OPAL Fuels Inc. (“OPAL Fuels” or the “Company”) (Nasdaq: OPAL), a leading vertically integrated producer and distributor of renewable natural gas (RNG) and renewable electricity, today announced financial and operating results for the three and six months ended June 30, 2023.
“We continue to execute on our strategic and operational goals,” said Co-CEO Adam Comora. “In our RNG Fuel segment, production was in-line with our forecasted volumes. We continue to progress on our growth plans - completing construction, and now finalizing the commissioning of, our Emerald project, beginning construction of our newest RNG facility in Polk County, Florida and advancing our development pipeline.”
Comora continued, “Of note in the second quarter, the EPA released the final Set Rule of the Renewable Fuel Standard, strongly supporting cellulosic biofuels and validating our vertically integrated business model which delivers renewable natural gas as a transportation fuel. This support resulted in higher compliance targets of D3 RINs that must be purchased by obligated parties and extended the targets through 2025. These three-year targets give the industry a strong investment signal by providing market visibility of D3 RIN demand that should lead to less volatile pricing as well as the ability to sell production forward for multiple years.”
“There is continued policy alignment for the development, production, and distribution of renewable natural gas that is produced by collecting and processing harmful methane gas and using it to displace fossil fuels. The EPA’s finalized Set Rule, last year’s Inflation Reduction Act and the potential for an eRIN pathway provide continued tailwinds for the industry and especially for OPAL Fuels,” said Co-CEO Jonathan Maurer.
“Our second quarter results benefited from higher RIN prices and improved Adjusted EBITDA margins in our Fuel Station Services segment. As a result, we believe we are well positioned heading into the second half of 2023,” said Maurer.
Financial Highlights
- Revenues for the three and six months ended June 30, 2023, were $55.0 million and $98.0 million, up 3% and down 4%, in the first half of the year compared to the same periods last year. As disclosed in previous reporting, revenue was affected by our decision to defer environmental credit sales until after the EPA’s Set Rule was finalized. We anticipate greater revenue recognition during the second half of the year based on improved RIN prices as we begin to monetize these deferred volumes of RINs.
- Net income for the three and six months ended June 30, 2023, was $114.1 million and $106.7 million compared to net loss of $0.3 million and $4.8 million in the same period last year. Excluding the one-time gain on deconsolidation of Emerald and Sapphire, our Adjusted Net loss1 for the three and six months ended June 30, 2023 was $7.8 million and $15.1 million, respectively.
- Basic net income per share attributable to Class A common shareholders for the three and six months ended June 30, 2023, was $0.66 and $0.60, respectively. Excluding the one-time gain on the deconsolidation of our Emerald and Sapphire projects, Adjusted basic and diluted net loss1 attributable to Class A common shareholders was $0.06 and $0.12 per share, respectively.
- Adjusted EBITDA1 for the three and six months ended June 30, 2023, was $21.4 million and $30.1 million, up 92% and 97% compared to the same periods last year.
- At June 30, 2023, we had 11.0 million RINs and 0.2 million LCFS credits unsold and pending certification valued at $34.4 million compared to 8.1 million RINs and 0.1 million LCFS credits valued at $17.7 million on March 31, 2023. The increase this quarter of $16.4 million is included in Adjusted EBITDA for the three months ended June 30, 2023.
- We expect our full year 2023 Adjusted EBITDA guidance to be within our prior $85.0 to $95.0 million range assuming current RIN pricing levels. We anticipate that production will be at or modestly below the low end of prior guidance given the delays at Emerald and Prince William.
Consistent with previous disclosures, to better align current period costs of RNG production with the value of unsold environmental credits and environmental attributes associated with RNG pending certification, we include in Adjusted EBITDA our RNG pending certification and unsold credit inventory for the current period marked at quarter-end index prices.
Operational Highlights
- RNG produced was 0.6 million and 1.2 million MMBtu, for the three and six months ended June 30, 2023, an increase of 20% and 34% compared to the prior-year periods.
- RNG sold as transportation fuel was 11.0 million and 19.3 million GGEs, respectively, for the three and six months ended June 30, 2023, an increase of 53% and 45% compared to the prior-year periods.
- The Fuel Station Services segment sold, dispensed, and serviced an aggregate of 35.5 million and 67.9 million GGEs of transportation fuel for the three and six months ended June 30, 2023, an increase of 32% and 29% compared to the prior-year periods, respectively.
Construction Update
- The Polk County landfill RNG project, owned 100% by OPAL Fuels, started construction in June 2023 and we anticipate commercial operations beginning in the fourth quarter of 2024. This project represents approximately 1.1 million MMBtu of annual nameplate capacity.2
- The Emerald RNG project completed construction and will be added to our in-operation portfolio in the third quarter as commissioning is completed. This project represents approximately 1.3 million MMBtu of OPAL Fuels' 50% ownership share of annual nameplate capacity.3
- The Prince William RNG project is expected to commence commercial operations in the first quarter of 2024. This project represents approximately 1.7 million MMBtu of annual nameplate capacity which is owned 100% by OPAL Fuels.3
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1 These are non-GAAP measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures has been provided in the financial tables included in this press release. An explanation of these measures and how they are calculated are also included below under the heading “Non-GAAP Financial Measures."
2 Nameplate capacity is the annual design output for each facility and may not reflect actual production from the projects, which depends on many variables including, but not limited to, quantity and quality of the biogas, operational up-time of the facility, and actual productivity of the facility.
3 Represents OPAL Fuels' proportional share with respect to RNG projects owned with joint venture partners.
- The Sapphire RNG project is expected to commence commercial operations in the first half of 2024. This project represents approximately 800,000 MMBtu for OPAL Fuels’ 50% ownership share of annual nameplate capacity.3
- We have moved our Northeast landfill RNG conversion project back to our Advanced Development Pipeline.4 It is being considered as a landfill gas to electric project. This project represents approximately 0.3 million MMBtu of annual nameplate capacity.
- OPAL Fuels’ updated share of annual nameplate capacity for our six projects in construction is approximately 5.4 million MMBtu.
Development Update
- We remain on track to place at least 2.0 million MMBtu of RNG projects (representing OPAL Fuels’ proportional ownership) into construction in 2023.
- Our Advanced Development Pipeline comprises of 8.1 million MMBtu of feedstock biogas per year, adjusted for Polk moving to our In-Construction portfolio and our Northeast landfill project moving to our Advanced Development Pipeline.
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4 The Company's Advanced Development Pipeline ("ADP") comprises projects that have been qualified and are reasonably expected to be in construction within the next twelve to eighteen months. The MMBtu associated with these projects is presented as anticipated nameplate capacity. Anticipated nameplate capacity is the Company’s currently anticipated annual design output for each facility and may not reflect actual production from the projects, which depends on many variables including, but not limited to, quantity and quality of the biogas, operational up-time of the facility, and actual productivity of the facility.
RIN and LCFS Inventory Summary
Environmental Attributes for this table include unsold credits and associated credits for gas produced pending certification. The unaudited table below shows the impact to Adjusted EBITDA net of royalties, dispensing fees, and other associated costs assuming the unsold credits and environmental attributes associated with gas produced pending certification had been sold during the respective periods. The ultimate value realized will depend on the price at the time of sale which may be lower or higher than the quarter end price.
(in thousands of units) | March 31, 2023 | June 30, 2023 | ||||||||||||||
Environmental Attributes | RINs | LCFSs | RINs | LCFSs | ||||||||||||
Beginning balance | 3,428 | 111 | 8,074 | 126 | ||||||||||||
Add: produced during the period | 8,038 | 21 | 8,669 | 36 | ||||||||||||
Less: sold during the period | (3,392 | ) | (6 | ) | (5,719 | ) | (8 | ) | ||||||||
Net change in the period | 4,646 | 15 | 2,950 | 28 | ||||||||||||
Ending balance | 8,074 | 126 | 11,024 | 154 | ||||||||||||
Market price at the end of quarter | $ | 1.95 | $ | 70.00 | $ | 2.80 | $ | 76.00 | ||||||||
Total Value (RINs and LCFSs) | $ | 17,690 | $ | — | $ | 34,053 | $ | — | ||||||||
Adjusted EBITDA impact | $ | 10,263 | $ | — | $ | 16,363 | $ | — | ||||||||
Results of Operations
($ thousands of dollars) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | ||||||||||||||||
RNG Fuel | $ | 16,431 | $ | 16,459 | $ | 28,625 | $ | 31,508 | ||||||||
Fuel Station Services | 29,956 | 26,730 | 50,784 | 51,604 | ||||||||||||
Renewable Power | 8,655 | 10,028 | 18,590 | 19,152 | ||||||||||||
Total Revenue | $ | 55,042 | $ | 53,217 | $ | 97,999 | $ | 102,264 | ||||||||
Net income (loss) | $ | 114,050 | $ | (342 | ) | $ | 106,704 | $ | (4,809 | ) | ||||||
Adjusted EBITDA | ||||||||||||||||
RNG Fuel | $ | 23,124 | $ | 16,377 | $ | 37,764 | $ | 18,867 | ||||||||
Fuel Station Services | 7,707 | (2,960 | ) | 10,580 | 2,267 | |||||||||||
Renewable Power | 2,905 | 4,722 | 4,972 | 7,129 | ||||||||||||
Corporate | (12,292 | ) | (6,989 | ) | (23,215 | ) | (12,955 | ) | ||||||||
Consolidated Adjusted EBITDA | $ | 21,444 | $ | 11,150 | $ | 30,101 | $ | 15,308 | ||||||||
RNG Fuel volume produced (Million MMBtus) | 0.6 | 0.5 | 1.2 | 0.9 | ||||||||||||
RNG Fuel volume sold (Million GGEs) | 11.0 | 7.2 | 19.3 | 13.3 | ||||||||||||
Total volume delivered (Million GGEs) | 35.5 | 26.9 | 67.9 | 52.5 | ||||||||||||
Revenues for the three and six months ended June 30, 2023, were $55.0 million and $98.0 million, respectively, up 3% compared to the prior year quarter and down 4% compared to the six months ended June 30, 2022. Revenues were impacted by the Company’s decision to defer RIN sales at lower market prices prior to the release of EPA's Set Rule and updated RVO.
Net income for the three and six months ended June 30, 2023, was $114.1 million and $106.7 million compared to net loss of $0.3 million and $4.8 million in the prior-year periods. Net income for the second quarter of 2023 was impacted by the one-time gain of $122.9 million recorded on the deconsolidation of the Emerald and Sapphire RNG projects.
Adjusted EBITDA for the three and six months ended June 30, 2023, was $21.4 million and $30.1 million compared to $11.2 million and $15.3 million in the prior-year periods. The primary driver for the increase in Adjusted EBITDA is the improved performance in RNG Fuels and Fuel Station Services segments, which was offset by lower Renewable Power segment performance and higher general and administrative costs in the Corporate segment.
RNG Pending Certification and Unsold Environmental Credits
At June 30, 2023, the Company had unsold environmental credits and had produced RNG that was pending certification which, together represent approximately 11.0 million RINs and 0.2 million LCFS credits. Using quarter end prices of $2.80/gallon for D3 RINs and $76.00 for LCFS, the combined value of these Environmental Attributes is approximately $34 million.
Under generally accepted accounting principles (“GAAP”), the timing of revenue recognition for stand-alone RIN and LCFS sales contracts is tied to the delivery of the RIN and LCFS credits to our counterparties and not the production of the RIN and LCFS. To better align timing of revenues to when costs are recognized for the production of RNG in a current period, we also illustrate the value of that RNG and environmental credits held in inventory and pending certification as an adjustment to EBITDA in that period. For the second quarter of 2023, based on market prices as of June 30, 20235, Adjusted EBITDA includes an aggregate of $16.4 million that is anticipated to be generated from sales of RNG pending certification and unsold environmental credits.
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5 Using quarter end pricing of $2.80/gallon for D3 RINs and $76.0 per LCFS credits.
Segment Revenues
RNG Fuel
Revenue from RNG Fuel was $16.4 million, for the three months ended June 30, 2023, flat compared to the three months ended June 30, 2022.
Revenue from RNG Fuel was $28.6 million, a decrease of $2.9 million, or 9%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The decrease is primarily due to lower sales volume as the Company elected to defer sales of credits in the period along with lower pricing attained for environmental credits actually sold. Additionally, there was a decrease in brown gas revenues due to lower market pricing.
Fuel Station Services
Revenue from Fuel Station Services was $30.0 million an increase of $3.2 million, or 12%, for the second quarter of 2023 compared to the three months ended June 30, 2022. This is primarily due to an increase in construction revenues, RINs, LCFS and brown gas sales.
Revenue from Fuel Station Services was $50.8 million, a decrease of $0.8 million, or 2%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. This decrease was primarily attributable to the timing of work completed on fuel station construction projects and the effect of OPAL Fuels’ decision to hold back environmental credit sales. At June 30, 2023, the Company had a backlog of third-party construction contracts with related revenue of $43.1 million, which is anticipated to be recognized over the next 12 months as construction is completed.
Renewable Power
Revenue from Renewable Power was $8.7 million, $1.4 million lower for the three months ended June 30, 2023, compared to the second quarter 2022. This was primarily due to the end of life shutdown of one of our Renewable Power facilities in September 2022.
Revenue from Renewable Power was $18.6 million, $0.6 million lower for the six months ended June 30, 2023, compared to the prior year period. This was primarily due to the end of life shutdown of one of our Renewable Power facilities in September 2022.
Liquidity
As of June 30, 2023, liquidity was $44.1 million, consisting of Cash and cash equivalents of $27.1 million including Restricted cash of $5.5 million and $17.0 million in short-term investments maturing within 90 days. This compares to $181 million at March 31, 2023, consisting of $39.8 million of Cash and cash equivalents, including restricted cash of $6.6 million, $37 million in short-term investments, and availability of $105 million under a senior secured term loan facility. The primary driver of this reduction is attributed to the assignment of the term loan facility to Paragon as part of the deconsolidation6 of the Emerald and Sapphire projects. This also reflects a reduction of $11.9 million of cash that is now excluded from consolidated Cash and cash equivalents as a result of the deconsolidation.
Note, both the cash that was deconsolidated and the available funds under the facility remain available for these projects. Paragon was assigned the existing senior credit facility related to these projects with a two-year delayed term and maximum principal amount of $85.0 million and a debt reserve facility up to $10.0 million. There was no debt outstanding at the date of the assignment.
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6 In June, we disclosed the formation of Paragon RNG LLC, a company owned 50/50 between OPAL Fuels and GFL Environmental, which resulted in the deconsolidation of our Emerald and Sapphire RNG projects.
We believe that our liquidity, anticipated cash flows from operations, including the value of our unsold environmental credits, the value of environmental attributes associated with RNG pending certification, and our access to expected sources of capital will be sufficient to meet our existing funding needs. We continue to pursue additional funding for our Advanced Development Pipeline and streamlining our capital structure to include financing higher up in the capital structure and less financing on an individual project basis.
Capital Expenditures
During the six months ended June 30, 2023, OPAL Fuels invested $72.0 million across RNG projects in construction and OPAL Fuels owned fueling stations in construction as compared to $54.5 million as of the comparable period in 2022.
Earnings Call
A webcast to review OPAL Fuels’ Second Quarter 2023 results is being held tomorrow, August 10, 2023 at 11:00AM Eastern Time.
Materials to be discussed in the webcast will be available before the call on the Company's website.
Participants may access the call at https://edge.media-server.com/mmc/p/n7t8g8zs. Investors can also listen to a webcast of the presentation on the company’s Investor Relations website at https://investors.opalfuels.com/news-events/events-presentations.
Glossary of terms
“Environmental Attributes” refer to federal, state, and local government incentives in the United States, provided in the form of Renewable Identification Numbers, Renewable Energy Credits, Low Carbon Fuel Standard credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects that promote the use of renewable energy.
“GGE” refers to Gasoline gallon equivalent. The conversion ratio is 1MMBtu of natural gas equal to 7.74 GGE.
“LFG” refers to landfill gas.
“MMBtu” refers to British thermal units.
“Renewable Power” refers to electricity generated from renewable sources.
“RNG” refers to renewable natural gas.
“D3” refers to cellulosic biofuel with a 60% GHG reduction requirement.
“RIN” refers to Renewal Identification Numbers.
“EPA” refers to Environmental Protection Agency.
About OPAL Fuels Inc.
OPAL Fuels Inc. (Nasdaq: OPAL) is a leading vertically integrated producer and distributor of renewable electricity and renewable natural gas (RNG), a proven low-carbon energy source that is rapidly decarbonizing multiple sectors including the transportation and utility industries. OPAL Fuels delivers complete renewable solutions to customers and production partners. With a portfolio of 24 operating renewable fuel and renewable power projects, OPAL Fuels is positioned to advance the clean energy transition in support of renewable fuel for transportation, for utilities, for powering EV charging infrastructure, and by offering hydrogen fuel solutions. To learn more about OPAL Fuels and how it is leading the effort to capture North America’s harmful methane emissions and decarbonize the economy, please visit www.opalfuels.com.
Forward-Looking Statements
Certain statements in this communication may be considered forward-looking statements within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts and generally relate to future events or OPAL Fuels’ (the “Company”) future financial or other performance metrics. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “target,” “plan,” “expect,” or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are subject to risks a
