Q3 2024 OPAL Fuels Inc Earnings Call
Thank you for watching!
Adjusted EBITDA was $31 1 million in the third quarter compared to $16 5 million in the third quarter of 2023.
Partially driven by the timing of environmental credit sales.
A reconciliation to GAAP results is provided in our earnings release from yesterday and in our Investor presentation updated this morning on our website.
As a reminder.
Tinder, we've added project development and startup costs as a separate line item on the income statement to reflect costs associated with projects that are in pre construction.
<unk> in startup phase.
This quarter's adjusted EBITDA includes a $3 8 million add back of certain project development and startup costs that are incremental to the ongoing operational expense with respect to the principally in virtual pipeline.
These costs are temporary in nature and expect it to be incurred until mid 2025.
The total virtual pipeline costs are included in the project development and startup costs line item on the income statement.
And the add back to adjusted EBITDA.
RMG fuel segment revenue was $25 9 million for the third quarter as compared to $20 $1 million in the third quarter 2023, primarily due to the addition of our Prince William RMG facility.
Youll station services segment revenue was $45 4 million for the third quarter.
As compared to $37 $3 million in the third quarter of 2023.
The increase in revenues was primarily the result of increased R&D and marketing fees increased construction and service revenue.
Renewable power revenue.
Was $12 8 million for the quarter compared to $13 7 million in the third quarter of 2023.
Year to date capital expenditures were $95 $6 million, which includes $22 $8 million.
Relating to equity method investments and $16 2 million associated with downstream stations.
Our senior secured credit facility provides up to $450 million of term loans over an 18 month draw period and $50 million of revolving credit.
As of September 32020 for $231 $6 million was drawn down on the facility and we have utilized $14 $1 million of our revolver availability to issue letters of credit.
As of September 32020 for liquidity was $285 $3 million, consisting of $254 3 million of availability under the credit facility and.
And $31 million of cash cash equivalents and short term investments.
We believe our liquidity and anticipated cash flows from operations are sufficient to meet our existing funding needs.
As Adam and John discussed we are maintaining our current 2020 for guidance.
Speaker Change: I'll now turn it back to John for concluding remarks.
John: In closing we are happy with this quarter's results, we remain committed to furthering opel's vertically integrated mission.
Together with our partners to build and operate best in class biogas capture and conversion projects that deliver industry, leading reliable and cost effective low carbon intensity energy products that displace fossil fuels and mitigate climate change.
Speaker Change: And with that I'll turn the call over to the operator for Q&A.
Speaker Change: Thank you all for your interest in Opal fuels.
Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you will need to press star one on one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Wait well assemble the roster.
Speaker Change: Our first question comes from the line of Matthew Blair of TBH. The line is now open.
Matthew Blair: Thank you and good morning, Adam I. Appreciate your initial comment from the election, maybe you can dig into that a little bit more how much risk you see to areas like the <unk> RVO and the ITC.
From from the election results.
Speaker Change: I think the general take is that the election results are negative for renewable fuels, but I'm curious are there any silver linings here are there any areas like permitting that could get a little bit easier.
Going forward. Thank you.
Speaker Change: I appreciate that question, Matt and thanks for.
Speaker Change: Thanks for joining the call. So a couple of things on the election outcome. I guess your first question regarding <unk> RVO volumes I think theres a couple of important things to remember.
Speaker Change: First is.
Speaker Change: Okay.
Speaker Change: We don't think that there really is liquid biofuel opposition or.
Speaker Change: Anything within some of the other stronger Republican can state constituencies regarding <unk> volumes.
We're actually aligned with a lot of those same participants in the renewable fuel standard where they want to see strong three RVO volumes because if those volumes are set too low then you have the potential impact of <unk> is going down into those liquid RIN market. So.
Speaker Change: And all of our discussions with the other folks in the RFS everybody supportive of strong <unk> volumes second thing I would say is that the statutory.
Speaker Change: Objective of the renewable fuel standard is 16 billion Cellulosic <unk> so in some sense.
Speaker Change: We think and Thats been reiterated time and time again, so we think in some sense the Chevron Doctor maybe supports.
The continued growth and growing.
Speaker Change: Growing RVO volumes in Cellulosic in the Cellulosic category I would also add that.
Speaker Change: From from an IRR perspective, and also with those <unk>.
Speaker Change: We have a lot of support amongst a lot of what most folks consider more red areas and the investments that are being made in the <unk>.
Speaker Change: <unk>.
In those in those facilities so.
Speaker Change: We don't we really do believe what we do is bipartisan and we're seeing more and more Republicans come along.
Speaker Change: For smart climate policy and the capture of these waste methane emissions, we think youre going to continue to be supported.
Speaker Change: A lot of times people ask about the Cellulosic waiver credit and.
Speaker Change: I think as everybody knows there is no cellulosic waiver credit in place, but the EPA has that ability.
Speaker Change: You could also be in a situation, where if there's more support for those agricultural bio fuels that supportive for <unk> pricing, which has an impact on on a potential sale optic wave of credit. So we don't know if the cellulosic waiver credit comes back or not.
Speaker Change: If it does we think that there's plenty of reasons why there could be additional support for it I think one of our competitors also mentioned if folks aren't aware of how the Formula works. It's also inversely correlated to gas prices. So.
Speaker Change: If there is.
Speaker Change: Drafting in pump prices Thats also supportive of a piece of the Cellulosic waiver credit.
Speaker Change: In general outside of the RFS and it should also be noted that.
Speaker Change: That we feel that the R&D industry is well supported by Republicans as far as the tax credit goes there was.
Speaker Change: A hearing in D C about methane abatement potential from landfills in the first two comments came from Republican Senators.
Looking about their support for inclusion of biogas conversion equipment in that section 48, and not long after that we saw that technical correction.
Speaker Change: So.
Speaker Change: We believe our industry is is I know a lot of investors like to throw energy transition in one bucket.
We really do believe we are a good answer for both parties in terms of smart Commonsense climate policy. What we're really excited about in terms of that election outcome is what it could mean for our fuel station service business and.
And what it could mean also for the potential for renewable power and Baseload.
Speaker Change: Green electricity.
Speaker Change: As people are really starting to focus on on how can we increase generation capacity, whether it's for Baseload Green power for data centers, and we think the ear and policy fits squarely in the middle of that and supports a lot of of of more red areas or sectors and.
Speaker Change: The last piece on the election, as we think it could have a dramatic impact four four net natural gas or <unk> for heavy duty trucking.
Speaker Change: And I'm really excited about.
Speaker Change: What.
Speaker Change: That.
<unk>, new energy policy could mean.
Speaker Change: Regarding.
Speaker Change: Using natural gas in that kind of a sense. So I'll stop there, it's obviously something that we focus on but.
Speaker Change: We think any outcome in the election was a positive because I feel like we've been stuck.
Speaker Change: In limbo on a lot of different policies and now that we do have the election behind us. We're excited that there could be a lot of work done on numerous fronts.
Speaker Change: Sounds good and then we understand that most of your wins are sold forward. We also noticed that your your realized price moved up quite a bit in the quarter. I think it was $3 22, a gallon versus last quarter at 3% or three so I guess, one could you share how much of your <unk> production is sold forward for 2024.
Sure.
Speaker Change: In 2025, and then too.
Speaker Change: When you do sell rooms forward as the price locked in at the point of sale or is it still connected to changes in spot RIN prices.
Speaker Change: Yes, no I appreciate that question there. So the last part of the question is we have sold all of our returns for 2024.
Speaker Change: And when we sell when we say that we sell them forward what that means is we transact at whatever the current prices and then we deliver them in those forward quarters. So those sales and that realized price that you saw in the third quarter. Those were transactions that we entered into earlier in the year for third quarter delivery.
Speaker Change: So you do lock in the price when you sell them on your forward sales.
And then you deliver them in whatever period that you agree to deliver them.
Speaker Change: Got it okay. So basically just a coincidence that it's <unk>.
Speaker Change: <unk> prices moved up and your contracted price moved up Okay sounds good. Thank you.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Alex Kania American Capital. Your line is now open.
Speaker Change: Thanks, Thanks for.
Speaker Change: Giving you a pretty good pretty good outlook.
Speaker Change: I'm kind of curious about just thinking about the voluntary markets right now and your view on how they are evolving.
Speaker Change: Thinking about this broader like data center theme in Texas.
Speaker Change: Hyperscale or is it really.
Speaker Change: <unk> to find as much power as they can.
Speaker Change: The potential maybe theres going to be a greater reliance on natural gas than maybe initially.
Conceived is there an opportunity for.
Speaker Change: Like term deals with Hyperscale are is to help decarbonize.
Speaker Change: The gas streams that are really going into potential new capacity and I'm wondering about.
Speaker Change: Whether thats something that youre seeing kind of in the market today.
Speaker Change: Or is that a longer term opportunity.
Speaker Change: Yes. This is this is Adam again, so a couple of things there.
Speaker Change: From the molecule side of things.
Speaker Change: We still see the transportation fuel market has the highest value offtake market and we're going to continue pursuing that for our molecules and we do see inter.
Speaker Change: Interest in the voluntary market here in the U S. We're really interested in the medium term about what can be developing in Europe and will probably touch on that a little bit later as well.
Speaker Change: But from the from the Elektron side of things, we're starting to see some reports published out there about green pre.
Speaker Change: Premium or green Baseload premium because solar and wind can be intermittent and there could be some some applications. They are on the renewable power side.
Speaker Change: Where.
Speaker Change: That could be an interesting offtake market that develops for us.
Speaker Change: We think that the E tran potential for renewable electricity.
Speaker Change: Could be more attractive to us from a financial standpoint, it may not have the same term.
Speaker Change: Youre, probably referring to and longer term Baseload Green power and I think it's important that everybody realizes again that.
Speaker Change: Electricity generation from biogas is baseload.
Which is really attractive and increases that grid stability and we think a lot of people in D. C are excited about that as a potential answer to what to do with some of these waste emissions.
Speaker Change: But.
Speaker Change: We are more I think I think we're optimistic on that he ran policy being a more attractive financial offtake market, but we are monitoring what can be what can be done on a PPA perspective to give you maybe longer term off take for some of those other industrial users users for that Green power.
Speaker Change: Great. Thanks for that and maybe just a follow up since you opened that door just kind of thoughts on that.
Particularly in the thoughts on the Europe opportunity as well would be great. Thank you.
Speaker Change: Yes.
Speaker Change: So we're going to talk about guidance and how we feel about the full year.
Speaker Change: Whats happening right now with the with the European export markets as is towards the end of the month here in November.
Speaker Change: And if people think that the regulations are.
Speaker Change: A little complicated here in the U S. I encourage you to go look at what happens over in Europe between the Europe Commission in the various countries within Europe.
But.
Speaker Change: The export market for U S produced RMG.
Speaker Change: Is going through some regulatory changes and pathway changes there in towards the end of the month.
Speaker Change: There is there an I F C C certification pathway, which Europe is reevaluating for how the U S tracks their molecules and that sort of thing so for the European offtake market theres going to be a pause towards the end of this month.
Speaker Change: And then we're working on on how to work with some of these European regulators to reopen up those those RMG export markets. So we think it's going to be interesting, we think it's going to be potentially attractive market.
Not really so much from the.
Speaker Change: The voluntary market there is obviously something but it's really the compliance markets over there where there are all sorts of of new costs being put on various industries, whether it would be the marine industry on landed shifts in some other places as well so.
Speaker Change: We have to work through some of the regulatory and potentially trade issues.
Speaker Change: Regarding.
Speaker Change: U S R&D exports into Europe, but it's something that we think will likely get sorted out and maybe one other one positives that came out of these biogas Reg reforms.
Speaker Change: Could be the tracking system that the EPA is now going to be using maybe theres a path forward to start using that.
Speaker Change: As a basis that.
Speaker Change: We can start opening up some of those European pathways.
Speaker Change: Thanks very much.
Speaker Change: Thank you for our next question.
Speaker Change: Our next question comes from the line of Ryan thinks of B Riley. Your line is now open.
Ryan thinks: Hey, guys. Thanks for taking my questions.
Ryan thinks: I guess, just just one more on the.
Ryan thinks: The election.
Ryan thinks: Do you think M&A could pick up under the new administration, given the potential for less restrictive regulations and any color on.
Ryan thinks: M&A broadly that you are seeing would be helpful.
Speaker Change: Hey, Ryan John here.
Speaker Change: So.
Speaker Change: We're always looking at M&A transactions, and we're seeking to maximize shareholder value and we continue to look at market opportunities as they arise.
Speaker Change: Thanks.
Speaker Change: The environment is.
Speaker Change: Really good for M&A, and we will get better clearly we've seen a lot of good marks in the M&A.
Speaker Change: Area.
Speaker Change: Thinking about Enbridge last December.
Speaker Change: And over the course of this year, however, theres been a number of transactions that have been out in the market, but really didn't reach fruition or were close but the marks that we have seen really support.
Speaker Change: The private transaction value and gives us a lot of comfort.
Speaker Change: We're on the right track with our organic growth.
Speaker Change: Vertically integrated model.
Speaker Change: Undervaluation that we're creating as a result of that.
Speaker Change: So.
Speaker Change: The industry is quite fragmented.
Speaker Change: As we all know.
Speaker Change: We think theres a lot of room for consolidation in this industry.
Speaker Change: The <unk>.
Speaker Change: One transaction recently closed of note Apollo on the <unk>.
Speaker Change: Downstream side Apollo bought.
Speaker Change: Our network of small a small network of fueling stations in Texas for a pretty strong price that gives us again comfort.
Speaker Change: And where we are and where we're headed.
Speaker Change: In terms of our business plan and business model.
Speaker Change: But the short answer is.
Speaker Change: We see gathering momentum in that market and we see good.
Speaker Change: Signals.
Opportunities will continue.
Speaker Change: Yes.
Speaker Change: That's helpful. Thank you.
Speaker Change: For my second one it looks like comments started full production.
Speaker Change: The natural gas engine at its Jamestown plant in September.
Speaker Change: <unk> bought 250 of the Nat gas powered trucks.
Speaker Change: Have those developments accelerated your customer discussions at all.
Adam I: This is Adam again.
Adam I: We're really excited about the potential for the fuel station service segment. As a reminder, it's got two pieces. There. One is it's really got a good strategic value for Opel fuel is providing us off taken that transportation fuel market and quite frankly, we're really excited about just the prospects of Av.
Adam I: Natural gas or or renewable natural gas in heavy duty trucking.
Adam I: And.
Adam I: The 15 liter rollout is.
Adam I: We think has the potential to be really impactful.
Adam I: I would remind listeners.
Right now Cummins is selling more 15 liter natural gas engines in China than they are diesel.
And the U S is sitting on.
Adam I: The largest long life reserve base of natural gas and it probably stays cheap to oil versus as long as the eye can see.
Adam I: So there's all sorts of energy security benefits, it's disinflationary, because it's cheaper than diesel you get you still get 17% to 20% emission reductions. So we kind of feel like this is one where and then I think we all understand what's happening on the electricity demand side effects.
Adam I: And.
Adam I: There've been a lot of challenges for the zero emission.
Adam I: Heavy duty trucks, whether it's on the on the battery side of things.
Adam I: Leaving aside that electricity demand and stress on our grids, just the performance and the battery weight and.
Adam I: How do you get all that power to those sites and we.
Adam I: We think hydrogen still looks like it's it's a little ways out.
Adam I: <unk> producing those molecules transporting those molecules around.
Adam I: And we think natural gas is sitting right here with proven technology cost effective disinflationary end.
Adam I: Now I also want to say that the 15 liter.
Adam I: Rollout never goes as fast as anybody wants and this is not unique to this product model. We saw the same thing happened when the 12 liter engine was introduced and and I'd say this time around that we've got a lot more engineering and marketing an experience with it like.
Adam I: And comments owns 100% of at this time, which which last time. It was a 50 50, JV and probably didn't get all the attention and.
Adam I: Really.
Adam I: Whether it be on the aftermarket support and that sort of thing. So we think the 15 liter is really primed for what could be.
Adam I: Accelerated adoption.
Adam I: And at the same time as I was mentioning.
Adam I: We don't have all the product availability, yet when we looked at the beginning of 2024, 81% of the heavy duty market was covered.
By OEM product offerings.
Adam I: Now we're at 29% of how many of the Oems are offering the product now we're encouraged that Freightliner is is is.
Adam I: I'm going to begin taking orders on the product I think I heard in the in the beginning of next year.
Adam I: First quarter of 'twenty, five and start delivering on that product and that will take us back up to I don't know about 70%.
Adam I: But.
We see we see a lot of good growth potential we're having all those conversations now.
Adam I: With new fleets that are looking at it and it really encouraged also where the.
Adam I: The price premium felt really high to us and others in the industry and we're working with.
Adam I: Across the across the industry equipment suppliers that.
Adam I: We're going to have a product that will that will really be economically attractive and.
Adam I: So yes to the answer on those on those questions where fleets are really digging in and.
Adam I: We feel like the trucking industry is thinking about this as a good answer to to diesel.
Adam I: And versus some of those other technologies.
There have been there have been some roadblocks also on the regulatory side, which we think may may ease up a little bit in terms of utilizing this technology in some other public policy support that could really accelerate it. So we're excited about the 15 liter engine I think the fleets are excited about it and.
We just got to get the product out there and.
The nice thing for US is is you had mentioned UBS. There, we're still seeing good growth without that 15 liter engine because the customers that we've worked with.
Adam I: And <unk> being the largest one and I would remind folks we built our first station for UBS in 2014.
Adam I: Since then we built 50 more and.
Adam I: We service those stations out of $24 seven basis high reliability high uptime, and we really think thats. The poster child of what a successful deployment looks like and as these major fleets look too.
Adam I: To roll those out there arent many people.
Adam I: That have really done it successfully.
Adam I: I would say even.
Even shorter list of.
Adam I: Folks that have done it and it's really worked for those fleet. So we're excited about it.
Adam I: Still have some work to do to get the product out there we still have some work to do with our channel partners to make it as.
Adam I: It is cost effective and economic as possible and.
Adam I: We're excited to see how that.
Adam I: Sort of rolls through in 2025.
Speaker Change: Really helpful detail. Thanks, Scott.
Speaker Change: Thank you both for next question.
Speaker Change: Our next.
Speaker Change: <unk> comes from the line of Craig Shere Tuohy Brothers. Your line is now open.
Speaker Change: Good morning, Thanks for taking the questions.
I'd like to dig a little further in the Ryan 15 liter <unk> engine.
Speaker Change: Question.
Speaker Change: Of course with any new rollout.
Speaker Change: Sales and deliveries.
Speaker Change: As fast as one would hope as you already opined.
Speaker Change: But.
Speaker Change: If there are orders for two three or four years ramping up over time.
Speaker Change: You will probably needs to be teed up ahead of time, they got to know that they can fill up these trucks before they buy all those engines.
Speaker Change: So I guess, what I'm asking is.
Speaker Change: What are the prospects for notable frontloaded multiyear fueling agreements.
Speaker Change: Good.
Speaker Change: Tee up your longer term volumes and for the downstream development.
Speaker Change: So.
Speaker Change: I would say it this way.
Speaker Change: I think people are aware that the vast majority of what <unk> does because we are still in the early innings of adoption here are on.
Speaker Change: It really private fleets dedicated fleets, either distribution centers or supermarkets or refuse companies.
Speaker Change: Where you really.
Speaker Change: Have those defined fueling locations and that sort of thing and those customers typically do sign up for long term fuel agreements.
Speaker Change: We think we think what you are talking about in terms of Multilocation program. It makes a lot of sense to us.
Speaker Change: And I think I think first the first go through maybe it's a one site location kind of thing, where they're testing and getting comfortable with it.
Speaker Change: Are those sort of broader thematic programs likely come at.
Speaker Change: After they go through that that first wave, but we're still we're still sort of in the early early innings of that but we are looking.
Speaker Change: To find those kinds of fleets and programs.
Speaker Change: Sure.
Speaker Change: Given your focus on the transportation market.
Speaker Change: Can you opine.
Speaker Change: I guess I am not mistaken lease today, we were supposed to get GFS market update from carb and.
Speaker Change: To the degree <unk> pricing, obviously rooms has been great the last year or two.
Speaker Change: But to the degree LCL first line.
Speaker Change: I guess its mojo back.
Would that have any implications on the weighting of your projects in the next couple of years.
Speaker Change: We're still principally vis John we're still principally a landfill oriented company and the majority of our.
Speaker Change: Credits are going to be.
Speaker Change: RIN based.
Landfills.
Attract significant amount of CFS credits, but certainly as the price improves on El CFS credits.
Speaker Change: That can only help on the downstream side of our business, we have substantial fueling capacity in California, and we utilize that for low carbon intensity dispensing with third party supply.
Speaker Change: That.
Speaker Change: Is where we get the substantial.
Bulk of our <unk> and <unk>.
Speaker Change: As an aside 45 Z coming up as well.
Speaker Change: Credit revenue.
Speaker Change: So that.
Speaker Change: As the price improves that's where we're likely to see that growth.
Speaker Change: In terms of our mix will stay principally a landfill company, we have our Sonoma project, we're working on.
Our projects out in California.
Speaker Change: We always look at opportunities in the low Ci space and we'll continue to do that.
Speaker Change: But.
Speaker Change: From an outlook perspective, we see the.
The credit bank starting to.
Speaker Change: Perhaps roll off.
Speaker Change: Sometime during the course of next year not completely but start to turn back the other direction and as that happens we expect to see some strengthening in the price.
Speaker Change: Obviously, everybody expects the.
Speaker Change: Reduction of the carbon targets from the car to be positive.
Speaker Change: We are included in that group. So we look forward to that announcement later today, yes, I think from a price perspective, I think that meeting is going on today, they've ticked up a little bit. This week I think we're currently sitting around 74 Bucks.
Speaker Change: For credit and.
Speaker Change: It will help us if those prices go up as John had mentioned and we get into 2025 guidance, we'll talk about the sensitivities too.
Speaker Change: CFS pricing to our to our results.
Speaker Change: Thank you.
Speaker Change: Thank you next question.
Speaker Change: Our next question comes from the line of power chain.
Speaker Change: Scotia Bank. Your line is now open.
Speaker Change: Hey, gentlemen, good morning.
Speaker Change: Two questions if I could.
Speaker Change: I think the first one you're pumping at anthem.
One of your competitors have said.
Speaker Change: They have seen a shift up in what they can get as a percentage of them, bringing in select states fuelling station.
Speaker Change: <unk> two LNG producer.
Speaker Change: Wondering if you have seen a scene and depend on it.
Speaker Change: Yes, I mean for sure we've seen a tightening of the dispensing market RMG supply is growing faster than dispensing capacity and thats what drives up those shares.
Speaker Change: It's also one of the reasons why we sort of put together our business model the way we did it by.
Speaker Change: By being vertically integrated and having the R&D production as well as the station dispensing capacity.
Speaker Change: <unk>.
Speaker Change: No.
Speaker Change: It is not as impacted by either paying out higher RIN shares or.
Speaker Change: Where that where that.
Speaker Change: Or where that where those economics.
Lie within within the value chain.
Speaker Change: And so I would agree that.
Speaker Change: R&D marketing fees have been rising.
Speaker Change: Or dispensing fees as you as maybe somebody else term debt.
Speaker Change: And.
Speaker Change: That's where.
Speaker Change: We sort of like the way the <unk> business model is positioned and.
Speaker Change: We also like the fact that we have a little bit more.
Speaker Change: Controller or impact over our destiny to continue to grow out that dispensing capacity for our R&D production.
Adam I: Hey, Adam just don't know, whether you will be willing to share I think historically that.
Speaker Change: Split between.
The upstream and the downstream at the 80 20 is now 70 525 or any number you can share and what the third thing.
Speaker Change: That ratio.
We will have more room to fill up all of that is already we see being pushed back and sort of the amendment.
Speaker Change: Yes, we're not going to get into those specific numbers I would say this though.
Speaker Change: As I had mentioned that dispensing capacity is tightening.
Speaker Change: So the numbers are going up and.
Speaker Change: If you wanted to if you want to give those numbers to some of our JV partners.
And courtesy of the T cell.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: And that that same question that you monetize some of the ITC equal alone next year.
Speaker Change: Yes.
Speaker Change: We meaning available for you to monetize for next year.
Scott: Yes with respect this is Scott by the way.
Scott: With respect to the ITC credits. So as you pointed out we did sell our first ITC credits.
We have three projects that were placed in service this year and we will be seeking to sell credits for those three projects and.
The sale of ITC will be an ongoing program as we placed more projects into service over the next few years.
Scott: The ITC is clearly a significant source of liquidity to help fuel our growth over the next several years.
Speaker Change: Scott can you help me out that how we cultivate that ITC.
Speaker Change: No what that what is the remaining therefore, the three projects for next year.
Speaker Change: So.
Speaker Change: We're not going to get into specific numbers, but the ITC credits are typically 30% to 40%.
Of the Capex cost.
Speaker Change: For the projects, 30% as the base and 40%. If you can meet one of the U S domestic content adder.
Speaker Change: And those would be the <unk>.
Speaker Change: Proximate percentages that would be using.
Okay.
Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of <unk>.
Speaker Change: Goldman Sachs. Your line is now open.
Speaker Change: Hi, good morning, Congrats on placing the Kirby project and construction it looks like the same partner and partnership structure SD Cottonwood project to what extent are there similar 100% equity projects teed up.
Speaker Change: As a follow up how do the economics look on the 100% equity projects little smaller plants compare do.
Speaker Change: Some of your larger projects that are structured as <unk>.
Adam I: Hey, Adam John here so.
Speaker Change: You've got kind of a.
Speaker Change: A couple of different questions.
Speaker Change: Mixed up in there so.
Speaker Change: We entered into a number of.
Speaker Change: Gas rights agreements with W. M and we're really pleased.
Speaker Change: The Kirby project represents.
Speaker Change: Second project, there and yes, 100% ownership there I think.
Speaker Change: <unk>.
Speaker Change: As we build relationships across the industry.
Our partners have different goals and objectives within that.
Speaker Change: From a GSL are great partner GSL, we have a 50 50 relationship and we really like that relationship from the standpoint.
Speaker Change: <unk>, the counterparties really well to perform on those projects certainly the 100% ownership such as the waste management or other.
Speaker Change: Municipal Counterparties like we have.
Speaker Change: New River solid waste authority, and we have the Prince William County, and we have the Polk County down in Florida.
Speaker Change: Atlantic County, and Burlington County.
Speaker Change: New Jersey, which are.
Speaker Change: 50, 50 joint ventures with SJI.
Speaker Change: But so.
Speaker Change: So we have a mix of those.
Speaker Change: We look to build on those relationships.
Speaker Change: To get <unk>.
Speaker Change: Further gas rights and.
Speaker Change: We will see different opportunities across the board.
One aspect of what Youre seeing is us.
Speaker Change: People are.
Speaker Change: Reaching down to smaller sized projects, obviously as we've discussed before there's significant economies of scale in this industry and as you go up.
Speaker Change: In size too.
4005 thousand 6000, CFM projects of the size of say, our sapphire or principle, Prince William projects or 10000, even the size of the Emerald project.
Speaker Change: You've got really great economics.
Speaker Change: It's challenging to make those economies of scale work for small projects.
Speaker Change: We are pleased that we were able to do that with the Kirby project.
Speaker Change: <unk>.
Speaker Change: Excuse me and others that were seeing.
Speaker Change: And that too.
<unk> 2000, or 3000 CFM size range.
Speaker Change: Got it that's helpful. I appreciate the color there.
Speaker Change: Really strong EBITDA margins and fuel stations in the quarter.
I think margins were up 400 basis points sequentially, what drove the acceleration in margins and what's the right way to think about the run rate margin profile of this business.
Adam I: So this is Adam here, we're sort of pleased that it came across the board in fuel station services improving margins in our in our construction business, where we build fuel stations.
Adam I: And.
Adam I: I don't think we had it in the release, but it'll be in the Q, where we also had increasing backlog.
Speaker Change: On the construction business as well.
Speaker Change: And also a strong margins on the service side of the business.
I'd say the lion's share of those that margin increase was the higher throughput of RMG to our dispensing capacity.
Speaker Change: <unk>.
Speaker Change: That that was that was likely.
Speaker Change: Some of the margin share gain as well, but from second quarter to third quarter.
I think it was a blend across those across those three three areas in the fuel station service segment.
Speaker Change: And then last one from me.
Speaker Change: Just any commentary around how the 2025 forward.
Speaker Change: <unk> ran market is developing.
Speaker Change: Any update on how those offtake conversations are coming post election.
Speaker Change: Yes, well post election in the last couple of days, we haven't seen a lot of activity I would say.
Speaker Change: Somebody said Italia, maybe theyre down a dime or something.
We started to see some trading activity I would say within the last month and.
Speaker Change: And we did sell some of our 2025 brands.
Speaker Change: Around $3 level and.
Speaker Change: Sure.
Speaker Change: <unk>.
Speaker Change: I wouldn't say there is there is heavy volumes yet, but they are starting to transact for for 2025.
Speaker Change: I would see the prices really converging around a $3 mark.
Speaker Change: As we get closer to the end of the year and move into 2025.
Speaker Change: We expect.
Those prices to strengthen around the $3 Mark.
Speaker Change: Thanks, so much.
Speaker Change: Thank you I'm showing no further questions at this time.
Speaker Change: Turn it back to Adam Tomorrow for closing remarks.
Adam Tomorrow: Alright, well, we do appreciate everybody's interest in <unk> and hope everybody has a great rest of the deck.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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Speaker Change: Yes.
Good morning, and welcome to <unk> third quarter 2024 earnings call and webcast at this time all participants are in listen only mode.
Speaker Change: After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Speaker Change: Automated message advising our hand its rates to withdraw your question. Please press star one again, please be advised that today's conference is being recorded as a reminder, this event is being recorded I'll now turn the call over to Todd Firestone Vice President of Investor Relations to begin. Please go ahead.
Thank you and good morning, everyone welcome to the <unk> fuels third quarter 2024 earnings Conference call with me today are co Ceos, Adam Komura drop more and Scott <unk> interim Chief Financial Officer.
Speaker Change: <unk> released financial and operating results for the third quarter of 2024 yesterday afternoon, and those results are available on the Investor Relations section of our website at <unk> Dot com.
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.
Speaker Change: Before we begin I would like to remind you that our remarks, including answers to your questions contain forward looking statements.
Speaker Change: Risks uncertainties and assumptions.
Speaker Change: We're looking statements or non <unk> performance and actual results could differ materially from what is contained in such statements.
Speaker Change: Several factors that could cause or contribute to such differences.
Speaker Change: 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 also fuel 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 in the appendix of the release and presentation.
Speaker Change: Adam will begin today's call by providing an overview of the quarters results recent highlights and an update on our strategic and operational priorities John.
Jon will then give a commercial and business development update after which Scott will review financial results.
Speaker Change: We will then open the call for questions and now I will turn the call over to Ann Claro <unk> fuels.
Thank you Todd and good morning, everyone and thank you for participating in <unk> third quarter 2024 earnings call.
Speaker Change: This quarter's results were solid and in line with our expectations as we continue to execute against both our near term financial goals and longer term growth initiatives.
Speaker Change: Underpinning our growth is our continued ability to develop new R&D projects.
Speaker Change: Move them through construction into operation and leveraging the strength of our vertically integrated business model to both realize the highest value for that R&D and drive market share gains across the business.
Speaker Change: We are pleased that we have recently commissioned and brought into operation both the sapphire in bulk RMG projects, our 10th and 11th.
Speaker Change: When combined with the earlier commissioning of Prince William we have increased our share of nameplate design capacity in operation up to $8 8 million <unk>, an increase of $3 6 million of MMP to use this year.
Speaker Change: Adjusted EBITDA for the quarter was approximately $31 million as we continue to see improvements across our business segments significant drivers to adjusted EBITDA. This quarter with the contribution from her it's William continued strength in environmental credit sales and strong results in our fuel station services from both higher throughput.
Speaker Change: R&D through our dispensing network and continued positive trends in the construction and service as part of this segment.
Speaker Change: We're also well on track of putting at least 2 million.
Speaker Change: Maybe to use of Opel share of initial design capacity into construction.
With the announced projects of Cottonwood, Burlington and now Kirby we have placed approximately one 8 million <unk> of initial design capacity into construction this year.
Speaker Change: We're seeing continued strength in our downstream business and remain encouraged that we will meet our growth objectives for this segment.
Speaker Change: We have good visibility on full year results and are maintaining our current guidance.
Speaker Change: Scott will go into further detail regarding our results and outlook a little later in the call.
Speaker Change: One other financial item in the quarter that I want to highlight we saw the first monetization of ITC credits in the third quarter for net cash proceeds of $8 6 million.
Speaker Change: Included in our net income, but not in our adjusted EBITDA.
Speaker Change: We expect continued investment tax credits from projects that have recently enter operation and from projects that are in construction.
Finally, I want to add some commentary on the results of the election over the past year. We were frequently asked how our business will be impacted under either a democratic or Republican White house or control of Congress. We continue to feel that what we do doesn't come down the partisan politics humans and the agricultural sectors.
Speaker Change: Organic waste that decompose and creates biogas or biogenic methane.
Speaker Change: Common SaaS climate and energy policy to capture those emissions with cost effective and proven technology and use them productively for either renewable electricity generation or as R&D.
Speaker Change: RMG is attractive as our renewable fuel because it is available today utilizes existing pipeline infrastructure and proven cost effective technology that can then be used to decarbonize difficult sectors, such as heavy duty trucking.
Speaker Change: We see an increasing focus on the need to address the rising electricity demand and we believe electricity produced from biogas can play an important role as a conservative base load renewable power increasing local grid stability.
Speaker Change: With that I'll turn it over to John.
Speaker Change: John.
Speaker Change: Thank you Adam and good morning, everyone.
Speaker Change: As Adam mentioned 2024 has been a busy year for Opel fuels with Prince William Sapphire now pulp commencing commercial operations, we have 11 R&D projects in operation.
Speaker Change: Our operating RMG facilities, representing annual design capacity of $8 8 million Btu.
Speaker Change: Organically doubling over the past two years.
Speaker Change: We note that we received EPA certification for our Sapphire project in the quarter. So the project is able to generate returns under the updated <unk> provisions.
Speaker Change: Expectation for pulp will follow shortly.
Speaker Change: Third quarter production were in line with our expectations RMG production was 1.8 million <unk> used for the three months ended September 32020 for.
Speaker Change: This production is more than a 40% increase year over year and higher than the second quarter 2024.
Speaker Change: We're seeing both inland designed capacity utilization and utilization of inlet gas ratios in line with expectations and reflective of having several new facilities coming online and in their ramp up phase.
Shifting gears soaring construction portfolio, we have put three projects under construction this year and now have a total of six projects in construction, representing $2 6 million Btu of Opel share of annual design capacity.
Speaker Change: <unk> 211 operating projects.
Speaker Change: Among the projects put into construction, we're happy to have announced the start of construction at our Kirby Canyon landfill project in Santa Clara, California earlier this week.
Speaker Change: Owns 100% of the LNG facility.
<unk> will contribute $4 six 6 million Btu of annual design capacity.
Speaker Change: Net to Opel.
Speaker Change: We are well positioned heading into year end and beyond market fundamentals are supportive and.
Speaker Change: And we expect additional opportunities will result from our growing relationships with.
Speaker Change: With that I'll turn it over to Scott to discuss the quarter's financial performance Scott.
Scott: Thank you John and good morning to all the participants on today's call.
Scott: Last night, we filed our earnings press release, which details our quarterly results for the quarter ending September 32020 for our 10-Q will be filed on Tuesday.
Scott: Looking at third quarter results RMG production increased to 1.1 million F&B to use from 0.7 million F&B to us compared to the third quarter of 2023.
The increase is largely due to both the Emerald in Prince William RMG projects contribution to production volumes.
Scott: Revenue in the third quarter was $84 million as compared to $71 $1 million in the third quarter of 2023.
The main driver for the increase in revenues was increased production and the timing and pricing of environmental credit sales, including both RMG fuel and fuel station services, where we dispense all of the RMG for our projects, including our joint venture projects as.
Scott: As well as other third party LNG supplies.
Scott: <unk> share of revenues from equity method investments for the quarter was $11 $7 million as compared to $4 7 million in Q3 2023, which is not included in revenue is reported on the income statement.
Scott: Net income for the third quarter was $17 $1 million as compared to zero point $2 million in the third quarter of 2023.
Scott: The difference was primarily driven by growth in our fuel station services business and the sale of investment tax credits.
Scott: Adjusted EBITDA was $31 1 million in the third quarter compared to $16 5 million in the third quarter of 2023.
Partially driven by the timing of environmental credit sales.
A reconciliation to GAAP results is provided in our earnings release from yesterday and in our Investor presentation updated this morning on our website.
Scott: As a reminder, we've added project development and startup costs as a separate line item on the income statement to reflect costs associated with projects that are in pre construction or in startup phase.
Scott: This quarter's adjusted EBITDA includes a $3 8 million add back of certain project development and startup costs that are incremental to the ongoing operational expense with respect to the principal and virtual pipeline.
Scott: These costs are temporary in nature and expect it to be incurred until mid 2025.
Scott: The total virtual pipeline costs are included in the project development and startup costs line item on the income statement.
Scott: And the add back to adjusted EBITDA.
Scott: RMG fuel segment revenue was $25 9 million for the third quarter as compared to $20 $1 million in the third quarter 2023, primarily due to the addition of our principal William RMG facility.
Scott: Fuel station services segment revenue was $45 4 million for the third quarter.
Scott: As compared to $37 3 million in the third quarter of 2023.
Scott: The increase in revenues was primarily the result of increased RMG marketing fees increased construction and service revenue.
Renewable power revenue was $12 8 million for the quarter.
Scott: Paired to $13 7 million in the third quarter of 2023.
Scott: Year to date capital expenditures were $95 6 million, which included $22 $8 million relating to equity method investments and $16 2 million associated with downstream stations.
Scott: Our senior secured credit facility provides up to $450 million of term loans over an 18 months draw period and $50 million of revolving credit.
Scott: As of September 32020 for $231 6 million was drawn down on the facility and we have utilized $14 $1 million of our revolver availability to issue letters of credit.
Scott: As of September 32024.
Liquidity was $285 $3 million, consisting of $254 3 million of availability under the credit facility.
And $31 million of cash cash equivalents and short term investments.
Scott: We believe our liquidity and anticipated cash flows from operations are sufficient to meet our existing funding needs.
Speaker Change: As Adam and John discussed we are maintaining our current 2020 for guidance.
Speaker Change: I'll now turn it back to John for concluding remarks.
In closing we are happy with this quarter's results, we remain committed to furthering <unk> vertically integrated mission.
Speaker Change: Together with our partners to build and operate best in class biogas capture and conversion projects that deliver industry, leading reliable and cost effective low carbon intensity energy products that displace fossil fuels and mitigate climate change.
Speaker Change: And with that I will turn the call over to the operator for Q&A.
You all for your interest in local fuels.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Wade will assemble the roster.
Our first question comes from the line of Matthew Blair of TBH. Your line is now open.
Matthew Blair: Thank you and good morning, Adam I. Appreciate your initial comment from the election, maybe you could dig into that a little bit more how much risk do you see the areas like the <unk> RVO and the ITC.
Adam I: From from the election results.
Adam I: I think the general take is that the election results are negative for renewable fuels, but I'm curious are there any silver linings here or are there any areas like permitting that could get a little bit easier.
Adam I: Going forward. Thank you.
Speaker Change: I appreciate that question Matt.
And thanks for thanks for joining the call. So a couple of things on the election outcome I guess your first question regarding <unk>.
Speaker Change: <unk> volumes I think Theres, a couple of important things to remember.
Speaker Change: First is.
Speaker Change: That we don't think that there really is liquid biofuel opposition or anything within some of the other stronger Republican Confits Unc's regarding D three volumes.
Speaker Change: We're actually aligned with a lot of those same participants in the renewable fuel standard where they want to see strong D. Three RVO volumes because if those volumes are set too low then you have the potential impact of <unk> is going down into those liquid RIN market. So.
Speaker Change: And all of our discussions with the other folks in the RFS everybody supportive of strong <unk> volumes second thing I would say is that the statutory.
Speaker Change: Objective of the renewable fuel standard is 16 billion Cellulosic D. Three rents so in some sense.
Speaker Change: We think and Thats been reiterated time and time again, so we think in some sense the Chevron Doctor maybe supports.
Speaker Change: On the.
The continued growth and and and.
Speaker Change: Growing RVO volumes in Cellulosic in the Cellulosic category I would also add that.
From from an IRR perspective, and also with those <unk>.
Speaker Change: We have a lot of support amongst a lot of what most folks consider more red areas and the investments that are being made in the <unk>.
Speaker Change: In the in those in those facilities so.
Speaker Change: We don't we really do believe what we do is bipartisan and we're seeing more and more Republicans come along.
Speaker Change: For smart climate policy and the capture of these waste methane emissions, we think youre going to continue to be supported.
Speaker Change: A lot of times people ask about the Cellulosic waiver credit and.
Speaker Change: I think as everybody knows there is no cellulosic waiver credit in place, but the EPA has that ability.
You could also be in a situation, where if there is more support for those agricultural bio fuels that supportive for <unk> pricing, which has an impact on on a potential sale optic waiver credit. So we don't know if the cellulosic waiver credit comes back or not.
Speaker Change: If it does we think that there is there's plenty of reasons why there could be additional support for it I think one of our competitors also mentioned if folks aren't aware of how the Formula works. It's also inversely correlated to gas prices. So.
Speaker Change: If there is.
Speaker Change: Drafting in pump prices Thats also supportive of a piece of the Cellulosic waiver credit.
Speaker Change: In general outside of the RFS and it should also be noted that.
Speaker Change: That we feel that the R&D industry is well supported by Republicans as far as the tax credit goes there was.
Speaker Change: A hearing in D C about methane abatement potential from landfills in the first two comments came from Republican Senators.
And about their support for inclusion of biogas conversion equipment in that section 48, and not long after that we saw that technical correction. So.
Speaker Change: We believe our industry is is I know a lot of investors like to throw energy transition in one bucket.
Speaker Change: We really do believe we are a good answer for both parties in terms of smart Commonsense climate policy. What we're really excited about in terms of that election outcome is what it could mean for our fuel station service business and what it could mean also for the potential for renewable power and Baseload.
Speaker Change: Green electricity.
Speaker Change: As people are really starting to focus on on how can we increase generation capacity, whether it's for base load Green power for AI as our data centers and we think the ear and policy fits squarely in the middle of that and supports a lot of of of more red areas or sectors and.
Speaker Change: The last piece on the election, as we think it could have a dramatic impact four four net natural gas or <unk> for heavy duty trucking.
And I'm really excited about.
Speaker Change: What.
Speaker Change: That.
Speaker Change: Our new energy policy could mean regarding.
Speaker Change: Using natural gas in that kind of a sense. So I'll stop there, it's obviously something that we focus on but.
Speaker Change: We think any outcome in the election was a positive because I feel like we've been stuck.
Speaker Change: In limbo on a lot of different policies and now that we do have the election behind US. We are excited that there could be a lot of work done on numerous fronts.
Speaker Change: Sounds good and then we understand that most of your rents are sold forward. We also noticed that your your realized price moved up quite a bit in the quarter. I think it was $3 22, a gallon versus last quarter at 303. So I guess, one could you share how much of your RIN production is sold forward for 2024.
Speaker Change: In 2025, and then two.
Speaker Change: When you do sell Rins forward as the price locked in at the point of sale or is it still connected to changes in spot RIN pricing.
Yes, no I appreciate that question there.
Speaker Change: The last part of the question is we have sold all of our returns for 2024.
Speaker Change: And when we sell when we say that we sell them forward what that means is we transact at whatever the current prices and then we deliver them in those forward quarters. So those sales and that realized price that you saw in the third quarter. Those were transactions that we entered into earlier in the year for third quarter delivery.
Speaker Change: So you do lock in the price when you sell them on your forward sales and then you deliver them in whatever period that you agree to deliver them.
Speaker Change: Got it okay. So basically just a coincidence that the spot price moved up and your contract price moved up Okay sounds good. Thank you.
Speaker Change: Thank you our next question.
Speaker Change: Our next question comes from the line of Alex Kenya American Capital. Your line is now open.
Speaker Change: Thanks, Thanks for.
Speaker Change: Giving a pretty good pretty good outlook.
Speaker Change: Sure.
Speaker Change: I'm kind of curious about just thinking about the voluntary markets right now and your view on how they are evolving.
Speaker Change: Thinking about this broader like data center theme in.
Speaker Change: Hyper scaler really scrambling to find as much power as they can.
Speaker Change: The potential maybe theres going to be a greater reliance on natural gas and maybe initially.
Speaker Change: Conceived is there an opportunity for.
Speaker Change: Like term deals with Hyperscale are is to help decarbonize.
Speaker Change: The gas streams or be going into potential new capacity and I'm wondering about.
Speaker Change: Whether thats something that youre seeing kind of in the market today.
Speaker Change: Or is that a longer term opportunity.
Yes. This is this is Adam again, so a couple of things there.
From the molecule side of things.
Speaker Change: We still see the transportation fuel market has the highest value offtake market and we're going to continue pursuing that for our molecules and we do see inter.
Speaker Change: Interest in the voluntary market here in the U S. We're really interested in the medium term about what can be developing in Europe, and we will probably touch on that a little bit later as well.
But from the from the Elektron side of things, we're starting to see some reports published out there about green pre.
Speaker Change: Premium or green Baseload premium because of solar and wind can be intermittent.
Speaker Change: And there could be some some applications they are on the renewable power side.
Speaker Change: Where.
Speaker Change: That could be an interesting offtake market that develops for us.
Speaker Change: We think that the E tran potential for renewable electricity.
Speaker Change: Could be more attractive to us from a financial standpoint, it may not have the same term.
Youre, probably referring to and longer term Baseload Green power and I think it's important that everybody realizes again that.
Speaker Change: <unk>.
Speaker Change: Electricity generation from biogas is baseload.
Speaker Change: Which is which is really attractive and increases that grid stability and we think a lot of people in DC are excited about that as a potential answer to what to do with some of these waste emissions.
Speaker Change: But.
Speaker Change: I think we're more I think I think we're optimistic on that he ran policy being a more attractive financial offtake market, but we are monitoring what can be what can be done on a PPA perspective to give you maybe longer term off take for some of those other industrial users users for that Green power.
Speaker Change: Great. Thanks for that and maybe just a follow up since you opened that door just kind of thoughts on that.
Speaker Change: Particularly in the thoughts on the Europe opportunity as well would be great. Thank you.
Yes.
Speaker Change #100: So we are going to talk about guidance and how we feel about the full year.
Speaker Change #100: Whats happening right now with the with the European export markets as is towards the end of the month here in November.
And if people think that the regulations are.
A little complicated here in the U S. I encourage you to go look at what happens over in Europe between the Europe Commission in the various countries within Europe.
Speaker Change #100: But.
The export market for U S produced RMG is going through some regulatory changes and pathway changes there towards the end of the month.
Speaker Change #100: There is there.
Speaker Change #100: F C C certification pathway, which Europe is reevaluating for how the U S tracks their molecules and that sort of thing.
Speaker Change #100: For the European Offtake market Theres going to be a pause towards the end of this month.
Speaker Change #100: And then we're working on on how to work with some of these European regulators to reopen up those those RMG export markets. So we think it's going to be interesting, we think it's going to be potentially attractive market.
And not really so much from the.
Speaker Change #100: The voluntary market there is obviously something but it's really the compliance markets over there where there are all sorts of new costs being put on various industries, whether it would be the marine industry on landed shifts in some other places as well so.
Speaker Change #100: We have to work through some of the regulatory and potentially trade issues rigor.
Regarding.
Speaker Change #100: R&D exports into Europe, but it's something that we think will likely get sorted out and maybe one other one positives that came out of these biogas Reg reforms.
Speaker Change #100: Could be the tracking system that the EPA is now going to be using maybe theres a path forward to start using that.
Speaker Change #100: As a basis that we.
We can start opening up some of those European pathways.
Speaker Change #101: Thanks very much.
Speaker Change #101: Thank you for our next question.
Speaker Change #102: Our next question comes from the line of Ryan things Avi Ravi Your line is now open.
Speaker Change #103: Hey, guys. Thanks for taking my questions.
Speaker Change #103: I guess, just just one more on the.
Speaker Change #103: The election.
Speaker Change #103: Do you think M&A could pick up under the new administration, given the potential for less restrictive regulations and any color on.
Speaker Change #103: M&A broadly that you are seeing would be helpful.
Speaker Change #104: Hey, Ryan John here.
Speaker Change #104: So.
Speaker Change #104: Yes.
Speaker Change #104: We're always looking at M&A transactions, and we're seeking to maximize shareholder value and we continue to look at market opportunities as they arise we think.
Speaker Change #104: The environment is.
Speaker Change #104: Really good for M&A and will get better clearly we've seen a lot of good marks in the M&A.
Speaker Change #104: Area.
Speaker Change #104: Thinking about Enbridge last December.
Speaker Change #104: And over the course of this year, however, theres been a number of transactions that have been out in the market.
Speaker Change #104: Really didn't reach fruition or were close but the marks that we have seen really support the private transaction value and gives us a lot of comfort.
Speaker Change #104: We're on the right track with our organic growth in our vertically integrated model.
Speaker Change #104: Undervaluation that we're creating as a result of that.
Speaker Change #104: So.
Speaker Change #104: The industry is quite fragmented.
Speaker Change #104: As we all know and we think Theres a lot of room for consolidation in this industry.
Speaker Change #104: The <unk>.
Speaker Change #104: One transaction recently closed of note Apollo on the downstream side Apollo bought.
Speaker Change #104: Our network of small a small network of fueling stations in Texas for a pretty strong price that gives us again comfort.
Where we are and where we're headed in.
Speaker Change #104: In terms of our business plan business model.
Speaker Change #104: But the short answer is.
Speaker Change #104: We see gathering momentum in that market and we see good.
Speaker Change #104: Signals.
Speaker Change #104: Opportunities will continue.
Speaker Change #104: That's helpful. Thank you.
Speaker Change #104: For my second one it looks like comments started full production.
Speaker Change #104: The natural gas engine at its Jamestown plant in September.
<unk> bought 250 of the Nat gas powered trucks.
Speaker Change #105: Have those developments accelerated your customer discussions at all.
Adam: This is Adam again.
Adam: <unk>.
Adam: We're really excited about the potential for the fuel station service segment. As a reminder, it's got two pieces. There. One is it's really got a good strategic value for <unk> fuel is providing us off taken that transportation fuel market and quite frankly, we're really excited about just the prospects of of natural <unk>.
Adam: Gas or or or renewable natural gas in heavy duty trucking.
Adam: And.
Adam: The 15 liter rollout is.
We think has the potential to be really impactful.
Adam: I would remind listeners.
Adam: Great now Cummins is selling more 15 liter natural gas engines in China than they are diesel.
Adam: And the U S is sitting on.
The largest long life reserve base of natural gas and it probably stays cheap to oil versus as long as the eye can see.
So there's all sorts of energy security benefits, it's disinflationary, because it's cheaper than diesel you get you still get 17% to 20% emission reductions. So we kind of feel like this is one where and then I think we all understand what's happening on the electricity demand side effects.
Adam: And.
Adam: There've been a lot of challenges for the zero emission.
Adam: Heavy duty trucks, whether it's on the on the battery side of things.
Adam: Leaving aside that electricity demand and stress on our grids, just the performance and the battery weight and.
Speaker Change #107: How do you get all that power to those sites and we.
Speaker Change #107: We think hydrogen still looks like it's it's a little ways out.
Speaker Change #107: <unk> producing those molecules transporting those molecules around.
Speaker Change #107: And we think natural gas is sitting right here with proven technology cost effective disinflationary end.
Speaker Change #107: Now I also want to say that the 15 liter rollout never goes as fast as anybody wants and this is not unique to this product model. We saw the same thing happened when the 12 liter engine was introduced and and I'd say this time around that we've got a lot more engineering and marketing an experience with it like.
Speaker Change #107: And comments owns 100% of at this time, which which last time. It was a 50 50, JV and probably didn't get all the attention and.
Speaker Change #107: Really.
Whether it be on the aftermarket support and that sort of thing. So we think the 15 liter is really primed for what could be.
Speaker Change #107: Accelerating adoption.
Speaker Change #107: And at the same time as I was mentioning.
Speaker Change #107: No. We don't have all the product availability, yet when we looked at the beginning of 2024, 81% of the heavy duty market was covered.
Speaker Change #107: By OEM product offerings.
Speaker Change #107: Now we're at 29% of how many of the Oems are offering the product now we're encouraged that Freightliner is is is.
Speaker Change #107: I'm going to begin taking orders on the product I think I could earn in the in the beginning of next year.
Speaker Change #107: First quarter of 2005 and start delivering on that product and that will take us back up to I don't know about 70%.
Speaker Change #107: But.
Speaker Change #107: We see we see a lot of good growth potential we're having all those conversations now.
Speaker Change #107: New fleets that are looking at it and it really encouraged also wear.
Speaker Change #107: The price premium felt really high to us and others in the industry and we're working with.
Across the across the industry equipment suppliers that.
Speaker Change #107: We're going to have a product that will that will really be economically attractive.
Speaker Change #107: So yes to the answer on those on those questions, where where fleets are really digging in and.
Speaker Change #107: We feel like the trucking industry is thinking about this as a good answer to to diesel.
Speaker Change #107: And versus some of those other technologies.
Speaker Change #107: There've been there've been some roadblocks also on the regulatory side, which we think may may ease up a little bit in terms of utilizing this technology in some other public policy support that could really accelerate it. So we're excited about the 15 liter engine I think the fleets are excited about it and.
Speaker Change #107: We just got to get the product out there and.
Speaker Change #107: The nice thing for US is is you had mentioned UBS. There, we're still seeing good growth without that 15 liter engine because the customers that we've worked with.
Speaker Change #107: And <unk> being the largest one and I would remind folks we built our first station for UBS in 2014.
Speaker Change #107: And since then we built 50 more and we service those stations out of $24 seven basis high reliability high uptime, and we really think thats. The poster child of what a successful deployment looks like and as these major fleets look too.
To roll those out there arent many people.
Speaker Change #107: That have really done it successfully.
And I would say.
Speaker Change #107: Even shorter list.
Speaker Change #107: Folks that have done it and it's really worked for those fleet. So we're excited about it.
Speaker Change #107: We still have some work to do to get the product out there we still have some work to do with our channel partners to make it.
Speaker Change #107: It is cost effective and economic as possible and.
Speaker Change #107: We're excited to see how that.
Speaker Change #107: Sort of rolls through in 2025.
Really helpful detail thanks, guys.
Speaker Change #107: Thank you <unk> for next question.
Speaker Change #107: Yes.
Speaker Change #108: Our next question comes from the line of Craig Shere of Tuohy Brothers. Your line is now open.
Speaker Change #109: Good morning, Thanks for taking the questions.
Speaker Change #110: I'd like to dig a little further in the Ryan 15 liter <unk> engine.
Speaker Change #110: Question.
Speaker Change #110: Of course with any new rollout.
Speaker Change #110: Sales and deliveries are.
As fast as one would hope as you already opined.
Speaker Change #110: But.
Speaker Change #111: Got it.
Speaker Change #111: If there are orders for 234 years ramping up over time, the fuel probably needs to be.
Speaker Change #111: Up ahead of time.
Speaker Change #111: I don't know that they can fill up these trucks before they buy all those engines.
I guess, what I'm asking is.
Speaker Change #111: What are the prospects.
Four notable frontloaded multiyear fueling agreements.
Speaker Change #111: That could.
Speaker Change #111: T up your longer term volumes and for the downstream development.
So I.
Speaker Change #111: I would say it this way.
Speaker Change #111: I think people are aware that the vast majority of what <unk> does because we are still in the early innings of adoption here are on.
Speaker Change #111: Really private fleets dedicated fleets, either distribution centers or supermarkets or refuse companies.
Speaker Change #111: Where you really.
Speaker Change #111: Have those defined fueling locations and that sort of thing and those customers typically do sign up for long term fuel agreements.
Speaker Change #112: We think we think what you are talking about in terms of Multilocation program. It makes a lot of sense to us.
Speaker Change #112: And I think I think first the first go through maybe it's a one site location kind of thing, where they're testing and getting comfortable with it.
Speaker Change #112: And.
Speaker Change #112: Are those sort of broader thematic programs likely come.
After they go through that that first wave, but we're still we're still sort of in the early early innings of that but we are looking.
Speaker Change #112: To find those kinds of fleets and programs.
Speaker Change #112: Sure.
Speaker Change #112: Given your focus on the transportation market.
Speaker Change #112: Can you opine.
Speaker Change #113: I guess, if I'm not mistaken lease today, we are supposed to get El CFS market update from <unk> and.
Speaker Change #113: To the degree L. CFS pricing, obviously runs has been great the last year or two.
Speaker Change #113: But to the degree LCL first line.
Speaker Change #114: I guess its mojo back.
Speaker Change #115: Would that have any implications on the weighting of your projects in the next couple of years.
Speaker Change #116: We're still principally because John we're still principally a landfill oriented company and the majority of our.
Speaker Change #116: Credits are going to be.
Speaker Change #116: RIN based.
Speaker Change #116: Landfills.
Speaker Change #116: Tracked significant amount of CFS credits, but certainly as the price improves on El CFS credits.
Speaker Change #116: That can only help on the downstream side of our business, we have substantial fueling capacity in California, and we utilize that for low carbon intensity dispensing with third party supply.
Speaker Change #116: That.
Speaker Change #116: Is where we get the substantial.
Speaker Change #116: Bulk of our <unk> and <unk>.
Speaker Change #116: <unk>.
As an aside 45 Z coming up as well.
Credit revenue.
Speaker Change #116: So that.
Speaker Change #116: As the price improves that's where we're likely to see that growth.
Speaker Change #116: In terms of our mix will stay principally a landfill company, we have our Sonoma project, we're working on.
Our projects out in California.
Speaker Change #116: We always look at opportunities in the low Ci space and we'll continue to do that.
Speaker Change #116: But.
Speaker Change #116: From an outlook perspective, we see the.
Speaker Change #116: The credit bank starting to.
Speaker Change #116: Perhaps roll off.
Speaker Change #116: Sometime during the course of next year not completely but start to turn back the other direction and as that happens we expect to see some strengthening in the price.
Speaker Change #117: Obviously, everybody expects the.
Speaker Change #117: Reduction of the carbon targets from the carb to be positive.
Speaker Change #117: We are included in that group. So we look forward to that announcement later today, yes, I think from a price perspective, I think that meeting is going on today, they've ticked up a little bit. This week I think we're currently sitting around 74 Bucks.
Speaker Change #117: Per credit.
Speaker Change #117: It will help us if those prices go up as John had mentioned and we get into 2025 guidance, we'll talk about the sensitivities too.
Speaker Change #117: CFS pricing to our to our results.
Speaker Change #118: Thank you.
Speaker Change #118: Thank you Linda for next question.
Speaker Change #119: Our next question comes from the line of power chain.
Speaker Change #119: Scotia Bank. Your line is now open.
Speaker Change #120: Hey, gentlemen, good morning.
Speaker Change #121: Two question if I could.
I think the first one you're pumping at anthem.
Speaker Change #121: One of your competitors have said they.
Speaker Change #121: They have seen a shift up in what they can get as a percentage of them, bringing in surface fuelling station.
Comparing to the LNG producer.
Speaker Change #122: Wondering if you have seen a similar depend on it.
Speaker Change #123: Yeah, I mean for sure we've seen a tightening of the dispensing market RMG supply is growing faster than dispensing capacity and thats what drives up those shares.
It's also one of the reasons why we sort of put together our business model the way we did.
Speaker Change #123: By being vertically integrated and having the <unk> production as well as the station dispensing capacity Opal.
Speaker Change #123: No.
Speaker Change #123: It is not as impacted by either paying out higher rain shares or.
Speaker Change #123: Where that where that nest or where that where those economics.
Lie within within the value chain.
Speaker Change #123: And so I would agree that.
Speaker Change #123: R&D marketing fees have been rising.
Speaker Change #123: Or dispensing fees as you as maybe somebody else term debt.
Speaker Change #123: And.
Speaker Change #123: That's where.
Speaker Change #123: We sort of like the way the <unk> business model is positioned and.
Speaker Change #123: We also like the fact that we have a little bit more.
Speaker Change #123: Controller or impact over our destiny to continue to grow out that dispensing capacity for our LNG production.
Adam just don't know, whether you will be willing to share I think historically that the split between the.
Adam I: The upstream and the downstream that the 80 20 is now 70 525 or any number that you can share what the third thing.
Speaker Change #124: That ratio.
Speaker Change #124: We will have more room to for work that is already we see being pushed back and some of the amendment.
Speaker Change #125: Yes, we're not going to get into those specific numbers I would say this though.
Speaker Change #125: As I had mentioned that dispensing capacity is tightening.
Speaker Change #125: So the numbers are going up and.
Speaker Change #125: If you wanted to if you want to give those numbers to some of our JV partners.
Speaker Change #125: And curtains utilities.
Speaker Change #125: Yes.
Speaker Change #125: Okay.
Speaker Change #125: And that that's a good.
Speaker Change #125: Question that you monetize some of the ITC equal alone next year.
Speaker Change #125: Yes.
Speaker Change #126: We meaning available for you to monetize for next year.
Okay.
Yes with respect this is Scott by the way.
Speaker Change #126: With respect to the ITC credits. So as you pointed out we did sell our first ITC credits.
Speaker Change #126: We have three projects that were placed in service this year and we will be seeking to sell credits for those three projects and.
Speaker Change #126: The sale of ITC will be an ongoing program as we placed more projects into service over the next few years.
Speaker Change #126: The ITC is clearly a significant source of liquidity to help fuel our growth over the next several years.
Scott can you help me out that how we cultivate that ITC.
Scott: No Adam one thing is that we maintain that for the three projects for next year.
So.
Scott: We're not going to get into specific numbers, but but the ITC credits are typically 30% to 40%.
Scott: Of the Capex cost for the projects, 30% as the base and 40%. If you can meet one of the U S domestic content adder.
Scott: And those would be the <unk>.
Scott: Proximate percentages that would be using.
Scott: Okay.
Scott: Thank you one moment for our next question.
Scott: Our next question comes from the line of Allen Brothers.
Scott: Of Goldman Sachs. Your line is now open.
Hi, good morning, Congrats on placing the Kirby project and construction it looks like the same partner and partnership structure SD Cottonwood project to what extent are there similar 100% equity projects teed up and as a follow up how do the economics look on the 100% equity projects.
Little smaller plants compare do.
Scott: Some of your larger projects that are structured as JV.
Adam John: Hey, Adam John here so.
Speaker Change #128: You've got kind of a.
Speaker Change #128: A couple of different questions.
Mixed up in there so.
Speaker Change #128: We entered into a number of.
Speaker Change #128: Gas rights agreements with W. M and we're really pleased.
The Kirby project represents the second project, there and yes, 100% ownership there I think.
Speaker Change #128: <unk>.
Speaker Change #128: As we build relationships across the industry.
Speaker Change #128: Our partners have different goals and objectives within that.
Speaker Change #128: <unk>.
From a GSL are great partner GSL, we have a 50 50 relationship and we really like that relationship from the standpoint.
Speaker Change #128: Aligns with Counterparties really well to perform on those projects certainly the 100% ownership such as the waste management or other.
Speaker Change #128: Municipal Counterparties like we have new river solid waste authority and we have the Prince William County, and we have the Polk County down in Florida.
Speaker Change #128: Atlantic County, and Burlington County, in New Jersey, which are.
Speaker Change #128: 50, 50 joint ventures with SJI.
Speaker Change #128: But so we have a mix of those and we look to build on those relationships.
Speaker Change #128: To get a <unk>.
Speaker Change #128: Further gas rights and.
Speaker Change #128: We will see different opportunities across the board.
Speaker Change #128: One aspect of what Youre seeing is us.
People are.
Speaker Change #128: Reaching down to smaller sized projects, obviously as we've discussed before there's significant economies of scale in this industry and as you go up.
Speaker Change #128: In size too.
Speaker Change #128: 4005 thousand 6000, CFM projects of the size of say, our Sapphire, a principle, Prince William projects or 10000, even the size of the Emerald project.
Speaker Change #128: You've got really great economics.
Speaker Change #128: It's challenging to make those economies of scale work for small projects.
Speaker Change #128: We are pleased that we were able to do that with the Kirby project.
Speaker Change #128: <unk>.
Speaker Change #128: Excuse me and others that we're seeing.
Speaker Change #128: 2003 thousand CFM size range.
Speaker Change #129: Got it that's helpful. I appreciate the color there.
Speaker Change #130: Really strong EBITDA margins and fuel stations in the quarter.
Speaker Change #130: I think margins were up 400 basis points sequentially, what drove the acceleration in margins and what's the right way to think about the run rate margin profile of this business. Yes. So this is Adam here.
Speaker Change #130: Sort of pleased that it came across the board in fuel station services improving margins in our in our construction business, where we build fuel stations.
Speaker Change #130: And.
I don't think we had it in the release, but it'll be in the Q, where we also had increasing backlog.
On the construction business as well.
Speaker Change #130: And also a strong margins on the service side of the business.
Speaker Change #130: I'd say the lion's share of those that margin increase was the higher throughput of RMG to our dispensing capacity.
Speaker Change #130: And.
Speaker Change #130: That that was that was likely.
Speaker Change #130: Some of the margin share gain as well, but from second quarter to third quarter.
It could I think it was a blend across those across those three three areas in the fuel station service segment.
Speaker Change #130: And then last one from me.
Speaker Change #130: Just any commentary around how the 2025 forward.
Speaker Change #130: <unk> ran market is developing.
Speaker Change #130: Any update on how those offtake conversations are coming post election.
Speaker Change #131: Yes, well post election in the last couple of days, we haven't seen a lot of activity I would say.
Speaker Change #132: Somebody said Italia, maybe theyre down a dime or something.
Speaker Change #132: We started to see some trading activity I would say within the last month and.
Speaker Change #132: And we did sell some of our 2025 brands.
Around $3 level and.
Speaker Change #132: Sure.
Speaker Change #132: <unk>.
Speaker Change #132: I wouldn't say there is there is heavy volumes yet, but they are starting to transact for for 2025.
Speaker Change #132: I see the prices really converging around a $3 mark.
Speaker Change #132: As we get closer to the end of the year and move into 2025.
Speaker Change #132: We expect.
Speaker Change #132: Those prices to strengthen around the $3 Mark.
Speaker Change #133: Thanks, so much.
Speaker Change #134: Thank you I'm showing no further questions at this time.
Speaker Change #135: Turn it back to Adam Tomorrow for closing remarks.
Adam Tomorrow: Alright, well, we do appreciate everybody's interest in <unk> and hope everybody has a great rest of the deck.
Speaker Change #136: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.