OPAL Fuels Inc. (NASDAQ:OPAL) Q1 2024 Earnings Call Transcript May 10, 2024
OPAL Fuels Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the OPAL Fuels First Quarter 2024 Earnings Call and Webcast. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the call over to Todd Firestone, Vice President of Investor Relations. Please go ahead.
Todd Firestone: Thank you, and good morning, everyone. Welcome to the OPAL Fuels first quarter 2024 earnings conference call. With me today are Co-CEOs, Adam Comora and Jonathan Maurer; and Scott Contino, OPAL's Interim Chief Financial Officer. OPAL Fuels released financial and operating results for the first quarter of 2024 yesterday afternoon, and those results are available on the Investor Relations section of our website at opalfuels.com. The presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind everyone that our remarks, including answers to your questions contain forward-looking statements, which involve risks, uncertainties and assumptions.
Forward-looking statements are not a guarantee of performance and actual results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are described on Slides 2 and 3 of our presentation. These forward-looking statements reflect our views as of the date of this call and OPAL Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain discussion of certain non-GAAP measures. 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. Adam will begin today's call by providing an overview of the quarter's results, recent highlights and an update on our strategic and operational priorities.
John will then give a commercial and business development update, after which, Scott will review financial results. We will then open the call for questions. And now, I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuels.
Adam Comora: Good morning, everyone, and thank you for participating in OPAL Fuels first quarter 2024 earnings call. 2024 is off to a solid start. Our first quarter results were in line with our expectations and we remain on track to meet our full year guidance. With strong RIN pricing, stable production from operating facilities, strong performance and growth from our Fuel Station Service segment and new facilities remaining on schedule, we expect to see a nice progression of production and earnings growth throughout the year. Adjusted EBITDA for the quarter was approximately $15 million, in line with last quarter's results when taking into consideration the approximately $16 million of held environmental credit inventory we sold in the final quarter of 2023.
Our vertical integration continues to position us well to take advantage of the supportive market fundamentals for D3 RINs in the RFS market, which benefits both our RNG Fuel business segment and our Fuel Station Services division as we place more RNG through our dispensing network. We have locked in pricing for the majority of our forecasted 2024 RIN production, which provides us visibility and helps to derisk 2024 in terms of full year financial performance. Operationally, production and efficiency measures were in line with our expectations. Production of 0.8 million MMBtu from our operating facilities remained stable and growing on a same-store basis, with inlet design capacity utilization and utilization of inlet gas remaining between 80% to 90%, consistent with our prior disclosures and above industry averages.
We are very excited to announce that our ninth RNG facility, Prince William, has recently commenced operations. John will provide more details later in the call. We also continue to execute on our growth objectives, and today are announcing that construction has begun on our 15th RNG project at the Cottonwood landfill. The project will have an initial design capacity of approximately 0.7 million MMBtu and is 100% owned by OPAL Fuels. We expect the Cottonwood facility construction period to be in line with our recent projects. We continue to make meaningful progress with our development projects and partners and feel confident that we will meet or exceed our $2 million annual MMBtu target for new RNG projects entering construction this year.
As previously mentioned, our Fuel Station Services segment continues to perform and grow in line with our expectations. As we mentioned during our last earnings call, we remain cautiously optimistic that the IRS will clarify the rules governing ITC eligibility for our landfill gas to RNG projects. Although we did not include any ITC proceeds in the guidance we issued in March, we are hopeful that our new RNG projects will benefit from ITC as we believe was intended. We often talk about industry tailwinds and we continue to believe there is a great opportunity to expand bipartisan support for our industry. It is important to remember what we do. We capture harmful methane emissions from decaying organic waste and convert them into productive and low-carbon intensity energy products that are drop-in fuels, which utilize existing pipeline and electricity grids.
There is growing interest in what should be done with waste in-place methane molecules, and we believe OPAL is well positioned to be a leader in their capture, conversion and marketing with proven technologies and a proven track record. With that, I'll turn it over to John. John?
Jonathan Maurer: Thank you, Adam, and good morning, everyone. We're proud of our accomplishments this quarter, and as Adam mentioned, believe we are well-positioned to see a nice progression of production and earnings growth over the course of this year in line with our guidance. There are two main reasons for this outlook: first, we have clear visibility to RNG production growth from new projects coming online this year; and second, we expect continued growth from our operating projects. With respect to new projects coming online in 2024, we are very excited to announce that our ninth RNG facility, Prince William, has recently commenced operations and is expected to contribute meaningfully as it ramps production as we move through this year.
A natural gas pipeline glowing in the night sky, revealing its importance to everyday life.
Prince William, combined with Sapphire and Polk, which are on schedule to begin operations in the third and fourth quarters, respectively, provide the roadmap for us exiting 2024 with 8.8 million MMBtu of annual design capacity in operation compared to 3.9 million MMBtu and 5.2 million MMBtu exiting 2022 and 2023, respectively. Significantly, the project has been producing pipeline-quality gas, and we have submitted the documentation for registration of the Prince William project under the current RFS rules with the EPA. With Prince William, we now have nine RNG projects in operation, with an aggregate annual design capacity of 7.0 million MMBtu, tripling since year-end 2021. Then, with respect to increasing output from operating projects, looking at the first quarter results, RNG production increased to 0.8 million MMBtu from 0.6 million MMBtu in the first quarter of 2023.
The increase is largely due to the Emerald RNG project's contribution to production volumes, and was also complemented by same-store sales growth from our other operating projects. These are trends that we expect to continue throughout 2024. In addition to our operating projects, we currently have six RNG projects in construction, representing an additional 3.3 million MMBtu of annual design capacity. Combined, our portfolio of projects in construction and in operations now has a total of 10.3 million MMBtu annual design capacity. Sapphire, which is one of our 50-50 joint venture projects with GFL, is on track to begin operations in the third quarter of this year. Our share of annual design capacity at Sapphire is 0.8 million MMBtu. Our Polk County, Florida project, where we own 100%, remains on track to begin operations in the fourth quarter of this year.
Polk County represents 1.1 million MMBtu of annual design capacity. Atlantic, our first RNG joint venture with South Jersey Industries, which we put into construction in the third quarter of 2023, is progressing, and we continue to expect it to begin commercial operations in mid-2025. OPAL's share of annual design capacity at Atlantic is 0.3 million MMBtu. As Adam mentioned, we feel confident that we will meet or exceed our 2.0 million annual MMBtu target for new RNG projects entering construction this year. I also want to add a word on development and our pipeline of opportunities. We remain encouraged by our deepening industry relationships and partnerships and continue to see a robust opportunity set of attractive landfill RNG development projects.
We also continue to explore opportunities to capture and convert biogas from other feedstocks as a natural extension of our core business. With that, I'll turn it over to Scott to discuss the quarter's financial performance. Scott?
Scott Contino: Thank you, John, and good morning to all the participants on today's call. Last night, we filed our earnings press release, which detailed our quarterly results for the quarter ending March 31, 2024. Our 10-Q will be filed later today. Revenue in the first quarter was $65 million as compared to $43 million in the first quarter of 2023. The main driver for the increase in revenues was the timing and pricing of environmental credit sales, including both RNG Fuel and Fuel Station Services, where we dispense all of the RNG for our projects, as well as for our joint venture projects and other third-party RNG supplies. Net income for the first quarter was approximately $0.7 million as compared to a $7.3 million net loss in the first quarter of 2023.
The difference was primarily driven by the increase in revenues from the timing of environmental credit sales, but also recognition of the Emerald RNG project coming online and accounted for in equity method investments. Adjusted EBITDA was $15.2 million in the first quarter compared to a negative $1.6 million in the first quarter of 2023, which, as mentioned, was driven by the timing of management's decision to hold back RIN sales in the first half of 2023, and production from the Emerald RNG project during Q1 2024. A reconciliation to GAAP results is provided in our earnings release from yesterday and in our investor presentation updated this morning on our website. The RNG Fuel segment revenues were $17.7 million for the first quarter as compared to $6.7 million in the first quarter of 2023.
The increase in revenues was primarily due to higher RIN sales and production growth. The Fuel Station Services segment revenues were $37.1 million for the first quarter as compared to $20.8 million in the first quarter of 2023. The increase in revenues demonstrates the power of our vertically integrated business model and was primarily the result of higher utilization of our dispensing capacity, new OPAL-owned fueling stations coming online, and third-party construction revenues. Renewable Power revenues were $10.1 million for the quarter compared to $15.4 million in the first quarter of 2023. This decrease is primarily due to Emerald RNG, which is using gas that was previously available for a renewable power facility. In the first quarter, capital expenditures were approximately $37.7 million, which includes approximately $10.9 million relating to equity method investments and approximately $3.8 million associated with downstream stations.
We continue to expect our capital expenditures to be in line with our 2024 full year guidance. 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 March 31, 2024, approximately $187 million was drawn down on the facility, and we have utilized approximately $14 million of our revolver availability to issue letters of credit. As of March 31, 2024, liquidity was approximately $334 million, consisting of $300 million of availability under the credit facility and $34 million of cash, cash equivalents, and short-term investments. As a result, we feel our liquidity and capital resources and access to other sources of capital are sufficient for our growth plans.
With that, I'll turn it back to John for concluding remarks.
Jonathan Maurer: In closing, we are pleased with the continuing success in the execution of our business plan and we expect to see a nice progression of production and earnings growth throughout the year. As noted previously, we continue to be cautiously optimistic about clarification of ITC rules for our landfill gas-to-RNG projects. We remain committed to furthering OPAL's vertically integrated mission 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. With that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.
