Good day, and thank you for standing by. Welcome to the OPAL Fuels First Quarter 2023 Earnings Call. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today Todd Firestone. Please go ahead.

Thank you, and good morning, everyone. Welcome to the OPAL Fuels first quarter 2023 earnings conference call. With me today are Co-CEOs, Adam Comora and Jonathan Maurer; and Ann Anthony, OPAL’s Chief Financial Officer. OPAL Fuels released financial and operating results for the first quarter 2023 yesterday afternoon, 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 you that our remarks including answers to your questions contain forward-looking statements, which involve risks, uncertainties and assumptions. Forward-looking statements are not a guarantee of performance and actual results could differ materially from what is contained in such statements. Several factors that could cause or contribute to such differences are described on Slide 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, including but not limited to adjusted EBITDA. A definition of non-GAAP measures used and 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 update on our strategic and operational priorities. John will then give a commercial and business development update. After which Ann will review financial results for the quarter, then we’ll open the call for questions. And now, I’ll turn the call over to Adam Comora, Co-CEO of OPAL Fuels.

Good morning, everyone, and thank you for being here for OPAL Fuels first quarter 2023 earnings call. I’d like to highlight several points from this quarter’s results. First, we continue to execute on our strategic and operational priorities. Our first quarter RNG production volumes were consistent with our expectations and keeps us on track to meet our full year forecast of production from our operating facilities. OPAL Fuels continues to lead the RNG market with best-in-class facilities and operations, which is absolutely critical as landfill and other feedstock owners evaluate, which companies they want to award gas rights to and partner with if they choose to invest capital. To that end, our advanced development pipeline continues to mature and grow and we are pleased to share some details on two of these projects recently disclosed in 8-K filings. We recently announced two newly executed gas rights agreements on landfill RNG projects, which include one landfill with WM located in Illinois and another with a municipality in Florida. Both of these projects are greenfield new business wins where OPAL Fuels secured gas rights for RNG projects and not conversion of projects where OPAL Fuels had existing gas rights or an existing landfill gas to electric project. The WM project will be 100% owned by OPAL Fuels and we expect it to have nameplate capacity in the range of 600,000 to 700,000 annual MMBtu. We are completing design and development work including the pipeline interconnect and are hopeful to put it into construction during the third quarter. This project had previously been included in our advanced development pipeline, but it is important to note the most uncertain timing from a project moving from the advanced development pipeline into construction is typically finalized in the gas rights agreement. We are excited about this…

Thank you, Adam, and good morning, everyone. I want to start out by saying that we are very focused on executing on our business plan, including maximizing output from our operating projects, commissioning our construction projects, moving other advanced development projects into construction, as well as adding to our perspective opportunities funnel. Our operating projects are performing well. We have seven projects in operation representing approximately 4 million MMBtu of nameplate RNG capacity. At Noble Road, New River and Pine Bend, three of our more recent landfill RNG projects to come online. Gas production continues to increase as the trash increases. As Adam said, we are meeting our output projections. Our construction projects are moving forward and are largely on track. We currently have six RNG projects in construction representing another 4.7 million MMBtu of nameplate capacity. Consistent with what we said last quarter, Emerald is expected to be online in the next several months and Prince William in the fourth quarter. The two dairy projects we expect to be commissioned in the first half of 2024 and the Northeast landfill later in 2024. We have experienced some delays associated with permitting. Sapphire COD is delayed into the first half of 2024 as a result of delays by permitting authorities. Our advanced development pipeline is growing. These projects are ones we have qualified and that we reasonably expect can be in construction within the next 12 months to 18 months. We now have more than 9.3 million MMBtu of biogas across our 20 projects in our advanced development pipeline, which now includes our recently announced municipal project in Polk County, Florida. We expect to place Polk into construction next month. Our ADP includes opportunities for electric projects that are well positioned to take advantage of the recently announced eRIN pathway…

Thank you, Jon, 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 period ending March 31, 2023. We anticipate filing our 10-Q in the next few days. The biggest driver of the quarter’s results is our decision to defer selling some RINs in inventory as well as environmental attribute pricing, which has been lower year-to-date compared to the first quarter and full year 2022, resulting in lower GAAP results for the first quarter of 2023. Before we talk about first quarter results, I’d like to note that we are now presenting revenues and expenses associated with our CNG tolling business along with RNG marketing and dispensing revenues in the Fuel Station Services segment as opposed to the RNG Fuel segment where we reported them previously. Including dispensing results in the Fuel Station Services segment, better aligns how we think about the business segments as it differentiates between our upstream and downstream portions of our business, and this change facilitates easier comparisons to peers in our space. Each quarter, we will recast 2022 results to provide an apples-to-apples comparison to 2023. Now let’s talk about our results. For the first quarter, RNG production remained the same as the fourth quarter of 2022, coming in at 0.6 million MMBtus, which represents volume net to OPAL Fuels after adjusting for our equity ownership across projects. Compared to the first quarter of 2022, RNG production was up approximately 50%. Revenues for the quarter were $43 million, a 12% decrease compared to the first quarter of 2022. The primary drivers here are our decision to hold RINs in inventory along with the lower price we’ve seen primarily for RINs year-over-year offset by the higher production. In the first quarter…

Thank you, Ann. In closing, we remain committed to furthering OPAL’s vertically integrated mission to build and operate best-in-class RNG facilities and renewable power facilities. That deliver industry leading reliable and cost effective renewable solutions to displace fossil fuels and mitigate climate change. And with that, I’ll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Derrick Whitfield from Stifel.

Good morning all and congrats on some nice additions to your development pipeline.

Good morning, Derrick. Thank you.

For my first question, I wanted to focus on the add-backs to adjusted EBITDA that has been an area of focus and investor discussions this morning. Could you perhaps elaborate on the accounting considerations for this calculation and comment on what the add-back would be at current environmental attribute pricing, which is noticeably higher for both D3 and LCFS?

Sure, Derrick, thanks for that question. It’s a little bit absurd in some respects that our auditors don’t allow us to account for all of this gas production that we do from our RNG projects until we physically sell the rent and deliver it to a counterparty. So when we make a choice as we are now based on the current market conditions to slow play our RINs out into the market as we see price – more opportunity for price to go up than down, it’s almost as if the gas doesn’t exist. If the auditors allowed us to show it as inventory, it would solve a lot of these issues. So we’re in the position of really trying to report through our adjusted EBITDA as opposed to in our revenue and net income what the effects of this gas production is. So – and you can see in our adjusted our calculation to adjusted EBITDA, we have a $10.3 million add-back. That is gas that relates to credits, that relates to gas for projects that have not yet been certified. It’s gas for – I’m sorry, credits associated with gas that we have not yet minted credits for. So for which we produce the gas, but not minted the credits, and it relates to credits that have been minted are just being held in inventory. And we really do this to try to first off match as best as possible, the value of our production in the quarter with the expenses, so that you have the timing differential. You can imagine if we didn’t do this, we could have in one quarter such as this, a very low revenue and net income, and then next quarter, say, we sell all of these extraordinarily high one, which would make…

Terrific. Thanks. And that makes sense. And perhaps for my follow-up, I wanted to lean into your prepared remarks on the progression of your backlog both near and medium-term. For 2023, it appears Emerald and Prince William are progressing on the schedule you laid out in Q4, and Sapphire is a smidge behind. With your reaffirmed guidance, would it be safe to assume Sapphire was expected to have minimal impact on 2023. And perhaps for the benefit of a more fulsome discussion, if we think about Sapphire being pushed modestly to the right and projects in Polk County and Illinois being added to the slate, could you offer a glimpse on how your position for 2024 in a plus minus basis versus Q4 commentary?

Yes. Thanks for the question, Derrick. This is Adam here. I just want to touch quickly on Sapphire. It’s pretty interesting for a lot of the landfills and it’s just down at WasteExpo. A lot of the landfill or environmental service companies, we’re starting to talk about PFAS and looking at how PFAS regulations could be looked at in the industry. And our Sapphire project, that’s why that permit got delayed by several months, where a lot of these permitting agencies are now looking at PFAS levels and how to measure and how to test them. And most of the PFAS that is being looked at is from the liquids management that that comes out of landfills. And some of these permitting agencies and their different ones are starting to try and figure out how they test and measure it on RNG projects, which we don’t think will be tremendously impactful except for the slight couple of month delay. And we’ve been engaged with that permit agency and feel good that progress is being made. And they’ve sort of got – they’re sort of getting their arms around it, how to measure it from our flares to be certain that they’re measuring it and tracking it. As it pertains to our in – coming in from the Polk County project, which obviously we’re really excited about and do see that coming online at the end of next year. We’re going to hold off right now on given volume guidance for 2024. But certainly you’re right, there are some positives and negatives between that project accelerating and the couple of month delay on Sapphire.

Perfect. Thanks for your time and comments.

Our next question comes from Matthew Blair from TPH.

Hey, good morning. Thanks for taking my questions. Adam and Jon, I was hoping you could talk a little bit more about the eRIN potential. Adam, I think you mentioned it could provide material upside. I believe our very rough estimate is anywhere from $50 million to $80 million of potential EBITDA. What’s the right framework to think about eRIN upside? And could you also talk about how far along you are in discussions with auto OEMs on the RIN sharing agreements?

Yes. Thanks very much for the question. This is Adam, again. It’s pretty interesting. We do think that and very – and we are very supportive of eRINs being included in the renewable fuel standard. And we do see it as a material tailwind both to our existing portfolio and the development of new landfill gas to electric projects. On the flip side of that for 2023, we think that’s the reason why there’s been a downdraft in current D3 RIN pricing. Because the industry believes the EPA may have been too low in their estimated RINs created from eRINs and also low in their forecast volumes from RNG projects that are coming online. So we remain constructive and do believe that the eRINs make sense and will be very supportive for our business. There has been some noise in the market, where it is still uncertain, whether or not the eRINs will get approved in June. And whether or not the EPA may take several months more to try and finalize that piece for the rule making. That would likely have the effect of raising RIN prices. Because again, I think that’s where a lot of the oversupply concern was coming from. And we’ll see how that plays out in the next month. And as far as our progress, we have been engaged with various OEMs and aligning ourselves to be able to participate should the eRIN get finalized and approved here in June. So we’re pretty far along in those discussions and we would expect to participate if it does in fact get finalized.

Matthew, let me just add one thing that I think can help people think about the value of eRINs. And I think what’s under discussion is not really how they calculate the RINs kilowatt hour conversion. It’s really how they’re implementing the program, but a rough calculation is that at a $270 RIN price, that the eRIN is worth about $330 a kilowatt – a megawatt hour, sorry, a megawatt hour. And that $330 obviously has to be shared with the OEM. So if you’re sharing at 50-50, you’re at $165 a megawatt hour, as you get more electric vehicles out in the market competing for what might be a limited amount of this renewable biogas based electricity, that sharing we expect will go up over time perhaps as much as to where the RIN sharing is now with dispensing, which is about 90-10 or 85-15. And so once you get to that point, as you start to look at those numbers, you can throw that value onto an electric project or an electric portfolio from landfill or other biogas sources to get a sense of value.So we agree that is very – we’re very encouraged by this and we see a lot of additional value.

Sounds good. Yes. The $165 per megawatt hour net to OPAL would be above our expectations. Okay. And then my follow-up is on your Fuel Station Services segment. If I look at the gross margin of about a $0.5 million and then add-back the $2 million from the held back RINs. That overall profitability was a little bit less than our expectations, and I think you mentioned that – it doesn’t sound like your downstream fueling volumes or fueling profitability was affected by high natural gas prices in the quarter due to the pass through. But could you talk a little bit more about profitability in this segment? Did it come in line with your expectations? Was it muted in Q1 and what’s the outlook going forward?

Sure. So – and thank you for your question, Matt. I think we’ve talked before about inflationary pressures. We talked about that in Q4. And we’ve seen a little bit of that, call it, the tail end effects if you will, still replying through the business. I think the other piece to remember, we did mention this is – we saw I think a little bit of a slower pace in terms of construction than what we had originally anticipated, right? This business is percentage of completion, so it can be chunky. And, again, whether it’s utility delays, whether it’s permitting delays, whether it’s a piece of equipment doesn’t show up, that can impact ultimately how we show revenue and how that ripples through the P&L regardless even if we’re firing on a thousand [ph] cylinders, we do that margins and revenues will continue to improve throughout the year-over-year, because we think together inflationary pressures [indiscernible]

Thanks for your comments.

Our next question comes from Martin Malloy from Johnson Rice Company.

Good morning. I just wanted to ask about the 2023 full year guidance you provided on the last call. Is the guidance for adjusted EBITDA the $85 million to $95 million, and the CapEx guidance $220 million to $240 million. Is that still intact or has that been changed?

Yes. Thank you, Martin. This is Adam Comora here. We are not changing our guidance for 2023. As Jon had mentioned in the prepared comments, our operating projects are performing well and on track to meet our full year targets. Another critical piece of our guidance and really what we believe is one of the long-term value drivers of our business is how many RNG projects we place into construction and our guidance of 2 million MMBtus into construction. We feel really good about with its really strong visibility on the first 1.75 million MMBtus and are excited about what’s happening in our advanced development pipeline and hope to have to be able to share some additional projects soon. I’d say we also remain cautiously optimistic on the environmental credit pricing environment both in terms of rent pricing and LCFS pricing as we do believe that there are positive structural changes that’ll be implemented to the LCFS program. And we’re hopeful that the EPA is listening to industry in terms of where they set the volumes. I’d also say as Ann was just mentioning, we do see some improving trends over the course of the year in our Fuel Station Service segment and do think that there will be some timing pickups on the revenues there. If you look at our contracted backlog of about $56 million or so, typically that gets realized or recognized over 12 months, and we’re always signing up new business as well. So you can look at that on a quarterly run rate and perhaps think that there could be some timing pick up in that segment of the business. One thing I would also caution on is we are in early stages of our growth and these projects – the new projects that are coming online and we’re – and our commissioning are – if you have a four, six, eight-week delay in commissioning that could potentially have what looks to be an outsized impact in a given quarter when in reality, it’s pretty immaterial to the long-term intrinsic value of this business especially considering these are typically at least 20-year life assets. And one of the things we love about the business is the recurring EBITDA and free cash flow nature once these projects are operational. So we feel good about how we started out the year and they’re not currently changing guidance.

Okay. And then for my follow-up question, I wanted to ask about the Cummins 15 liter engine. And as that – could you maybe enters the market, could you maybe talk about the potential for that to add new customers for you all at through your fuel stations and maybe what the impact is for some of your key customers in terms of the timing of how that enters their fleets?

Yes. It’s a good question. We’re really excited about the – about that introduction. I should also say, we’re technologically agnostic to what trucks ultimately get adopted by our fleets. I think you guys are also aware that we’re building some hydrogen fueling stations and the potential for eRIN pathway could make renewable electricity really exciting for these fleets. And we’re looking at what it would take to build large scale electric charging stations. But as it pertains to the 15 liter engine, the reason why we’re so excited about it is we do think it opens up a large segment of the over the road and logistics trucking population. And quite frankly, the 12 liter engine has been an enormous success for a lot of our customers. And we think the 15 liter likely improved upon that, both in terms of fuel economy and there were some over the road trucking firms that were concerned about driver satisfaction and didn’t want to bring them from a 15 liter diesel engine into a 12 liter engine. And we think that a lot of those companies are testing and looking to expand. And we see the potential for a lot of broader adoption as that happens, and we see more and more companies seeking out RNG for the sustainability benefits and the operational benefits for running those trucks. We think there is a real good opportunity to continue to expand into new customers, build out new fueling infrastructure, and quite frankly, the potential for pricing power given the financial discount that that RNG currently enjoys over diesel. So we think a lot of that attraction comes in the second half of the year as people move through their testing but see a lot of new opportunity for it.

Great. Thank you. I’ll turn it back.

Thanks, Martin.

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

Hey, good morning, guys. Just to go back to something we spoke about a bit on the last call, are you able to provide any more color around the ITC embedded in your guidance for this year? And it’s starting construction on the Polk and WM projects basically net out against the pushout of the Sapphire project. Would that be a good way to think about it?

Hey Ryan, it’s Ann. So again, we’re still waiting for final guidance from IRS around ITC. So I think again, we would prefer to not really provide any additional color. On your second question though, you can only claim the ITC once the project is actually deemed to be in service. And I think there’s still some guidance needed on exactly what that means from a facts and circumstances perspective, but given that we potentially would be putting it into construction into 2023, it wouldn’t be finished in 2023. So if anything, I think it potentially becomes additive in later years, but we won’t see that benefit this year.

But Ryan, this is Jon. I’ll just add that similar to what Derrick said at the top of the question and answer period, that there is somewhat of an offset here by putting those projects into construction and putting them into construction sooner. We’ll see some pickup there in timing relative to what we might have otherwise thought of someone offsetting Sapphire delay from a pure operations point of view.

Right. So all things equal wouldn’t Sapphire moving to 2024 then reduce the potential you see benefit to be gained in 2023?

Yes.

In theory, yes.

Okay. Great. That’s all for me. I’ll turn it back.

Thanks, Ryan.

Our next question comes from William Grippin from UBS.

Great. Thanks very much. First question is just going back to the guidance, could you remind us what D3 RIN pricing assumption was embedded in the EBITDA guidance, and what would you need kind of to hit the lower end?

Yes. It’s $2.25 is what was embedded in the guidance.

Got it. All right. Appreciate that. And then just on the permitting delays, could you just elaborate a little bit there on kind of what the underlying issue is? And is there anything that can be done to improve the permitting process going forward either on your end or do you see it improving naturally over time?

Yes. The one that impacted Sapphire’s timing was this issue of PFAS, which is relatively new issue that landfills are experiencing and given that our projects fit on landfills and process landfill gas I think depending on where you are, these permitting agencies wanted to take a look at it. And it really just had to do with how to measure and test for PFAS coming off of our either renewable natural gas facilities. So I think it’s a little bit of a learning curve that was going on with this specific permitting agencies and it looks like there is progress being made. So that that’s really what impacted that permit.

All right. I appreciate the time. Thank you.

Thanks, Will.

Our next question comes from Craig Shere from Tuohy Brothers.

Hi, thanks for taking the questions. So first on the eRINs opportunity, are there any PPAs on power projects would need to be broken to convert to the eRIN opportunity? And would you then need to share some of the windfall with landfill gas hosts?

The final – this is Jon. Thanks for the question, Craig. The final ruling about sharing with the landfill host is not really set. However, there’s no requirement that you have to break a existing PPA to get the RIN credit for eRINs and stackable on top of your existing PPA. So we’re comfortable with the way that it has been written and we don’t see any change coming to that.

Great. Thanks for that. And did you see any temporary California gas market dislocation effect in the first quarter? And to what extent are you seeing improving downstream pricing and margin opportunity given this wide delta between gas and diesel?

Yes. This is Adam Comora here. Yes, I think as Ann was describing earlier, we do not have any impacts from volatility in natural gas prices. We don’t have our downstream fueling contracts tied to a spread to diesel or any impact between those two commodities. Overall, our business is generally benefited from rising natural gas prices because we still get the fossil brown commodity value on the gas that we produce. From an overall marketing perspective, for the downstream business, we benefit when natural gas prices are lower because then there’s a better economic incentive to switch from diesel over to CNG or RNG. And what we’ve been alluding to in previous presentations and conference calls is that renewable natural gas is currently basically priced at fossil natural gas for transportation fuel customers. All the value that we get from these molecules is really by creating these environmental credits and selling them to obligated parties. And because of the differential between sort of natural gas and oil on an energy equivalency, that’s where we’re excited, where we feel like there’s a little bit of pricing power and headroom as more and more fleet switch over and demand continues to build for RNG as that transportation fuel.

Great. Thank you.

I would now like to turn it back to Adam Comora for closing remarks.

Okay. We thank everybody for joining us today in your participation in the OPAL Fuels first quarter 2023 earnings call. We look forward to continuing engagement and dialogue, and I wish everybody to have a great day.

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.