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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  _______________ to ____________

Commission File Number: 001-40272

OPAL FUELS INC.
(Exact name of registrant as specified in its charter)
Delaware
98-1578357
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One North Lexington Avenue, Suite 1450

White Plains, New York
10601
(Address of principal executive offices)
(Zip Code)
(914) 705-4000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareOPAL
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes     No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
                



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes        No  


As of August 11, 2023, a total of 27,694,332 shares of Class A common stock, par value $0.0001 per share, and 144,399,037 shares of Class D common stock, par value $0.0001 per share were issued and outstanding.
    




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. Words such as “estimates,” “projected,” “expects,” “estimated,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “would,” “future,” “propose,” “target,” “goal,” “objective,” “outlook” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside our control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include:
our ability to grow and manage growth profitably, maintain relationships with customers and suppliers and retain              key employees;
our success in retaining or recruiting, our principal officers, key employees or directors;
intense competition and competitive pressures from other companies in the industry in which we operate;
increased costs of, or delays in obtaining, key components or labor for the construction and completion of LFG and livestock waste projects that generate electricity and renewable natural gas (“RNG”), compressed natural gas (“CNG”) and hydrogen dispensing stations;
factors relating to our business, operations and financial performance, including market conditions and global and economic factors beyond our control;
macroeconomic conditions related to the global COVID-19 pandemic;
the reduction or elimination of government economic incentives to the renewable energy market;
factors associated with companies, such as us, that are engaged in the production and integration of RNG, including (i) anticipated trends, growth rates and challenges in those businesses and in the markets in which they operate (ii) contractual arrangements with, and the cooperation of, landfill and livestock biogas conversion project site owners and operators and operators, on which we operate our LFG and livestock waste projects that generate electricity and (iii) RNG prices for Environmental Attributes (as defined below), LCFS credits and other incentives;
the ability to identify, acquire, develop and operate renewable projects and fueling stations ("Fueling Stations");
our ability to issue equity or equity-linked securities or obtain or amend debt financing;
the demand for renewable energy not being sustained;
impacts of climate change, changing weather patterns and conditions and natural disasters; and
the effect of legal, tax and regulatory changes.
The forward-looking statements contained in this Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in this Form 10-Q and in our Annual Report on Form 10-K filed on March 29, 2023. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.



TABLE OF CONTENTS

PAGE
ITEM 3.




Part I - Financial Information

Item 1. Financial Statements
OPAL FUELS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except per share data)

June 30,
2023
December 31,
2022
(Unaudited)
Assets
Current assets:
Cash and cash equivalents (includes $906 and $12,506 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
$21,595 $40,394 
Accounts receivable, net (includes $846 and $966 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
26,821 31,083 
Accounts receivable, related party 12,421 
Restricted cash - current (includes $228 and $6,971 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
228 32,402 
Short term investments 16,955 64,976 
Fuel tax credits receivable3,213 4,144 
Contract assets12,513 9,771 
Parts inventory10,631 7,311 
Environmental credits held for sale (includes $29 and $0 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
4,184 1,674 
Prepaid expense and other current assets (includes $186 and $415 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
4,485 7,625 
Derivative financial assets, current portion365 182 
Total current assets100,990 211,983 
Capital spares3,056 3,443 
Property, plant, and equipment, net (includes $27,043 and $73,140 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
288,427 297,323 
Operating right-of-use assets11,441 11,744 
Investment in other entities202,409 51,765 
Note receivable - variable fee component2,101 1,942 
Derivative financial assets, non-current portion267 954 
Deferred financing costs 3,013 
Other long-term assets1,489 1,489 
Intangible assets, net1,854 2,167 
Restricted cash - non-current (includes $2,790 and $2,923 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
5,303 4,425 
Goodwill54,608 54,608 
Total assets$671,945 $644,856 
Liabilities and Equity
Current liabilities:
Accounts payable (includes $384 and $4,896 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
13,494 22,679 
Accounts payable, related party (includes $1,108 and $433 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
3,707 1,346 
Fuel tax credits payable2,624 3,320 
Accrued payroll7,107 8,979 
Accrued capital expenses (includes $0 and $7,821 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
8,864 11,922 
Accrued expenses and other current liabilities (includes $272 and $646 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
12,698 9,573 
1




Contract liabilities6,220 8,013 
Senior Secured Credit Facility - term loan, current portion, net of debt issuance costs 15,250 
Senior Secured Credit Facility - working capital facility, current portion 7,500 
OPAL Term Loan, current portion27,732 27,732 
Sunoma Loan, current portion (includes $1,169 and $380 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
1,169 380 
Convertible Note Payable29,671 28,528 
Municipality Loan 76 
Derivative financial liability, current portion 4,596 
Operating lease liabilities - current portion681 630 
Other current liabilities 1,085 
Asset retirement obligation, current portion1,296 1,296 
Total current liabilities115,263 152,905 
Asset retirement obligation, non-current portion5,165 4,960 
OPAL Term Loan63,210 66,600 
Sunoma Loan, net of debt issuance costs (includes $20,948 and $21,712 at June 30, 2023 and December 31, 2022, respectively, related to consolidated VIEs)
20,948 21,712 
Operating lease liabilities - non-current portion10,924 11,245 
Earn out liabilities4,153 8,790 
Other long-term liabilities856 825 
Total liabilities220,519 267,037 
Commitments and contingencies
Redeemable preferred non-controlling interests143,754 138,142 
Redeemable non-controlling interests1,068,274 1,013,833 
Stockholders' deficit
Class A common stock, $0.0001 par value, 340,000,000 shares authorized as of June 30, 2023; 29,330,115 and 29,477,766 shares, issued and outstanding at June 30, 2023 and December 31, 2022, respectively
3 3 
Class B common stock, $0.0001 par value, 160,000,000 shares authorized as of June 30, 2023; None issued and outstanding as of June 30, 2023 and December 31, 2022
  
Class C common stock, $0.0001 par value, 160,000,000 shares authorized as of June 30, 2023; None issued and outstanding as of June 30, 2023 and December 31, 2022
  
Class D common stock, $0.0001 par value, 160,000,000 shares authorized as of June 30, 2023; 144,399,037 and 144,399,037 shares issued and outstanding at June 30, 2023 and December 31, 2022
14 14 
Additional paid-in capital   
Accumulated deficit(749,912)(800,813)
Accumulated other comprehensive income4 195 
Class A common stock in treasury, at cost; 1,635,783 and 0 shares at June 30, 2023 and December 31, 2022, respectively
(11,614) 
Total Stockholders' deficit attributable to the Company(761,505)(800,601)
Non-redeemable non-controlling interests 903 26,445 
Total Stockholders' deficit(760,602)(774,156)
Total liabilities, Redeemable preferred non-controlling interests, Redeemable non-controlling interests and Stockholders' deficit $671,945 $644,856 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


2




OPAL FUELS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per unit data)
(Unaudited)
Three Months Ended June 30,Six Months Ended
June 30,
 2023202220232022
Revenues:
RNG fuel (includes revenues from related party of $9,412 and $12,765 for the three months ended June 30, 2023 and 2022, respectively; $14,127 and $20,845 for the six months ended June 30, 2023 and 2022, respectively)
$16,431 $16,459 $28,625 $31,508 
Fuel station services (includes revenues from related party of $2,440 and $4,027 for the three months ended June 30, 2023 and 2022, respectively; $3,933 and $8,843 for the six months ended June 30, 2023 and 2022, respectively)
29,956 26,730 50,784 51,604 
Renewable Power (includes revenues from related party of $1,747 and $1,243 for the three months ended June 30, 2023 and 2022, respectively; $3,274 and $2,269, for the six months ended June 30, 2023 and 2022, respectively)
8,655 10,028 18,590 19,152 
Total revenues55,042 53,217 97,999 102,264 
Operating expenses:
Cost of sales - RNG fuel7,884 8,457 15,407 16,171 
Cost of sales - Fuel station services27,476 23,630 47,768 43,293 
Cost of sales - Renewable Power8,761 7,540 17,139 15,948 
Selling, general, and administrative13,663 7,955 28,135 18,810 
Depreciation, amortization, and accretion3,628 3,325 7,195 6,721 
Total expenses61,412 50,907 115,644 100,943 
Operating (loss) income(6,370)2,310 (17,645)1,321 
Other (expense) income:
Interest and financing expense, net(956)(3,365)(1,597)(6,422)
Loss on debt extinguishment (1,895) (1,895) 
Change in fair value of derivative instruments, net1,160 92 5,093 328 
Other income123,109  123,041  
 (Loss) income from equity method investments(998)621 (293)(36)
Income (loss) before provision for income taxes114,050 (342)106,704 (4,809)
Provision for income taxes    
Net income (loss)114,050 (342)106,704 (4,809)
Net income (loss) attributable to redeemable non-controlling interests93,460 (1,803)85,227 (6,745)
Net loss attributable to non-redeemable non-controlling interests(183)(257)(480)(499)
Paid-in-kind preferred dividends (1)
2,849 1,718 5,612 2,435 
Net income attributable to Class A common stockholders$17,924 $ $16,345 $ 
Weighted average shares outstanding of Class A common stock:
Basic26,977,682  27,179,488  
Diluted27,248,639  27,556,700  
Per share amounts:
Basic (2)
$0.66 $ $0.60 $ 
Diluted (2)
$0.66 $ $0.59 $ 
3




(1) Paid-in-kind preferred dividend is allocated between redeemable non-controlling interests and Class A common stockholders based on their weighted average percentage of ownership. Please see Note.13 Redeemable non-controlling interests, redeemable preferred non-controlling interests and Stockholders' deficit for additional information.
(2) Income per share information has not been presented for the three and six months ended June 30, 2022 as it would not be meaningful to the users of these condensed consolidated financial statements,
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4







OPAL FUELS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income (loss)$114,050 $(342)$106,704 $(4,809)
Other comprehensive income (loss):
Effective portion of the cash flow hedge attributable to equity method investments109  109  
Reclassification adjustments included in earnings (1)
(1,147) (1,147) 
Net unrealized gain (loss) on cash flow hedges215  (141) 
Total comprehensive income (loss)113,227 (342)105,525 (4,809)
Net income (loss) attributable to Redeemable non-controlling interests95,851 (1,803)89,936 (6,745)
Other comprehensive loss attributable to Redeemable non-controlling interests(690) (989) 
Comprehensive loss attributable to non-redeemable non-controlling interests(183)(257)(480)(499)
Paid-in-kind preferred dividends458 1,718 903 2,435 
Comprehensive income attributable to Class A common stockholders$17,791 $ $16,155 $ 

(1) Represents the reclassification of the gain on termination of interest rate swaps on May 30, 2023. See Note 9 Derivative Financial Instruments for additional information. Additionally, there is $334 reclassification into earnings from our equity method investments.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


5




OPAL FUELS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NON-CONTROLLING INTEREST, REDEEMABLE PREFERRED NON-CONTROLLING INTEREST AND STOCKHOLDERS' (DEFICIT) EQUITY
(In thousands of U.S. dollars, except per unit data)
(Unaudited)
Class A common stockClass D common stockClass A common stock in treasuryMezzanine Equity
SharesAmountSharesAmountAdditional paid-in capitalAccumulated deficitOther comprehensive incomeNon-redeemable non-controlling interestsShares AmountTotal Stockholders' EquityRedeemable Preferred non-controlling interestsRedeemable non-controlling interests
December 31, 202229,477,766 $3 144,399,037 $14 $ $(800,813)$195 $26,445  $ $(774,156)$138,142 $1,013,833 
Net loss— — — — — (1,134)— (297)— — (1,431)— (5,915)
Other comprehensive loss— — — — — — (58)— — — (58)— (299)
Proceeds from non-redeemable non-controlling interest— — — — 1,722 — — 1,821 — — 3,543 — — 
Issuance of Class A common stock on warrant exchange 49,633 — — — 338 — — — — — 338 — — 
Cancellation of fractional shares on warrant exchange (26)— — — — — — — — — — — — 
Exercise of put option forward purchase contract - Meteora— — — — — — — — (1,635,783)(11,614)(11,614)— — 
Forfeiture of Class A common stock (197,258)— — — — — — — — — — — — 
Stock-based compensation— — — — 157 — — — — — 157 — 814 
Change in redemption value of Redeemable non-controlling interests— — — — (2,217)(5,503)— — — — (7,720)— 7,720 
Paid-in-kind preferred dividend— — — — — (445)— — — — (445)2,763 (2,318)
March 31, 202329,330,115 3 144,399,037 14  (807,895)137 27,969 (1,635,783)(11,614)(791,386)140,905 1,013,835 
Net income (loss)— — — — — 18,382 — (183)— — 18,199 — 95,851 
Other comprehensive loss— — — — — — (133)— — — (133)— (690)
Proceeds from non-redeemable non-controlling interest— — — — 1,234 — — 8,001 — — 9,235 — — 
Deconsolidation of entities (1)
— — — — (1,383)— — (34,662)— — (36,045)— — 
Distributions to non-redeemable non-controlling interests— — — — — — — (222)— — (222)— — 
Stock-based compensation— — — — 301 — — — — — 301 — 1,576 
Change in redemption value of Redeemable non-controlling interests— — — — (152)40,059 — — — — 39,907 — (39,907)
Paid-in-kind preferred dividend— — — — — (458)— — — — (458)2,849 (2,391)
June 30, 202329,330,115 $3 144,399,037 $14  $(749,912)$4 $903 (1,635,783)$(11,614)$(760,602)$143,754 $1,068,274 
6




(1) As of May 30, 2023, two of our RNG facilities, Emerald and Sapphire (defined below) were deconsolidated and accounted for under equity method as per ASC 323. Please see Note 4 Investment in Other entities and Note 12 Variable Interest Entities for additional information.


7





Class A common stockClass D common stockMezzanine Equity
SharesAmountSharesAmountAdditional paid-in capitalRetained earningsNon-redeemable non-controlling interestsTotal Stockholders' EquityRedeemable preferred non-controlling interestsRedeemable non-controlling interests
December 31, 2021 $ 144,399,037 $14 $ $ $1,188 $1,202 $30,210 $63,545 
Net loss— — — — — (242)(242)— (4,225)
Contributions from non-redeemable non-controlling interest`— — — — 5,738 5,738 — (95)
Amortization on payment to acquire non-redeemable noncontrolling interest— — — — — — — — — (91)
Contributions from redeemable preferred non-controlling interests— — — — — — — — 25,000 (267)
Paid-in-kind preferred dividend— — — — — 717 (717)
Stock-based compensation— — — — — 160 
March 31, 2022  144,399,037 14   6,684 6,698 55,927 58,310 
Net loss— — — — — — (257)(257)— (85)
Contributions from non-redeemable non-controlling interest— — — — — — 11,211 11,211 — 47 
Amortization on payment to acquire non-redeemable noncontrolling interest— — — — — — — — — (92)
Contributions from redeemable preferred non-controlling interests— — — — — — — — 75,000 — 
Paid-in-kind preferred dividend— — — — — — — — 1,718 (1,718)
Stock-based compensation— — — — — — — — — 160 
June 30, 2022 $ 144,399,037 $14 $ $ $17,638 $17,652 $132,645 $56,622 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8




OPAL FUELS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
Six Months Ended
June 30,
 20232022
Cash flows from operating activities:
Net income (loss)$106,704 $(4,809)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Income from equity method investments293 36 
Provision for bad debts492  
Amortization of operating right-of-use assets303 382 
Depreciation and amortization6,990 6,566 
Amortization of deferred financing costs795 898 
Loss on debt extinguishment1,895  
Loss on warrant exchange 338  
Gain on deconsolidation of VIEs(122,873) 
Accretion expense related to asset retirement obligation205 155 
Stock-based compensation2,848 320 
Paid-in-kind interest income(159)(454)
Change in fair value of Convertible Note Payable1,143 2,110 
Unrealized gain on derivative financial instruments(4,906)(18)
Changes in operating assets and liabilities, net of effects of businesses acquired:
Accounts receivable3,770 610 
Accounts receivable, related party12,421  
Fuel tax credits receivable931 1,257 
Capital spares387 (41)
Parts inventory(3,320)(3,255)
Environmental credits held for sale(2,510)(260)
Prepaid expense and other current assets3,121 (328)
Contract assets(2,742)(7,111)
Accounts payable1,257 (4,217)
Accounts payable, related party2,941 780 
Fuel tax credits payable(696)(1,295)
Accrued payroll(1,850)(3,242)
Accrued expenses 3,125 5,398 
Operating lease liabilities - current and non-current(270)(382)
Other current and non-current liabilities(1,054)251 
Contract liabilities(1,793)(2,626)
Net cash provided by (used in) operating activities7,786 (9,275)
Cash flows from investing activities:
Purchase of property, plant, and equipment(72,009)(54,461)
Proceeds from sale of short term investments48,021  
Deconsolidation of VIEs, net of cash(11,948) 
Distributions received from equity method investment7,756  
Net cash used in investing activities(28,180)(54,461)
Cash flows from financing activities:
Proceeds from Sunoma loan 1,046 
Proceeds from OPAL Term Loan10,000 15,000 
Cash paid for purchase of shares upon exercise of put option(16,391) 
Financing costs paid to other third parties (3,216)
Repayment of Senior Secured Credit Facility(22,750)(1,221)
Repayment of OPAL Term Loan(13,866)(6,444)
Repayment of Municipality loan(76)(105)
9




Proceeds from sale of non-redeemable non-controlling interest12,778 16,901 
Reimbursement of financing costs by joint venture partner 826  
Distribution to non-redeemable non-controlling interest(222) 
Proceeds from sale of non-controlling interest, related party 100,000 
Net cash (used in) provided by financing activities(29,701)121,961 
Net (decrease) increase in cash, restricted cash, and cash equivalents(50,095)58,225 
Cash, restricted cash, and cash equivalents, beginning of period77,221 42,054 
Cash, restricted cash, and cash equivalents, end of period$27,126 $100,279 
Supplemental disclosure of cash flow information
Interest paid, net of $3,785 and $0 capitalized, respectively
$1,507 $2,860 
Noncash investing and financing activities:
Paid-in-kind dividend on redeemable preferred non-controlling interests$5,612 $2,435 
Accrual for purchase of Property, plant and equipment included in Accounts payable and Accrued capital expenses$8,864 $20,096 
Right-of-use assets for finance leases as of January 1, 2022 included in Property, plant and equipment, net$ $801 
Lease liabilities for finance leases as of January 1, 2022 included in Accrued expenses and other current liabilities$ $316 
Lease liabilities for finance leases as of January 1, 2022 included in Other long-term liabilities$ $485 
Fair value of contingent consideration to redeem the non-controlling interest included in Other long-term liabilities$ $183 
Accrual for deferred financing costs included in Accrued expenses and other current liabilities$ $1,750 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

10



OPAL FUELS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Description of Business

OPAL Fuels Inc. (including its subsidiaries, the "Company", “OPAL,” “we,” “us” or “our”) is a renewable energy company specializing in the capture and conversion of biogas for the (i) production of RNG for use as a vehicle fuel for heavy and medium-duty trucking fleets, (ii) generation of Renewable Power for sale to utilities, (iii) generation and sale of Environmental Attributes associated with RNG and Renewable Power, and (iv) sales of RNG as pipeline quality natural gas. OPAL also designs, develops, constructs, operates and services Fueling Stations for trucking fleets across the country that use natural gas to displace diesel as their transportation fuel. The biogas conversion projects ("Biogas Conversion Projects") currently use landfill gas and dairy manure as the source of the biogas. In addition, we have recently begun implementing design, development, and construction services for hydrogen Fueling Stations, and we are pursuing opportunities to diversify our sources of biogas to other waste streams.
All amounts in these footnotes are presented in thousands of dollars except per share data.
COVID-19 Impact
In March 2020, the World Health Organization categorized the coronavirus disease 2019 ("COVID-19") as a pandemic and the President of the United States declared the COVID-19 outbreak as a national emergency. Management considered the impact of COVID-19 on the assumptions and estimates used and determined that, because the Company was deemed to be an essential business by the U.S. government and incurred neither layoffs of personnel nor a decline in its customer base or business operations. There was no material adverse impact on the Company's statement of position and result of operations as of, and for the three and six months ended June 30, 2023.
The future impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and its impact on our customers, all of which are uncertain and cannot be predicted.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") and includes the accounts of the Company and all other entities in which the Company has a controlling financial interest: Fortistar Methane 3 LLC (“FM3”), Fortistar Methane 4 LLC, Beacon RNG LLC (“Beacon”) Sunoma Holdings, LLC (“Sunoma”), New River LLC (“New River”), Reynolds NRG LLC (“Reynolds”), Central Valley LLC (“Central Valley”), Prince William RNG LLC (“Prince William”), Cottonwood RNG LLC, Polk County RNG LLC (“Polk County”), Fortistar Contracting LLC, Fortistar RNG LLC, and OPAL Fuel station services LLC (“Fuel station services”). The Company’s condensed consolidated financial statements include the assets and liabilities of these subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The non-controlling interest attributable to the Company's variable interest entities ("VIE") are presented as a separate component from the Stockholders' deficit in the condensed consolidated balance sheets and as a non-redeemable non-controlling interests in the condensed consolidated statements of changes in redeemable non-controlling interests, redeemable preferred non-controlling interests and Stockholders' deficit.
The accompanying condensed consolidated financial statements reflect the activities of the Company, its subsidiaries, and its equity method investments for the three and six months ended June 30, 2023 and 2022. Investments in unconsolidated entities in which the Company can influence the operating or financial decisions are accounted for under the equity method. On May 30, 2023, the Company together with a third-party environmental solutions company formed a new joint venture holding company Paragon LLC ("Paragon"). The Company owns 50% of ownership interest in Paragon. Concurrent to the formation of Paragon, the Company contributed its 50% ownership interests in Emerald and Sapphire to Paragon. Upon the execution of the above transaction, the Company reassessed its equity interests in Emerald and Sapphire under ASC 810, Consolidation and determined that the Company does not have a controlling financial interest in Paragon
11



under ASC 810 because the governance of the joint venture is driven by a board jointly controlled by the joint venture partner and OPAL equally and there are substantive participating rights held by the joint venture partner in the significant activities of Paragon. Prior to May 30, 2023, the Company consolidated these two entities in accordance with the variable interest entity model guidance under ASC 810, Consolidation.
As of June 30, 2023, the Company accounted for its ownership interests in Pine Bend RNG LLC ("Pine Bend"), Noble Road RNG LLC ("Noble Road"), Emerald RNG LLC (“Emerald”), Sapphire RNG LLC (“Sapphire”), Paragon RNG LLC ("Paragon") and GREP BTB Holdings LLC ("GREP") under the equity method.
As of December 31, 2022, the Company accounted for its ownership interests in Pine Bend RNG LLC ("Pine Bend"), Noble Road RNG LLC ("Noble Road") and GREP BTB Holdings LLC ("GREP") under the equity method. Please see Note 3. Investment in Other Entities, for additional information.
The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Certain information or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, it does not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The information herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 2022 Annual Report on Form 10-K, which was filed with SEC on March 30, 2023. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair statement of the financial position, operating results, and cash flows for the periods presented.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The significant estimates and assumptions of the Company include the residual value of the useful lives of our property, plant and equipment, the fair value of stock-based compensation, asset retirement obligations, the estimated losses on our trade receivables, percentage completion for revenue recognition, incremental borrowing rate for calculating the right-of-use assets and lease liabilities, the fair value of the Convertible Note Payable (as defined below), the impairment assessment of goodwill, the fair value of deconsolidated VIEs and the fair value of derivative instruments. Actual results could differ from those estimates.
The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.
Accounting Pronouncements adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses ("ASC 326"), with the objective of providing financial statement users information about the credit risk inherent in an entity’s financial statements as well as to explain management’s estimate of expected credit losses and the changes in the allowance for such losses. The accounting standard amends the current financial instrument impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses will result in more timely recognition of such losses. The Company adopted the accounting standard using the prospective transition approach as of January 1, 2023. The cumulative effect upon adoption was not material to our condensed consolidated financial statements.
The adoption of ASC 326 primarily impacted our trade receivables and the Note receivable - variable fee component recorded on our condensed consolidated balance sheet as of June 30, 2023. Upon adoption of ASC 326, the Company assessed collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considered historical collectability based on past due status and made judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also
12



considered customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. The carrying value of the Note receivable - variable fee component on the condensed consolidated balance sheet as of June 30, 2023 is based on discounted expected cash flows model which are adjusted on a quarterly basis. Therefore, the Company determined that the credit risk component is included in the carrying value at each reporting period. The adoption of ASC 326 did not have any material impact on our condensed consolidated financial statements.
The Company adopted ASC 842 "Leases" as of January 1, 2022 and evaluated all of its contracts and recorded right-of-use assets and corresponding lease liabilities on its consolidated balance sheet as of January 1, 2022. The Company adopted ASC 842 using the modified retrospective transition method of adoption. Under this method, the cumulative effect of applying the new lease standard is recorded with no restatement of any comparative prior periods presented. As provided by ASC 842, the Company elected to record the required cumulative effect adjustments to the opening balance sheet in the period of adoption rather than in the earliest comparative period presented. The Company retrospectively adjusted the financial statements as of and for the three and six months ended June 30, 2022 to reflect the adoption of ASC 842.
Accounting Pronouncements not yet adopted
In March 2023, the FASB issued Accounting Standards Update No. 2023-01, Leases (Topic 842) (the "Update"). The Update requires the entities to classify and account for a leasing arrangement between entities under common control on the same basis as an arrangement with an unrelated party. The Update also requires leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset and account for as a transfer between entities under common control through an adjustment to equity if and when the lessee no longer controls the use of the underlying asset. The amendments in this Update are effective for fiscal years beginning after December 15, 2023 including interim fiscal periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this Update on its condensed consolidated financial statements.
Emerging Growth Company Status
We are an emerging growth company as defined in the JOBS Act. The JOBS Act provides emerging growth companies with certain exemptions from public company reporting requirements for up to five fiscal years while a company remains an emerging growth company. As part of these exemptions, we need only provide two fiscal years of audited financial statements instead of three, we have reduced disclosure obligations such as for executive compensation, and we are not required to comply with auditor attestation requirements from Section 404(b) of the Sarbanes-Oxley Act regarding our internal control over financial reporting. Additionally, the JOBS Act has allowed us the option to delay adoption of new or revised financial accounting standards until private companies are required to comply with new or revised financial accounting standards.
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash consisted of the following as of June 30, 2023 and December 31, 2022:
June 30,
2023
December 31,
2022
Current assets:
Cash and cash equivalents$21,595 $40,394 
Restricted cash - current (1)
228 32,402 
Long-term assets:
Restricted cash held as collateral (2)
5,303 4,425 
Total cash, cash equivalents, and restricted cash$27,126 $77,221 
(1) Restricted cash - current as of June 30, 2023 primarily relates to interest reserve on the Sunoma Loan. Restricted cash - current as of December 31, 2022 primarily consists of (i) $16,849 held in escrow to secure the Company's purchase obligations under the forward purchase agreement with Meteora (ii) $5,845 equity contribution to a joint venture in connection with the closing of OPAL Term Loan II (iii) $1,127 relates to interest reserve on the Sunoma Loan and (iv)
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$8,581 held in a restricted account for funding one of our RNG projects. The decrease in the Restricted cash relates to termination of the forward purchase agreement with Meteora and funds spent on construction of our RNG facilities.
(2) Restricted cash held as collateral represents the collateral requirements on our debt facilities.
Short term investments
The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity greater than three months at the time of purchase to be short term investments. The short term investments of $16,955 and $64,976 as of June 30, 2023 and December 31, 2022, respectively, consists of cash invested in money market accounts with maturities ranging between 1 and 12 months as of the reporting date. The amounts in these money market accounts are liquid and available for general use.
Our short term investments are generally invested in commercial paper issued by highly credit worthy counter parties and government backed treasury bills. Investments are generally not FDIC insured and we take counter party risk on these investments.
Earnout Liabilities
In connection with the business combination completed in July 2022 and pursuant to a sponsor letter agreement, ArcLight CTC Holdings II, L.P. (the "Sponsor") agreed to subject 10% of its Class A common stock (received as a result of the conversion of its ArcLight Class B ordinary shares immediately prior to the closing) to vesting and forfeiture conditions relating to VWAP targets for the Company's Class A common stock sustained over a period of 60 months following the closing. OPAL Fuels equity holders are eligible to receive an aggregate of 10,000,000 shares of Class B and Class D common stock upon the Company achieving each earn-out event during the earn-out period. The earnout awards (the "Earnout Awards") were recognized at fair value on the closing date and classified as a liability which is remeasured at each balance sheet date and any change in fair value is recognized in the Company's condensed consolidated statement of operations as part of change in fair value of derivative instruments, net. For the three and six months ended June 30, 2023, the Company recorded a gain of $327 and $4,638 in its condensed consolidated statement of operations. As of June 30, 2023 and December 31, 2022, the Company recorded $4,153 and $8,790, respectively, on its condensed consolidated balance sheets.
Put option on forward purchase agreement
Prior to the closing of Business Combination, the Company entered into a forward purchase agreement with Meteora Capital Partners ("Meteora") pursuant to which Meteora agreed to purchase 2,000,000 shares of Class A common stock from shareholders who had previously tendered such shares for redemption but agreed to reverse their redemption and sell such shares to Meteora at the redemption price. The Company placed $20,040 in escrow at the closing of the Business Combination to secure its purchase obligation to repurchase these 2,000,000 shares at Meteora’s option for a price of $10.02 per share on the date that is six months after closing of the Business Combination. The put option written to Meteora on 2,000,000 shares of Class A common stock is recorded as a liability under Topic 480 Distinguishing Liabilities from Equity with the change in the fair market value recognized in the statement of operations as part of change in fair value of derivative instruments, net.
On January 23, 2023, pursuant to the terms of the forward purchase agreement, Meteora exercised its option to sell back 1,635,783 shares to the Company. $16,391 of the funds held in escrow which were previously recorded as part of Restricted Cash - current on its consolidated balance sheet as of December 31, 2022 were released to Meteora excluding interest accrued. In connection with the above, the Sponsor forfeited 197,258 shares of Class A common stock on January 26, 2023 pursuant to the terms of certain letter agreement dated July 21, 2022. The Company treated the repurchased shares as treasury shares and recorded $11,614 representing the fair value of those shares at the closing share price of $7.01 as an adjustment to Stockholders' deficit. Additionally, the Company recorded $4,777 as an offset to the Derivative financial liability - current in its condensed consolidated balance sheet as of June 30, 2023.
Redeemable non-controlling interests
Redeemable non-controlling interests represent the portion of OPAL Fuels that the Company controls and consolidates but does not own. The Redeemable non-controlling interest was created as a result of the Business Combination and represents 144,399,037 Class D Units issued by OPAL Fuels to the prior investors. The Company
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allocates net income or loss attributable to Redeemable non-controlling interest based on weighted average ownership interest during the period. The net income or loss attributable to Redeemable non-controlling interests is reflected in the condensed consolidated statement of operations.
At each balance sheet date, the mezzanine equity classified Redeemable non-controlling interests is adjusted up to their maximum redemption value if necessary, with an offset in Stockholders' equity. As of June 30, 2023, the maximum redemption value is $1,068,274.
Net income per share
The Company's basic earnings per share of Class A common stock is computed based on the average number of outstanding shares of Class A common stock for the period.
The Company's diluted earnings per share includes effects of the Company's outstanding equity awards under the 2022 Plan (as defined elsewhere in these financial statements), Redeemable non-controlling interests (OPAL Fuels Class B units), redeemable preferred non-controlling interests, Sponsor Earnout Awards and OPAL Earnout Awards.
Accounts Receivable, Net
The Company's allowance for doubtful accounts was $0 and $0 at June 30, 2023 and December 31, 2022.
Asset Retirement Obligation
The Company accounts for asset retirement obligations in accordance with FASB ASC 410, Asset Retirement and Environmental Obligations, which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and when a reasonable estimate of fair value can be made. The fair value of the estimated asset retirement obligations is recorded as a long-term liability, with a corresponding increase in the carrying amount of the related asset. The discounted asset retirement costs capitalized amounts are accreted over the life of the sublease or site lease agreement. Asset retirement obligations are deemed Level 3 fair value measurements as the inputs used to measure the fair value are unobservable. The Company estimates the fair value of asset retirement obligations by calculating the estimated present value of the cost to retire the asset. This estimate requires assumptions and judgments regarding the existence of liabilities, the amount and timing of cash outflows required to settle the liability, inflation factors, credit adjusted discount rates, and consideration of changes in legal, regulatory, environmental, and political environments. In addition, the Company determines the Level 3 fair value measurements based on historical information and current market conditions.
As of June 30, 2023 and December 31, 2022, the Company estimated the value of its total asset retirement obligations to be $6,461 and $6,256, respectively.
The changes in the asset retirement obligations were as follows as of June 30, 2023:
June 30,
2023
Balance, December 31, 2022 - Current and non-current $6,256 
Accretion expense205 
Total asset retirement obligation6,461 
Less: current portion(1,296)
Total asset retirement obligation, net of current portion$5,165 
Revenue Recognition
The Company’s revenue arrangements generally consist of a single performance obligation to transfer goods or services. Revenue from the sale of RNG, CNG and, electricity is recognized by applying the “right to invoice” practical expedient within the accounting guidance for Revenue from Contracts with Customers that allows for the recognition of revenue from performance obligations in the amount of consideration to which there is a right to invoice the customer and when the amount for which there is a right to invoice corresponds directly to the value transferred to the customer. For
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some public CNG Fueling Stations where there is no contract with the customer, the Company recognizes revenue at the point in time that the customer takes control of the fuel.
The Company also performs maintenance services throughout the country. Maintenance consists of monitoring equipment and replacing parts as necessary to ensure optimum performance. Revenue from service agreements is recognized over time as services are provided. Capacity payments fluctuate based on peak times of the year and revenues from capacity payments are recognized monthly as earned.
The Company has agreements with two natural gas producers ("Producers") to transport Producers' natural gas using the Company's RNG gathering system. The performance obligation is the delivery of Producers' natural gas to an agreed delivery point on an interstate gas pipeline. The quantity of natural gas transported for the Producers is measured at a certain specified meter. The price is fixed at contracted rates and the Producers pay approximately 30 days after month-end. As such, transportation sales are recognized over time, using the output method to measure progress.
The Company provides credit monetization services to customers that own renewable gas generation facilities. The Company recognizes revenue from these services as the credits are minted on behalf of the customer. The Company receives non-cash consideration in the form of RINs or LCFSs for providing these services and recognizes the RINs or LCFSs received as a current asset based on their estimated fair value at contract inception. When the Company receives RINs or LCFSs as payment for providing credit monetization services, it records the non-cash consideration in environmental credits held for sale within the condensed consolidated balance sheet based on the fair value of RINs or LCFSs at contract commencement.
On November 29, 2021, the Company entered into a purchase and sale agreement with NextEra for the Environmental Attributes generated by the RNG Fuels business. Under this agreement, the Company plans to sell a minimum of 90% of the Environmental Attributes generated and will receive net proceeds based on the agreed upon price less a specified discount. A specified volume of Environmental Attributes sold per quarter will incur a fee per Environmental Attribute in addition to the specified discount. The agreement was effective beginning January 1, 2022. For the three months ended June 30, 2023 and 2022, the Company earned net revenues after discount and fees of $11,852 and $16,792, respectively under this contract which was recorded as part of Revenues - RNG fuel and Fuel Station Services. For the six months ended June 30, 2023 and 2022, the Company earned net revenues after discount and fees of $18,060 and $29,688, respectively.
Sales of Environmental Attributes such as RINs, RECs, and LCFS are generally recorded as revenue when the certificates related to them are delivered to a buyer. However, the Company may recognize revenue from the sale of such Environmental Attributes at the time of the related RNG or renewable power sales when the contract provides that title to the Environmental Attributes transfers at the time of production, the Company's price to the buyer is fixed, and collection of the sales proceeds occurs within 60 days after generation of the renewable power.
Management operating fees are earned for the operation, maintenance, and repair of the gas collection system of a landfill site. Revenue is calculated on the volume of per million British thermal units of LFG collected and the megawatt hours ("MWhs") produced at that site. This revenue is recognized when LFG is collected and renewable power is delivered.
The Company has various fixed price contracts for the construction of Fueling Stations for customers. Revenues from these contracts, including change orders, are recognized over time, with progress measured by the percentage of costs incurred to date compared to estimated total costs for each contract. This method is used as management considers costs incurred to be the best available measure of progress on these contracts. Costs capitalized to fulfill certain contracts were not material in any of the periods presented.
The Company owns Fueling Stations for use by customers under fuel sale agreements. The Company bills these customers at an agreed upon price for each gallon sold and recognizes revenue based on the amounts invoiced in accordance with the "right to invoice" practical expedient. For some public stations where there is no contract with the customer, the Company recognizes revenue at the point-in-time that the customer takes control of the fuel.
The Company from time-to-time enters into fuel purchase agreements with customers whereby the Company is contracted to design and build a Fueling Station on the customer's property in exchange for the Company providing CNG/RNG to the customer for a determined number of years. In accordance with the standards of ASC 840, Leases, the Company has concluded these agreements meet the criteria for a lease and are classified as operating leases. Typically, these agreements do not require any minimum consumption amounts and, therefore, no minimum payments. Upon
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adoption of ASC 842, the Company adopted the practical expedient not to reassess the classification. For additional information on lease revenues earned, please see Note 8. Leases.
Disaggregation of Revenue
The following table shows the disaggregation of revenue according to product line:

Three Months Ended June 30,Six Months Ended
June 30,
 2023202220232022
Renewable power sales$8,392 $10,057 $17,996