OPAL Fuels Inc. (OPAL) Earnings Call Transcript & Summary

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to OPAL Fuels Second Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Todd Firestone, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the OPAL Fuels Second Quarter 2026 Earnings Conference Call. Joining me today are Co-CEOs Adam Comora and Jon Maurer, as well as Kazi Hasan, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for the second quarter 2026 this morning. Results are available on the Investor Relations section of our website at opalfuels.com. The presentation 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. Actual results could differ materially from what is contained in the statement. 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 of the date of this call, and OPAL Fuels does not undertake any obligation to up-to-date 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, 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 by providing a view of the quarter's results and recent highlights. Jon will then give a commercial business development update. Afterwards, Kazi 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 Fuels' second quarter 2026 earnings call. We delivered solid second quarter financial results with adjusted EBITDA of $23.1 million, increasing 40% from the second quarter of 2025. With flat RIN pricing in the second quarter versus last year, growth was driven by 45Z production tax credits, our Fuel Station Services segment, and G&A cost savings. We are maintaining our annual guidance. Second quarter RNG production was 1.3 million MMBtu, approximately 8% higher from last year. While production performance was modestly below our expectations this quarter, we continue to see meaningful opportunities to grow volumes through our existing facilities and drive our second half results. It is important to note how powerful these plant improvement initiatives can be, and they are not capital intensive. Operating leverage on our existing facilities is high, with almost all of the incremental production and revenues flowing down to EBITDA. Our primary variable cost is the royalty shared with our feedstock hosts. We are focused on capturing these opportunities as they would result in incremental production and EBITDA without having to invest significant capital. One example of these initiatives is using technology to improve gas collection and tuning of the well fields. These improvements can take some time to install and to coordinate with the landfill owners. I want to shift gears and discuss what gives us confidence in the stability of our cash flows and the macros driving the long-term growth for OPAL Fuels. Over its 20-year history, the Renewable Fuel Standard has become a fixture in the country's regulatory backdrop, much like the Clean Air Act and the Clean Water Act. Many industries are built around supporting these key laws, such as water treatment and other environmental services. Similar to those examples, the biofuels industry is expected to continue to play a vital role in satisfying the goals of the Renewable Fuel Standard mandated by law. Our industry is further supported by programs like the production tax credit and investment tax credit. These programs reflect increasing bipartisan support and seek to accelerate the growth and myriad benefits of capturing biogas or waste-in-place energy and using it productively. OPAL Fuels generates significant annual discretionary free cash flow today, approximately $0.30 per share for the last 12 months, which we are choosing to reinvest to lift the value of OPAL. Kazi will discuss a bit later about our capital expenditures and capital allocation plans for new RNG facilities and fueling station projects. As a reminder, all of our maintenance capital expenditures on our existing assets are expensed. Our upstream segment growth over the next 12 to 24 months is anticipated to be driven by incremental volumes from our existing assets and the completion of our projects in construction. These initiatives show a pathway to increasing our discretionary free cash flow over the coming years. Future growth of our downstream segment will be driven by the economics of fuel switching between diesel and natural gas. These economics are underpinned by the structural advantages of low-cost natural gas versus diesel in North America. We have seen numerous industries take advantage of lower cost natural gas as the technology becomes available. We've seen it in chemicals, steel, power generation, and in heavy-duty transportation's case, the natural gas engine. Notably, the refuse sector, which has had the appropriate 9- and 12-liter engines for the last decade, is now at a 50% adoption rate of CNG trucks ordered versus diesel. The 15-liter engine is now poised to address the largest segment of the 44 billion gallon diesel market in the United States. For OPAL, we have the strategic advantage of selling RNG with the same compelling natural gas economics, plus the added sustainability benefits to accelerate adoption. OPAL is positioned to be at the forefront of what is anticipated to be a long and large energy arbitrage opportunity. With that, I will turn it over to Jon for some additional comments before Kazi reviews the financial performance.

Thank you, Adam. Good morning, everyone. Execution remains our highest priority. On the upstream side, Adam mentioned our improvement initiatives that are expected to drive production growth at our existing facilities. In addition, we continue to advance construction across our RNG project portfolio. With over 2 million MMBtu of annual design capacity expected to come online over the next 12 months, Cottonwood, followed by Burlington, and then our CMS RNG project, we have visibility into near-term production growth. As we look beyond the next 12 months, during the quarter we announced the release of our general contractor for another 1 million of annual design capacity at the Stone's Throw and Grady Road projects. These GFL joint venture projects are slated to contribute to 2028 production and financial results. Together, all of these projects upon completion will increase our production by approximately 3 million MMBtu of annual design capacity coming online over the next 24 months. These upstream opportunities are supported by OPAL's vertical integration and fleet offtake generated by our downstream business development opportunities. Beyond these projects, OPAL continues to pursue development opportunities, several of which are conversion candidates from our renewable power portfolio. We are disciplined in allocating capital between our upstream and downstream investment opportunities to achieve targeted risk-adjusted returns and portfolio balance. Overall, as Adam mentioned, we're pleased with the progress we made in the second quarter and our ability to deliver financial results, which kept us on track for the year. I'll now turn the call over to Kazi to discuss the quarter's financial performance. Kazi?

Thank you, Jon, and good morning, everyone. We delivered solid financial performance in the second quarter, with adjusted EBITDA increasing 40% year-over-year to $23.1 million, driven by contributions from 45Z production tax credits, growth in our Fuel Station Services business, and G&A cost savings. Second quarter consolidated revenue increased 4% to $83.4 million, driven primarily by growth in our FSS segment compared with the second quarter of 2025. Within the RNG Fuel segment, EBITDA increased to $18.6 million from $13.3 million last year, reflecting 45Z tax credits and production growth amidst flat realized RIN prices. Fuel Station Services also delivered improved performance with segment EBITDA increasing to $12.5 million from $10.9 million last year. As we anticipated, the Renewable Power segment performed lower compared to the prior year period, driven by lower production and pricing. Adjusted EBITDA was $0.3 million for the second quarter compared to $2.2 million prior year. We expect to see lower contributions from this segment as we are converting renewable power assets into RNG plants. In addition, we had a non-cash impairment this quarter from a renewable power project decommissioning in connection with our CMS RNG project. We continue to actively manage discretionary spending with G&A at $3.2 million lower versus the second quarter of 2025. As we move into the third quarter, we expect SG&A to increase from the second quarter as certain professional services, organizational investments, and transformation initiatives normalize. Costs are anticipated and remain fully incorporated within our full-year plan. We ended the quarter with $162.2 million of liquidity, including $91.4 million of cash, $19.3 million of available revolver capacity, and $51.6 million of undrawn preferred capital commitments. During the first six months of the year, we invested more than $52 million in RNG projects under construction, OPAL-owned fuel stations, and finance transformation initiatives while maintaining significant financial flexibility. We expect that our available cash, cash generated from operations, and availability on the existing debt and preferred stock facilities are sufficient to fund our projects that have entered construction. Finally, as Adam mentioned, the business is generating significant and growing discretionary free cash flow. We continue to be disciplined in our capital allocation strategy between new RNG project development and the growing opportunity to invest in fueling infrastructure. These investments are expected to increase recurring earnings and cash flow, improve returns on invested capital, and further differentiate OPAL's integrated business model. We are encouraged by our second quarter results and are maintaining our full-year guidance. With that, I'll turn the call back to Jon.

In closing, we remain well positioned for continued disciplined execution of our strategic growth objectives and the expansion of OPAL's 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.

Thank you. [Operator Instructions] And our first question will come from Derrick Whitfield with Stifel. Your line is open.

Wanted to start on the plant improvement initiatives you highlighted in your opening comments. Could you elaborate on a couple of the more impactful initiatives you're pursuing and help frame the upside you could achieve in production uplift or EBITDA expansion?

Sure. Hi, Derrick. So, a couple of things. First off, I want to point out that we do have some seasonality in our production. Principally, colder weather in the first quarter, followed by drilling in the well fields during the second quarter, usually results in improvements in the third and fourth quarter. In terms of ongoing improvements, we have the operations group who has their training and improvements within the operations of the existing projects. That's resulting in improved efficiency, improved availability. And so combined with the inlet design capacity utilization improvements that we'll see coming out, we'll see increases in those areas as well. So a lot of that is just the team getting better at operating the projects and improving their capabilities. But, you know, importantly, working with the landfills to improve collection is one area that we've been focusing on significantly, putting in place technology that can improve gas collection, not just quantity of gas collected, but quality as well. And both the quantity and the quality is what we're starting to see some of the improvements coming out. We've put some of this improvement in place at two of our projects, and we expect to see this roll out across more of our fleet during the remainder of the year and into next year. So all of that. When it comes to some of the improvements, when you think about the overall capacity that we have of 9 million MMBtu of nameplate, you add, you know, 5% or 10% improvement on those combined with the from the collection of the gas to the improved availability and efficiency, you can understand how that can really have a significant impact on future results. And, you know, as Adam mentioned, that operating leverage that we have, most of that improvement will fall to the bottom line. So we're very excited about the opportunity and working really hard and diligently to bring it across the line.

And as my follow-up, and this is perhaps for you, Adam, I wanted to focus on the regulatory environment. Throughout earnings, we've heard some commentary from the larger refineries and AD companies on Set 3. And while we're clearly far from legislation, I would appreciate your views on what the RNG community would like to see in policy and what's achievable for growth of the RVO mandate and potential for the EPA to revisit eRINs.

Yes, thanks, Derrick. You're right, Set 3 is what people will be focused on over the balance of the year. Unclear on timing for when that proposed rule may come out. What we'd like to see is the EPA to acknowledge the potential for the use of RNG as a transportation fuel, listen to some of the industry estimates out there in terms of the potential for the adoption, current and incentivize growth in the cellulosic category, as is the law and mentioned in the statute. And we've been having discussions with the EPA and the interesting thing is I think there's a recognition amongst policymakers about how powerful a transition to natural gas for heavy-duty transportation could be to support not only this administration's goals, but really bipartisan goals to drive energy dominance and help keep inflation in check. And I think there's an acknowledgment that renewable natural gas can play a catalyst to help accelerate that use of economical nat gas at home and perhaps export more of the expensive oil that we're producing. And then you've got all those other investment and jobs and cleaner air benefits as well. So we're focused on educating the EPA on how to support additional RNG investment and acknowledging the adoption curve for natural gas vehicles.

And Adam, do you think we could revisit eRINs with this next legislation?

I feel like eRIN pathways might be a little tougher. I do feel like in our discussions, people are getting educated and understand the benefits of natural gas and renewable natural gas as a transportation fuel. eRINs, I'm not sure about. I'm not sure that we're going to get a lot of pathway discussions and Set Rule 3 of a focus on what to do about imported feedstocks. Again, everything we produce is domestically produced. We don't really have a horse in that race in what happens on the import side of things. I do feel like that's going to be a key focus to support domestically produced agricultural biofuels and have not heard a lot of talk about expanded pathways and new pathways just yet.

Thank you. And our next question is going to come from Matthew Blair with TPH. Your line is open.

So you maintained your 2026 guidance, which I think implies about $55 million to $70 million of EBITDA in the back half of the year versus the $40 million in the first half of the year. Is it fair to say this guide implies that both higher production as well as higher unit profitability? And if so, could you talk about the drivers and your overall level of confidence in each of those variables?

Yes, no, appreciate that. And I'd say a couple of things there. There's still some puts and takes on where we land in our EBITDA range side and where we're in pricing and the end of the year and that sort of thing. I will say that our confidence comes from, when you look at the second half versus the first half, we do anticipate our production growth to continue to ramp as we move through the year. You know, RIN pricing has been a little stronger in the second half versus the first half, and we've been participating along in the markets and production may trend towards the lower end of our original production guide and feel confident that given our financial discipline and what we're doing around some of those other items that will be in the guidance range that we provided in the beginning of the year.

And then we noticed that your operating expenses in RNG fuel improved a little bit quarter-over-quarter in Q2. Was there anything notable that called out there? And could you also provide an update on the Prince William virtual pipeline? Is that set to roll off either in Q3 or Q4 this year?

Yes, the virtual pipeline won't roll off in Q3 or Q4 this year. We are still rolling through the engineering of the permanent pipeline. We do feel like there are some opportunities to improve what we're doing on the virtual pipeline. And the operating expenses, I think we called out after our first quarter that the weather impacts, you know, did have not only some unplanned outages and some higher operating expenses associated with it, but that was what was driving a little bit of the second quarter versus the first quarter. And I would highlight again just what Jon was mentioning is the operating leverage in our business as well, where there is a meaningful contribution from additional MMBtu that we're able to process through our existing facilities. And, you know, operating leverage works the other way as well, where, you know, the vast majority of the costs are relatively fixed. So if you're looking at our operating costs on a per MMBtu basis, that's where there'll be some impact as well based on that operating leverage.

Thank you. And our next question is going to come from Ryan Pfingst with B. Riley. Your line is open.