quarter with zero point $2 million as compared to $114 1 million in the second quarter excluding.
Excluding the second quarter's onetime gain on deconsolidation third quarter net income was $9 million greater than the second quarter's $8 8 million net loss.
Again, the main driver was the greater sale of Rins.
In contrast to prior disclosures, we are now reporting RMG pending monetization separately from adjusted EBITDA.
This value will vary each quarter, depending on how much we ultimately produce and sell.
We will continue to provide our quarter end value of RMG pending monetization.
Based on our quarter end price of <unk>, and <unk> credits, showing a net value to Opel after consideration of costs, such as royalties dispensing fees et cetera.
Adjusted EBITDA was $16 $5 million in the third quarter.
A reconciliation to GAAP results is provided in our earnings release from yesterday, and our Investor presentation updated this morning on our website.
The quarter was negatively impacted by approximately $1 $6 million of project ramp up expenses that were not capitalized and other project development and legal fees also not capitalized.
We will discuss the impacts of excluding RMG pending monetization for full year 2023 guidance shortly but first I want to mention a couple of other drivers of financial performance in the quarter.
The fuel station services segment dispensed $33 1 million <unk> in the third quarter, including service volumes.
Revenues for this segment increased to $37 3 million for the third quarter as compared to $30 million in the second quarter.
This increase in revenue was primarily the result of increased RIN sales and the segment results continued the trend of improving margins.
Renewable power revenues decreased to $13 7 million for the quarter from $14 five.
$5 million in the second quarter.
This was primarily due to reduced Arbor hills revenues as emeralds came online.
As Adam mentioned in September we entered into a $500 million senior secured credit facility.
The credit agreement provides up to $450 million of term loans over an 18 month draw period and $50 million of revolving credit.
As of September 32023, approximately $164 million was drawn down on the facility.
As of September 32023, liquidity was $360 million, consisting of $327 million of availability under the credit facility.
And $33 million of cash cash equivalents and short term investments.
As a result, we feel good about our capital position to execute on our growth plan to take advantage of strengthening end markets.
At current RIN prices, we expect our full year 2023, adjusted EBITDA guidance to be in the 60% to $63 million range and RMG production to range from two seven to $2 9 million and then be to us.
Our adjusted EBITDA guidance includes the anticipated receipt of $8 million to $9 million of ITC sale proceeds in the fourth quarter.
This represents approximately 80% of the ITC proceeds from our share of the Emerald project with the balance anticipated in 2024.
As we've mentioned the estimated range for adjusted EBITDA excludes the value of RMG pending monetization, which we expect to be in the 20% to $22 million range.
Our reduced production guidance from our March guidance expectations as resulted from previously reported plant start delays at both Emerald and Prince William and not production levels from operating facilities.
Plant start delays also shifted some ITC sales into 2024.
With that I'll turn it back to John for concluding remarks.
In closing we are pleased with the continuing success in the execution of our business plan.
We are aided by multiple <unk>, including continued industry consolidation.
And we have the capital in place to take advantage of these opportunities creating value for our stakeholders.
We remain committed to furthering <unk> vertically integrated mission.
To build and operate best in class LNG facilities that deliver industry, leading reliable and cost effective RMG solutions to displace fossil fuels and mitigate climate change and.
With that I will turn the call over to the operator for Q&A.
You all for your interest in <unk>.
Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered it was to move yourself from the queue. Please press star one again, we will pause while we compile the Q&A roster.
Yes.
Our first question comes from Derrick Whitfield with Stifel. Your line is open.
Good morning, and congrats on your operational progress with them relevant and Atlantic and best wishes to you on your future endeavors.
Thanks, Eric.
For my first question I wanted to focus on the implied EBITDA ramp to $42 million in Q4 could you speak to the project ITC and RIN drivers specifically for Q4, and then more broadly speak to how you plan to manage the monetization of your RIN Bank, which to your credit has only increased in value year to date as shown on slide 19.
<unk>.
Yeah. Thanks Derrick.
It's Martin here and a couple of things on the guidance.
For the fourth quarter, which is in the 40% to $42 million range.
We are including the air.
The sale.
ICT proceeds from the project its important to note the $8 million to $9 million that we referenced there is about 80% of the proceeds we expect to receive from that with the remaining 20%.
From those ITC proceeds.
24.
The other piece that's driving.
Large sequential increase in EBITDA in the fourth quarter is also the continued monetization of the ratings that we generated.
I would just caution folks when we show the $5 million of brands at the end of the third quarter. There was a forward sale contract on the majority of that around $3 per RIN.
So we're anticipating selling.
<unk> been active selling the remaining of the reason that maybe that are getting introduced.
Throughout the balance of the fourth quarter.
And.
Those are the primary drivers in the fourth quarter.
That's great in terms.
In terms of Rvs are in terms of our in monetization thoughts going forward.
I would say that I think that the.
The marine market is behaving.
And we would expect.
With the updated guidance on the <unk>.
And we think we're going to be the normalized rins monetization strategy, which we basically.
Im trying to transact or put forward sales is in place.
As we produce the returns and we really think.
Sort of holding ratings.
And having some of that volatility to report that from quarter to quarter.
Should normalize as as we move forward, we have not seen a lot of trading activity on.
On the 2020 fours, we expect that really just started earnest over the coming weeks and months ourselves and.
As we mentioned in our commentary.
The supply and demand fundamentals look good for <unk>.
And.
It's our expectation that we should see this constructive pricing continuing into 2024.
Thanks for the added detail Adam certainly agree with your thoughts on the macro side.
For my follow up I really wanted to focus on the competitive landscape for <unk> and the recent Mario transaction on.
On the one hand Morrow highlights your stock is undervalued based on your online and construction polyps alone on the other hand, it paints a more competitive backdrop for the dearth of your ADP.
Love your take on both sides of the coin.
Eric This is John so.
We're really excited about our positioning.
Positioning here that transaction really set.
Or reestablish the mark of kind of a <unk> multiple on a company that.
<unk> has 5 million maybe to use a projects.
And without a lot of growth opportunity and certainly without the same downstream opportunities we have in our advanced development pipeline.
So.
<unk> continues to be constructive and positive in terms of the environment out in the industry.
When we look at the competitive landscape, we really think of.
The.
Excellence in execution as really being a differentiating factor.
So we are not.
Troubled by the consolidation, we're actually encouraged by it.
And.
At the same time, we continue to look at opportunities ourselves the $500 million credit facility and other liquidity that we have.
It really gives us a little bit of ability to continue to look for growth opportunities our advanced development pipeline.
<unk>.
In good shape and growing and really the relationships that we have with our counterparties.
<unk>.
I think helps with all of that growth.
Maybe Adam you'd like to add a little bit yes.
Couple of quick follow ups there.
<unk>.
We put together oval fuels and really embarked on our on our business strategy.
We had a belief that transportation fuel is going to be the highest value of this R&D product and.
That reshaped guidance out of the EPA in June, which really sets the stage for transportation youll be very attractive for the next three years.
Our vertical integration really comes into play as a lot of the.
Landfill owners or feedstock, what youre thinking about that.
Aligning themselves with folks that can create the most value from the product so.
I think that vertical integration continues to be impactful as we are competing for new business I would say the fact that we've got the capital in place also gives confidence to our new partners to continue to work with us and assign us gas rights and although it was a lot of work putting together a lot of as you disclose.
<unk> crowd arc.
Operating metrics and that sort of thing I don't think thats going to be Differentiators, where where you look at the projects that <unk>.
<unk> put us online and operates I think that also gives.
Counterparties in a lot of confidence.
Aligned with somebody that is going to get a project built and it's going to operate efficiently and effectively and see that also grow those projects organically by continuing to.
Do really good work at the well field two inch.
Increased gas collection and inefficiencies as well so I think all of those things still stack up really well for us.
That's great color. Thanks for your comment and the disclosures as well.
One moment for our next question.
Our next question comes from Matthew Blair with Tpa to your line is open.
Hey, good morning, and thank you for taking my questions. Adam you mentioned the three.
<unk>, probably demand on our numbers it looks like it will be around $100 million RIN short for 2023.
Can I ask you what happens in that scenario do you think the EPA brings back the cellulosic waiver credit or is there a possibility that EPA might I guess retroactively reduce the 2023 RVO for <unk> okay.
Any thoughts would be appreciated.
Yes.
Question.
Thank you your math although.
Yes.
No exact number will be $100 million or not and refiners are able to carry forward.
Later obligation into the following year. So if the market is ends up being short in 2020 threes.
What allowed us obligated parties could use almost all of it some of these obligations.
And tried to purchase additional 2020 fours.
And it does look like the market.
We remain tight through 'twenty four 'twenty five.
What how the EPA may ultimately address that.
We will see I don't think theres going to be any actions or the EPA until we get really into the meet in March 2024, I don't think theyre going to take any actions until you really see how all of those production figures lineup with the ultimate Rvo's and.
We'll see.
Labour credit mechanism that comes in place more ore and they were thinking about different ways to alleviate.
On a supply shortfall it wouldn't surprise us if at some point towards the end of 2004, if the industry is short EPA looks at something.
But.
For now.
That price cap mechanism does not exist.
And you sort of agree with you in terms of supply and demand fundamentals.
Let me just add that clearly the EPA is trying to encourage growth in the cellulosic sector.
So.
Everything Adams.
Spot on.
I, just think that stance by the EPA kind of mitigates any premature.
Yes, yes. Thank you John for Eylea in <unk> I think it's I think it's really important when you look at the EPA in all of their.
Tax that they break around the RVO several cellulosic biofuels is a core tenant of the renewable fuel standard.
It's really where they're trying to push growth in investment and.
We see that support continuing.
And.
Will.
We'll leave it at that.
Sounds good thanks for all the color and then can I ask why do you plan to end the year with the $20 million to $22 million backlog of of rooms, and the <unk> is that a is that a play on future expected future increases in prices for 'twenty.
24 or is that just kind of a typical timing lag and if so we would expect.
A similar backlog each quarter going forward, yes, thats a good question.
Our embedded guidance, we're assuming that we are.
And selling.
The reason that we're producing.
For the balance of the year and that in that ending year balance will really be based.
RMG.
Pending monetization that need a cost that we incurred December to produce all that gas gets dispatched in December and then you get your ratings to positive in January and.
We're going to continue to disclose salt, which matches the value.
The R&D that we're producing in a period, where the costs are incurred.
Two.
We don't provide that sort of clarity and granularity in current period of economic activity and I'll. Just give you. One example of that as we as we think about and look towards 2024.
We did a terrific job.
Our Emerald project certified really quickly in order to be able to understand and meet.
Brands.
Here in December and we've got our pulp project coming online in the fourth quarter of next year and.
That provides an example here.
In the fourth quarter of.
Next year, we will see if we can get those ready certified and a similar kind of timeframe.
John.
If for whatever reason you don't get you re certification.
Those rates, we still experience.
Couple of months of production cost Thats why were still detailing that you're outlining itself for 2023.
<unk>.
That figure that we're highlighting towards the end of the year does represent DRG that was produced and the cost incurred.
Currently forecasted are in Dallas based on where we see pricing going.
Got it thank you.
One moment for our next question.
Yes.
Our next question comes from Ryan Fingers with B Riley Your line is open.
Yes, thanks for taking my questions guys.
So what's next year expect it to be busy as several projects likely come online can.
Can you talk a little bit about capex and potential IPC expectations for 'twenty four.
Well, we're not going to give you some specific guidance for capex.
Just yet we'll do that when we can provide our full year 2020 for guidance.
I would say is as you as you see our projects coming online with <unk>. It's.
It's rational to expect that we could be receiving ITC proceeds within 30 days 45 days, we're hopeful of that.
It's a.
Fluid process at that point, as we're establishing our documentation and that sort of thing so.
We'll give some ITC.
Yeah.
Our guidance, while we also give our 2024 numbers.
I think that answers your question.
Got it thank you.
And then you noted that the reduced production guidance stems more from the project delays than operating asset but.
Curious of your operating assets.
Weather related or other issues that might affect production.
Production at those facilities.
No.
So our operating assets continue to produce extremely well.
We have.
<unk>.
<unk> really built a great team.
Gas collection experts that get the gas into the facility.
Operating experts who operated at a high degree of.
Utilization for each of the projects we're seeing.
Really good availability and efficiency numbers across our projects and really great.
Prospects for maintaining that efficiency.
<unk> growth there so the projects are operating well.
I think.
The point that you mentioned about delays, which are mostly behind us now for several of the major projects.
Is right about in terms of timing of certain aspects, but we're on track with our principal aim project for the first quarter.
And we're excited about the project coming online we're excited about the.
Back then we got our permits.
The sapphire and pulp projects, which really helped to anchor those projects in the third quarter and fourth quarter respectively.
We continue.
With the Atlantic project in construction.
For the middle of 2025.
For future projects with that SJI partnership.
So really really happy about the operations of our projects.
As these projects go through construction.
There's a little bit of variability in timing, but.
That tends to be small and.
And identifiable.
Excellent I appreciate all that color I will turn it back.
Sure. Thanks, Brian.
One of them for our next question.
Our next question comes from Martin Malloy with Johnson Rice <unk> Company. Your line is open.
Good morning wanted to ask about the.
Impact of the coming 15 leader.
As you look out to 'twenty, four 'twenty, five and build out of your stations and throughput there based on the.
Conversations youre, having with the customers.
Yes, Greg Martin This is Adam here.
Yes.
I think I mentioned in.
Earlier.
John.
And the feedback has been really strong so far and I just want to give you a little bit of a flavor here on this call and 16 liter engine, where the 12 liter engine. When that was first introduced here with the JV between comments in Westport.
And.
All of that all that development effort was really funded at the JV level.
$30 million to $40 million.
Engineering work.
And maybe not quite as much.
Aftermarket support and that sort of thing and after that that JV then expired. After 10 years Cowen has got all of that technology and that is now and what you had that JV. Originally you a 15 meter rollout because it would appear.
Comments original 15 liter diesel engine now that Collins has taken that entire product in line and owns a 100% of that technology. They are going full bore behind this 15 year natural gas I think they spent about 450 $500 million retooling their teams town plant off for it.
They've got.
All of our engineering muscle and support behind it and the feedback has been really positive so far where that 15 Peter.
Not only is going to produce operational savings just by <unk>, but for these fleets and then be able to affirm our LNG and had zero scope one scope two emissions, it's a really powerful product.
And.
I also want to temper some enthusiasm here because he said what about 2020 for their job taking the orders right now the Oems for deliveries to starting to enter the back.
Half of 2024, so it's all going to be a material impact to our 2024 numbers in terms of fuel station services, but we expect to see a lot of business development activity over the next 12 months as it really starts getting deployed into 'twenty five 'twenty six and.
Yes.
There are a lot of folks out there thinking that that product could reach 8%, 10% market share and they certainly got the capability at.
They are out there.
Manufacturing plant to hit those kinds of numbers today quite frankly.
So yes.
That would be a tripling of how many of those new trucks go on the road each year.
Which you don't really has.
Implications for our fuel safety service business in terms of what that could be looking like in 'twenty five 'twenty six 'twenty data and the product is doing really well in China right. Now I think they are up to about 25000 engines or sell in China. So we're excited about it and.
Recall any green shoots right now.
Know how wall Street works and everybody wants to know about next quarter.
So this is what it looks like it's.
Got it.
Could be impactful as we look at 'twenty five 'twenty six 'twenty seven next Wednesday.
Great. Thank you.
That's very helpful and for my follow up question, just a modeling question, but wanted.
Trying to find out how the ITC is likely going to come into the income statement is it going to be a contra account for the cost of sales for the RMG feel.
We're currently anticipating.
And it can be brought into net income when we receive.
We haven't done we haven't.
We completed the transaction yet so.
But that's our current expectation.
Yes. So just a reminder, here these are cash proceeds that come into the company. So it is it is it is cash flow.
I think I think there was some other folks out there that have recognized it as current period income that's our best thinking right now and.
As you think about that as well.
<unk> folks that this is an earnings stream that will go through at least 2027, where we're going to have our ITC sales starting in the fourth quarter, we're going to have.
The same thing next year in 'twenty four 'twenty five we'll also have ITC proceeds and that will also have production tax credits and a 45 day. So this is a program that will last through at least 2027.
And.
It is.
<unk>.
It's it's not insignificant in terms of cash flow that will be provided to the business as we think about continuing to fund their capital program.
Great. Thank you for taking my questions I will turn it back.
One moment for our next question.
Our next question comes from William Griffin with UBS. Your line is open.
Great. Thanks, very much first question just wondering if you could walk us through the change with the impact on the 2023 EBITDA guide and what.
<unk> would have been if not for the accounting change in the R&D pending monetization.
Yes.
So this is Adam here I would say.
The real two big impacts to our adjusted EBITDA guidance will actually be the three the first is separating out of value.
<unk>.
Credits held for sale.
And the R&D that we produce.
<unk> incurred the cost more so.
Obviously the biggest driver.
For our new adjusted EBITDA guidance, and if you look at our guidance in totality normalizing for.
For that separation of that value.
Out of adjusted EBITDA.
The biggest factor has been price prices and better than we originally guided to.
<unk>.
If you do the math on all of our.
Original production guidance.
That would have driven.
EBITDA outperformance.
In.
In the mid 20 range of EBITDA and then we had production and then we had delays in the startup of those facilities, where our operating.
Projects in our production forecast and the delays probably dropped our production.
In that in that six to 700000 Btu range, which basically.
Took away the vast majority of <unk>.
Price impact and then those delays also impacted the ITC sales that we were talking about and.
It is.
A couple of million dollars from Emerald that flips into 'twenty four.
The biofuel project that we had invested in our now monetizing their ITC in 24 versus <unk> 23, and we had assumed some level of that Prince William ITC Thats now.
Slipped into 2004, so on balance 23, it looks like better price delays costing us in some production and some ITC, which is at the ITC really delayed into 'twenty forward versus 23, and if you look at our third quarter.
You can see what our RMG pegging monetization value was in the third quarter versus the second quarter, which was basically flattish so no real change to the.
Third quarter, I don't think per se, but it but for the full year you can see what that impact was.
Got it I appreciate that color.
And then just as a follow up here I saw on the press release.
Noted a change order dispute with an EPC curious if thats specific to the dairy assets and are you starting to see cost inflation, perhaps getting ahead of you expect patients here.
So this is John that's kind of a two part two parter there.
This is very specific to a single dairy project out in California.
With regard to.
<unk>.
<unk>.
Change orders that we're seeing from our EPC contractor out there.
It's essentially related to.
The.
<unk>.
There've been a number of changes to the.
Upgrader facility, there and the costs associated with it.
Provider of the equipment.
That's really caused the EPC provider a little sure they're asking for increased.
Compensation associated with those projects and those that increased compensation as a matter of current discussion.
We see that with a resolution of that coming up and we have line of sight to that resolution.
These projects will continue on their current pace towards Q3 and Q4.
Respectively.
Okay.
What was the second half of your question William.
Sure Yes, it was just.
Wondering if that's maybe for shadowing cost inflation cost inflation no. It's not it's not it has to do there absolutely is cost inflation, so let's not.
Pretend that there isn't but this one is not related to cost inflation and this one is just related to the actual procurement of equipment and difficulties that the EPC provider is having with that we're happy with that.
All of that procurement is.
Underway and completed.
That.
Sure.
Not really associated with cost inflation, but the cost inflation piece is.
Real because.
A lot of the trades whether there.
The <unk>.
Engineering or the.
Civil or the electrical contractors are seeing substantial increase in costs and trying to pass that through so.
We're definitely seeing upward pressure.
And some of our equipment providers to <unk>.
Seeing that so.
We're definitely evaluating the equipment we use.
And.
How we procure that I will say that when we choose the equipment.
We really leaned towards equipment that has a very high degree of.
Reliability and efficiency.
<unk>.
One of our highest priorities and building projects is to make sure that when we turn those projects on that they work and work well and we've seen that in project over project Emerald project, which started putting gas in the pipeline in the middle of September is now largely through its ramp up period.
That is.
In our book.
SaaS period getting the.
Certification from the EPA this month.
Allowing us to dispense gas and.
In December for sale of Rins in December really kind of points to a team that's kind of running on all cylinders.
And just to reiterate.
Building projects that work.
Only thing I'd add there is.
We are always trying to figure out ways to do things more efficiently and there's no doubt as inflationary pressures on the cost of these projects and at the same time.
We're still finding really good projects at those.
Three to four build multiples.
We are in the mode of making sure that these projects are going to work and work correctly.
And that's really our primary objective what we're building. These plants. Just a reminder, these are 20% to 25 year assets and after you build them don't really require additional capital expenditure, if you build up correctly and.
And that's really our primary objective.
But we do see some opportunities where we're hopeful that we can start.
Fighting back some of those inflationary pressures that we saw.
Great appreciate the time thank you.
Thanks, Tom.
One moment for our next question.
Okay.
Our next question comes from Adam <unk> with Goldman Sachs. Your line is open.
Hi, Thanks for taking my question.
Nice to see the timing around commercial operations and construction projects remaining.
On track can you just help us think about timing between when a plant is commissioned until it starts.
Contributing to turning some of the players in the industry have talked about a lag between plant commissioning commissioning and earnings contribution as a result of Rems certification and calibrating the right quality of gas so.
Just trying to understand what that looks like for you folks.
Sure Adam This is John so thank you for the question.
That's a little bit what I was trying to get out.
My prior answer so we started putting gas as soon as we start putting gas into the pipeline.
For the most part that is going to be.
Future revenue associated with the projects, so that gas kind of get stored.
And we file for you take gas samples.
And use those gas samples to file for certification.
And that certification can take.
Six to eight weeks perhaps.
So that's what we saw the certification come.
For a project that started producing in the middle of September we got a certification in early November.
So so that represents the first lag if you will.
Let's say.
Five or six weeks, perhaps and then the second one is.
With regard to dispensing and.
Creation of the credits.
And so when we spent in November.
Those credits will show up in our account in December.
Really the end of December.
There'll be available for sale at that time.
<unk>.
If we either have a forward sales agreement in place or we otherwise sell those credits at that time, we can then recognize that.
Income.
At that time, so now we're talking about.
Three months past.
And then receipt of the cash associated with that sale.
Perhaps a week later or something like that so if we make a yearend sale, but cash might show up.
The next month after that but does that help with the timing.
Yeah that color was very helpful. Much appreciate it.
Then my follow up I was wondering if you could just provide any more color on the specific projects in the advanced pipeline.
Expectations for some of the more near term opportunities to be put in into construction, particularly interested in hearing if there is any visibility on the timing of the second STI partnership facility and the.
Wm part partnership project as well.
Okay. So great so yes.
I'll take that so.
We are definitely.
Cited about our advanced development pipeline and continue to look at $2 million to use in construction this year.
As our target.
We're working on multiple opportunities that are very attractive and these opportunities that we see are really the result of strengthening relationships across the industry.
You've seen US report on some waste management projects, we continue to report on GSL.
Partnership the Emerald.
Project being a.
Poster child of that relationship and the relationship continues to grow.
Just on the upstream side, but on the downstream side as well with additional <unk>.
Dispensing that we do for Tfl.
But now as you pointed out.
Outside of landfill owners.
Other strategic partners.
SJI, particularly once too.
Invest in this industry and see.
De carbonization of their pipeline network and so by investing in projects like these landfill projects on binding partners, who can really execute on those opportunities.
It is really going to be helpful for them and it's really a case of.
Where one plus one can make three where they can get benefits to them and we can execute on further opportunities. We did put the Atlantic project into construction and we see additional opportunities coming from that relationship.
Really.
Sure.
The stars continued to align in that area.
That advanced development pipeline.
<unk> really represents the opportunities that are before us great development team.
<unk>.
We continue to work on that Adam maybe you want to add something yes.
In order to for somebody to move from advanced development pipeline into construction, you really need a gas.
Our pipeline interconnect agreement in place to place the gaps you need your completed RMG gas rights agreement.
Could include a partnership documentation and then we need the final design.
Facility.
DTC contract that goes with it.
Long lead time.
Longer lead time equipment, and we've got all sorts of flavors of those as we're trying to get across the finish line here.
Why don't we maybe have the gas agreement kind of design of the facility and waiting for the interconnect agreement.
And another project.
We've got the EPC, we've got our partnership partnership dock lined up and maybe there is an amendment that needs to go through a municipality, where youre trying to get on the schedule for permitting so they all have their little flavors to it but really feel good about a number of these opportunities moving forward.
Great. Thanks, so much.
One moment for our next question.
Okay.
Our next question comes from Craig Shere with Tuohy Brothers. Your line is open.
Good morning.
Thanks for squeezing me in and congratulations on the progress with the construction.
<unk> and development portfolio.
Want to I'll, just keep it simple since we're at the bottom of the hour.
Just wanted to dig in a little more to Ryan Adams.
<unk> around project delays and first project.
<unk> timing.
It seems that peers have been talking about more systemic delays of quarters up to 18 months versus the outlook a year ago as the industry sees a variety of issues from site permitting RMG certification that you talked about supply chain pipeline connection issues.
Many of which are all being impacted by broader labor concerns.
But you are kind of describing.
Like some some.
<unk>.
Small limited variability in project timing at this point.
Which is good but I'm trying to understand why perhaps you remain so confident about the.
Execution of the future project portfolio growth.
Online versus what many in the industry are talking about.
Sure. This is John I'll start on that so.
Essentially.
The principal thing that we do when we enter into construction as we.
Start with an EPC contract as Adam was saying a minute ago.
While we don't have all of our permits at the time that we enter into that contract.
We have a.
General understanding of what that permit processes and.
Likewise on the pipeline.
We generally make sure that we have pipeline options open to us, while maybe not 100% committed.
At the time that we start construction that we have clear cut pipeline options. So.
So the timeframe that we're seeing.
Is really an 18 month or so timeframe from when we pull the trigger to start construction and remember when we say store construction, that's putting in long lead orders that's doing engineering work.
To finalize engineering for other components in the.
The actual site construction isn't really scheduled to start four six or eight months into a construction project.
So.
We really contemplate that permits can be acquired during that timeframe. We did see for example at the Emerald project.
Our.
Air permit took a little bit longer.
The electric interconnection took a little bit longer so that a June project ended up being a September project.
But the project came right in on budget.
Terms of what we were expecting and what we actually achieved.
We look to the pulp project is another example of timeframe, we put that into construction in June of this year and we're seeing that that project is on track for Q4.
We think kind of earlier in Q4, but.
So that would keep to that 18 month timeframe that we're talking about here.
And that includes the procurement of all of our major components.
The civil contracting the.
Electric contracting work and the commissioning so when we bring a project online.
At commissioning.
It usually starts a couple.
Months or so before the project starts to deliver gas into the pipeline and then as we kind of mentioned on Adam's question earlier.
Once the project delivers gas into the pipeline, we're able to grab a gas sample and start the RIN certification process.
To start selling some of the storage gas that's produced during the ramp up period ramp up period can be.
No.
As long as <unk>.
Three four or five month period, but as we do more projects and our team gets better at it ramp up period.
Can be shortened as we can see we're two months into the Emerald project and substantially through that ramp up period now. So we're kind of pleased with how it's going we understand what other people are experiencing in the industry.
Other.
People tell us of the difficulties they are having but we think that.
Perhaps.
The expertise of our team and the experience of our team that we're able to keep those timelines fairly well defined.
Adam was there anything but one of them.
Sorry, I was just going to add that.
With that.
One of the Differentiators, we feel like we have here at <unk> is being able to execute.
And and.
Listen there could be months.
Two here or there but.
We feel confident and good about the timelines that we set out for the things that are in construction.
If I could just clarify in my mind youre answering them.
Very helpful.
Shared it sounds like you have.
At.
A high bar.
Two setting of projects in construction and planning and APC contract and the initial orders for <unk>.
A long lead time items, because it sounds like Youre, saying look we don't have the permits in hand, and the pipeline connection and such but.
We've already teed up this process, we're not starting from square one we won't clinical with FIV and analysis and signed an EPC unless there's other things are kind of the ducks in a row not complete but but so maybe you have a.
A higher standard than some some industry.
Protocol.
I think it's important let me just start Adam I think it's really important and Craig.
You point out a really good point, when we talk about projects going into construction. This is not.
We don't say that lightly.
As Adam was talking about earlier.
It starts with having executed gas rights agreement, who has we take that.
And we do.
A really complete analysis of the landfill gas that's available every project's different the quality of the landfill and landfill gas is going to be different than really define different style of design for a project we take that.
Combine that with what our pipeline options are.
And we look at.
Really what the best design is going to be for this project.
And then we work with our EPC contractor to to get that design.
We consider all of the permits that are going to be required for this.
And so when we put our project into construction.
We have a high degree of confidence that the project is going to be built it's going to be built well built substantially on the timeframe that we say and when the project comes online it's going to work.
And I think Thats really important Adam if you want to add something to that I think you covered it John.
Thank you.
One moment for our next Craig.
Thanks, so much.
Our next question comes from Brian <unk> with Scotia Bank. Your line is open.
Hey, Thank you for taking my question I just had one.
One.
So.
I have a question on the <unk> segment revenue.
If we look at <unk> compared to <unk>.