Prepared remarks
Ladies and gentlemen, thank you for standing by. Welcome to OPAL Fuels' Second Quarter 2026 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. 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. With me today are Co-CEOs, Adam J. Comora and Jonathan Gilbert Maurer, as well as Kazi Kamrul Hasan, OPAL's Chief Financial Officer. OPAL Fuels released financial and operating results for the second quarter 2026 this morning, and those results are available on the Investor Relations section of our website at opalfuels.com. A 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 would 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 as 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 will then open the call for questions. So now I will turn the call over to Adam J. 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 wellfields. 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 have 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, give us 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 MMBtu 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, John, 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 in the 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 noncash 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. 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. During the first six months of the year, we invested more than $52 million in the RNG projects under construction, OPAL-owned fuel stations, and financed transformation initiatives while maintaining significant financial flexibility. We expect that available 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 growing opportunities 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 will turn the call back to John.
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 will now turn the call over to the operator for Q&A. Thank you all for your interest in OPAL Fuels.
Questions and answers
Thank you. And wait for your name to be announced. And to withdraw your call, please press *11 again. And our first question will come from Derrick Whitfield with Texas Capital. Your line is open.
Good morning, and thanks for your time.
Morning, Derek.
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 are pursuing? And help frame the upside you could achieve in production uplift or EBITDA expansion?
Sure. Hi, Derek. 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 wellfields during the second quarter, which usually results in improvements in the third and fourth quarter. In terms of ongoing improvements, we have the operations group who has continued their training and improvements within the operations of the existing projects. That is resulting in improved efficiency and improved availability, and combined with inlet design capacity utilization improvements that we will see coming out, we will 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, importantly, working with the landfills to improve collection is one area that we have been focusing on significantly—putting in place technology that can improve gas collection, not just quantity of gas collected, but quality as well. Both the quantity and the quality are what we are starting to see improvements from. We have put some of this improvement in place at two of our projects, and we expect to see this rollout across more of our fleet during the remainder of the year and into next year. When it comes to some of the improvements, when you think about the overall capacity that we have of 9 million MMBtu of nameplate and you add 5% or 10% improvement on those combined with improvements 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 as Adam mentioned, with the operating leverage that we have, most of that improvement will fall to the bottom line. So we are very excited about the opportunity and working really hard and diligently to bring it across the line.
Very helpful. Thanks, John. And as my follow-up—this is perhaps for you, Adam—wanted to focus on the regulatory environment. Throughout earnings, we have heard some commentary from the larger refineries and ag companies on Set Rule 3. While we are clearly far from legislation, I would appreciate your views on what the community would like to see in the policy and what is achievable in growth of the RVO mandate and potential for the EPA to revisit eRINs?
Yeah, thanks, Derek. You are right. Set Rule 3 is what people will be focused on over the balance of the year. Timing for when that proposed rule may come out is a little unclear. What we would like to see is the EPA 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 curve, and incentivize growth in the cellulosic category as is the law mentioned in the statute. We have been having discussions with the EPA, and the interesting thing is I think there is a recognition among policymakers about how powerful a transition to gas for heavy-duty transportation could be to support not only this administration's goals but bipartisan goals to drive energy dominance and help keep inflation in check. I think there is an acknowledgment that renewable natural gas can be a catalyst to help accelerate that use of economical natural gas at home and potentially reduce reliance on imported oil. You also have the investment, jobs, and cleaner air benefits as well. So we are 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. In our discussions, people are getting educated and understand the benefits of natural gas and renewable natural gas as a transportation fuel. eRINs, I am not sure about; I am not sure we are going to get a lot of pathway discussions in Set Rule 3. I think there is more of a focus on what to do about imported feedstocks. Everything we produce is domestically produced, so we do not really have a horse in that race on the import side. I do feel like that is going to be a key focus—to support domestically produced agricultural biofuels. We have not heard a lot of talk about expanded pathways and new pathways just yet.
Terrific. Great update. Thanks, guys.
Thank you. And our next question is going to come from Matthew Blair with TPH. Your line is open.
Thanks, and good morning. So you maintained your 2026 guidance which I think implies about $55 to $70 million of EBITDA in the second half of the year versus the $40 million in the first half. Is it fair to say this guide implies both higher production as well as higher unit profitability? If so, could you talk about the drivers and your overall level of confidence in each of those variables?
Thank you. I would say a couple of things. There are still some puts and takes on where we land in our EBITDA range between a couple of things we are doing on the commercial side and where we are on RIN pricing at the end of the year. Our confidence comes from the fact that, 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. RIN pricing has been a little stronger in the second half versus the first half, and we have been participating in the markets. Production may trend towards the lower end of our original production guide, but given our financial discipline and what we are doing around some of those other items, we feel confident that we will be in the guidance range that we provided at the beginning of the year.
Sounds good. We noticed that your operating expenses in RNG fuel improved a little bit quarter over quarter in Q2. Was there anything notable to call 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?
The virtual pipeline will not roll off in Q3 or Q4 this year. We are still progressing through the engineering of the permanent pipeline. We do feel like there are opportunities to improve what we are doing on the virtual pipeline. Regarding the operating expenses, we called out after our first quarter that weather impacts did cause some unplanned outages and higher operating expenses associated with it, which was driving some of the difference between the first and second quarter. I would highlight again what John was mentioning: the operating leverage in our business. There is a meaningful contribution from additional MMBtu that we process through our existing facilities, and operating leverage works the other way as well, where the vast majority of the costs are relatively fixed. So if you look at our operating costs on a per-MMBtu basis, you will see some impact based on that operating leverage.
Sounds good. Thank you.
Thank you. And our next question is going to come from Ryan Pfingst with B. Riley. Your line is open.
Hey. Good morning, guys. Thanks for taking the questions. On renewable power plant conversions, can you just talk about the size of the candidate pipeline today? And can you remind us of any potential CapEx savings for a conversion project compared to something more greenfield?
Yeah, I will jump in. Hi, Ryan. In terms of magnitude, as we look at our renewable power portfolio, the CMS RNG project was a conversion from a renewable power project. As part of our Q2 actions, we did shut down one of the two power projects located there to make room for the construction. As we go about converting additional projects, there is not any particular capital cost savings that are available to us through that conversion. Instead, being on the site and knowing the gas collection and the trash-in-place gives us insight into what gas capability is possible from these projects. As we look further towards converting, we have probably three to five additional projects in our portfolio that we are looking at converting. I would say the next three or so that are top candidates would be over 4 million MMBtu of design capacity, and then some additional opportunities that we continue to advance could be another 1 to 2 million on top of that. So those are the opportunities that we see right now from that conversion. In addition to converting renewable power projects, there are continued opportunities with some of our landfill partners and other municipal entities to build out additional projects. We are pretty encouraged by what we see in our pipeline of growth going forward, and I think that will cover us for the next couple of years.
Appreciate that. And then just given the recent commentary from BP and Archaea, can you talk about what the market looks like from an M&A perspective and opportunities that you see for consolidation?
Yes. I did notice that news. I think they are really early in their process from what I can understand from what I have read so far. This industry still has a lot of room for consolidation, and there are a lot of renewable electricity projects that have not been developed or converted into RNG facilities. As we have said in the past, we really like what we are doing here at OPAL. We have a very good opportunity for organic growth within our own pipeline, driving new fleet demand. We are laser-focused on improving the asset utilization of our existing plants, which, when you do the math on operating leverage, requires minimal capital investments and is exciting for us. That is our primary focus. But we do have an eye on the market where one plus one can equal three, and, as our chairman likes to do that math, we will evaluate opportunities as they arise. We do expect continued consolidation and M&A activity in the industry.
Thank you. And the next question will come from Adam Bubes with Goldman Sachs. Your line is open.
Hi. Good morning. Looking at your production in the quarter of around 1.3 million MMBtu, if I just divide that by your nameplate capacity, it is somewhere in the high 50% range. How are you thinking about the timing of how utilization scales with these newer plants over time and particularly in light of some of the production initiatives you spoke to?
This is Adam. Let me be clear: we are not satisfied with where we are currently in terms of production from our existing facilities, and we have concrete plans to improve them. As far as cadence and how quickly you realize that and how quickly it flows through, it takes a little time on the front end to install some technology and coordinate with the landfill owners. I think you get the most meaningful impact from gas collection and gas quality improvement plans that you put in place, and across our portfolio there may be a single or a couple of assets that drive improvement across the entire portfolio. We try to roll those out as quickly as we can. We anticipate starting to see those improvements in the back half of the year, and we are trying to accelerate them as quickly as possible. We will report back on how successful they are and how quickly they ramp.
Great. And then can you update us on your forward contract arrangements? What percent of D3 RIN contracts are locked in for 2026? How early would you be able to start entering forward contracts for 2027? How do you think about puts and takes between locking in 2027 prices versus leaving some flexibility in the spot market?
Historically, we have seen trading open up in any material manner sometime in the fourth quarter, so we have not seen a lot of volumes being traded yet for 2027. We do not talk too granularly about how much of our 2026 book is sold versus remaining. We are still one of the larger participants in the market and have been participating and will continue to do so. I would say 2027 RIN prices will also be impacted by what happens in volumes in 2028 and 2029, and we are cautiously optimistic about 2028 and 2029 volumes as policymakers consider Set Rule 3 and the potential growth that could follow.
Thank you. And our next question comes from Richard DeDios with UBS. Your line is open.
Hi. Thanks for taking our question. Focusing on the guide, can you rank the biggest factors that determine whether you land at the midpoint versus the upper end of the range? I know you mentioned the commercial side and RIN pricing. Can you dive deeper into what may help in landing towards the upper end?
It would really be driven by production and RIN pricing. To hit the upper end of the guide, we would probably need to see stronger production growth and stronger RIN pricing than is currently in the market.
I just want to add that there are multiple levers we work with. We are expecting higher production, and we are also very keenly managing production costs and operating cost and, to some extent, SG&A going forward. So there are a number of levers in addition to our downstream construction and dispensing portfolio. A number of levers will contribute to hitting the upper end.
Alright. Thank you for the color. Focusing on the project front, within your projects, what would you say is the biggest execution risk to date? Is it permitting, equipment, etc.? If you could share, that would be helpful.
On our existing and construction projects, once we release a contractor, which we have done for all of our projects, the risks are substantially transferred to those contractors. While there is no certainty, I think the front-end risks of permitting, geotech, and getting pipeline and electrical interconnections are substantially reduced. We still have pipeline interconnection risk on a couple of our projects, notably CMS, but we have backup virtual pipeline interconnections for that, so it will not affect timing. That virtual pipeline interconnection will be temporary with a time constraint. When we look at Cottonwood, Burlington, and CMS all coming online in the first half or into the middle part for CMS of 2027, those construction time frames are holding well. Having released the EPC contractor for Grady Road and Stones Throw on June 1st, as we announced, we think those timing factors are pretty well locked in as well. So we see timing holding for the projects we have in construction.
We have now gone through the first phase of construction and commissioning OPAL 1.0, if you want to call it that, so we have good visibility on the timing of the in-construction projects.
Thank you. I am showing no further questions at this time. I will now turn it back over for closing remarks.
We appreciate everybody logging in here today and appreciate your interest in OPAL Fuels. Hope everybody has a good rest of the day. Thanks, everybody.
This concludes today's conference call. Thank you for participating, and you may now disconnect.