Good morning, and welcome to the OPAL Fuel's Third Quarter 2024 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to the OPAL Fuel's third quarter 2024 earnings conference call. With me today are Co-CEOs, Adam Comora, Jonathan Maurer; and Scott Contino, OPAL's Interim Chief Financial Officer. OPAL Fuel's released financial and operating results for the Q3 of 2024 yesterday afternoon, and those results are available on the Investor Relations section of our website at opalfuels.com. Presentation and access to the webcast for this call are also available on our website. After completion of today's call, a replay will be available for 90-days. 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 Slides 2 and 3 of our presentation. These forward looking statements reflect our views as of the date of this call, and OPAL Fuel does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain discussion of certain non-GAAP measures. A definition of non-GAAP measures used in the reconciliation of these measures to the nearest GAAP measure is included in the appendix of the release and presentation. 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. Jon 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.

Thank you, Todd, and good morning, everyone, and thank you for participating in OPAL Fuels' Q3 2024 earnings call. This quarter's results were solid and in-line with our expectations as we continue to execute against both our near term financial goals and longer term growth initiatives. Underpinning our growth is our continued ability to develop new RNG projects, move them through construction into operation and leveraging the strength of our vertically integrated business model to both realize the highest value for that RNG and drive market share gains across the business. We are pleased that we have recently commissioned and brought into operation both the Sapphire and Polk RNG projects, our 10th and 11th. When combined with the earlier commissioning of Prince William, we have increased our share of nameplate design capacity in operation up to 8.8 million MMBtus, an increase of 3.6 million MMBtus this year. Adjusted EBITDA for the quarter was approximately $31 million as we continue to see improvements across our business segments. Significant drivers to adjusted EBITDA this quarter were the contribution from Prince William, continued strength in environmental credit sales and strong results in our fuel station services from both higher throughput of RNG through our dispensing network and continued positive trends in the construction and services part of this segment. We are also well on track of putting at least 2 million MMBtus of OPAL's share of initial design capacity into construction. With the announced projects of Cottonwood, Burlington and now Kirby, we have placed approximately 1.8 million MMBtus of initial design capacity into construction this year. We're seeing continued strength in our downstream business and remain encouraged that we will meet our growth objectives for this segment. We have good visibility on full year results and are maintaining our current guidance. Scott will…

Thank you, Adam, and good morning, everyone. As Adam mentioned, 2024 has been a busy year for OPAL Fuels. With Prince William, Sapphire and now Polk commencing commercial operations, we have 11 RNG projects in operation. Our operating RNG facilities represent an annual design capacity of 8.8 million MMBtu, organically doubling over the past 2 years. We note that we received EPA certification for our Sapphire project in the quarter. So the project is able to generate RINs under the updated DRR provisions. Certification for Polk will follow shortly. Q3 productions were in line with our expectations. RNG production was 1 million MMBtus for the 3 months ended September 30, 2024. This production is more than a 40% increase year-over-year and higher than the Q2 2024. We're seeing both inlet design capacity utilization and utilization of inlet gas ratios in line with expectations and reflective of having several new facilities coming online and in their ramp-up phase. Shifting gears to our in construction portfolio, we have put 3 projects into construction this year and now have a total of 6 projects in construction, representing 2.6 million MMBtu of OPAL'S share of annual design capacity, in addition to our 11 operating projects. Among the projects put into construction, we're happy to have announced the start of construction at our Kirby Canyon Landfill project in Santa Clara, California earlier this week. OPAL owns 100% of the RNG facility. Kirby will contribute 0.66 million MMBtu of annual design capacity net to OPAL. We are well-positioned headed into year end and beyond. Market fundamentals are supportive, and we expect additional opportunities will result from our growing relationships. With that, I'll turn it over to Scott to discuss the quarter's financial performance. Scott?

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 quarter ending September 30, 2024. Our 10-Q will be filed on Tuesday. Looking at Q3 results, RNG production increased to 1 million MMBtus from 0.7 million MMBtus compared to the Q3 of 2023. The increase is largely due to both the Emerald and Prince William RNG projects contribution to production volumes. Revenue in the Q3 was $84 million as compared to $71.1 million in the Q3 of 2023. The main driver for the increase in revenues was increased production and 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, including our joint venture projects, as well as other third -party RNG supplies. OPAL's share of revenues from equity method investments for the quarter was $11.7 million as compared to $4.7 million in Q3 2023, which is not included in revenue as reported on the income statement. Net income for the Q3 was $17.1 million as compared to $0.2 million in the Q3 of 2023. The difference was primarily driven by growth in our fuel station services business and the sale of investment tax credits. Adjusted EBITDA was $31.1 million in the Q3, compared to $16.5 million in the Q3 of 2023, partially driven by the timing of environmental credit sales. A reconciliation to GAAP results is provided in our earnings release from yesterday and in our investor presentation updated this morning on our website. As a reminder, we've added project development and startup costs as a separate line item on the income statement to reflect costs associated with projects that are in pre-construction or in…

In closing, we are happy with this quarter's results. We remain committed to furthering OPAL's vertically integrated mission, together with our partners to build and operate best in class biogas capture and conversion projects that deliver industry leading, reliable and cost effective low carbon intensity energy products that displace fossil fuels and mitigate climate change. And with that, I'll turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.

[Operator Instructions] Our first question comes from the line of Matthew Blair of TPH.

Thank you and good morning. Adam, I appreciate your initial comment from the election. Maybe we can dig into that a little bit more. How much risk do you see to areas like the D3 RVO and the ITC, from the election results? And I think the general take is that the election results are negative for renewable fuels. But I'm curious, are there any silver linings here? Are there any areas like permitting that could get a little bit easier going forward?

I appreciate that question, Matt, and thanks for joining the call. So a couple of things on the election outcome. I guess your first question regarding D3 RVO volumes. I think there's a couple of important things to remember. First is that we don't think that there really is liquid biofuel opposition or anything within some of the other stronger Republican constituencies regarding D3 volumes. We're actually aligned with a lot of those same participants in the renewable fuel standard where they want to see strong D3 RVO volumes because if those volumes are set too low, then you have the potential impact of D3s going down into those liquid RIN markets. So, in all of our discussions with the other folks in the RFS, everybody is supportive of strong D3 volumes. Second thing I would say is that the statutory objective of the renewable fuel standard is 16 billion cellulosic D3 RINs. So, in some sense, we think and that's been reiterated time and time again. So, we think in some sense, the Chevron doctrine maybe supports the continued growth and growing RVO volumes in the cellulosic category. I would also add that from an IRA perspective and also with those D3 RVOs, we have a lot of support amongst a lot of what most folks consider more red areas and the investments that are being made in those facilities. So, we don't -- we really do believe what we do is bipartisan and we're seeing more and more Republicans come along looking for smart climate policy. And the capture of these waste methane emissions, we think are going to continue to be supported. A lot of times people ask about the cellulosic waiver credit and I think as everybody knows, there is no cellulosic waiver credit in place,…

Sounds good. And then we understand that most of your RINs are sold forward. We also noticed that your realized price moved up quite a bit in the quarter. I think it was 3.22 a gallon versus last quarter at 3.03. So I guess, 1, could you share how much of your RIN production has sold forward for 2024 and 2025? And then 2, when you do sell RINs forward, is the price locked in at the point of the sale or is it still connected to changes in spot RIN prices?

Yes. No, I appreciate that question there. So, the last part of the question is we have sold all of our RINs for 2024. And when we say that we sell them forward, what that means is we transact at whatever the current price is and then we deliver them in those forward quarters. So those sales and that realized price that you saw in the Q3, those were transactions that we entered into earlier in the year for Q3 delivery. So you do lock in the price when you sell them on your forward sales and then you deliver them in whatever period that you agree to deliver them.

Got it. Okay. So basically just a coincidence that the spot price moved up and your contract price moved up. Okay, sounds good. Thank you.

Our next question comes from the line of Alex Kania of Marathon Capital.

Thanks. Thanks for giving a pretty good outlook. I'm kind of curious about just thinking about the voluntary markets right now and your view on how they're evolving. Just thinking about this broader like data center theme and hyperscalers really scrambling to find as much power as they can and the potential maybe there's going to be a greater reliance on natural gas than maybe initially conceived. Is there an opportunity for like term deals with hyperscalers to help decarbonize the gas streams that will be going into potential new capacity? And I'm wondering about whether that's something that you're seeing kind of in the market today or is that a longer term opportunity?

Yes. This is Adam again. So a couple of things there. From the molecule side of things, we still see the transportation fuel market as the highest value off-take market and we're going to continue pursuing that for our molecules. And we do see interest in the voluntary markets here in the U.S. We're really interested in the medium term about what can be developing in Europe and we'll probably touch on that a little bit later as well. But from the Electron side of things, we're starting to see some reports published out there about green premium or green baseload premium because solar and wind can be intermittent. And there could be some applications there on the renewable power side, where that could be an interesting off-take market that develops for us. We think that the eRIN potential for renewable electricity could be more attractive to us from a financial standpoint. It may not have the same term that you're probably referring to in longer term baseload green power. And I think it's important that everybody realizes again that electricity generation from biogas is baseload, which is really attractive and increases that grid stability. And we think a lot of people in DC are excited about that as a potential answer to what to do with some of these waste emissions. But I think we're more I think we're optimistic on that eRIN policy being a more attractive financial off-take market, but we are monitoring what can be done on a PPA perspective to give you maybe longer term off-take for some of those other industrial users for that green power.

Great. Thanks for that. Maybe just a follow-up since you opened that door, just kind of thoughts on the articulating the thoughts on the Europe opportunity as well would be great.

Yes. And I'm sure we're going to talk about guidance and how we feel about the full year. What's happening right now with the European export markets is towards the end of the month here in November. And if people think that the regulations are a little complicated here in the U.S., I encourage you to go look at what happens over in Europe between the Europe Commission and the various countries within Europe. But the export market for U.S. produced RNG is going through some regulatory changes and pathway changes there. And towards the end of the month, there is an ISCC certification pathway, which Europe is reevaluating for how the U.S. tracks their molecules and that sort of thing. So for the European off-take market, there's going to be a pause towards the end of this month. And then, we're working on how to work with some of these European regulators to reopen up those RNG export markets. So, we think it's going to be interesting. We think it's going to be potentially attractive market and not really so much from the voluntary market there is obviously something, but it's really the compliance markets over there, where there are all sorts of new costs being put on various industries, whether it'd be the marine industry on landed ships and some other places as well. So, we have to work through some of the regulatory and potentially trade issues regarding U.S. RNG exports into Europe, but it's something that we think will likely get sorted out. And maybe one of the one positives that came out of these biogas reg reforms could be the tracking system that the EPA is now going to be using. Maybe there's a path forward to start using that as a basis that we can start opening up some of those European pathways.

Our next question comes from the line of Ryan Pfingst of B. Riley.

Hey, guys. Thanks for taking my questions. I guess just one more on the election. Do you think M&A could pick up under the new administration given the potential for less restrictive regulations? And any color on M&A broadly that you're seeing would be helpful.

Hey, Ryan, Jon here. We're always looking at M&A transactions and we're seeking to maximize shareholder value and we continue to look at market opportunities as they arise. We think that the environment is really good for M&A and will get better. Clearly, we've seen a lot of good marks in the M&A area, I'm thinking about Enbridge last December. And over the course of this year, however, there's been a number of transactions that have been out in the market that really didn't reach fruition or close. But the marks that we have seen really support the private transaction value and gives us a lot of comfort that we're on the right track with our organic growth and our vertically integrated model and on the valuation that we're creating as a result of that. So, the industry is quite fragmented, as we all know, and we think there's a lot of room for consolidation in this industry. The one transaction, recently closed of note, Apollo, on the downstream side, Apollo bought a network of small a small network of fueling stations in Texas for a pretty strong price that gives us again comfort in where we are and where we're headed in terms of our business plan, business model. But the short answer is that we see gathering momentum in that market and we see good signals that opportunities will continue.

That's helpful. Thank you. For my second one, it looks like Cummins started full production of the natural gas engine at its Jamestown plant in September, and UPS bought 250 of the nat gas powered trucks. Have those developments accelerated your customer discussions at all?

This is Adam again. And we're really excited about the potential for the fuel station service segment. As a reminder, it's got 2 pieces there. One is, it's really got a good strategic value for OPAL fuels providing us off take in that transportation fuel market. And quite frankly, we're really excited about just the prospects of natural gas or renewable natural gas and heavy duty trucking. And the 15 liter rollout is -- we think has the potential to be really impactful. I would remind listeners, if right now Cummins is selling more 15 liter natural gas engines in China than they are diesel. And the U.S. is sitting on the largest long life reserve base of natural gas and it probably stays cheap to oil versus as long as the -- I can see. So there's all sorts of energy security benefits. It's disinflationary because it's cheaper than diesel. You still get 17% to 20% emission reductions. So we kind of feel like this is one where and then I think we all leaving aside that electricity demand and stress on our leaving aside that electricity demand and stress on our grids, just the performance in the battery weight and how do you get all that power to those sites. And we think hydrogen still looks like it's a little ways out, difficulty producing those molecules, transporting those molecules around. And we think natural gas is sitting right here with proven technology, cost effective, disinflationary. And now I also want to say that the 15 liter rollout never goes as fast as anybody wants. And this is not unique to this product model. We saw the same thing happen when the 12 liter engine was introduced. And I'd say this time around though, we've got a lot more…

Our next question comes from the line of Craig Shere of Tuohy Brothers.

Good morning. Thanks for taking the question. I'd like to dig a little further into Ryan's 15 liter CMI engine question. Of course, with any new rollout, the sales and deliveries are never as fast as one would hope as you already opined. But, you know, if there are orders for 2, 3, 4 years ramping up over time, the fuel probably needs to be teed up ahead of time. They got to know that they can fill up these trucks before they buy all those engines. So I guess what I'm asking is, what are the prospects for notable front loaded multiyear fueling agreements that could tee up your longer term volumes and further downstream development?

So I would say it this way. I think people are aware that the vast majority of what OPAL does, because we're still in the early innings of adoption here, are on really private fleets, dedicated fleets, either distribution centers or supermarkets or refuse companies, where you really have those defined fueling locations and that sort of thing. And those customers typically do sign up for long term fuel agreements. We think what you're talking about in terms of multi-location programs makes a lot of sense to us. And I think the first go through, maybe it's a one site location kind of thing where they're testing and getting comfortable with it. And those sort of broader thematic programs likely come after they go through that first wave. But we're still sort of in the early innings of that, but we are looking to find those kinds of fleets and programs.

Got you. And given your focus on the transportation market, can you opine about, I guess if I'm not mistaken, late today we were supposed to get an LCFS market update from CARB and to the degree LCFS pricing obviously RINs has been great the last year or 2. But to the degree LCFS kind of gets its mojo back, could that have any implications on the weighting of your projects in the next couple of years?

We're still principally. This is Jon. We're still principally a landfill oriented company and the majority of our credits are going to be RIN based. Landfills don't attract significant amount of LCFS credits, but certainly as the price improves on LCFS credits, that can only help. On the downstream side of our business, we have substantial fueling capacity in California and we utilize that for low-carbon intensity dispensing with third-party supply. That is where we get the substantial bulk of our LCFS and as an aside 45Z coming up as well credit revenue. So that as the price improves that's where we are likely to see that growth. In terms of our mix, we will stay principally a landfill company. We have our [Sonoma] project. We are working on our projects out in California, and we always look at opportunities in the low-CI space and we will continue to do that. But from an outlook perspective, we see the credit bank starting to perhaps roll-off sometime during the course of next year, not completely, but start to turn back the other direction. And as that happens, we expect to see some strengthening in the price. Obviously, everybody expects the reduction of the carbon targets from the carb to be positive and we are included in that group. So we look forward to that announcement later today.

Yes. I think from a price perspective, I think that meeting is going on today. They've ticked up a little bit this week. I think we're currently sitting around $74 per credit. And it will help us if those prices go up, as Jon had mentioned. And we get into 2025 guidance, we'll talk about the sensitivities to LCFS pricing to our results.

Our next question comes from the line of Paul Cheng of Scotiabank.

Hey, gentlemen. Good morning. Two questions, if I could. I think for the first one is probably for Adam. One of your competitors have said they have seen a shift up in what they can get as a percentage of the RIN in their fueling station, comparing to the RNG producer. Wondering if you have seen a similar development.

Yes. I mean, for sure, we've seen a tightening of the dispensing market. RNG supply is growing faster than dispensing capacity and that's what drives up those shares. It's also one of the reasons why we sort of put together our business model the way we did, by being vertically integrated and having the RNG production as well as the station dispensing capacity. OPAL is not as impacted by either paying out higher RIN shares or where that nest or where those economics lie within the value chain. And so I would agree that RNG marketing fees have been rising or dispensing fees as maybe somebody else termed it. And that's where we sort of like the way the Opel business model is positioned. And we also like the fact that we have a little bit more control or impact over our destiny to continue to grow out that dispensing capacity for our RNG production.

Adam, just don't know whether you will be willing to share. I think historically that the split between the upstream and the downstream is 80-20. Is it now 75-25 or any number that you can share and whether that you think that ratio will still have more room to go up over that year is already receiving pushback and sort of the limit?

Yes, we're not going to get into those specific numbers. I would say this though, as I had mentioned that dispensing capacity is tightening, so the numbers are going up. And if you want to give those numbers to some of our JV partners, I encourage you to do so.

Okay. Fair. And that the same question that you monetize some of the ITC for next year. What is the remaining available for you to monetize for next year?

Yes. With respect -- this is Scott, by the way. With respect to the ITC credits, so as you pointed out, we did sell our first ITC credits. We have 3 projects that were placed in service this year, and we'll be seeking to sell credits for those 3 projects. And the sale of ITC will be an ongoing program as we place more projects into service over the next few years. The ITC is clearly a significant source of liquidity to help fuel our growth over the next several years.

Scott, can you help me out that how we calculate that ITC? And then all that, I mean, what is the remaining that for the 3 projects for next year?

So we're not going to get into specific numbers, but the ITC credits are typically 30% to 40% of the CapEx cost for the projects, 30% is the base and 40% if you can meet one of the U. S. domestic content adder, and those would be the approximate percentages that we'd be using.

Our next question comes from the line of Adam Bubes of Goldman Sachs.

Hi, good morning. Congrats on placing the Kirby project in construction. It looks like the same partner and partnership structure as the Cottonwood project. To what extent are there similar 100% equity projects teed up? And as a follow-up, how do the economics look on the 100% equity projects, little smaller plants compared to some of your larger projects that are structured as JVs?

Hey, Adam. Jon here. So you've got kind of a couple of different questions mixed up in there. So, we entered into a number of gas rights agreements with WM and we're really pleased that the Kirby project represents the second project there and yes, 100% ownership there. I think that as we build relationships across the industry, our partners have different goals and objectives within that. From a GFL, our great partner GFL, we have a fifty-fifty relationship and we really like that relationship from the standpoint that it aligns the counterparties really well to perform on those projects. Certainly, the 100% ownership such as the Waste Management or other municipal counterparties like we have New River Solid Waste Authority and we have the Prince William County and we have the Polk County down in Florida and Atlanta County and Burlington County in New Jersey, which are 50-50 joint ventures with SJI. But so we have a mix of those and we look to build on those relationships to get further gas rights and we'll see different opportunities across the board. One aspect of what you're seeing is that people are reaching down to smaller size projects. Obviously, as we've discussed before, there are significant economies of scale in this industry. And as you go up in size to 4,000, 5,000, 6,000 SCFM projects of the size of say our Sapphire or Prince William projects or 10,000 even the size of the Emerald project, you've got really great economics. It's challenging to make those economies of scale work for small projects. We are pleased that we were able to do that with the Kirby project and others that we're seeing in that 2,000 to 3,000 SCFM size range.

Got it. That's helpful. I appreciate the color there. And then, really strong EBITDA margins in fuel stations in the quarter. I think margins were up 400 basis points sequentially. What drove the acceleration in margins and what's the right way to think about the run rate margin profile of this business?

Yes. So this is Adam here. We're sort of pleased that it came across the board in fuel station services, improving margins in our construction business where we build fuel stations. And I don't think we had it in the release, but it'll be in the Q where we also had increasing backlog on the construction business as well. And also strong margins on the service side of the business. I'd say the lion share of that margin increase was the higher throughput of RNG through our dispensing capacity. And that was likely some of the margin share gain as well. But from Q2 to Q3, it could have I think it was a blend across those three areas in the fuel station service segment.

And then last one from me. Just any commentary around how the 2025 forward D3 RIN market is developing? Any update on how those off-take conversations are coming post-election?

Yes. Well, post-election, in the last couple of days, we haven't seen a lot of activity. I would say, somebody's just telling you, yes, maybe they're down a dime or something. We started to see some trading activity, I'd say, within the last month, and we did sell some of our 2025 RINs around $3 level. And I wouldn't say there's heavy volumes yet, but they are starting to transact for 2025.

I'd see the price is really converging around the $3 mark. And as we get closer to the end of the year and move into 2025. We expect those prices to strengthen around the $3 mark.

Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Adam Comora for closing remarks.

All right. Well, we do appreciate everybody's interest in OPAL Fuels and hope everybody has a great rest of the day.

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