OPAL Fuels Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 14, 2025

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Opel Fuels Fourth Quarter twenty twenty four Earnings Call and Webcast. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer To ask a question during this session, you will need to press 11 on your telephone. You will then hear automated message advising your hand is raised. To withdraw your question, please press 11 again.

Operator

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.

Speaker 1

Thank you, and good morning, everyone. Welcome to the Opel Fuels fourth quarter and full year twenty twenty four earnings conference call. With me today are Co CEOs, Adam Mora and Jonathan Mora and Kaze San, Opel's Chief Financial Officer. Opel Fuels released financial and operating results for the fourth quarter and full year twenty twenty four yesterday afternoon. Those results are available on the Investor Relations section of our website at opaltools.com.

Speaker 1

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 ninety 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 two and three of our presentation.

Speaker 1

These forward looking statements reflect our views as of the date of this call and Noble 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 certain discussion of 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. John will then give a commercial and business development update, after which Kazi will review financial results.

Speaker 1

We'll then open the call for questions. And now I'll turn the call over to Adam Quorum, Co CEO of Opal Fuels.

Speaker 2

Thank you, Todd, and good morning, everyone, and thank you for participating in Opal Fuels' fourth quarter and full year twenty twenty four earnings call. Twenty twenty four was a strong year for Opel Fuels that showcased our disciplined execution across our business segments and the strength of our vertically integrated platform, both key drivers of our market share gains across our segments. Results from the fourth quarter and full year were solid with 2024 adjusted EBITDA of 90,000,000 in line with our guidance. Our 2024 Fuel Station Service segment EBITDA was $40,200,000 70 6 percent higher versus 2023 and within the guidance we set out for the segment last March. RNG fuel production for 2024 was 3,800,000, up 41% versus 2023, but slightly behind guidance of 4,000,000 MMBtus.

Speaker 2

The shortfall is mainly due to longer ramp up timelines at our newly commissioned RNG facilities. John will go into greater detail in a few minutes of what we expect in 2025 from a production and operation standpoint.

Speaker 3

We brought online three large landfill RNG projects in 2024, totaling 3,800,000.0 MMBtus of annual design capacity. We commenced commercial operations at Prince William in

Speaker 2

the spring, then at Sapphire in the third quarter and finally at Polk in the fourth quarter. Since going public in 2022, we've gone from two operating landfill RNG facilities to 11 now. Over that period, we've more than tripled our annual design capacity in operation and more than doubled our production and adjusted EBITDA. Separately, we continue to MMBtus of annual design capacity into construction with the announced projects at Cottonwood, Burlington and Kirby, all three of which showcase our ability to grow organically through new development opportunities. Opal's growth continues to be driven by our execution in building and operating successful RNG projects and our vertical integration, which provides the most value for Opal and our feedstock partners.

Speaker 2

Of our 17 RNG projects that are in operation and construction, 12 have been the result of securing new gas rights over the past three years and five were a combination of acquisition and conversion of existing landfill gas to electric projects. We see growth of our RNG production base driven by continuation of such project opportunities. Our Fuel Station Service segment also had a solid year of execution, meeting our growth objectives for the year. We talk a lot about the strategic value of our downstream segment, but it is worth highlighting the attractiveness of the segment on a stand alone basis. The Fuel Station Service segment provides diversification, predictable cash flows, attractive returns on capital and a large and sustainable growth opportunity.

Speaker 2

Natural gas, a cheaper, cleaner alternative to diesel fuel for Class eight heavy duty fleets, is only fueling around 2% of that market in The U. S, an enormous opportunity to cost effectively decarbonize that sector as other technologies continue to struggle to meet the operational needs of those fleets. With the introduction of the 15 liter engine, we're optimistic fuel station services will be an increasingly important part of our capital allocation strategy. I'd like to mention some additions to our leadership team since our last call. We're excited that Qazi Hassan has joined as Chief Financial Officer of Opel Fuels.

Speaker 2

Qazi is an experienced leader who's already adding tremendous value to our team. I'd also like to thank Scott Contino, who served as our Interim Chief Financial Officer for over a year. Scott is the consummate professional and I know Fortistar will enjoy having his full attention now that Qazi has joined Opel. We also hired Daryl Burke as EVP of Biogas Operations in December. Daryl brings a wealth of operational experience from a long career at Koch Industries.

Speaker 2

We're fortunate to be able to fill these important leadership positions with a caliber of professionals like Qazi and Daryl and their impacts are already being felt throughout the organization. We expect 2025 will be another year of growth. Adjusted EBITDA is expected to range from $90,000,000 to $110,000,000 and is based on the 2025 RNG production guidance of 5,000,000 to 5,400,000 MMBtu, 30 percent to 40% higher versus 2024 at a RIN price assumption of $2.6 per RIN. This 2025 RIN price is approximately $0.5 per gallon below twenty twenty four's realized price. At last year's RIN price, our guidance would be approximately $30,000,000 higher.

Speaker 2

Every $0.1 shift in D3 RIN price equates to an approximate $5,000,000 to $6,000,000 impact on 2025 adjusted EBITDA. The 2025 adjusted EBITDA range includes Fuel Station Services adjusted EBITDA growth of 30% to 50% in 2025 versus 2024. However, our guidance excludes approximately $50,000,000 dollars of expected ITC sales in 2025 compared to the approximately $9,000,000 in 2024, which will contribute meaningfully to operating cash flow growth and earnings per share. In addition, our renewable power adjusted EBITDA is experiencing about a $10,000,000 decline in 2025 versus 2024 due to Europe no longer certifying U. S.

Speaker 2

Biogas for its regulatory programs. I also want to comment on the current regulatory environment and why we remain bullish on RNG as an American biofuel. RNG and renewable power from biogas are attractive sources of renewable energy because they are sourced from a stable and growing feedstock, are drop in fuels that use proven and cost effective technology. RNG is here today in heavy duty trucking and increasingly in marine fuel. RNG is an American biofuel that aligns quite well with other American liquid biofuels from the agricultural sector within the RFS and other potential public policies.

Speaker 2

With that, I'll turn it over to John. John?

Speaker 4

Thank you, Adam, and good morning, everyone. 2024 was a strong year for Opel Fuels. We're particularly pleased that we brought online three large landfill RNG projects. Prince William, Sapphire and Polk are significant achievements. In total, they represent 3,600,000.0 MMBtu of annual design capacity.

Speaker 4

Exiting 2024, we now have 11 RNG projects in operation, representing an annual design capacity of 8,800,000, up from 3,900,000.0 MMBtu at year end '20 '20 '2. This represents a 50% annualized growth rate over the last two years. As Adam mentioned, production results, while significantly higher than 2023, did not meet our expectations. Full year 2024 RNG production was 3,800,000. The 2024 RNG production was affected by slower ramp up of the newly online projects in the fourth quarter.

Speaker 4

As we move through the ramp up period from these to range between to range between 5,000,000 MMBtus to 5,400,000,

Speaker 3

which

Speaker 4

at the midpoint is a 37% increase versus 2024. Shifting gears to our landfill construction portfolio, we put three landfill RNG projects into construction in 2024 at Burlington, Cottonwood and Kirby representing in aggregate 1,800,000.0 MMBtu of annual design capacity. We now have a total of four landfill RNG projects in construction, representing 2,100,000.0 MMBtu of Opel's share of annual design capacity, including Atlantic, which we expect to commence commercial operation in the third quarter of this year. We have a robust development pipeline, including the four development projects we recently announced and conversion opportunities within our renewable power portfolio. We expect to place 2,000,000 MMBtu in construction in 2025.

Speaker 4

In fuel station services, we entered the year with a solid backlog of new stations with 47 in construction, of which 20 are Opal owned. As Adam mentioned, we expect to grow fuel station services 2025 adjusted EBITDA 30% to 50% compared with 2024. This growth continues to be driven by our successful track record building, operating and maintaining highly reliable stations, replicating a diesel like fueling experience without operational disruptions. With Opel Fuel's nationwide construction and service capabilities, we are in a strong position to partner with large scale fleets for natural gas vehicle deployment. We're happy with where we are positioned for 2025.

Speaker 4

Despite the near term volatility, longer term market fundamentals are supportive of our business plan and growth and we expect our disciplined execution will result in increasing shareholder value. With that, it is my pleasure to introduce Qazi Hassan, Opel Fuel's new Chief Financial Officer. Kazi will discuss the quarter's financial performance. Kazi?

Speaker 5

Thank you, John. Good morning to all the participants on today's call. Last night, we filed our earnings press release, which detailed our quarterly and annual results for the quarter and year ending 12/31/2024. Our 10 ks will be filed on Monday. Revenue and adjusted EBITDA in fourth quarter were $80,000,000 and $22,600,000 as compared to $87,000,000 and $32,000,000 in the same quarter in 2023, respectively.

Speaker 5

Net loss for the quarter was $5,400,000 as compared to net income of $20,100,000 in 2023. The main driver for the decrease in revenue, adjusted EBITDA and earnings was the timing and pricing of environmental credit sales compared to the fourth quarter of twenty twenty three. For the full year 2024, revenue, adjusted EBITDA and net income were $299,900,000 90 point 0 million dollars and $14,300,000 compared to $256,100,000 50 1 point 9 million million dollars and $127,000,000 in 2023. Primary reason for the decrease in net income for 2024 is related to a gain of $122,900,000 recognized related to the consolidation of Emerald and Sapphire in 2023. Included in the foregoing is Opal's share of adjusted EBITDA from equity method investments, which for the quarter was $4,200,000 as compared to $6,700,000 in the fourth quarter of twenty twenty three.

Speaker 5

And the full year 2024 was $24,900,000 versus $11,400,000 in 2023. The reduction in the fourth quarter is a combination of the timing of last year's RIN sales and the start up cost expense at new joint venture projects. Full year capital expenditures were $162,300,000 including $35,200,000 relating to equity method investments. I now want to shift gears to our 2025 guidance. Full year 2025 guidance, we expect the adjusted EBITDA to be between $90,000,000 and $110,000,000 and RNG production to range between $5,000,000 and 5,400,000.0 MMBtus.

Speaker 5

Our EBITDA guidance is based off the high and low range of our production forecast and assumes a 2.6 per gallon D3 ream price. As of 12/31/2024, our liquidity was $223,600,000 consisting of $178,400,000 of unused capacity under our $450,000,000 senior secured credit facility, $20,900,000 of unused capacity under the associated revolver and $24,300,000 of cash, cash equivalents and short term investments. In 2025, we expect approximately $50,000,000 of cash proceeds from ITC sales, bolstering both our earnings and operating cash flow to continue to fund our investments. As we disclosed in recent filings, we agreed to a twelve month extension of the drop period on the credit facility. Our liquidity, anticipated cash flows from operations are sufficient to meet our anticipated funding needs.

Speaker 5

As I conclude my first earnings call as CFO of Opalfields, I want to express how genuinely impressed I am by the extraordinary team we have in place, including our leadership team led by Adam and John. The team's proven ability to prudently execute our business plan combined with our disciplined and prudent approach to capital allocation positions us well to continue to capture and improve shareholder value. I'm truly glad to be part of the team and I look forward to meeting and collaborating with our investors. We will be scheduling an Investor Day later in the year and will reach out soon. I will now turn it back to John for concluding remarks.

Speaker 4

In closing, we are pleased with our 2024 results and are positioned well for continued disciplined execution of our strategic growth objectives. We remain committed to furthering Opel'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 displays fossil fuels and mitigate climate change. And with that, I'll turn the call over to the operator for Q and A. Thank you all for your continued interest in Opel Fuels.

Operator

Thank you. At this time, we'll conduct a question and answer session. And our first question comes from the line of Derek Whitfield of Texas Capital. Your line is now open.

Speaker 3

Good morning, all and thanks for taking my questions. For my first question, I wanted to focus on production guidance and evaluating your Q4 design capacity and expected contributions from projects to construction. It would appear that your guidance is quite conservative for the year. If we were to take design capacity in Q4 and assume some optimization to drop higher inlet gas volumes, maybe just speak to the trajectory that you guys would expect in Q1 and Q2 for metal lawn?

Speaker 2

Good morning, Derek. This is Adam here. I'll start and then maybe I'll hand it over to John. I think as we've explained and talked about in the past, we do expect increasing utilizations from our facilities. And as we build them, we're always building in that capacity for the increasing landfill gas volumes from the open landfills.

Speaker 2

And we see the year playing out with as we're moving through some of those ramp up issues sequential upticks throughout the year. And I'll pass it over to John to talk a little bit more about the cadence.

Speaker 4

So good morning, Derek. Again, we're going to see continued growth from same store sales as these open and growing landfills produce additional gas. As Adam said, the projects that we're building have a good amount of unused capacity. So what we'll see is that growth during the course of the year. One of the things that we have experienced and I expect is part of the Q4 and as we move into the 2025 is really the ramp rate that we see at projects.

Speaker 4

Ramp rate is a little bit uncertain when you get to a project. We look at kind of average ramp rates being a couple of months long, but sometimes a project will come right online and work out of the box. Sometimes a project might take a little bit longer to ramp up. We saw that in the fourth quarter with the Pulk And Sapphire projects taking a little bit longer than we expected. But as those projects really come to full capacity, we're actually seeing better results from them, particularly because the gas resource is somewhat higher than what we had projected or forecast.

Speaker 4

So we're really, I guess, optimistic about where we're seeing these projects and the cadence that we're going to see during the course of the year.

Speaker 3

Great. And maybe bigger picture for you guys, kind of from the fallout of BP's pivot and the waste management situation, we could see some material projects come to market this year. How are you guys thinking about the competitive landscape from a growth perspective? And how would you pursue those opportunities from a funding perspective if it became available?

Speaker 4

So, it's interesting that there were a number of portfolios that came to market over the course of the last year. The last one that really transacted was the Enbridge acquisition of the Morrow Renewables portfolio, which was $1,200,000,000 and really reaffirm the relative value of Opal Fuels. When we look at M and A, well, our first focus of course is execution on the opportunity set that we have in front of us. As we were saying before, we have a great set of projects, both from inside our portfolio that we're converting from our renewable power projects as well as from outside our portfolio that we're developing through the relationships that we're building with our landfill partners. So that's really our primary source of growth.

Speaker 4

But as we look across the industry at some of the opportunities we do participate and look at each of the opportunities that come across. And we believe that we have good access to capital for these opportunities and that should one of these come across like you said. When you mentioned BP's pivot, their pivot did not pivot away from RNG. It was really other renewables. So I'll just kind of point that out.

Speaker 4

But you're right, the WM portfolio and others were on the market and others will likely come to market during the course of this year and will be in there evaluating it and looking at the opportunities as they arise.

Speaker 2

And I'll just follow-up there real quickly, Derek. This is Adam again. One thing that we have shown over the last three years is our ability to grow by securing new gas rights and it's really driven by that ability to successfully bring online and operate those successful RNG projects and also our vertical integration to realize the most value for those molecules in transportation fuel. And I'd say that's continuing. So we think we're in a really good position to compete for new biogas rights projects.

Speaker 2

And again that successful execution also gives capital providers confidence in working with Opal fuel. So we feel like we're in a very strong position to compete for some of those new business opportunities.

Speaker 3

That's great. Thanks for your time.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matthew Blair of TPH. Your line is now open.

Speaker 6

Thank you and good morning. Adam, I think you mentioned ITC tailwind, but what about the PTC? Is there any 45Z number included in your 2025 guidance? And if not, what would it take for you to receive 45Z credits this year? And how much might that come to?

Speaker 2

Good morning. Thank you for the question. I'll let Qazi answer the question on what's in our guidance. And then I'm happy to talk about the process and how we see that playing out.

Speaker 5

Good morning, Matthew. In our low end of the guidance, we actually have a material amount of 45 Z. At the top of the guidance, we do include a expected value, which is not also that material, but we do have a little bit on the top end.

Speaker 2

Yes. And as far as how the process is playing out on 45Z, there was a proposed rule that is seeking final comments by April 10. We are supportive of them finalizing what was in that proposed rule. There are a few tweaks that will be in our comment letter that we think can improve some of the scoring and the value that could accrue to us. We're cautiously optimistic that 45Z will remain intact and hopeful that we'll get a little bit of an improvement in how they're doing some of that scoring and calculating that value.

Speaker 2

We think that we should get resolution of that shortly after the final comment period.

Speaker 6

Sounds good. And then could you elaborate a little bit more on the tightness in the dispensing market? It looks like the unit margins of your FSS segment have been moving up the past few quarters. I know there's plans to build. I believe it's 20 of your own stations, I guess this year, plus some what looks like third party stations as well.

Speaker 6

But yes, could you just elaborate a little bit more on the tightness you're seeing? And is that really a function of the new Cummins engine coming to market or are there other growth drivers as well?

Speaker 2

Yes. So a couple of things on our fuel station service segment. We're seeing good growth and good margin improvement across all the different contributors to our fuel station services. But certainly, an increasing amount of RNG through our dispensing network also benefits that segment. The tightness of the market in terms of dispensing has been occurring over the last twelve to eighteen months as RNG supply continues to grow faster than what the dispensing offtake market has been growing.

Speaker 2

And that certainly has been a result of a few things. One is the model changeover from the 12 liter engine to the 15 liter engine and a slightly slower adoption than what those folks in the industry have been looking for in terms of adoption of the 15 liter engine, both in terms of when OEMs have been incorporating that engine into their trucks, also driven by a little bit of confusing noise out of regulation where we had that Phase three truck regulations that was really causing fleets to pause in terms of purchasing combustion engines or thinking about combustion engines. Combustion engines or thinking about combustion engines. Clearly, the EPA has been quite active and most recently looked to remove that stipulation on combustion engines. So we think that may be an area where fleets may be more in tune to adopting RNG or natural gas engines.

Speaker 2

And so that dispensing market has been tightening and we do believe that there could be some acceleration in that 15 liter adoption now with some product availability, the removal of that Phase III truck regulation and we're still working on the cost of those vehicles and thinking about how to give some certainty around residual values of those trucks for the fleets.

Speaker 6

Great. Thanks for your comments.

Operator

Thank you, gentlemen. Our next question comes from the line of Thomas Merrick of Janney Montgomery Scott. Your line is now open.

Speaker 7

Good morning, gentlemen. Thanks for the time. A couple of questions on CapEx, kind of a multi part question here, but what are you seeing on equipment cost inflation at the moment? And then specifically as it relates to steel and aluminum tariffs, just can you help us think through the impact on the RNG build out like CapEx per MMBtu, if you feel like that's appropriate? And then on the fuel station service side, how do you see those tariffs impacting the CapEx of that build out?

Speaker 4

Sure. So this is John. I'll start on this one here. First off, when we enter into construction on a project, we commit to all the equipment major equipment right out of the gate so that we don't subject existing projects to the inflation or the tariffs or anything else. Second, all of our projects are qualifying for domestic content within the ITC rules.

Speaker 4

And so we don't really have a whole lot of exposure to foreign tariffs. We don't use a lot of aluminum in our projects and we use a little bit of structural steel. And so steel prices going up will have a small effect on pricing, but not tremendous. Overall, inflation compared to what we saw coming out of the COVID era is greatly tamed. I'll just reiterate that when we do put a project into construction, we're committing to it.

Speaker 4

So we see good opportunities that meet our hurdle, our IRR hurdles for projects. So that will continue to be able to put more projects into construction even in the current environment. So while it is a little choppy or volatile out there, We are seeing good opportunities and we continue to look at value engineering on our projects to keep the costs in control and making sure that our returns are solid there. I hope that answered your question.

Speaker 7

Yes, John. Thanks. I appreciate the detail there. One more on the EPA, just what's a reasonable timeline on resolution of the partial waiver? If you can kind of walk through Gantt chart of that, that would be helpful.

Speaker 7

And then I do just want to sneak in a third one, appreciate it. You have just on the power projects, is there an opportunity to recontract some of the PPAs over the next few quarters or do some of these PPAs run longer than that? Thanks.

Speaker 2

Yes. This is Adam here. We are advocating for resolution on that partial waiver as quickly as we can. It feels to me like the EPA in their actions a few days back, that was their first focus. I think they're turning their attention to RFS now.

Speaker 2

They had set a deadline in place also to come out with the next set rule in March. I don't think it's going to happen in March. We're hopeful that we could see it in the April, May timeframe. As it pertains to the partial waiver, they did come out on March 7 and extended the compliance deadline for 2024 compliance into the June timeframe and did not finalize that partial waiver down when they did that. So I'm not sure if we'll see that withdrawal of the partial or a potential withdrawal of the the partial waiver before they set rule or they'll do them both at the same time.

Speaker 2

But we do believe that EPA is now squarely focused on some of those RFS actions.

Speaker 4

And then with regard to the power projects, first off, obviously, our renewable power portfolio is a smaller contributor to our overall EBITDA. But within that portfolio, somewhat less than half of the projects are subject to merchant pricing, which gets set over periods of months or a year in some cases or two years in other cases, and that we've seen good strong merchant pricing supporting these. So that for the other part of our projects, when they roll off, we'll proactively enter into additional contracts and we'll set the terms of those based upon what we see in the market at the time, but good pricing and I think tailwinds on those merchant pricing. Adam, did you want to follow-up on one point?

Speaker 2

Yes. One thing I'd like to talk about for renewable power is, obviously it has not been a significant growth driver of Opel Fuels or a significant contributor to our overall EBITDA. And we still do spend money maintaining those facilities. And we really view that segment as some pretty interesting optionality, both on our existing portfolio operations plus a number of renewable power projects that we could develop. And at some point, given what people are talking about in terms of electricity demand in The U.

Speaker 2

S. And still trying to enhance grid stability, and we hear this all the time in D. C. Where folks are really focused on electricity prices and where's new electricity generation can come from. We think there's a significant opportunity in this country to capture the biogenic methane molecules from smaller landfills, wastewater treatment facilities, smaller ag sources of biogas emissions to create renewable electricity, which is stable baseload power and enhances grid stability.

Speaker 2

So initial focus right now is really making sure we get clarity and resolution in some of those RFS areas. But we do believe that electricity created from biogas is going to be something that folks are going to think make a lot of sense. And at some point, we think we're going to be talking about renewable power not only as incremental opportunity for our existing portfolio, but also a growth driver. And I wanted to circle back to the RFS question that you had on the partial waiver and also the upcoming set rule. I think it's really important where we feel like the energy transition space is all getting painted with the same brush here in the capital markets.

Speaker 2

And the reality is where we sit really aligns with what agricultural biofuels are seeking out of the EPA in terms of a strong and relatively stable cellulosic D3 category. It's pretty interesting to us that ethanol players are now participating in the cellulosic D3 category and they're doing it in a more meaningful way as we look out over the next twelve to eighteen months. And the renewable diesel producers, specifically those that create the renewable diesel from soybeans are also seeking similar things in terms of removing or withdrawing that retroactive partial waiver down of volumes and they would also like to see strong D3 volumes and perhaps an introduction a reintroduction to cellulosic waiver credit in the D5 mechanism, price cap mechanism.

Speaker 1

And it's

Speaker 2

we'll see how the next month or two play out on those key issues, but those could be material in terms of providing clarity to the D3 market.

Speaker 7

Well, thank you both for the thorough explanation. Appreciate it.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Adam Bubes of Goldman Sachs. Your line is now open.

Speaker 8

Hi, good morning. Nice to see the continued strong execution and outlook in the Fuel Station Services segment. Can you just parse out the moving pieces driving the 30% to 50% EBITDA growth outlook in that segment? Is that margin improvement, more dispensing volumes? Any color on the underlying drivers would be great.

Speaker 2

Yes. Appreciate the question there, Adam. It's a combination across the drivers of that segment. So just a quick reminder for folks, fuel station services generates revenues and EBITDA from constructing third party stations from a long term service contracts, which are good visible, tangible growth and dispensing volumes through our station network. And so we see the continuation of those both growing in terms of revenues and improving margins across that segment.

Speaker 2

So it's really a multi pronged revenue growth and margin improvement in that segment.

Speaker 8

And then can you help us think about the build up to the $2.60 D3 RIM price assumption for 2025? What percent of volume is locked in and at what price and what does that sort of imply that you're selling into the spot market for the year?

Speaker 2

Yes. No, I appreciate that question. So if you'll remember, one of the things we liked about a multi year set rule where you've got visibility on volumes over three years, We were always hopeful that you would start to see trading in a multiyear way and you could look out beyond just the current year in terms of how you would trade and transact your RINs. The market never fully developed into a three year strip or multi years on that, but we did start to see a little bit of trading in the out year RINs. So we did transact a small amount of our RINs in November started to in November of last year for twenty twenty five D3 RINs.

Speaker 2

And we have been moderately active here in the beginning part of the year. So our RIN price outlook is really a combination of what was sold forward a little bit and where we see the current market today. And that's how we arrived at our $2.6 written price for $20.25 dollars And I would go back to those other comments on the RFS. We're still cautiously optimistic that if we and the folks on the agricultural biofuels side are effective in our discussions and advocacy, we still could see prices and the market return to where they had been historically like previously over the last twelve to eighteen months.

Speaker 8

Great. And then last one for me. Nice to see the Atlantic project on track to commence operations in 3Q. Can you just update us on timing of the other three landfill gas projects, Burlington and the two with Waste Management?

Speaker 4

Sure. So as you pointed out, the Atlantic project is on track for the third quarter here and we're excited about the projects really shaping up well. The other projects are on track. As we move into 2026, we are looking at the first two, Cottonwood and Burlington in the first half of the year and then Kirby in the second half of the year. The Kirby project is being built out in California, and so it will be a little bit longer timeframe overall than the other projects, but we would look to see Kirby coming online towards the end of twenty twenty six.

Speaker 8

Great. Thanks so much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Ryan Fink at B. Riley.

Speaker 2

Can you talk about project development broadly and if you've seen a slowdown maybe in earlier stage discussions given some uncertainty related to federal incentives? Yes. So this is Adam here. No, I wouldn't say that there's been a slowdown in early development activity. We have a number of projects that we feel are actionable, close to actionable.

Speaker 2

It's really the same one off discussions whether or not we've got partnerships and documentation around whether they be partnership agreements or the biogas rights agreement. So I wouldn't say any federal policy or that sort of thing is slowing down those discussions. You have to remember, these the feedstock hosts are looking to move these things as quickly as they can as well, whether it's for their own environmental compliance where they're seeking to make sure that they have beneficial use of their biogenic methane emissions. They also recognize that there is value to those molecules in these renewable energy markets. So they're trying to move as quickly as we can.

Speaker 2

And we're not seeing a slowdown on the front end there. It's they're all idiosyncratic as you negotiate through documentation. Appreciate that, Adam. And secondly, I want to get a better understanding on how you're thinking about the toggle between growth and capital preservation today. At what point does it make sense to perhaps take your foot off the gas in order to let your operating assets generate free cash flow without meaningful ongoing growth CapEx?

Speaker 2

That is a terrific question and it's one that we discuss quite a bit. You have to remember that in our DNA here is disciplined capital allocation and making sure that we have terrific risk adjusted returns and you can be sure that the shareholders certainly appreciate that fact. And what I think we need to do a better job of explaining to investors is that we've built a free cash flow machine here. And at certain points, we do have that flexibility and ability to turn off the growth engine and just create we understand that we've got the ability to toggle and if it makes sense to and create that discretionary free cash flow, we're certainly going to do that. And the nice thing about our business model is that we do have that flexibility and that ability.

Speaker 2

And we look forward to potentially hosting an Analyst Day. Actually, we're going to host an Analyst Day. I'm looking over at Kazi here. He's been on the job for about a month. And maybe it will be in the third quarter that we'll target it.

Speaker 2

And we're going to do a much better job of explaining to folks what the free cash flow generation is at Opal Fuels and what the flexibilities we have to create, enhance, unlock shareholder value with that discretionary free cash flow. And perhaps talk a little bit about our earnings per share and what it looks like where we have significant income generated, which is not getting captured in adjusted EBITDA as well. So we understand we've got that toggle and flexibility. And at the same time, we've also got access to capital to continue to grow if those projects continue to look like they're good risk adjusted returns. So we're also in a little bit of a unique position.

Speaker 2

I talked about it earlier as a renewable fuel or energy company, feel like we're not getting differentiated. And at the same time, our capital availability and what we do with the discretionary free cash flow also provides us a lot of different opportunities. Great. Appreciate that detail.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Betty Jiang of Scotiabank. Your line is now open.

Speaker 9

Good morning. Thanks for taking my question. I wanted to ask about the mix between upstream and downstream. Just looking at your guidance for 2025 and assuming fuel station services kind of grows EBITDA by between 30% to 50% and your overall EBITDA guidance, it looks like fuel station services is growing to more than 50% of your overall EBITDA. Is this the right balance for Opal?

Speaker 9

That share has certainly increased over time. What how do you see that going forward?

Speaker 2

Yes. I just want to correct one thing there. I think from a segment EBITDA perspective, I don't think that that is maybe allocating out sort of corporate G and A and that sort of thing. And but you are right that Fuel Station Services segment EBITDA is growing faster than the rest of the company in 2025. And really RNG fuel is not growing as quickly this year, really from that RIN price assumption between $24,000,000 and $25,000,000 And of course, renewable power, we've highlighted, has that 10,000,000 decline in $2,025,000,000 dollars versus $2,024,000,000 dollars I'm going to let Kazi step in here as well.

Speaker 2

Yes.

Speaker 5

So just to clarify, going forward, what you said is 50% of the portfolio to fuel assist services it's not there yet. If you look at it is a growing portion, as Adam mentioned, but it's not still 50% of the total portfolio.

Speaker 9

Okay. Understood. And in the fourth quarter, I wanted to ask about RIN generation in the fuel station services segment. It seemed slightly lower than normal. I think it was only around 100,000 or so of RINs.

Speaker 9

Was there anything in particular there?

Speaker 2

I think we may have to get back to you on that 100,000 RIN generation in our fuel station services.

Speaker 5

Yes. I think that was going to be light.

Speaker 2

We're going to get back to you on that one.

Speaker 9

Okay. Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Matthew Blair of TPH. Your line is now open.

Speaker 6

Hi, thanks for taking my follow ups. Just two quick ones and apologies if I missed this, but is there a guide yet for 2025 CapEx? And then also how should we be thinking about your corporate spending in 2025? I believe in 2024, it was approximately a $46,000,000 headwind. Would that be pretty similar in 2025 or would that step up?

Speaker 6

Thank you.

Speaker 5

Let me take the CapEx one first. Hi, Matthew. We are not guiding the exact CapEx, but we are guiding through what we are going to put into the construction because the CapEx generally is more around sculpted payment to the contractors. That varies from one project to the next. So we are trying to give you an indication of where we are heading rather than a specific dollar amount.

Speaker 2

Yes. One thing we've noticed, which is actually a positive for Opal Fuels, is that our capital expenditures on our projects came a little bit later in the projects than when the projects came online, which actually enhance our returns and enhance our cash flow. So we don't think it's as impactful to talk about a specific year of CapEx just because of that factor. And although I've never heard corporate G and A referred to as a headwind or people as a headwind, which is interesting, I would say that our corporate G and A will be up in 2025 versus 2024 as we continue to add to the platform here at Opal Fuels.

Speaker 6

Great. Thank you very much.

Operator

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

Speaker 2

We appreciate your taking your time and interest in Opel Fuels and I hope everybody has a wonderful day.

Operator

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

Powered by Quartr
Earnings Conference Call
OPAL Fuels Q4 2024
00:00 / 00:00