Q1 2025 OPAL Fuels Inc Earnings Call
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1025 Earnings Results, Conference Call. At this time, all participants are in this in only mode. After the speaker's presentation, there'll be a question and answer session. To ask the question during the session, you'll need to press star one on your telephone. You will then hear an automated message which advice on your hand is raised.
Todd Firestone: Todd Firestone. Please go ahead.
Speaker Change: Thank you and good morning, everyone and welcome to the hope of fuels first quarter 2025 earnings Conference call with me today are co CEO, Adam Tomorrow dropped more calories on almost chief financial Officer.
Speaker Change: Proper fuels released financial and operating results for the first quarter of 2025 yesterday afternoon, and those results are available on the Investor Relations section of our website at <unk> Dot com.
Speaker Change: Presentation and access to the webcast for this call are also available on our website.
Speaker Change: After completion of today's call a replay will be available for 90 days before we begin I would like to raise our remarks, including answers to your questions contain forward looking statements, which involve risks uncertainties and assumptions forward.
Speaker Change: Forward looking statements are not a guarantee of 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 are described on slide two and three of our presentation.
Speaker Change: These forward looking statements reflect our views as of the date of this call novel fuel does not undertake any obligation to update forward looking statements to reflect events or circumstances. After the date of this call.
Speaker Change: Additionally, this call will contain discussion of certain non-GAAP measures.
Speaker Change: 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.
Adam: Adam will begin today's call by providing an overview of the quarters results and recent highlights and.
Adam: And an update on our strategic and operational priorities. John will then give a commercial and business development update after Wisconsin will review financial results.
Adam: Well then open the call for questions and now I'll turn the call over to Adam Tomorrow.
Adam: Apple fields.
Speaker Change: Thanks, Scott Good morning, everyone and thank you for participating in <unk> first quarter 2025 earnings call.
Speaker Change: First quarter results were in line with expectations performance across our business segments were solid and we continue to execute on our strategic and operational objectives.
Speaker Change: First quarter, adjusted EBITDA was $20 1 million over 30% higher compared to the same period last year.
Speaker Change: Our first quarter 2025 fuel station services segment, EBITDA was approximately $12 5 million, 80% higher versus the first quarter of 2024.
Speaker Change: <unk> oil production for the quarter was $1 1 million M. N V to use up nearly 40% versus the same period last year and in line with our expectations.
Speaker Change: Our fuel station services segment continues to exhibit strong growth as.
Speaker Change: As we often discuss the strategic value of our vertical integration, which maximizes the value of R&D that we produce and makes us an attractive partner for new RMG business development opportunities. This segment also provides steady predictable and growing cash flow that improves.
Speaker Change: Economic returns to the overall business and Dampens commodity price volatility.
Speaker Change: We are maintaining our full year guidance set out in March and expect to see sequential quarterly R&D production growth throughout the year as our newer projects continue to ramp we also anticipate continuing growth at our existing landfill R&D facilities.
Speaker Change: While we are pleased with our execution. We are also cognizant of the uncertain macro and regulatory environments.
Speaker Change: Though we don't expect our business to be materially impacted by tariffs recent trade policy uncertainties are causing delays in investment decisions and our customers and partners, including some of our logistics and trucking fleet customers.
Speaker Change: These delays are not materially enough for us to change our guidance regarding fuel station services EBITDA growth for the year, but we are not yet seeing the acceleration of CMG RMG adoption for heavy duty trucking.
Speaker Change: That said, we are very encouraged by numerous factors supporting long term adoption. Our view is driven by product availability of the Cummins 15 liter engine, which freightliner now moving into production and delivery.
Speaker Change: In addition, our new regulatory outlook has recognized the challenges of zero emission vehicles for the heavy duty market. This significantly expands the potential for adoption of RMG CMG powered heavy duty trucking.
Speaker Change: While this regulatory shift has positive implications for the continued growth of fuel station services. We are still waiting for regulatory clarity for the <unk> segment. We are continuing to monitor 45 is the implementation of <unk>.
Speaker Change: Final EPA rulings on the proposed partial waiver introduced in November of last year and the upcoming set rule, two which will include volumes and other market balancing mechanisms. While we are waiting for the regulatory backdrop to clarify there is still strong bipartisan support for American Biofuels and investment in R&D with that I'll turn it over.
John: To John John.
John: Thank you Adam and good morning, everyone.
John: As Adam mentioned, our first quarter production results were 38% higher compared to the first quarter of 2024, driven primarily by increasing production at the facilities commissioned in the fourth quarter of 2024.
John: As we mentioned in March on our last earnings call production from these facilities is growing and we continue to see positive performance across our other operating facilities we.
John: We maintain our 2025 RMG production guidance of 5.1 million Btu to $5 4 million Btu, which at the midpoint is up 37% increase versus 2024.
John: In our in construction portfolio, we have for landfill R&D projects in construction.
John: Atlantic Burlington, Cottonwood, and Kirby, which remain on schedule and represent an aggregate $2 1 million Btu of annual design capacity.
John: We expect Atlantic to commence commercial operations in the third quarter of this year and then next three during 2026.
John: Our development pipeline has numerous near term opportunities with secured gas rights and we are maintaining our guidance to place 2 million F&B to you into construction in 2025.
John: And fuel station services, we have 45 stations in construction of which 19, our opal owned.
John: We're maintaining our guidance to grow fuel station services 2025, adjusted EBITDA, 30% to 50% versus 2024.
John: 2025 is off to a good start and despite the mentioned near term uncertainties longer term market fundamentals are supportive of our business plan and growth potential.
John: Successful disciplined execution will result in increasing shareholder value.
Speaker Change: I'll now turn the call over to <unk> to discuss the quarter's financial performance Causey.
Speaker Change: Thank you John and good morning to everyone joining today's call.
Speaker Change: Last night, we issued our earnings press release outlining our results for the first quarter ended March 31 2025.
Speaker Change: We expect to file our Form 10-Q on Monday.
Speaker Change: Revenue and adjusted EBITDA for the quarter were $85 4 million.
Speaker Change: And $20 1 billion respectively.
Speaker Change: Compared to $64 9 million and $15 2 million in the same period last year.
Speaker Change: Net income was $1 3 million up from <unk> 7 million in Q1 2024.
Speaker Change: This year over year quarterly growth.
Speaker Change: Reflects the continued ramp up of our NGL production at facilities commissioned in 2024.
Speaker Change: Along with the growth in our fuels patient services segment.
Speaker Change: Included in these results is awful share of adjusted EBITDA from equity method investments.
Speaker Change: Which was $3 4 million for the quarter versus $6 5 million in Q1 2024.
Speaker Change: The year over year decrease is primarily driven by the timing of last year's <unk> sales and.
Speaker Change: And startup related expenses at new joint venture projects.
Speaker Change: Capital expenditures for the quarter total <unk>.
Speaker Change: $17 million in <unk>.
Speaker Change: $5 4 million related to our equity method investments.
Speaker Change: As Adam mentioned, we maintain our full year 2025 guidance provided in March.
Speaker Change: We continue to expect adjusted EBITDA between 90, and $110 million supported by RMG a production of 5.0.
Speaker Change: $5 4 million F&B to us all.
Speaker Change: Our guidance assumes <unk> pricing.
Speaker Change: At $2 60 per gallon for entire 2025.
Speaker Change: As of March 31, our total liquidity was $240 million.
Speaker Change: This includes 40.
Speaker Change: Plus of cash cash equivalents and short term investments.
Speaker Change: More than $178 million of Undrawn availability under our credit facility.
Speaker Change: And little over $21 million of remaining capacity under our revolver.
Speaker Change: In March we also monetize approximately $8 million.
Speaker Change: Investment tax credit net proceeds and expect roughly $50 million in total ITC sales in 2025, which bolsters our operating cash flow.
Speaker Change: We believe our <unk>.
Speaker Change: Current liquidity position.
Speaker Change: Bind with the operating cash flows.
Speaker Change: Will be sufficient to fund our existing capital plan and near term growth initiatives with that I'll now turn the call back over to John for closing remarks.
Speaker Change: In closing we are pleased with our first quarter results.
Speaker Change: We remain well positioned for continued disciplined execution of our strategic growth objectives, and the expansion of <unk> vertically integrated platform.
Speaker Change: I will turn the call over now to the operator for Q&A. Thank you all for your interest in local fuels.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.
Speaker Change: The automated message that your hand is raised.
Speaker Change: We also ask that you. Please wait for your name and company to be announced before for suite proceeding with your question as well one question and one follow up one moment for the first question.
Speaker Change: And the first question will come from the line of Derrick Whitfield of Texas Capital. Your line is open.
Derrick Whitfield: Good morning, and great update.
Derrick Whitfield: Thanks, Derek good morning.
Speaker Change: Well My first question I wanted to lean in on your production trajectory for the year.
Speaker Change: While flattish Q1 flattish versus Q4 your guidance implies a material increase in production over the course of the year as recent projects ramp and gas collection improves could you perhaps speak to the cadence of production expectations for the year.
Speaker Change: And then the improvement you're expecting in light design capacity utilization over the course of the year.
Speaker Change: Hi, Derek John.
Speaker Change: I'll take this one so.
Speaker Change: Production for the quarter was within our band of expectations.
Speaker Change: Production was somewhat affected by a couple factors.
Speaker Change: Including an unusually cold winter affecting our landfill gas collection.
Speaker Change: In addition, we had.
Speaker Change: Some availability.
Speaker Change: Issues at our virtual pipeline projects.
Speaker Change: Which are not generally as reliable as direct connect projects.
Speaker Change: However, as you mentioned, we are expecting good sequential growth through the next several quarters consistent with our guidance and this will come from.
Speaker Change: Improvements at existing projects, including.
Speaker Change: Landfill gas collection expansions at our open and growing landfills that are occurring tipping.
Speaker Change: Typically this time of year and through the summer.
Speaker Change: In addition, our Polk project is going to be transitioning to a direct connect interconnection this month.
Speaker Change: Which should serve to increase that reliability.
Speaker Change: We've also put in place a number of key additions over the last five months or so in the operating team there, which should result in increasing efficiencies and availability.
Speaker Change: Across those projects.
Speaker Change: And as we see the Atlantic project on track for commercial operations in the third quarter.
Speaker Change: We should expect to see results from that in the fourth quarter. So.
Speaker Change: We.
Speaker Change: We remain.
Speaker Change: Im confident in our output.
Speaker Change: And we will see that sequential ramp over the course of the year.
Speaker Change: Terrific maybe.
Speaker Change: Leaning in further just on your any construction R&D projects.
Speaker Change: It appears as you've noted that these are generally progressing on kind of in line with your expectations.
Speaker Change: Are you guys experiencing any leading edge inflation associated with tariffs.
Speaker Change: You Wanna, causing you want to.
Let me, let me take that Hi, Derek.
Speaker Change: So on the tariff related.
Speaker Change: We are not seeing any cost increase.
Speaker Change: In our construction projects are even in our operating areas yet.
Speaker Change: Don't expect there's going to be a lot.
Speaker Change: Because <unk>.
Speaker Change: All of the in construction projects has already all the equipments have been ordered.
Speaker Change: Thank you.
Speaker Change: Fixed price contracts have been executed so we don't expect.
Speaker Change: A lot of implications on our current operations as well as.
Speaker Change: The capital it could be in future projects, and we'll make those judgments as part of the when.
When we made the final decision on the investments.
Speaker Change: And maybe just any color around how material that can be on future projects.
Speaker Change: From what you guys have been able to size up to date.
Speaker Change: So.
Speaker Change: As a guide.
Speaker Change: Some of the future projects you already made qualifying investments for the ITC purposes.
Speaker Change: And so part of those cost has already been secured didn't see a whole lot of improvement.
Speaker Change: Remember all of our content as we try to make it domestic.
Speaker Change: Quantified.
Speaker Change: No more.
Speaker Change: There could be implications on steel on aluminium.
Speaker Change: All of those areas, but we don't see.
Speaker Change: A major implication it remains to be seen we don't know how this overall macro.
Speaker Change: <unk> is going to clarify itself over the next three to six months, but to date, we don't see a major application.
Speaker Change: That's great I'll turn it back to the operator.
Speaker Change: Thank you and the next question will be coming from the line of Matthew Blair of T. P. H. Your line is open.
Matthew Blair: Alright, great. Thank you and good morning.
Matthew Blair: I wanted to talk about the RIN.
Matthew Blair: Pricing you achieved in the first quarter.
Matthew Blair: It was down quarter over quarter, but still extremely strong relative to the benchmark index I think we said you're capturing about 112% of the benchmark index could you talk about the drivers here and there.
Matthew Blair: That's something that you might be able to replicate in Q2 and going forward.
Adam Camorra: Yeah, Thanks, Matt Adam Camorra here.
Adam Camorra: We did have an average realized price of about $2 71 in the first quarter.
Adam Camorra: And.
Adam Camorra: We typically.
Adam Camorra: Yes.
Adam Camorra: We don't like too.
Adam Camorra: <unk>.
Adam Camorra: Speculate on where RIN prices are going or where public policy is going to go.
Adam Camorra: And we typically have a philosophy that we are going to sell as we go.
Adam Camorra: And our and we also don't like to talk about too much.
Adam Camorra: Our training philosophy and policy I would say that our second quarter RIN price will likely be lower than what it was in the first quarter.
Adam Camorra: And our position for the year is basically about 50% that that we have sold and sort of supported by our outlook for.
Adam Camorra: Our guidance.
Adam Camorra: Yes.
Adam Camorra: Yes.
Adam Camorra: Sounds good and then.
Speaker Change: The growth that you're expecting this year in F <unk>.
Speaker Change: <unk> to 50% EBIT growth coming off a pretty strong number in 2024.
Speaker Change: Could you talk about and is it possible for you to split.
Speaker Change: How much of that growth is simply coming from from higher volumes. It sounds like Youre building 19 of your own stations.
Speaker Change: And then how much of that growth is coming from.
Speaker Change: Expectations of stronger margins due to an increasingly tight dispensing market.
Adam Camorra: Yeah. So this is this is Adam again.
Adam Camorra: There are obviously, a few sub segments within fuel station services.
Adam Camorra: And we're seeing we're seeing good strong performance across all of those.
Adam Camorra: And.
Adam Camorra: Some of that comes from multiple fuel stations that we own.
Adam Camorra: And then charge that tolling our compression fee, we had a number of those facilities come online in 'twenty four and a number.
Adam Camorra: Coming online in 'twenty five so you annualize the ones that came on throughout the year last year and the new ones coming on this year. Our construction business continues to perform well in terms of anticipated margins.
Adam Camorra: Our service business, there continues to grow as well.
Adam Camorra: As we have.
Sort of full service contracts.
Adam Camorra: And those those could be on stations that we build and then service. After the fact and there is a component to higher utilization and throughput of our dispensing network as R&D volumes continue to flow through there. So it's really all four of those pieces.
Adam Camorra: That are that continue to drive growth in fuel station services.
Adam Camorra: Great. Thanks for your comments.
Adam Camorra: Thank you one moment for the next question.
Speaker Change: And the next question will come from the line of Martin Malloy of Johnson Rice <unk> Company. Your line is open.
Martin Malloy: Good morning, Thank you for taking my questions.
Speaker Change: First question just bigger picture.
Speaker Change: Could you maybe talk about how you're thinking about.
Speaker Change: Returning capital to shareholders potentially dividend policy as you are.
Speaker Change: <unk>.
Speaker Change: The growth.
Speaker Change: Which you will.
Speaker Change: Which time youll start to generate.
Speaker Change: So meaningful discretionary free cash flow.
Speaker Change: Yes, Matt This is Adam Tomorrow here and I appreciate that question because certainly.
Speaker Change: Our are our largest shareholder.
Speaker Change: Right.
Speaker Change: All of our shareholders are interested in maximizing shareholder value and returning.
Speaker Change: Value is.
Speaker Change: <unk>.
Speaker Change: Any number of ways.
Speaker Change: And this really goes to the flexibility that we have in terms of.
Speaker Change: How we deploy capital.
Speaker Change: And what do we do with the free cash flow generation, that's going to be coming to maximize and enhance shareholder value and we're sitting in a position where we have a very strong opportunity set of of biogas projects that we can either deploy capital and accelerate growth.
Speaker Change: If if they still achieve our.
Speaker Change: Required unlevered rates of return.
Speaker Change: That free cash flow generation can also be used in M&A opportunities to enhance the.
Speaker Change: The platform.
Speaker Change: And be accretive to shareholder value or if if those things don't materialize and.
Speaker Change: You are no longer achieving rates of return that you want on new capital projects.
Speaker Change: You have the flexibility to Delever and return cash to shareholders through those mechanisms that you were talking about or I know, we're trying to achieve better float and liquidity and we've taken some actions to be doing that.
Speaker Change: With our with our shareholder base.
On share buybacks in the future could always be something that you look at right now.
Speaker Change: We like the opportunity set that we have in front of us to continue to deploy capital and grow our company. In these two these new types of projects and by the way it could either coming fuel station services, where we think there could be a real robust opportunity coming for CMG RMG in the heavy.
Duty trucking market.
Speaker Change: Or some real attractive large R&D projects to deploy capital there and we're also cognizant of other ways to create shareholder value from the free cash flow.
Speaker Change: Thank you for that answer and for my second question wanted to ask about potential on the electric power side.
Speaker Change: With respect to your facilities maybe.
Speaker Change: Maybe if you could talk about what youre seeing there from customer interest or a potential projects.
Speaker Change: Yes. This is this is Adam again, because the renewable power segment, we don't really talk a lot about.
Speaker Change: And.
Speaker Change: I think it's a really interesting use for for smaller biogas or biogenic methane abatement quite frankly.
Speaker Change: And.
Speaker Change: I think people understand the benefits of renewable power from biogas, where its base load power enhances grid stability.
Speaker Change: It's typically in the rural areas or municipality owned.
Speaker Change: And.
Speaker Change: There are a number of different ways to accelerate or incentivize development in that area.
Speaker Change: And.
Speaker Change: We think that's going to be coming.
Speaker Change: Now we have talked historically about an ear and policy as being something that can be really effective to drive investment in that space.
Speaker Change: And create incremental value for <unk> fuels.
Speaker Change: And.
Speaker Change: If it's not the <unk> policy, we think that there could be other interesting offtake markets for that.
Speaker Change: I know a lot of data centers, we're looking for low carbon intensity baseload renewable electricity and we'll see if those types of offtake markets develop in and provide that good economic return and that sort of thing. So we don't have anything to report on that front just yet today.
Speaker Change: Yes.
Speaker Change: And I think also if you look at our financial statements Youll see.
Speaker Change: We're not making a lot of money on renewable electricity today and this is also something we try and educate the folks in D. C about is that.
Speaker Change: Not there is not one size fits all we always think there is this good better best policy with what to do with biogenic methane.
Speaker Change: We think the worst answer is to flare it locally.
Speaker Change: And we think a good answer is to is to turn it into renewable electricity for the reasons that we sat and if you have a high enough.
Speaker Change: If you have a large enough.
Speaker Change: Emission source your best answer is to turn it into R&D, where you're capturing the folds out the full energy there because those landfill gas electric projects aren't the most efficient they do take higher heat rates to create your electricity.
Speaker Change: And.
Speaker Change: We think we think.
Speaker Change: And that resonates with folks, we just haven't seen yet where that.
Speaker Change: Where that shakes out in terms of how to best structure, either policy around it or or seeing yet.
Speaker Change: That commercial offtake, but we do think it's going to be coming.
Speaker Change: And I'll just add that.
Speaker Change: As always our electric project portfolio has represented the raw material for converting these long term gas rates into RMG projects, and we expect to see that continuing over the course of this year and next.
Great. Thank you I'll turn it back.
Speaker Change: Thank you one moment for the next question.
Speaker Change: And the next question will comment from the line of Adam <unk> base.
Of Goldman Sachs. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: I was wondering if you could just update us on your latest thoughts around potential timelines and outcomes of the next iteration of biogas policy.
Adam: Adam This is Adam here.
Speaker Change: <unk>.
Speaker Change: You know theres a lot going on.
Speaker Change: When you're talking about biogas policy, obviously, we have a lot of things happening within the EPA with the renewable fuel standard.
Speaker Change: And there is there is a lot of tax policy.
Speaker Change: Coming as well so.
Speaker Change: Maybe I'll start on the tax policy first.
Speaker Change: And then we can move into the RFS and on a tax policy.
Speaker Change: It seems like.
The news that I have been reading.
Speaker Change: Could be seeing.
Speaker Change: Some new tax bills coming out.
Speaker Change: Any day next week.
Speaker Change: And it sounds like there could be some energy tax policy included in that and.
Speaker Change: If youll recall, when we gave guidance for the year.
Speaker Change: Minimum to very small amounts of 45 Z included in our in our guidance.
Speaker Change: And.
Speaker Change: It feels like.
Speaker Change: And I wanted to just talk from a super high level about what it is that we do again and why we think that there is Republican and bipartisan support.
Speaker Change: For for the capture of this.
Speaker Change: Biogenic methane from organic waste, which by the way will continue we are going to continue to have biogenic methane coming from that organic waste that we create in the animals that we use for our fluids supply create.
Speaker Change: And.
Speaker Change: It is broadly supported that we should be doing something about that that biogenic methane.
Speaker Change: And.
Speaker Change: As it pertains to the tax policy.
Speaker Change: The one that we're waiting for clarity clarity on that 45 Z.
Speaker Change: We think we'll be seeing that pretty quickly and it's also pretty interesting too because when we talk about our vertical integration.
Speaker Change: It also gives us diversity too.
Speaker Change: Public policy outcomes as well because not only in the tax policy are people talking about 45 Z. They're also talking about this R&D incentive act, which really would accrue to the downstream fuel station services, whether it's in R&D dispensing tax credit or something that comes back on the fuel usage side.
Speaker Change: <unk>.
Speaker Change: So we think that will start to get a little bit of clarity around that probably in the coming weeks and.
Speaker Change: We'll see where we're at where it shakes out on how the greet model is going to work and whether or not it's at the novel tip for dispensing or whether it's on the production side for 45 Z or maybe some combination of both.
Speaker Change: But it does feel like there is broad based bipartisan support for some of that stuff to be included on on the tax policy and and on the RFS.
Speaker Change: I am seeing reports and I'm sure you guys are seeing and reports as well that the EPA is really trying to keep the timelines on.
Speaker Change: On when they put out rules and establish.
Speaker Change: Their rulemaking cadence and timeline.
So.
Speaker Change: We read the same things that everybody else reads.
Where we could see that coming in.
Speaker Change: In the coming weeks.
Speaker Change: <unk>.
Speaker Change: As far as as far as the RFS goes there has been a considerable amount of focus and attention on on liquid Biofuels and I can understand that there was a lot of investments made.
Speaker Change: In converting refiners to be able to create renewable diesel and.
Speaker Change: I think previous set rules.
Speaker Change: Warren as supportive for a lot of the investments that were that were made in that area.
Speaker Change: You saw that sort of played through in various RIN pricing for various categories and.
Speaker Change: I think theres been a lot of focus on on that side of it in.
Speaker Change: There hasnt been as much attention paid to the Cellulosic category as much as we would like to see.
Speaker Change: And and and.
Speaker Change: The interesting thing there is we actually want the same things as.
A lot of the <unk>.
Speaker Change: <unk> advanced Biofuels in terms of strong volumes across advanced Biofuels.
Speaker Change: If you have a holistic view on how you are managing the RFS.
Speaker Change: We think the Cellulosic waiver credit.
Speaker Change: Can make a lot of sense, so that the obligated parties can can achieve their compliance.
Speaker Change: And.
Speaker Change: <unk> got sort of.
Speaker Change: A functioning working RIN market across the spectrum of those advanced Biofuels.
Speaker Change: Then you can have that price cap that can really work and support new R&D investment and if you do the math on what it can look like.
And 26, and 27 or however, long they do have several four.
Speaker Change: It's really supportive of new investment in R&D and that sort of thing and.
Speaker Change: And it's not to say.
Speaker Change: It's always a straight line and we don't we don't know exactly how the rules are going to be but we do feel like what we do.
Speaker Change: Is is does have that broad bipartisan support and.
We are.
Speaker Change: And we don't know.
Speaker Change: All of these all of these things necessarily shake out what I can tell you is that.
Speaker Change: It does feel like investment in these sort of R&D products projects and and the productive use of that biogenic methane.
Speaker Change: <unk> is broadly supported whether it be renewable natural gas.
Speaker Change: Heavy industries like heavy duty trucking or potentially marine fuel and and capturing those smaller emission sources for renewable electricity and.
Speaker Change: We'll we'll see where potentially there is positive tax policy or or.
Speaker Change: Potential positive outcomes out of the RFS.
Speaker Change: And.
Speaker Change: I do believe that we will start getting that regulate regulatory clarity.
Speaker Change: Over the next I don't know a month or two and we'll see how long it takes to finalize any of those rules I would say on the 45 Z.
Speaker Change: That starts Jan one 2025, we obviously haven't created any of those tax credits or sold any.
Speaker Change: But that is something that would be.
Speaker Change: <unk> for the entire year.
Speaker Change: Long answer because it is today.
Speaker Change: There's many layers to that.
Speaker Change: I appreciate all the thoughts there and then my last question.
Speaker Change: It looks like your RMG EBITDA per annum.
Speaker Change: Alan.
Speaker Change: In the quarter just wondering if you can help.
Speaker Change: Help us think about puts and takes around the trajectory of EBITDA per annum btu from here on one hand, it sounds like at your RIN credit prices might step slightly lower sequentially on the other I would imagine as you ramp up projects.
Speaker Change: Opex Graham maybe to you maybe move lower as you spread that opex over more production. So just how are you thinking about the trajectory of.
Speaker Change: EBITDA per Gram of Btu from here.
Speaker Change: So.
Speaker Change: Causing here, let me answer that question I think it's a bit.
Speaker Change: The simpler.
Speaker Change: While it May sound, if you think about.
Speaker Change: John has mentioned the secular growth in our R&D of production throughout the year from the existing facilities plus the ramp up of projects. We've put in construction end of last year. So that production would be what the RIN price kind of look like we already have.
Speaker Change: I mentioned that we have.
Speaker Change: We have done very well on the RIN price last quarter, it will be less for the second quarter.
Speaker Change: And third quarter and fourth quarter, depending on the weather in price or we are assuming for the rest of the year is going to is going to show up at 2016.
Speaker Change: So it's simpler sequentially growing.
Moderated by how the green prices shaping up.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you one moment for the next question.
Speaker Change: The next question will be coming from the line.
Betty Zheng: Betty Zheng of Scotiabank Your line is open.
Speaker Change: Great. Thanks, good morning.
Speaker Change: For my first question I was wondering if you could talk about the renewable power segment.
Speaker Change: In the first quarter it looks like revenues were down quite a bit as a result.
Speaker Change: Faults are down quite a bit as well so just curious what the drivers were there.
Speaker Change: So on this.
John: This is John in the renewable power segment.
Speaker Change: Last year, we had.
Speaker Change: <unk> pathway.
Speaker Change: In that segment and that.
Speaker Change: Those contracts terminated so there was a substantial decrease.
Speaker Change: From those contracts being terminated in the fourth quarter.
Speaker Change: So that's principally where youre seeing the differences there.
Speaker Change: Otherwise.
Speaker Change: Pretty consistent performer.
Speaker Change: In the future you might see decreases as projects move from.
Speaker Change: Renewable power into construction or operation as LNG projects, but otherwise it should be fairly consistent we're seeing good.
Speaker Change: Opportunities for.
Contracting the power output of those projects as well as RIN prices in certain I'm, sorry, rec prices in certain markets as well.
Speaker Change: So.
Speaker Change: Other than that I think.
The principal driver of the change yes. This is Adam here I just want I just want to follow up on that I think.
Speaker Change: As people might remember, we we were.
Speaker Change: Sure.
Speaker Change: Enjoying an international export market for.
Speaker Change: Yes.
Speaker Change: Through renewable power and.
Speaker Change: That lapsed in November of last year. So there will be a couple more quarters of that which was already baked into our guidance and factored into our business plan for 2025, but it opened up.
Speaker Change: Sort of.
Speaker Change: It may be think about a little broader conversation on tariffs because we did get that first earlier question on tariffs, which don't have a material impact on the projects in construction and as Kathy mentioned, we don't think we will have.
Speaker Change: Two material an impact as we are evaluating some of the new.
Speaker Change: Project opportunities in front of us.
Speaker Change: And.
Speaker Change: But it made me think again about.
Speaker Change: Some of those indirect implications on tariffs when we talk about RMG and we're talking about U S public policy.
Speaker Change: And how the RFS potentially plays out in <unk> and what's happening in our domestic tax policy here.
Speaker Change: An indirect effect of tariffs are we don't have an export market currently for the R&D that we produce and.
Speaker Change: We think that that's going to be a really interesting opportunity.
Speaker Change: So all of that stuff shakes out.
Speaker Change: And those those international markets open up again, whether it be for renewable power other other other.
Speaker Change: Potential markets for <unk>.
Speaker Change: <unk> and <unk>.
Speaker Change: There.
Speaker Change: Once those sorts of things shake out.
Speaker Change: And you get European pathways back.
Speaker Change: We think that's an interesting opportunity for us.
Speaker Change: Alright thats helpful. Thanks.
Speaker Change: And the first quarter I also wanted to ask about.
Speaker Change: What looks like a pretty substantial income tax benefit around $8 million. So just curious if there was anything to point out there.
Speaker Change: Yes. Those are those are the sale of our ITC ITC.
Speaker Change: Section 48 tax credits if folks remember we don't include.
Speaker Change: The cash proceeds.
Speaker Change: From the sale of the section 48 ITC tax credits.
Speaker Change: And it is not included in our EBITDA guidance, but it is included in net income and cash flow. So that's what that $8 million was and that was where kazi was referring earlier somewhere are anticipated to be about $50 million in 2025.
Speaker Change: Got it thank you.
Speaker Change: Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone and our next question will be coming from the line of Craig Shere of Tuohy Brothers. Your line is open.
Craig Shere: Hi, Thanks for taking the questions.
Speaker Change: Even a hazy at the moment RMG margin outlook.
Speaker Change: Ending regulatory certainty.
Really likes a hell of a lot better these days <unk> prospects, depending on what we see in coming weeks and months is there room to accelerate conversion of bio fuel power projects to R&D.
Speaker Change: Yes, I mean, that's.
Speaker Change: That's where we're excited about we have a number of projects.
Speaker Change: That we've got secured biogas rights on and a number of conversion projects and quite frankly, a number of those are sizable projects and.
Speaker Change: No.
Speaker Change: Wherever that public policy shakes out it really it really.
Speaker Change: Defines what your opportunity set is right. So if there is RIN price volatility.
Speaker Change: We still have a lot of.
Speaker Change: There are a subset of larger projects.
Speaker Change: With that we can still underwrite and make a lot of sense.
Speaker Change: So and at the same time, we're being disciplined and prudent the way our business is structured is.
Speaker Change: These these projects do require a significant amount of capital. They take ballpark 18, 24 months to develop and finished out construction on.
Speaker Change: So you typically spend the money early in upfront and then you.
Speaker Change: Recognize significant free cash flow for a long period of time once the projects are operational so we also balance.
Speaker Change: Quickly we move on our development.
Speaker Change: Based on whatever the externalities are be it public policy capital markets what have you. So.
Speaker Change: We've really got the ability to either accelerate development and grow faster or be prudent and.
Speaker Change: <unk> managed the balance sheet effectively as well to make sure that you don't.
Speaker Change: As our chairman likes to say get over your skis and.
Speaker Change: So we've got the ability to either lean in and accelerate development ore.
Speaker Change: Stage it out as as the projects come online and you deliver the free cash flow.
Speaker Change: Great.
Speaker Change: And my second kind of Big picture question.
Speaker Change: Yes.
Speaker Change: Obviously, we are hearing from multiple parties that downstream continues to look strong you obviously have a nice construction program going on there but.
Speaker Change: But uptake on the 15 liter CMI engines seems to be slower than anticipated and kind of thinking into the end of the decade macro Trump administration policies, obviously support accelerated domestic liquids production and production from our allies as well as heavily stairs.
Speaker Change: Stepping LNG exports so.
Speaker Change: No.
Speaker Change: A really fearful worst case scenario outlook might envision.
Speaker Change: What are we going to do if there is $50 lower crude and $4 higher systemically Henry hub gas.
Speaker Change: Are you hearing any concerns about that.
Adam: This is Adam again.
Speaker Change: I would say.
Speaker Change: I think natural gas is going to stay cheap to oil for as long as the eye can see specifically here in North America, and I want to remind everybody. When we got into the fuel station service segment, I don't know 13 years ago or so.
Speaker Change: We always had the eye that ultimately there is going to be the strategic value of vertically integrating with all of our biogas assets.
Speaker Change: And at the same time, we were really excited about the prospect of compressed natural gas as a transportation fuel.
Speaker Change: We thought if you could take natural gas and turn it into an oil substitute it was a good way to take advantage of and energy are between those two things and I think thats going to continue for quite frankly as long as the.
Speaker Change: As long as the eye can see given what it cost to produce crude versus what it cost to lift Nat gas here in the U S and.
Speaker Change: As far as the uptake of the 15 liter engine.
Speaker Change: We're really encouraged by by by what we're seeing and people realizing that.
Speaker Change: It is a good answer to even if you're just using CMG youre going to get 20% emission reductions versus diesel and.
Speaker Change: Quite frankly its disinflationary.
When you look at the cost of the fuel versus versus versus oil.
Speaker Change: Now when we talk about the quote unquote slower uptake or why aren't we there yet it's been a confluence of factors of product availability, where we didn't have a freightliner engine, which is I don't know, 40% or so in the market until really just now at the at the recent Act Expo and.
Speaker Change: And I think and you've also got now this macro.
Environment, where.
Speaker Change: Trade looks like it's a little challenged right now so.
Speaker Change: We've seen really good adoption and our base business is really around more.
Recession resistant businesses refuse moving food and beverages and that sort of thing.
Around the country. So when we talk about the slower uptake, it's really around those logistics.
Speaker Change: And transportation fleet customers that didn't have a product until the 15 liter engine showed up.
Speaker Change: <unk>.
Speaker Change: I would also say when we were getting into a 13 or 14 years ago.
Speaker Change: But he was doing it for the economics right people Werent really is focused on sustainability or or emission profiles back then and back then you were talking about a 60000 premium for the 12 liter tractor versus versus where it is today now I think this period of uncertainty is also sort of healthy.
Speaker Change: And.
Speaker Change: We think we're getting to a place where the economics are going to work on CMG versus RMG and once we do that we think we're also opening up a whole new area of growth where.
Speaker Change: R&D today is about one 2% of the of the diesel market and.
Speaker Change: Even if we do a fantastic job capturing all of the the biogenic methane RMG could maybe grow 789, 10 times from where it is today.
Speaker Change: There is an opportunity for CMG once we get the maybe the price premium down a little more which should happen with scale.
Speaker Change: Once.
Speaker Change: And a lot of those and there is some structural things we also need to.
Speaker Change: Dress, there and make sure there is a residual market for for tractors when people want to trade out of them and a lot of those for hire fleets typically operate in a one to three year contract environment.
Speaker Change: And shippers that was the other thing from Act Expo is we saw a lot of collaboration with the shippers that are hiring these four higher fleets that really want to see them transition into it and they're starting to realize hey, maybe we need to do four or five year contracts. So that a five year payback for those tractors.
Speaker Change: Can really can really help accelerate adoption. So we see a lot of positives coming and we see that policy shift away from.
Speaker Change: Trying to make that one zero emission work for every industry.
Speaker Change: Shifting and people people going to lean in on it so I'm not overly concerned about what may be a short term oil price move that that shrinks. The economics, a little bit we think long term, there's going to be a very attractive economic incentive between <unk> and diesel.
Speaker Change: Do you really think that customers are willing to look at four to five year paybacks versus say as little as one to two.
Speaker Change: That's a really interesting question because.
Speaker Change: I think if you talk to most C suites out there they would say a four to five year payback is pretty attractive on capital I think if they get contracts that support that kind of timeframe and maybe they have better visibility on residual values I think the answer would be yes, I think a lot of public companies are willing to trade capex for opex as well.
Speaker Change: So I think the answer is yes, we'd like to end by the way Theres. Some customers, obviously that can see shorter paybacks and right now what happens in the industry as the RMG producers are.
Speaker Change: Making RMG more attractive and shrinking the payback by passing along some of the RIN value to those fleets.
Speaker Change: So.
Speaker Change: Yes, and no some companies, yes, and provided they have contracts on the other side of it yes.
Speaker Change: If a fleet owns their own tractor and keeps it for 10 years, then the answer is pretty easy for them right. So.
Speaker Change: We'll see how it all plays that it plays out and we're still trying to work and hopefully more competition will bring down that that incremental price for that tractor and I think there is also some coming.
Speaker Change: D E F requirements that maybe causes that diesel tractor to go up in price and that shrinks the premium.
So.
Speaker Change: We're getting there, though on the economics of <unk> on its own.
Speaker Change: Not quite there yet, but we're pretty close to getting there.
Speaker Change: I appreciate the answers thank you.
Speaker Change: Thank you and this does conclude today's Q&A session. There are no more questions in the queue and I would like to turn the call back over to Adam Kumar for closing remarks. Please go ahead.
Speaker Change: Alright, we thank everybody for your interest in Opel Opel fuels and hope everybody enjoys the rest of the day.
Speaker Change: Thank you for participating you may all disconnect.
Speaker Change: Okay.
Speaker Change: [music].