OPAL Fuels Inc. Class A Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, and good morning, everyone.

Welcome to the Opal Fuels second quarter 2026 earnings conference call. With me today are Co-CEOs Adam Comora and Jonathan Maurer, as well as Kazi Hasan, Opal's Chief Financial Officer. Opal Fuels released financial and operating results for the second quarter of 2026 this morning, and those results are available on the investor relations section of our website at opalfuels.com. The presentation and access to the webcast for this call are also available on 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, and actual results could differ materially from what is contained in such statements.

Several factors that could cause or contribute to such differences are described on slides 2 and 3 of our presentation. These forward-looking statements reflect our views of the date of this call, and Opal Fuels does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this call. Additionally, this call will contain 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 an overview of the quarter's results and recent highlights. John will then give a commercial and business development update. Afterwards, Kazi will review financial results. We'll then open the call for questions. 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 MMBtus, 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 John for some additional comments before Kazi reviews the financial performance.

Thank you, Adam, and 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 Stones 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 are 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 will now turn the call over to Kazi to discuss the quarter's financial performance.

Kazi? Thank you, Jonathan, 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 second quarter of 2025. Within 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, 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 second quarter of 2025. As we move into third quarter, we expect G&A to increase from the second quarter as certain professional services, organizational investments, and transformation initiatives normalize. These 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.