OPAL Fuels Inc. Q3 FY2025 Earnings Call

Good morning, and welcome to the OPAL Fuels Third Quarter 2025 Earnings Call and webcast. 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, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to the OPAL Fuels Third Quarter 2025 Earnings Conference Call. With me today are Co-CEOs, Adam Comora and Jonathan Maurer, as well as Kazi Hasan, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for the third quarter 2025 yesterday afternoon, and those results are available on the Investor Relations section of our website at olfuels.com. The presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90 days. Before we begin, I'd like to remind you that our remarks, including answers to your questions, contain forward-looking statements, which involve risks, uncertainties, and assumptions. These 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 a discussion of certain non-GAAP measures. A definition of non-GAAP measures used and a reconciliation of these measures to the nearest GAAP measure is included in the appendix of the release and presentation. Adam will begin today's call providing an overview of the quarter's results, recent highlights, and an update on our strategic and operational priorities. John will give a commercial and business development update, after which Kai will review financial results. We'll then open the call for questions. And now I'll turn the call over to Adam Comora, Co-CEO of OPAL Fuels.

Thank you, Todd. Good morning, everyone, and thank you for participating in OPAL Fuel's Third Quarter 2025 Earnings Call. The third quarter was another quarter of consistent operational progress, in line with our expectations, and we are maintaining our full year guidance. RNG production was 1.3 million MMBtus, representing both sequential growth and an increase of approximately 30% compared to the third quarter of last year. Importantly, due to all the operational improvements we are making, October production was the highest rate in OPAL's history following a record performance in September. These production rates are in line with the levels required to achieve the low end of our full year production guidance we set at the beginning of the year. The trajectory here is clear, and the operating base is performing with greater consistency and reliability. We also continue to advance our growth plans. At the end of the third quarter, we brought the Atlantic project online, and we are very pleased with its initial ramp. This is our first project with our partner, South Jersey Industries. This project brings us to 12 operating RNG facilities with a combined 9.1 million MMBtu of annual design capacity. In addition, we began construction at our CMS RNG project in North Carolina, representing 1.0 million MMBtu of annual design capacity net to OPL. We are continuing to advance a number of attractive new project opportunities within our pipeline and feel confident we have the ability to meet our target of 2.0 million MMBtu of annual design capacity into construction in 2025. On the financial side, we completed our fourth investment tax credit monetization to date and third for this year, bringing our total gross proceeds to $43 million year-to-date. We expect that we will complete a fourth sale by year-end or in early 2026. These ITC sales continue to be an effective tool to offset capital requirements and support our development program and as a reminder, are not included in our adjusted EBITDA calculation. Our third quarter adjusted EBITDA was $19.5 million, lower compared to the same period last year, impacted by a lower RIN price environment. While RIN prices were lower in the third quarter, recent pricing trends have been constructive. Given the increasing production performance, the growth of Fuel Station Services segment, and beginning to recognize 45Z production tax credits in the fourth quarter, we remain confident in delivering operating and financial results in line with our full-year guidance. As we look towards the future, we remain encouraged our growth will continue in 2026 and beyond. We have a robust opportunity set to continue to build our RNG production platform and see an increasing need for energy infrastructure assets to support CNG and RNG adoption for heavy-duty trucking. CNG and RNG are being recognized as the most cost-effective and operationally sound fuel choice to replace diesel. To capture some of the building momentum we're seeing in the downstream, we continue to invest in our team and the Fuel Station Service segment as it becomes more of a focus in our capital allocation strategy. OPL's vertically integrated model is continuing to show its strength to capitalize on this opportunity, bringing the most value to biogas feedstock hosts and providing fleets with a partner that can deliver a full solution to decarbonize their fleet at a lower cost than diesel. With that, I'll turn it over to John. John?

Thank you, Adam, and good morning, everyone. Our third quarter operational performance reflects continued growth across the platform. As Adam mentioned, we brought the Atlantic project online during the quarter, our first under our joint venture with South Jersey Industries, adding approximately 0.33 million MMBtu of annual design capacity. This brings us to 12 operating RNG facilities with a combined 9.1 million MMBtu of annual design capacity, up from just 2 facilities when we became a public company in 2022. Atlantic's commissioning was delivered consistent with our guidance and is performing well in its first weeks of operation. Landfill gas resource is above expectations, and we expect production to steadily increase over the coming months. RNG production was 1.3 million MMBtu in the quarter, a 30% increase year-over-year, driven by the continued ramp of Sapphire and Pulk as well as improving uptime across the base portfolio. The key here is consistency. The operating fleet is performing in a more repeatable manner along with the growing production. This improvement in performance is a direct result of the investments we are making in our operational team. We expect this trend to continue. Turning to development and construction. We are advancing the next wave of projects. With CMS now in construction, our in-construction landfill RNG portfolio now totals 2.8 million MMBtu of annual design capacity and is progressing in line with our expectations. This in-construction portfolio, combined with our operating facilities, will bring us to approximately 12.0 million MMBtu across 16 projects. Burlington and Cottonwood remain on track for 2026 commissioning and Kirby thereafter. We continue to see a pipeline of organic development opportunities with secured gas rights. We evaluate each project within a disciplined capital allocation framework, ensuring alignment with returns, liquidity, and balance sheet priorities. We are developing a number of investment opportunities that meet these criteria for 2026 and beyond. On the downstream side, our fuel station services business continues to perform well. While 2025 has had a difficult backdrop for logistics and transportation firms, which has slowed down all truck purchases and investment decisions, including the 15 CNG tractor. We expect to meet the lower end of the 30% to 50% segment EBITDA growth target despite the lower RIN price impact. We currently have 47 operating fueling stations and 41 stations under construction, 16 of which are OPL-owned, bringing total OPL-owned fueling stations in operation and construction to 63. Owning and operating fueling infrastructure allows us to participate directly in long-term contracted per gallon economics that are largely independent of environmental credit pricing and provide recurring cash flow. This is strategically important as it provides access to the most valuable offtake market and allows us to scale our upstream RNG production platform. Additionally, the Fuel Station Services segment provides a return profile largely uncorrelated to environmental credit prices, contributing to a more balanced and durable overall earnings mix. I'll now turn the call over to Kazi to discuss the quarter's financial performance. Kazi?

Thank you, John, and good morning to everyone joining today's call. This quarter showed continued operational progress across the platform. We issued our earnings press release, posted an updated investor presentation on our website, and expect to file our Form 10-Q shortly. Revenue for the quarter was $83 million, and adjusted EBITDA was $19.5 million compared to $84 million and $31.1 million for the same period last year due to lower realized RIN pricing and the expiration of the ISCC pathway, partially offset by higher RNG production. Our realized RIN price was $2.15, versus $3.13 last year. We expect that the improvements in production and uptime we experienced through the quarter will continue and translate into improving financial performance of our upstream portfolio. This quarter's results reflect a more normalized G&A environment compared with last quarter, which saw nonrecurring expense items in support of our investments in advocacy and technology for our operating platform. Turning to liquidity and capital deployment. We ended the quarter with $184 million of total liquidity, which includes $29.9 million of cash and short-term investments, $138.4 million of undrawn capacity under our term facility, and $15.5 million of revolver availability. Capital expenditure for the quarter was $16.4 million. These capital expenditures relate to new RNG facilities and new OPL-owned fueling stations. Maintenance investments for operating assets are expensed in our income statement. In the quarter, we monetized approximately $17 million of investment tax credits this quarter, and we remain on track to achieve approximately $50 million in gross ITC monetization for the full year. The liquidity position, together with operating cash flow and ITC monetization, supports the projects currently under construction. As Adam mentioned, we expect to be within our full year 2025 guidance. For the fourth quarter, higher RIN pricing compared to last quarter, sequential production growth, expected fuel station services performance, and contribution from 45Z tax credits support our adjusted EBITDA expectation, although likely towards the lower end of the range. Finally, we are working on refinancing of our preferred equity with NextEra. With our expected access to capital and existing liquidity resources, we will address the term of the existing preferred in the coming months. Stepping back, our financial strategy is clear. We are disciplined in investing capital within the capacity of our operating cash flow, balance sheet strength, and capital market access. OPL is generating an increasingly balanced and durable earnings base with flexibility to accelerate growth while returns justify it. With that, I'll turn the call back over to John for closing remarks.

In closing, we remain well positioned for continued disciplined execution of our strategic growth objectives and the expansion of OPAL's vertically integrated platform. And with that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.

Our first question comes from Derrick Whitfield with Texas Capital.

I wanted to start with your RNG production trajectory. As you highlighted in your prepared commentary, the trajectory is continuing to grow and appears to be pacing at about a 0.1 million MMBtu growth level per quarter. I guess, first, is that the right pacing level to think about kind of the growth through year-end based on your October commentary? And then second, could you help me frame how this projects into 2026 based on the projects under construction now?

Yes, Derek, that's right. We've seen great sequential growth in our projects. A lot of that comes from the discipline of the team that we put in place over the course of the last year that has updated and revised really the data-driven approach to our project operations, both in terms of the landfill gas collection from a capacity inlet utilization point of view as well as from the efficiency and availability of the projects that are operating with the landfill gas they receive. We've seen good sequential growth in all of these metrics, and that's resulted in same-store sales growth from the projects that we're operating. So yes, I think we'll continue to see that trajectory move forward during the course of the rest of this year and into next year is our expectation. And so maybe, Adam, do you want to add to that?

Yes. Derek, just as we're thinking about 2026, we're obviously not providing our full year guidance for 2026 or what all the different KPIs are that we track for it. But we see a strong growth coming in 2026, and it's going to be supported by another year of strong production growth and a couple of other components as well, including a full year of 45Z. And I'm sure there's going to be some other questions as we look into 2026. There's probably some seasonality factors that we're going to be highlighting as well and maybe doing a job of explaining to folks across the different business segments. But we see 2026 to be another strong year of production growth for us.

Terrific. And for my follow-up, I'll stay with you, Adam, and focus on the regulatory environment. In light of the government shutdown and your recent engagement with the administration, what are your time and expectations for a final RVO? And importantly, do you think there's an appetite from the administration to increase the D3 RVO based on the strength of recent RIN generation reports?

Yes. Both very good questions. So I think the final RVO rules, it is being impacted by this government shutdown. It’s difficult to ascertain exactly how long it will take for them to issue the final set rule once they reopen. I do think that they're looking at volumes across the categories. It's really important to note that we believe what RNG does receive bipartisan support. We've seen it in the tax policy, and we have been speaking with a number of folks on the Republican side of things as it pertains to D3 volumes. And you have to remember that a lot of these RNG projects are in red and rural areas. They're municipal-owned facilities, and cellulosic corn kernel ethanol is also a growing piece of the D3 category. So we do feel the support is there. And maybe it will take 30 days, maybe it will take 45 days after they reopen. There has been a lot of pressure on the EPA to stick with their timelines, but we remain cautiously optimistic that the administration, just like we've seen across the House and the Senate, will continue to support RNG.

Our next question comes from Matthew Blair with TPH.

Adam and John, you've highlighted in the past that your landfill RNG assets have very strong free cash flow generation once they're up and running. We don't really see that in the OP financial metrics because of all the growth spending. So could you talk about the balance there? Is there any sort of thought to slowing down the growth, slowing down the CapEx in order to just show a stronger free cash flow and really illuminate that underlying free cash flow generation that you do have?

Yes. This is Adam here, and I appreciate that question. What we're trying to continue to highlight is that the maintenance CapEx that we have on our facilities is included in our operations and our operating cash flow. So when you look at the CapEx on our balance sheet, that is solely on new RNG projects, facilities, and also new OPIL-owned fueling stations. So when you look at our cash flow statement and you look at our financial metrics, what comes out of operating cash flow will be the discretionary free cash flow for OPAL Fuels. And hopefully, investors understand that metric, and we're going to continue to try and help illuminate that for the investor community.

Sounds good. And then you mentioned that 2026, I think you said would include the full year of 45Z. Can you talk about how much 45Z, if any, you received in the third quarter and how much you might get in the fourth quarter? And if you could perhaps illuminate a range of 45Z contribution in 2026. Is this something that helps out your landfill plants in addition to your dairy exposure as well?

Yes. This is Adam again. Just a couple of things on 45Z. One is we're pleased that we've now registered all of our facilities starting in the fourth quarter for 45Z generation. We are aware that there have been some transactions in the marketplace where folks have been monetizing theirs, and we continue to finalize documentation and work through the mechanics for it. There already are existing GE models to generate those 45Z credits. And to an earlier question on the government shutdown, there is also a chance that there will be another 45Z GE model that gets issued once the government reopens. But what we've thought about and what we're including in our thinking on the fourth quarter is just the existing GE models and whether or not there's going to be any improvements to that. Certainly, we could be taking advantage of that as well. When you think about our sequential ramp into the fourth quarter, Kai highlighted four different elements. One is increasing production like we've talked about and are expecting here in the fourth quarter. We also have that RIN price lift in the fourth quarter versus what we experienced in the third quarter. There's also some fuel station services seasonality, which we'll get, I'm sure, some future questions on where our LCFS credit sales typically occur after we've aggregated them over a two-quarter period. We'll get a lift in that in the fourth quarter as well as just good base underlying growth in fuel station services. The fourth piece is the 45Z credits that we'll begin recognizing here in the fourth quarter. When you look at all four of those pieces, they're fairly evenly distributed amongst those four items. We'll see a full year of that contribution from 45Z as we move into 2026 and quite frankly, for the next through 2029.

Our next question comes from Adam Bubes with Goldman Sachs.

Just a finer point on the Q4 implied guide. I think at the low end, it's around $34 million. So a sharp sequential ramp as you alluded to. Just could you put a finer point on the D3 RIN price step up? What are you seeing for 4Q? And how much of the 45Z is contributing as well?

Yes. In the fourth quarter, I think most people are aware that the price has risen to around $2.40 for the D3 RINs. If you do the math on our production, there are some royalties that you take out of that. I don't think we're going into the granularity of each one of those pieces, but that is part of that sequential lift. We're also going to see improved performance in fuel station services, and there will be some component to 45Z. I think we're those are fairly evenly distributed amongst those factors, and then the production lift would be a piece.

And then for 2026, can you just comment, have you started to lock in D3 RIN volumes in the sort of contracted market? And if so, what are those contracts looking like?

Yes. Not just yet on 2026. I think obligated parties, which is really the chunkier volume of transactions in the RIN market, feel like they're still hanging back on 2026 until there are some final rules that get issued. The 2026 pricing is around where the 2025 is, but we haven't seen a lot of volumes in the marketplace just yet. I think there was an earlier question as well around the regulatory outlook. Just as we're thinking about RIN pricing as we move forward into 2026 and 2027, the D3 RIN market can get tightened one of two ways. One is we can see a boost in RVO volumes, which a lot of folks have been advocating, and we feel like there is some support for. The other way that D3 RINs can tighten is if RNG producers decide to move volumes out of the RFS and transportation fuel. We have not begun selling forward in any serious magnitude in '26, but we expect that market to develop shortly once the rules are finalized.

And then last one for me. I think based on the data we're looking at, natural gas vehicle consumption already uses almost entirely renewable natural gas. So what's sort of your outlook on potential for increasing natural gas vehicle adoption over the next couple of years? And do you see the bottleneck from here as more so the infrastructure or willingness to purchase the vehicles?

Yes. And I know we and others in the industry keep expressing optimism around natural gas deployment to replace diesel. We're really optimistic that we're starting to see that traction take hold and really excited about some of the fleets that we're talking to on this. I would highlight for folks as well some of the recent team additions that we've had here at OPAL Fuels, both at the Board level and with the team leadership with the new Chief Revenue Officer on fuel station services. It has become the clear choice for fleets to decarbonize and reduce their cost of diesel. We had a confluence of factors in the beginning of '25 between a model changeover, equipment pricing on CNG adoption, and some macro headwinds, whether it be tariffs and some other things where a lot of fleets were really interested in it, like did in concept, but we weren't really ready to pull the trigger yet. The industry has been addressing some of those equipment pricing issues, residual values, leasing programs, and we really feel good that some fleets are starting to make some of these deployment decisions. Looking into '26 for OPAL Fuels, we do see good growth across our business segments. A lot of those deployment decisions, though, have a lag for when the fuel stations get built and trucks get delivered. As we look forward into 2026, we think there are going to be some fleet deployment decisions, which then translates into '27. We have other factors that we think will lead to some fuel station service growth in '26. We've certainly been preparing for what we see as an open-ended growth trajectory for not only RNG but CNG. When we talk about natural gas for heavy-duty trucking, this is something that we think makes a lot of sense across the aisle when a lot of folks are focused on energy dominance and disinflationary types of policies. Natural gas fits the bill quite well, and you also get some of those other environmental benefits that come along with it in terms of air quality. We think CNG is going to have a very interesting growth trajectory as we work through some of the equipment pricing issues, which have been going down, and some of these other macro issues. Fleets and logistics firms have adjusted to those macros, right? You go through that first quarter or two when you're just trying to deal with some of that macro backdrop and then you start operating under it and you start moving forward with those parameters.

Our next question comes from Ryan Pfingst with B. Riley.

Curious what you've been seeing or hearing broadly in the voluntary market and if you're weighing any opportunities there today?

So this is Adam again here. One voluntary market that we've been interested in and potentially excited about is marine fuel. There was a delay on some marine fuel adoption out of that IMO read. There will be a play for RNG in that marine fuel market. I feel like it's been pushed out a little bit because of that delayed approach to how they're going to be using renewable methanol as a marine fuel. There are a couple of states that are starting to think about RNG and how they achieve their objectives on decarbonizing their fuel mix. However, we have not seen yet where it makes sense to transact and commit some of our RNG into those voluntary markets. We're still of the opinion that there's a bit of a misunderstanding or misconception around the reg risk of RNG in the transportation fuel market and the renewable fuel standard. Up to this point, it still hasn't quite made sense to us to transact in those voluntary markets until we see some of those other things open up and we get a little bit more of offtake parity for what, again, we consider a little bit of mispriced reg risk or regulatory uncertainty. We feel like that's the case across OPAL Fuels and how people think about RNG.

In addition, I'd just add that some of our competitors have reported committing to voluntary markets. Not sure exactly what volumes, but that would have the effect of really opening up a little bit of the dispensing and helping...

The only thing also I would add is I also think that's a function of our business model. The fact that we're vertically integrated, and we've got that visibility into the highest offtake market. I don't know if others feel like maybe they're sort of pushed into those markets because they don't have that same vertical integration that we have. We still continue to believe we're going to make the most money for our shareholders continuing to tap into the most valuable offtake market.

Got it. Yes, makes sense. I appreciate all that detail and good segue to my next question, which is, has competition for RNG project development picked up or have more players entered the market following the recent legislative action and the more positive policy environment that you have today?

I think that access to capital and limited access to dispensing has really put a little bit of a limit on what competitors are able to do in the market. Yes, you saw a big kind of go-go push, especially leading into the $3 RIN period after the RFS first set rule. Now with the uncertainty from the EPA waiver last year, and the use of their general waiver, that has caused a little bit of a lid on D3 pricing, limited access to capital. To your earlier question, I really don't think that the voluntary market is that deep or at least we haven't seen it being that deep. Without access to offtake, I think it's really limiting what other developers are able to do. Sure, you'll still see other projects coming online, but sequentially, you'll see it maybe a little bit slower.

Yes. If you don't mind, I just want to go back because I don't think I answered the second part of an earlier question on the free cash flow generation and slowing down growth. I just want to stress that we are extraordinarily disciplined here at OPAL Fuels in terms of our capital deployment. If we're not seeing paybacks of that 4- to 5-year period on new RNG project development, we are not going to develop those projects. We do have a strong advanced development pipeline of projects that meet our investment criteria. We're going to continue to be disciplined and invest in those projects that we think are going to generate long-term value for our shareholders. We're going to also continue to try and do a better job highlighting discretionary free cash flow and that CapEx on our cash flow statement is solely associated with new projects, RNG projects or fuel stations, or maybe an IT platform or something like that we're investing in. But we've always been disciplined in terms of the projects that meet that investment criteria, and we're going to continue to methodically find those projects that hit our investment criteria.

Our next question comes from Betty Zhang with Scotiabank.

I wanted to ask about what seems to be a shift to focus more on the downstream fuel distribution. So just wondering if you could elaborate a bit more on how you're thinking about the strategy? What factors are driving that and what that would entail? So is that just building more stations or what else, if you could share a bit more?

Sure. Let me take that one. The downstream segment, as Adam mentioned, John mentioned before, even in our prepared remarks, we do see a cash flow stream that's coming uncorrelated with the IFS market and RIN volume or prices. So it allows us to create a business segment that potentially will provide a lot more balanced earnings profile going forward, including cash flow profile. That is what we are looking towards to add value to our shareholders. Our business model also allows us to deploy capital with a very healthy cushion over our cost of capital in the downstream segment. Our business model has worked with the fleet owners and operators and have helped them to convert from diesel to CNG and RNG. This is where we are going. We are going to create a balanced portfolio, which allows us to take advantage of both the RFS market and the downstream CNG and RNG market.

Yes. I would just say it's where we see a really attractive opportunity in terms of some open-ended growth. I know we spend a lot of time talking about RNG. But if you think about the diesel market here in the U.S., it's 45 billion gallons, and natural gas is $1 billion of it today. We think this is going to make sense for a lot of fleets. The fuel station service segment will have a life of its own past RNG once we start getting some of these early fleet adopters in there and understanding the attractiveness of RNG because it not only saves money but also allows folks to achieve some sustainability goals. We're going to see more folks on the equipment side of things, economies of scale there, and the premium of that tractor going down. CNG is going to make a lot of economic sense for a lot of folks. If you go back to when the 9- and 12-liter engines came out, those things were priced much closer to diesel from a tractor perspective. Once that starts happening, it's going to be an interesting market for CNG versus diesel.

I would just add that it's just also more to the point that our vertically integrated business model presents opportunities on the upstream and downstream side where growth in one area supports the other and vice versa. That's the condition we're seeing today.

Yes. That's again, I think Adam already touched on it before. Our committed capital are within what we can afford from our operating cash flow and our existing liquidity resources. If we look at our growth profile and the amount we have committed, you can actually look through our operating cash flow and available capital. All the new projects that we are going to be doing, we will be securing new capital in order for us to commit to new capital projects. In general, we are very prudent about where we are committing our capital.

That concludes today's question-and-answer session. I'd like to turn the call back over to Adam Comora for closing remarks.

All right. We thank everybody for your interest in OPAL Fuels and hope you have a great rest of the day.

This concludes today's conference call. Thank you for participating. You may now disconnect.