OPAL Fuels Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. OPAL develops and operates renewable natural gas (RNG) and renewable power projects, and builds, services and operates natural-gas fueling stations.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $65.0 million | $43.0 million |
| Operating income (loss) | $3.6 million | $(10.6) million |
| Consolidated net income (loss) | $0.7 million | $(7.3) million |
| Net loss attributable to Class A common stockholders | $(0.3) million; $(0.01) per share | $(1.6) million; $(0.06) per share |
| Cash provided by operating activities | $13.7 million | $4.2 million |
| Cash used in investing activities | $21.6 million | $8.9 million |
| Cash used in financing activities | $6.6 million | $32.7 million |
Revenue increased 51%. RNG Fuel revenue rose 163% to $17.7 million and Fuel Station Services revenue rose 78% to $37.1 million, primarily on higher RIN/LCFS credit volumes and pricing, plus construction activity. Renewable Power revenue fell 34% to $10.1 million, reflecting lower electricity and environmental-attribute revenue, including project transitions to RNG. The filing reports no income tax expense in either period. The company does not present a consolidated gross-margin measure.
Cash, cash equivalents and restricted cash totaled $32.7 million at quarter-end, with another $6.0 million in short-term investments. Principal debt was $208.7 million: $186.6 million under the OPAL Term Loan and $22.1 million under the Sunoma Loan. Management reported $263.4 million of delayed-draw term-loan availability and $36.4 million of revolver availability, and compliance with OPAL Term Loan financial covenants. The company expects available resources to cover commitments for at least 12 months, while noting access to future capital is not assured.
Total assets were $750.5 million and total liabilities were $297.0 million at March 31, 2024. The balance sheet also includes $835.2 million of redeemable non-controlling and preferred interests and a stockholders’ deficit of $381.7 million. Cash, restricted cash and cash equivalents decreased $14.5 million during the quarter. Capital expenditures were $26.8 million; management anticipates approximately $189.6 million of capital expenditures over the next 12 months for projects under construction and equity-method project contributions.
Material changes and operating developments
- Operating results improved from a Q1 2023 operating loss to operating income, supported by revenue growth and $4.2 million of income from equity-method investments, versus $0.7 million a year earlier.
- Interest and financing expense rose to $4.0 million from $0.6 million, mainly due to the OPAL Term Loan. The prior-year period also benefited from larger derivative fair-value gains: $3.9 million versus $0.4 million in Q1 2024.
- Landfill RNG volume produced increased to 0.8 million MMBtus from 0.6 million; renewable power utilization fell to 37% from 50%. The company reported eight operating RNG projects and 15 operating renewable-power projects at quarter-end.
- Construction in progress was $193.0 million. Management expected most projects then under construction to become operational in late 2024 or mid-2025. Prince William entered start-up operations in April 2024, after quarter-end.
- On March 12, 2024, Fortistar converted 71.5 million Class D shares into the same number of Class B shares. The filing says the conversion did not change Fortistar’s economic interest.
Outlook, risks and contingencies
- No specific revenue, earnings or cash-flow guidance is provided. Management’s liquidity statement and 12-month capital-expenditure estimate are expectations, not operating guidance.
- Results depend substantially on RIN and LCFS credit prices and volumes, renewable-energy incentives and regulations, natural-gas and electricity markets, feedstock availability, project execution and customer demand. Seasonality also affects RNG and renewable-power results.
- The company says proposed Treasury/IRS regulations could limit investment tax credits for some RNG equipment or costs, potentially affecting project economics and financing; final rules were pending.
- In a dispute concerning two Central Valley dairy RNG projects, the contractor sought approximately $28 million in total contract increases. OPAL disputes substantially all requests and has filed suit and initiated arbitration. The matter is at an early stage; the company says it cannot assess the likely outcome, timing or ultimate impact. Contractor performance is bonded, and the contracts require work to continue during the proceedings.
- Two customers accounted for 55% of Q1 revenue, and two accounted for 58% of quarter-end accounts receivable. Related-party NextEra generated substantial environmental-attribute revenue; the company is contractually committed to sell at least 90% of RNG-business environmental attributes under its agreement.
- Other notable items include $5.2 million of preferred-dividend payments reported in financing cash flows and a $3.2 million cost-of-sales adjustment to reduce environmental credits held for sale to lower of cost and net realizable value.
Key facts for investors to verify
- Whether RIN/LCFS pricing and volumes, major-customer concentration and the NextEra relationship remain supportive of revenue and cash generation.
- Timing, cost and commissioning progress for the construction portfolio, particularly the projects expected online in 2024–2025, and the basis for the $189.6 million capital-spending estimate.
- Available borrowing capacity, covenant compliance and the funding plan for capital needs, including the scheduled OPAL Term Loan maturity in 2028 and preferred-unit redemption rights that may become exercisable as early as November 2025.
- Developments in the Central Valley arbitration and any resulting cost, schedule or project impacts.
- Final investment-tax-credit regulations and any changes to renewable-fuel incentives, credit markets or other policies affecting project economics.