OPAL Fuels Inc. (OPAL) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the OPAL Fuels Third Quarter 2026 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, to begin. Please go ahead.

Thank you, and good morning, everyone. Welcome to the OPAL Fuels Third Quarter 2026 Earnings Conference Call. With me today are Co-CEOs, Adam Comora; and Jonathan Maurer; and Kazi Hasan, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for the third quarter of 2026 this morning, 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 the website. After the 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 and 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 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. 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 Fuel's Third Quarter 2026 Earnings Call. In the third quarter, we delivered adjusted EBITDA of $26.7 million, growth of 32% when compared to last year. We are pleased with these results that keep us on track to meet the lower end of our full year adjusted EBITDA guidance range despite continued RIN price volatility and production falling just below our full year guidance. Our financial results in the quarter were driven by growth in fuel station services, contributions from 45Z tax credits and G&A cost savings. Throughout the call, we will talk more about the key drivers of our results. Jon will discuss trends in RNG production and Kazi will review the financial performance, including some detail of our financial metrics. As for RIN prices, in 2026, we have seen a few dynamics develop, which have driven increased volatility and downward pressure in D3 RIN prices concurrent with the run-up and volatility in the crude and diesel markets. The Set Rule 2 established by the EPA set conservative D3 RIN obligations or RVOs for '26 and '27, volumes that the market believes will be supplied and potentially oversupplied by D3 RIN generation. When the D3 RIN market believes we are potentially oversupplied, D3 RINs trade close and in tandem with the D4 RIN. The D4 RIN price sets a proxy floor as any potential oversupply of D3 RINs can be sold into the D4 RIN market. Post Set Rule 2, 2026 D3 RINs have traded close to the D4 RIN price floor, albeit with a consistent slight premium. In a tight or potentially undersupplied D3 RIN market, the EPA has historically created a price cap for D3 RINs by issuing a cellulosic waiver credit, which can be purchased with a D4 RIN to satisfy a D3 RIN obligation. D3 RINs do not trade below the D4 RIN price or above a potential price cap, which would be between $3.50 and $4 for 2027 and 2028. We believe there may be dynamics in 2027, which could tighten the supply of D3 RINs and move the market into a more balanced view between the price floor and a potential price cap. Looking a little closer at the volatility in D4 RIN prices throughout 2026 and for now, the driver of D3 RIN prices, we began the year with an extremely strong and rapid price increase in response to very aggressive volumes in Set Rule 2 for the D4 category. The market believed it would be difficult for the market to supply enough D4 RINs, which still appears to be the case today, that physical supply of D4 RINs could be short or tight to the 2026 and 2027 RVOs. Despite these fundamentals persisting since the run-up in crude and diesel, we have seen pricing of D4 RINs weaken quite a bit and bring down the D3 RIN. It seems that the trading of D4 RINs are taking their pricing cues from the spread between diesel and bean oil, the feedstock for renewable diesel. If that spread widens, financial modeling suggests that the price or the value of the D4 should be lower or we would have additional D4 RINS enter the market given the profitability of converting bean oil feedstock into diesel. That works in a market with excess capacity to bring supply online from the marginal cost of production, but it will be interesting to see whether this will be the case as we come into compliance period deadlines. We believe these trading dynamics for D3 RINs will continue for the balance of 2026 and have incorporated current RIN pricing into our adjusted EBITDA guidance for the full year. It's interesting to note that although volatile and higher diesel pricing may be pressuring and creating volatility in D3 RIN prices, it is having a strong positive effect on our fleet conversion business development efforts. For our Fuel Station Services segment, we expect a strong acceleration of growth. $6 diesel is not required for the financials to make sense for fleets. However, it has helped raise the visibility of our lower-cost fuel in the C-suites and open their eyes to the sustainable and long-term economic advantage of natural gas and renewable natural gas versus diesel. The economics of fuel switching are very strong even at $4 diesel. And at $6 diesel payback periods for natural gas tractors is measured in months. We already have a strong operating platform today, generating $100 million in adjusted EBITDA over the last 12 months. Our platform is positioned to grow by capital-efficient production gains at our existing RNG plants, the completion of 2.0 million MMBtus of new annual design capacity coming online throughout 2027 and the growth opportunity of fuel switching economics from diesel to natural and renewable natural gas. Before I wrap up, I'd like to address the leadership transition we recently announced. Jon Maurer has informed the Board of his plans to retire as Co-Chief Executive Officer effective March 31, 2027. And given this will likely be Jon's last public earnings call, I wanted to spend a minute telling him and all of you how much I have appreciated and enjoyed his partnership, leadership and friendship over the years. The good news for me is a lot of those things aren't going away after March 31. Jon has played an instrumental role in building OPAL from its early days, leading the origination and development of Fortistar Methane Group, which formed the backbone of our RNG Fuel segment. Subsequently, we shared the responsibility of building our OPAL team and helped shape the company to where we are today. I sometimes get asked what it's like or why co-CEOs. And the truth is it has been a wonderful experience, and I think that is really because of Jon and I sharing the same visions and values. So although Jon will be missed in his day-to-day management responsibilities, he is not going anywhere too far. This is a well-planned transition, and Jon will remain involved as a senior adviser following his retirement to help ensure continuity and a seamless handoff. With that, I'll turn it over to Jon. Jon?

Thank you, Adam, for your kind words. Very appreciated. Good morning, everyone. First, I want to say that it's been an absolute privilege to help build OPAL Fuels from its earliest days into the company it is today. From Fortistar's early investments in landfill gas energy projects nearly 3 decades ago, to the leading renewable fuels platform we operate today. Our team has consistently transformed vision into reality. I'm proud of what we have accomplished together and even more excited about the opportunity ahead for the company under Adam's leadership. With that, let's talk more about RNG production in the quarter and some of our opportunities to continue to drive production growth from our projects in operations. In our last call, we discussed some improvements we are implementing across gas collection and plant performance to drive those very valuable incremental MMBtus of production. These production improvements translate directly to the bottom line with minimal associated costs. Some of the projected gains did not materialize as quickly as we would have liked. However, fourth quarter production rates are now reflecting the benefits of these improvements. As Adam had mentioned, we believe we have good opportunities to drive -- sorry, to drive continued production growth through our existing assets in 2027, and we remain focused with the team to drive more value from our facilities. We're also excited about the 3 new projects, Cottonwood, Burlington and CMS, totaling 2 million MMBtu of incremental annual design capacity that are slated to come online through 2027. As we think about future capital allocation, you should expect us to continue to invest in our Fuel Station Services segment. Not only is a good diversification for our earnings and cash flow, it's really an open-ended growth opportunity with natural gas representing now only a 2% share of heavy-duty trucking market, and in that market where there's long-term energy price differential relative to diesel that can underpin additional growth. So I'll now turn the call over to Kazi to discuss the quarter's financial performance. Kazi?

Thank you, Jon, and good morning, everyone. Earlier this morning, we issued our earnings press release and posted an updated investor presentation on our website. We are scheduled to file our Form 10-Q today. For the third quarter, our adjusted EBITDA was $26.7 million compared with $20.2 million in the third quarter of 2025, an increase of 32%. For the first 9 months, our adjusted EBITDA was $66.5 million, up 16% from $57.2 million in the same period last year. Third quarter revenue was $79.5 million compared with $83.4 million last year. For the first 9 months, revenue was $236.3 million compared with $249.2 million in 2025, a decline of approximately 5% in both periods. Revenues at unconsolidated equity method investments were $36 million, for the 3 months ended September 30, 2026 and $97.9 million and 9 months ended September 30, 2026 -- 2025 -- 2026, an increase of 35% and 21% for the comparable period last year, respectively. OPAL owns approximately 50% of these equity method investments. The RNG Fuel segment adjusted EBITDA was $20.3 million for the quarter, up from $15 million last year, an increase of approximately 35%. For the first 9 months, adjusted EBITDA increased 13% to $52.9 million compared with $46.7 million last year, driven by production growth, 45Z contributions with realized RIN prices essentially flat year-to-date 2026 versus 2025. With respect to 45Z, we have adopted government grant accounting principles where we treat these tax credits as an offset to cost of sales versus in the tax line under the previous accounting treatment. This change in accounting treatment does not have any impact on our adjusted EBITDA results. On the operating side, RNG production grew 5% from 1.27 million MMBtu in third quarter of 2025 to 1.3 million MMBtu this quarter. Sequentially, our last quarter production grew 7%. For the first 9 months, production increased 8.5% to 3.8 million MMBtu compared with 3.5 million MMBtu in 2025. Our Fuel Station Services segment also delivered higher earnings. Third quarter adjusted EBITDA was $13 million compared with $11 million last year, an increase of approximately 18%. This quarter's growth was driven primarily by volumes and margin improvement. For the first 9 months, adjusted EBITDA was $34.7 million compared with $32.5 million in 2025, an increase of approximately 7%. Total fuel volumes delivered increased 3% in the quarter to 40 million GGEs compared with 38.9 million GGEs last year. For the first 9 months, volumes were 117.9 million GGEs compared with 120.4 million GGEs in 2025. RNG volumes dispensed increased 7% in the quarter compared with last year. As we add more OPAL-owned stations, we are seeing a growing contribution from higher margins, contracted volume-based tolling revenues. Under these arrangements, costs such as gas, power, taxes are generally passed through to customers. We expect this part of the business to become increasingly important as we grow our downstream operations, together with our efforts to improve production at existing RNG facilities, it should help us build a stronger and more stable earnings base over time. On the balance sheet, we ended September with approximately $122 million of liquidity, including $86 million of cash and short-term investments, $25.2 million of undrawn preferred stock commitments and approximately $10.8 million of revolver availability. As Adam mentioned, we now expect full year RNG production to come in modestly below our previous guidance range. Despite the lower production outlook and RIN price volatility, we are maintaining our full year adjusted EBITDA guidance within the low end of the range. Our priorities are to continue to improve our production and cash flow at our existing facilities, grow contracted downstream business and remain disciplined in capital allocation. In closing, we remain well positioned to expand our vertically integrated platform. I'll now turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.

[Operator Instructions] And our first question comes from Derrick Whitfield of Texas Capital.

Congrats, Jon, and best wishes to you in retirement. I wanted to start with your business outlook. Specifically, I wanted to lean in, Jon, on your prepared comments regarding capital efficient production improvements with existing assets. Could you elaborate on some of the capital investments that you pursued to date and are pursuing and the degree of production uplift you'd expect from those investments over time?

Sure. So really, a lot of the improvements that we can see on our existing projects require very little to no capital. When we make these investments, they translate into improved production that drops right to the bottom line. And by efficient, I think that's kind of what I'm trying to get at is that there's high operating leverage with very little costs associated with these. Some of the things that we do, of course, are invest in improvements of the collection system where we can get a little more gas into the inlet of the projects. Additionally, we'll try to improve the availability of the projects with better equipment, such as some of our compressors or change out of media beds. All of those, again, relatively speaking, will be fairly lower cost and result in higher product production, which will drop to the bottom line. And then lastly, efficiency, which typically we can improve through membranes and monitoring the methane slip across those membranes and by proactively changing those out, maintain or improve the efficiency of those projects. You'll recollect from previous calls, we discussed some of the issues that we had at the start of the year with the colder weather and other equipment issues. We progressed through the first and second quarters by putting some of these improvements in place and some of the final improvements both in terms of gas collection and the efficiency across the membranes were put in place during the third quarter. We did see third quarter improvements in production, and we think that we're now largely through that process. There's a few opportunities and projects that are continuing in the fourth quarter. But we're now operating at sequentially higher levels quarter-over-quarter, and we see a lot of those improvements having been implemented here in the projects. So we do expect some of those improvements, all of those improvements to continue. And while we continue to move our projects to where we think they ideally can operate throughout the fourth quarter and will roll into 2027, we are prepared for winter conditions, and we've done a lot of work over the course of the summer and this fall to provide additional backup to our projects and heat tracing and other things so that we won't experience the same level of difficulties we had last year. But we should expect, and we do, that during the course of the winter, some landfill gas production will decline in rates, not appreciably, but somewhat and that there will be perhaps snowstorms or ice outages or other things that could affect our production temporarily. So we do expect that. But overall, we're on a firmer footing compared to where we were last year, and we do see those improvements continuing. Lastly, I'll say that with, as I mentioned, the increase in production that we'll see next year from our 3 new projects coming online sequentially during the year will really serve to increase production. So a lot of opportunities that have been addressed, more opportunities to be addressed and with the projects coming online, some increases there, Derrick.

Shifting over to the downstream. With respect to the positive developments you referenced in the Fuel Station Services segment. Adam, could you maybe speak to the broader X15N rollout and elaborate on what you're seeing in the market with fleet conversions?

Yes. I think the X15N has gotten really positive response from all the testing that people have done. And I think that high diesel price, although not required for the economic case, certainly has grabbed the attention of key decision makers. So pace of deployments certain sectors like refuse may engage a little quicker and sooner. And existing folks that have been comfortable in running natural gas for longer periods of time, maybe they accelerate their plans a little quicker. And the new entrants always take a little bit longer. But they -- the price of diesel and how it's impacting their operations, people are looking for a change and an answer.

Terrific. Congrats again, Jon.

And our next question comes from Matthew Blair of TPH.

Could you talk about some of the moving parts in the fourth quarter? It looks like to hit the low end of the 2026 EBITDA guide, Q4 would need to move up another couple of million or so quarter-over-quarter. You mentioned RIN prices are down under a little bit of pressure, but it looks like the implied guide would have production higher quarter-over-quarter. And then I think you also have some pending monetization available. So maybe if you could just run through some of those moving parts on the fourth quarter and what gives you confidence to hit that full year EBITDA guide, that would be helpful.

Yes. No, this is Adam here. And yes, I think the low end of the guide is the fourth quarter looks something like the third quarter or maybe slightly higher. And certainly, you've hit on the key factors there. We are factoring in the current RIN price in how we're thinking about the year. We also are seeing production higher in the fourth quarter versus the third quarter. It feels to us that the margins in fuel station services will continue to be strong. And SG&A on the flip side likely has a little bit of a bump up into the fourth quarter. But when you wrap it all together, we feel good about where we're at for the year.

Sounds good. And then do you have early thoughts on your RNG production target for 2027? Do you think somewhere in the range of 6.5 million to 7.0 million MMBtu is reasonable? And basically, I'm getting there from just taking, call it, roughly 0.5 million from the rebound in your legacy assets that Jon was referencing and then maybe 1 million net from the 2 million of new projects that will start up through the course of 2027. Are those reasonable assumptions? Or anything else you can say there?

Yes. This is Adam here. Yes, it is early for us to really talk about production guidance for '27. And we'll do that as we move into the earlier part of the year, and we have better visibility on ramp rates and new production contributions. And I'll say, from an overall EBITDA perspective, double-digit EBITDA for '27 is not out of the question or unreasonable. And we'll get a little bit more granular on next year as we start the new year.

Jon, congrats on your retirement.

And our next question comes from Ryan Pfingst of B. Riley Securities.

Congrats and best wishes, Jon. Just wanted to follow up on the new projects coming online next year and maybe beyond. Could you just give us a reminder or a broader update on the projects in construction and development right now and how we should think about time lines for the new production coming online over the next 12, 18, 24 months?

Sure. So the projects that are nearing completion and will come into operation sequentially during 2027 are the Cottonwood project, the Burlington project and the CMS RNG project that will, as we said, together, comprise about 2 million MMBtu of production -- of nameplate, sorry. And right now, all of those projects are on track with kind of where we had expected them to be. And -- we then have our Grady Road and Stones Throw projects that are under construction as well, and those are scheduled to come online during 2028. In terms of development projects, we continue to look at converting other renewable power projects as well as talking with various landfill partners that we have today and others that we're looking to cement relationships with and municipal entities, of course, to convert other projects and begin construction or begin -- get projects through development into construction from that area. While none of those are specifically identified, we do see continuing opportunities. We did say earlier that we do expect that a lot of our focus in the coming year in addition to getting these construction projects online will be to move -- to put capital into our fuel station services business and focus on some of the growth there as well. So that's what we're looking for when we think about new projects, Ryan.

Understood. And you somewhat just answered my next question. But in your prepared remarks, Jon, you mentioned that we should continue to see investment on the fuel station services side. So should we think about that implying fewer dollars going toward new projects on the upstream side of the business? Or how should we think about that capital allocation decision more broadly?

Yes. This is Adam here. I think when you look at absolute dollars, it's more of the opportunity set that we're seeing in these fuel station services at present and just feel like it's going to be taking a greater percentage of our capital allocation decisions at least -- go ahead, Kazi.

No, no, I think finish your thoughts, I have something to add after that.

Okay. So it seems to us that there'll be a higher allocation into the fuel station services piece of our business.

I think, Ryan, one thing I wanted to add is we have been talking about this. In our capital allocation decisions, we also are looking to create cash flow -- portfolio stability in our cash generation between upstream and downstream. So that factors in quite strongly how we allocate capital. And in the near future, of course, we are trying to do more on the downstream side, but that does not really eliminate the upstream investments in RNG production facilities. We will make those from actually balanced portfolio allocation perspective rather than purely opportunistic something that's in front of us, if that makes sense.

[Operator Instructions] Our next question comes from Richard DeDios at UBS.

Congratulations, Jon, on the retirement. I know in the press release it was stated how operational improvements took longer to implement. Can you just walk us through the factors on what drove that and perhaps how those learnings can be implemented in the future?

Sure. So as we went through the course of the year, there's kind of lead times that are associated with various factors as we started to recognize some of the, let's say, efficiency improvements that we needed to make, we needed to first make improvements to other parts of the projects so that the efficiency improvements such as membrane replacements could have a longer durability. And so our team very sequentially went through the projects and worked through those items to put in place the equipment improvements and other items that would be required. On the landfill gas side, working with our landfill partners, we were able to identify where we could get additional gas -- landfill gas production and put those in place. But some of those efforts took longer to implement than were otherwise expected. Lastly, we've been working with the team in terms of upgrading capabilities and training across the unit so that each of the team members can contribute more productively and efficiently to the overall production of our upstream RNG fuel segment. So that's part of it. Adam?

Yes. One thing I wanted to add to that, when we talk about the capital efficiency and the operating leverage from the incremental MMBtus that flow through the facilities and really the high cash generation from all those incremental MMBtus, most of those expenses have already been made. In other words, we were making them all through the year. So when we start to see these production gains in the fourth quarter and into 2027, the minimal costs that we've been describing predominantly are behind us on a lot of those projects and those process improvement projects that we've been talking about. So it's also just a follow-up from one of the previous questions on that.

I appreciate the color on that. And relating to the EBITDA guide, I know you're expecting to be on the lower end of the range, but can you help us provide some color into maybe what can help it drive towards the midpoint? I know last call, it was mentioned how you guys have multiple levers to really drive EBITDA. But in this scenario, can you maybe dive a bit deeper into which levers exactly can help it land to the midpoint?

That's a great question. Let me take that. Generally, if you know, 2 biggest variables are the production volume and the RIN prices. Obviously, you can see that production volume, we expect to be closer to our expected range. But if we are able to deliver a little bit more production, that accrues straight to the bottom line. In addition to that, we are -- in our expectation, we are looking at the RIN price near to where it has been for the last couple of weeks. If the RIN price moves one way or other, that would have an impact on where we expect we are going to end. And on top of that, obviously, the fuel dispensed and volume on the downstream side in construction, those 2 could potentially move one way or other. But I think those areas, we are generally much better at anticipating what it could be.

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

All right. Thank you very much. Appreciate your interest in OPAL Fuels, and I hope everybody has a good rest of their day.

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