Opal Fuels (OPAL) Q4 2024 Earnings Call March 14, 2025 11:00 AM ET Company Participants Todd Firestone - Vice President of Investor Relations & Corporate DevelopmentAdam Comora - Co-Chief Executive OfficerJonathan Maurer - Co-Chief Executive OfficerKazi Hasan - CFODerrick Whitfield - Managing DirectorMatthew Blair - Managing DirectorAdam Bubes - Vice President, Equity ResearchBetty Zhang - Associate Director - Equity Research Conference Call Participants Thomas Meric - Director - Equity Research AnalystRyan ...

Financial Performance - OPAL Fuels Inc. reported a quarterly loss of $0.05 per share, significantly missing the Zacks Consensus Estimate of $0.44, and down from earnings of $0.11 per share a year ago, representing an earnings surprise of -111.36% [1] - The company posted revenues of $80.02 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 13.32%, and down from $87.01 million in the same quarter last year [2] - Over the last four quarters, OPAL Fuels has surpassed consensus EPS estimates only once and has not beaten consensus revenue estimates during this period [2] Stock Performance - OPAL Fuels shares have declined approximately 31% since the beginning of the year, contrasting with the S&P 500's decline of -4.8% [3] - The company's current consensus EPS estimate for the upcoming quarter is $0.62 on revenues of $84 million, and for the current fiscal year, it is $1.58 on revenues of $388.23 million [7] Industry Outlook - The Alternative Energy - Other industry, to which OPAL Fuels belongs, is currently ranked in the top 27% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact OPAL Fuels' stock performance [5][6]

Earnings Report - OPAL Fuels Inc. will report its earnings results for the twelve months ended December 31, 2024, after the market closes on March 13, 2025[6] - The earnings conference call is scheduled for March 14, 2025, at 11:00 AM Eastern Daylight Time[6] Company Classification - The company is classified as an emerging growth company under the Securities Act of 1933[4]

Core Viewpoint - OPAL Fuels Inc. (OPAL) has shown a downtrend recently, losing 5.7% over the past two weeks, but a hammer chart pattern suggests a potential trend reversal as buying interest may be emerging to counteract selling pressure [1][2]. Technical Analysis - The hammer chart pattern indicates a possible bottoming out, suggesting that selling pressure may be subsiding, which is a bullish signal for the stock [2][4]. - A hammer pattern forms when there is a small candle body with a long lower wick, indicating that despite a downtrend, buyers are starting to emerge [3][4]. - The occurrence of a hammer pattern at the bottom of a downtrend signals that bears may be losing control, indicating a potential trend reversal [4]. Fundamental Analysis - There has been a positive trend in earnings estimate revisions for OPAL, which is a bullish indicator as it typically leads to price appreciation [6]. - The consensus EPS estimate for OPAL has increased by 37.7% over the last 30 days, reflecting strong agreement among analysts regarding the company's improved earnings potential [7]. - OPAL currently holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks, which historically indicates strong market outperformance [8].

Core Viewpoint - OPAL Fuels Inc. has experienced significant selling pressure, resulting in an 11.5% decline in stock price over the past four weeks, but analysts anticipate better earnings than previously expected, indicating potential for recovery [1]. Group 1: Technical Indicators - The stock is currently in oversold territory, with a Relative Strength Index (RSI) reading of 29.86, suggesting a possible reversal in trend [5]. - RSI is a momentum oscillator that helps identify whether a stock is overbought or oversold, with readings below 30 typically indicating an oversold condition [2][3]. Group 2: Fundamental Indicators - There has been a strong consensus among sell-side analysts to raise earnings estimates for OPAL, leading to a 37.7% increase in the consensus EPS estimate over the last 30 days, which often correlates with price appreciation [6]. - OPAL holds a Zacks Rank 1 (Strong Buy), placing it in the top 5% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, further supporting the potential for a turnaround [7].

Core Viewpoint - OPAL Fuels Inc. is experiencing a positive trend in earnings estimates, which is likely to drive its stock price higher [1][2]. Earnings Estimates - Current quarter earnings are projected at $0.44 per share, reflecting a 300% increase from the previous year [4]. - The Zacks Consensus Estimate for the current quarter has risen by 195.24% over the last 30 days, with one estimate increasing and no negative revisions [4]. - For the full year, earnings are expected to be $0.80 per share, indicating a 15.94% increase from the prior year [5]. - The consensus estimate for the current year has increased by 37.68%, with one estimate moving higher and no negative revisions [5]. Zacks Rank - OPAL Fuels Inc. holds a Zacks Rank 1 (Strong Buy) due to favorable estimate revisions, which historically correlate with stock performance [6]. - Stocks with Zacks Rank 1 and 2 have shown significant outperformance compared to the S&P 500 [6]. Stock Performance - OPAL Fuels Inc. shares have increased by 5.4% over the past four weeks, indicating investor confidence in its earnings growth prospects [7].

Core Viewpoint - OPAL Fuels Inc. has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [4][6]. - An increase in earnings estimates typically leads to higher fair value calculations by institutional investors, resulting in buying or selling pressure that affects stock prices [4]. Company Performance Indicators - OPAL Fuels Inc. is projected to earn $0.75 per share for the fiscal year ending December 2024, reflecting an 8.7% year-over-year increase [8]. - Over the past three months, the Zacks Consensus Estimate for OPAL has risen by 0.6%, indicating a positive trend in earnings expectations [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with only the top 20% receiving a 'Strong Buy' or 'Buy' rating [9][10]. - OPAL Fuels Inc.'s upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Group 1 - The focus is on private investors and former financial advisors who specialize in researching growth companies, particularly those with a market capitalization of up to $15 billion [1] - The articles will emphasize small companies that exhibit high growth potential and innovation capabilities, with a core focus on renewable energy and cutting-edge industrial innovation [1] Group 2 - The analysis is based on fundamental analysis and aims to provide insights into American and European companies [1] - The platform encourages open discussion and engagement from readers, promoting a respectful exchange of ideas [1]

Project Operations and Capacity - As of September 30, 2024, the company owned and operated 25 projects, including 10 RNG projects with a design capacity of 7.8 million MMBtus per year and 15 Renewable Power projects with a nameplate capacity of 105.8 MW per hour[185]. - The company is actively pursuing expansion of its RNG-generating capacity, with a portfolio of projects in construction and development, including six Renewable Power projects considered for conversion to RNG[185]. - The company has a total of 7,765,807 MMBtus of RNG projects in operation as of September 30, 2024[208]. - The company has 3,027,569 MMBtus of RNG projects currently under construction, with expected commercial operation dates in 2024 and 2025[208]. - The company's landfill RNG facility design capacity rose to 1.7 million MMBtus for the three months ended September 30, 2024, up from 1.0 million MMBtus in 2023, a 70% increase[204]. - The company expects inlet design capacity utilization to remain in the range of 75-85% over the next several years[204]. Revenue and Financial Performance - Total revenues for the three months ended September 30, 2024, reached $84.0 million, an increase of $12.9 million or 18% compared to $71.1 million in the same period of 2023[217]. - Revenue from RNG Fuel increased by $5.8 million or 29% for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to higher sales volumes and pricing of RINs and LCFSs[218]. - Revenue from Fuel Station Services increased by $8.1 million or 22% for the three months ended September 30, 2024, driven by higher volumes and pricing in RIN and LCFS services[219]. - Revenue from Renewable Power decreased by $0.9 million or 7% for the three months ended September 30, 2024, primarily due to the conversion of two facilities into RNG facilities[222]. - Operating income for the three months ended September 30, 2024, was $12.3 million, a significant increase of $8.7 million or 242% compared to $3.6 million in the same period of 2023[217]. - Net income for the three months ended September 30, 2024, was $17.1 million, a substantial increase of $16.9 million compared to $0.2 million in the same period of 2023[217]. - The company reported a net income attributable to Class A common stockholders of $2.4 million for the three months ended September 30, 2024, compared to a loss of $0.4 million in the same period of 2023[217]. Costs and Expenses - Total expenses for the three months ended September 30, 2024, were $71.7 million, an increase of $4.2 million or 6% compared to $67.5 million in the same period of 2023[217]. - Cost of sales from RNG Fuel increased by $1.7 million or 21% for the three months ended September 30, 2024, primarily due to the Prince William facility coming online[223]. - Cost of sales from Fuel Station Services increased by $1.7 million or 5% for the three months ended September 30, 2024, mainly due to higher dispensing fees[224]. - Cost of sales from Renewable Power decreased by $3.3 million, or 30%, for the three months ended September 30, 2024 compared to the same period in 2023[225]. - Project development and startup costs increased by $5.8 million, or 598%, for the three months ended September 30, 2024 compared to the same period in 2023[227]. - Interest and financing expenses, net increased by $2.1 million, or 74%, for the three months ended September 30, 2024 compared to the same period in 2023[228]. Cash Flow and Capital Expenditures - Net cash provided by operating activities for the nine months ended September 30, 2024 was $31.9 million, an increase of $27.1 million compared to the same period in 2023[239]. - Net cash used in investing activities for the nine months ended September 30, 2024 was $86.5 million, an increase of $41.6 million compared to the same period in 2023[240]. - Net cash provided by financing activities for the nine months ended September 30, 2024 was $31.6 million, an increase of $47.1 million compared to the net cash used in financing activities for the same period in 2023[241]. - The company anticipates spending approximately $208.8 million in capital expenditures over the next 12 months for projects and fuel stations currently under construction[242]. - The capital expenditures primarily relate to the development and construction of new renewable energy facilities and the purchase of equipment for Fueling Station services and Renewable Power operations[242]. Regulatory and Market Influences - Demand for the company's RNG and associated Environmental Attributes is influenced by U.S. federal and state energy regulations, with transportation generating approximately 30% of overall CO₂ emissions in the U.S.[190]. - The company anticipates that regulatory changes in the European Union regarding ISCC Carbon Credits will lead to the termination of contracts governing sales of these credits by November 21, 2024[190]. - The Inflation Reduction Act, signed into law in August 2022, invests nearly $369 billion in energy and climate policies, which is viewed as favorable for the renewable energy industry, although uncertainties remain regarding its applicability to the company's projects[194]. - The company has completed applications for registration under the Biogas Regulatory Reform Rule, which requires compliance by January 1, 2025, for RIN generation from biogas[193]. - The company is exposed to commodity prices of natural gas and diesel, which can impact the demand for RNG[190]. Customer Concentration - Customer A accounted for 43% of consolidated revenues for the three months ended September 30, 2024, up from 24% in 2023[202].

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2024 was approximately $31 million, an increase from $16.5 million in Q3 2023, driven by contributions from the Prince William project and environmental credit sales [10][24] - Revenue for Q3 2024 was $84 million, compared to $71.1 million in Q3 2023, primarily due to increased production and environmental credit sales [22] - Net income for Q3 2024 was $17.1 million, significantly up from $0.2 million in Q3 2023, attributed to growth in fuel station services and the sale of investment tax credits [23] Business Line Data and Key Metrics Changes - RNG production increased to 1 million MMBtus in Q3 2024, a 40% year-over-year increase from 0.7 million MMBtus in Q3 2023 [21][18] - RNG fuel segment revenue was $25.9 million in Q3 2024, up from $20.1 million in Q3 2023, mainly due to the addition of the Prince William RNG facility [26] - Fuel station services segment revenue rose to $45.4 million in Q3 2024 from $37.3 million in Q3 2023, driven by increased RNG marketing fees and construction services [26] Market Data and Key Metrics Changes - The company has increased its share of nameplate design capacity in operation to 8.8 million MMBtus, up by 3.6 million MMBtus this year [9] - The company is currently constructing 6 projects, representing 2.6 million MMBtus of annual design capacity, in addition to the 11 operating projects [19] Company Strategy and Development Direction - The company aims to leverage its vertically integrated business model to maximize the value of RNG and gain market share [8] - OPAL Fuels is focused on developing new RNG projects and has recently commissioned the Sapphire and Polk projects, enhancing its operational capacity [9][11] - The company is optimistic about the potential for renewable power and baseload green electricity, particularly in light of increasing electricity demand [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting growth objectives and maintaining current guidance for 2024, citing strong visibility on full-year results [11][29] - The management believes that the election results will not negatively impact the RNG industry and may even provide opportunities for growth in fuel station services and renewable power [41][43] Other Important Information - The company reported the first monetization of ITC credits in Q3 2024, generating net cash proceeds of $8.6 million [12] - As of September 30, 2024, the company had liquidity of $285.3 million, consisting of $254.3 million in credit facility availability and $31 million in cash and equivalents [28] Q&A Session Summary Question: Risks to D3 RVO and ITC from election results - Management believes there is bipartisan support for strong D3 volumes and that the RNG industry will continue to receive support regardless of political changes [34][36] Question: Forward sales of RINs - All RINs for 2024 have been sold forward, locking in prices at the time of sale [45][46] Question: Voluntary markets and hyperscalers - The company sees potential in the voluntary markets and is optimistic about eRIN policies for renewable electricity [50][52] Question: M&A activity under new administration - Management is actively looking for M&A opportunities and believes the environment is favorable for consolidation in the industry [61][64] Question: Impact of Cummins' natural gas engine production - The company is excited about the potential for natural gas in heavy-duty trucking and is seeing increased customer interest [65][66] Question: LCFS market update - Management noted that while they primarily focus on RINs, improvements in LCFS pricing could benefit their downstream business [82][85] Question: RIN share dynamics - The company has observed a tightening of the dispensing market, leading to increased RNG marketing fees [88] Question: ITC monetization for next year - The company plans to continue monetizing ITC credits as more projects come online, with credits typically being 30% to 40% of CapEx costs [91][92] Question: Economics of 100% equity projects - Management indicated that while smaller projects have different economics, they are pleased with the performance of their 100% owned projects [98] Question: 2025 D3 RIN market outlook - Management expects prices for 2025 RINs to strengthen around the $3 mark as the year progresses [101][102]