Adam Comora: As I think, I mentioned in earlier, the feedback has been really strong so far. And I just want to give you a little bit of a flavor here on this Cummins 15-liter engine where the 12-liter engine, when that was first introduced, it was a JV between Cummins and Westport. And, Cummins, all that development effort was really funded at that JV level with maybe $30 million or $40 million of engineering work and maybe not quite much aftermarket support and that sort of thing. And after that JV then expired after 10 years, Cummins got all that technology and has now — and they didn’t want to at that JV originally do a 15-liter rollout because it would have competed with Cummins’ original 15-liter diesel engine. Now that Cummins has taken that entire product in line and owns 100% of that technology, they are going full bore behind this 15-liter natural gas engine.
I think they spent about $450 million to $500 million retooling their Cape Town [ph] plant for it, they’ve got all their engineering muscle and support behind it. And the feedback has been really positive so far. Where that 15-liter, not only is going to produce operational savings just by using CNG, but for these fleets then being able to burn RNG and have 0 Scope 1, 0 Scope 2 emissions, it’s a really powerful product. And, I also want to temper some enthusiasm here because you said what about 2024? They’re just taking the orders right now, the OEMs, for deliveries to start into the back half of 2024. So, it’s not going to be a material impact to our 2024 numbers in terms of fuel station services, but we expect to see a lot of business development activity over the next 12 months as it really starts getting deployed into ‘25 and ‘26.
And, there are a lot of folks out there thinking that that product could reach 8% to 10% market share and they’ve certainly got the capability at their manufacturing plant to hit those kinds of numbers, today, quite frankly. So, that and that would be a tripling of how many of those new trucks go on the road each year, which really has implications for our fuel station service business in terms of what that could be looking like in ‘25, ‘26 and ‘27. And the product is doing really well in China right now. I think they’re up to about, I don’t know, 25,000 engines or so in China. So, we’re excited about it. And, we’re calling it green shoots right now. I know how Wall Street works and everybody wants to know about next quarter.
So, this one looks like it’s something that’s going to be — could be intact as we look at ‘25, ‘26 and ‘27 that sort of thing.
Martin Malloy: And for my follow-up question, just a modeling question, but wanted to find out how the ITC is likely going to come into the income statement. Is it going to be a counter account to the cost of sales for the RNG fuel?
Scott Contino: We’re currently anticipating that it would be brought into net income when we receive the ITC. We haven’t done – we haven’t completed the transaction yet. So, still need to work through the key accounting on it, but that’s our current expectation.
Adam Comora: Yes. Just a reminder here, these are cash proceeds that come into the Company. So it is cash flow. And I think there are some other folks out there that have recognized it as current period income. That’s our best thinking right now. And as you think about that as well, we would remind folks that this is an earnings stream that will go through at least 2027, where we’re going to have ITC sales starting here in the fourth quarter. We’re going to have the same thing next year in ‘24. ‘25, we’ll also have ITC proceeds. And then, we’ll also have production tax credits from the 45Z. So this is a program that will last through at least 2027, and it’s not insignificant in terms of cash flow that will be provided to the business as we think about continuing to fund our capital program.
Operator: Our next question comes from William Grippin with UBS.
William Grippin: First question, just wondering if you could walk us through the change or the impact on the 2023 EBITDA guide and what 3Q would have been if not for the accounting change in the RNG pending monetization?
Adam Comora: Yes. So, this is Adam here. I would say, the real two big impacts to our adjusted EBITDA guidance — well, actually maybe three. The first is separating now the value of the credit held-for-sale and the RNG that we produce and incur the cost for. So, that’s obviously the biggest driver for our new adjusted EBITDA guidance. And if you look at our guidance in totality, normalizing for that separation of that value, out of adjusted EBITDA, the biggest factor has been price. Price has been better than we originally guided to. And if you do the math on all of our original production guidance, that would have driven EBITDA outperformance in the mid-20 range of EBITDA. And then, we had production — and then we had delays in the start-up of those facilities, where operating projects hit our production forecast and the delays probably dropped our production in that 600, 700 MMBtu range, which basically took away the vast majority of price impact.
And then those delays also impacted the ITC sales that we were talking about. And it was the couple of million from Emerald that slips into ‘24, our Biotown project that we had invested in are now monetizing their ITC in ‘24 versus ‘23. And we assume some level of that principally in ITC that’s now slipped into 24%. So on balance, ‘23 looks like better price delays costing us and some production and some ITC, which is the ITC really delayed into ‘24 versus ‘23. And if you look at our third quarter, you can see what our RNG pending monetization value was in the third quarter versus the second quarter, which was basically flattish. So, no real change to the third quarter. I don’t think per se. But for the full year, you can see what that impact was.
William Grippin: Got it. Appreciate that color. And then just as a follow-up here. I saw in the press release, you noted a change or dispute within EPC. Curious if that’s specific to dairy assets, and are you starting to see cost inflation perhaps getting ahead of your expectations here?
