`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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:
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Smaller reporting company |
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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
The number of outstanding shares of the registrant’s common stock on May 3, 2024 was
TABLE OF CONTENTS
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ITEM 1. |
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ITEM 2. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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Glossary of Key Terms
This Quarterly Report on Form 10-Q uses several terms of art that are specific to our industry and business. For the convenience of the reader, a glossary of such terms is provided here. Unless we otherwise indicate, or unless the context requires otherwise, any references in this Quarterly Report on Form 10-Q to:
3
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of U.S. federal securities laws that involve substantial risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. Forward-looking statements may include words such as “anticipate,” “assume,” “believe,” “can have,” “contemplate,” “continue,” “strive,” “aim,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “would,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. For example, all statements we make relating to our future results of operations, financial condition, expectations and plans, including expected benefits of the Pico digestion capacity increase, the Montauk Ag project in North Carolina, the Second Apex RNG Facility, the Blue Granite RNG Facility, the Bowerman RNG Facility, the delivery of biogenic carbon dioxide volumes to European Energy, the resolution of gas collection issues at the McCarty facility, the mitigation of wellfield extraction environmental factors at the Rumpke facility, and weather-related anomalies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:
4
We make many of our forward-looking statements based on our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.
All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties. See the “Risk Factors” section in our latest Annual Report on Form 10-K and our other filings with the SEC.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.
5
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Montauk Renewables, Inc. |
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Unaudited condensed consolidated financial statements |
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7 |
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8 |
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9 |
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10 |
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Notes to unaudited condensed consolidated financial statements |
11 |
6
MONTAUK RENEWABLES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data):
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as of March 31, |
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as of December 31, |
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ASSETS |
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2024 |
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2023 |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts and other receivables |
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Current restricted cash |
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Income tax receivable |
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Current portion of derivative instruments |
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Prepaid expenses and other current assets |
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Total current assets |
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$ |
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$ |
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Non-current restricted cash |
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$ |
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$ |
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Property, plant and equipment, net |
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Goodwill and intangible assets, net |
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Deferred tax assets |
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Non-current portion of derivative instruments |
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Operating lease right-of-use assets |
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Finance lease right-of-use assets |
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Related party receivable |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Income tax payable |
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Current portion of operating lease liability |
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Current portion of finance lease liability |
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Current portion of long-term debt |
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Total current liabilities |
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$ |
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$ |
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Long-term debt, less current portion |
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$ |
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$ |
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Non-current portion of operating lease liability |
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Non-current portion of finance lease liability |
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Asset retirement obligations |
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Other liabilities |
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Total liabilities |
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$ |
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$ |
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(Note 20) |
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STOCKHOLDERS’ EQUITY |
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Common stock, $ |
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Treasury stock, at cost, |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
7
MONTAUK RENEWABLES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for share and per share data):
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for the three months ended March 31, |
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2024 |
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2023 |
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Total operating revenues |
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$ |
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$ |
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Operating expenses: |
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Operating and maintenance expenses |
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General and administrative expenses |
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Royalties, transportation, gathering and production fuel |
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Depreciation, depletion and amortization |
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Impairment loss |
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Transaction costs |
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Total operating expenses |
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$ |
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$ |
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Operating income (loss) |
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$ |
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$ |
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Other expenses (income): |
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Interest expense |
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$ |
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$ |
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Other (income) expense |
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Total other expenses |
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$ |
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$ |
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Income (loss) before income taxes |
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$ |
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$ |
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Income tax expense (benefit) |
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Net income (loss) |
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$ |
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$ |
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Income (loss) per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
8
MONTAUK RENEWABLES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share data):
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Common stock |
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Treasury stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional paid-in capital |
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Retained earnings |
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Total equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Balance at December 31, 2023 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
9
MONTAUK RENEWABLES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands):
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for the three months ended March 31, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash provided by operating |
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Depreciation, depletion and amortization |
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Provision (benefit) for deferred income taxes |
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( |
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Stock-based compensation |
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Derivative mark-to-market adjustments and settlements |
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( |
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Net loss on sale of assets |
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(Decrease) increase in earn-out liability |
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( |
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Accretion of asset retirement obligations |
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Liabilities associated with properties sold |
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( |
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Amortization of debt issuance costs |
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Impairment loss |
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Changes in operating assets and liabilities: |
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Accounts and other receivables and other current assets |
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Accounts payable and other accrued expenses |
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( |
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Net cash provided by (used in) operating activities |
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$ |
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$ |
( |
) |
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Cash flows from investing activities: |
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Capital expenditures |
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$ |
( |
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$ |
( |
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Asset acquisition |
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( |
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Cash collateral deposits, net |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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Cash flows from financing activities: |
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Repayments of long-term debt |
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$ |
( |
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$ |
( |
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Finance lease payments |
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( |
) |
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( |
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Net cash used in financing activities |
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$ |
( |
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$ |
( |
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Net decrease in cash and cash equivalents and restricted cash |
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$ |
( |
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$ |
( |
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Cash and cash equivalents and restricted cash at beginning of period |
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$ |
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$ |
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Cash and cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Reconciliation of cash, cash equivalents, and restricted cash at end of |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash and cash equivalents - current |
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Restricted cash and cash equivalents - non-current |
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$ |
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$ |
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Supplemental cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes |
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Accrual for purchase of property, plant and equipment included in accounts |
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The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
10
MONTAUK RENEWABLES, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per-share amounts)
NOTE 1 – DESCRIPTION OF BUSINESS
Operations and organization
Montauk Renewables’ Business
Montauk Renewables, Inc. (the “Company” or “Montauk Renewables”) is a renewable energy company specializing in the management, recovery and conversion of biogas into Renewable Natural Gas (“RNG”). The Company captures methane, preventing it from being released into the atmosphere, and converts it into either RNG or electrical power for the electrical grid (“Renewable Electricity”). The Company, headquartered in Pittsburgh, Pennsylvania, has more than
Two of the Company’s key revenue drivers are sales of captured gas and sales of Renewable Identification Numbers (“RINs”) to fuel blenders. The Renewable Fuel Standard (“RFS”) is an Environmental Protection Agency (“EPA”) administered federal law that requires transportation fuel to contain a minimum volume of renewable fuel. RNG derived from landfill methane, agricultural digesters and wastewater treatment facilities used as a vehicle fuel qualifies as a D3 (cellulosic biofuel with a
An additional program utilized by the Company is the Low Carbon Fuel Standard (“LCFS”). This is state specific and is designed to stimulate the use of low-carbon fuels. To the extent that RNG from the Company’s facilities is used as a transportation fuel in states that have adopted an LCFS program, it is eligible to receive an Environmental Attribute additional to the RIN value under the federal RFS.
Another key revenue driver is the sale of captured electricity and the associated environmental premiums related to renewable sales. The Company’s electric facilities are designed to conform to and monetize various state renewable portfolio standards requiring a percentage of the electricity produced in that state to come from a renewable resource. Such premiums are in the form of Renewable Energy Credits (“RECs”). The Company’s largest electric facility, located in California, receives revenue for the monetization of RECs as a part of a purchase power agreement.
Collectively, the Company benefits from federal and state government incentives in the United States, provided in the form of RINs, RECs, LCFS credits, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy, as Environmental Attributes.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
11
Segment Reporting
The Company reports segment information in
The RNG segment represents the sale of gas sold at fixed-price contracts, counterparty share RNG volumes and applicable Environmental Attributes. This business unit represents the majority of the revenues generated by the Company.
The Renewable Electricity Generation segment represents the sale of captured electricity and applicable Environmental Attributes. Corporate relates to additional discrete financial information for the corporate function. It is primarily used as a shared service center for maintaining functions such as executive, accounting, treasury, legal, human resources, tax, environmental, engineering and other operations functions not otherwise allocated to a segment. As such, the corporate entity is not determined to be an operating segment but is discretely disclosed for purposes of reconciliation to the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements, in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The FASB included a sunset provision within Topic 848 based on expectations of when the LIBOR would cease being published. The sunset provision has been amended from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The Company’s current debt agreement bears interest at the Bloomberg Short-Term Bank Yield Index Rate plus an applicable margin. LIBOR is no longer utilized as a reference rate.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segments. The amendments in 2023-07 aim to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in 2023-09 aim to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for the Company's Annual Report on Form 10-K for the year ended December 31, 2025, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
NOTE 3 – ASSET IMPAIRMENT
The Company recorded an impairment loss of $
NOTE 4 – REVENUES FROM CONTRACTS WITH CUSTOMERS
The Company’s revenues are comprised of renewable energy and related Environmental attribute sales provided under short and medium term contracts with its customers. All revenue is recognized when (or as) the Company satisfies its performance obligation(s)
12
under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The Company allocates the contract’s transaction price to each performance obligation using the product’s observable market standalone selling price for each distinct product in the contract.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products or services. As such, revenue is recorded net of allowances and customer discounts as well as net of transportation and gathering costs incurred by the customer following the transfer of control of the commodities sold. To the extent applicable, sales, value add and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.
The Company’s performance obligations related to the sale of renewable energy (i.e. RNG and Renewable Electricity) are generally satisfied over time. Revenue related to the sale of renewable energy is generally recognized over time using an output based upon the product quantity delivered to the customer. This measure is used to best depict the Company’s performance to date under the terms of the contract. Revenue from products transferred to customers over time accounted for approximately
The nature of the Company’s contracts may give rise to several types of variable consideration, such as periodic price increases. This variable consideration is outside of the Company’s influence as the variable consideration is dictated by the market. Therefore, the variable consideration associated with the contracts is considered fully constrained.
The Company’s performance obligations related to the sale of Environmental Attributes are generally satisfied at a point in time and were approximately
The following tables display the Company’s disaggregated revenue by major source based on product type and timing of transfer of goods and services for the three months ended March 31, 2024 and 2023:
|
|
Three months ended March 31, 2024 |
|
|||||||||
|
|
Goods transferred at a point in time |
|
|
Goods transferred over time |
|
|
Total |
|
|||
Major goods/Service line: |
|
|
|
|
|
|
|
|
|
|||
Natural gas commodity |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Natural gas environmental attributes |
|
|
|
|
|
— |
|
|
|
|
||
Electric commodity |
|
|
— |
|
|
|
|
|
|
|
||
Electric environmental attributes |
|
|
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Operating segment: |
|
|
|
|
|
|
|
|
|
|||
RNG |
|
$ |
|
|
$ |
|
|
$ |
|
|||
REG |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Three months ended March 31, 2023 |
|
|||||||||
|
|
Goods transferred at a point in time |
|
|
Goods transferred over time |
|
|
Total |
|
|||
Major goods/Service line: |
|
|
|
|
|
|
|
|
|
|||
Natural gas commodity |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Natural gas environmental attributes |
|
|
|
|
|
— |
|
|
|
|
||
Electric commodity |
|
|
— |
|
|
|
|
|
|
|
||
Electric environmental attributes |
|
|
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Operating segment: |
|
|
|
|
|
|
|
|
|
|||
RNG |
|
$ |
|
|
$ |
|
|
$ |
|
|||
REG |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
13
Practical expedients and remaining performance obligations
The Company recognizes the sale of natural gas and electric commodities using the right to invoice practical expedient. The Company determined that the revenues recognized as of period end correspond directly with the value transferred to customers and the Company's satisfaction of the performance obligations to date. Furthermore, with the application of the right to invoice practical expedient and in consideration that contracts related to future environmental attributes sales do not exceed one year, there are no remaining unsatisfied or partially satisfied performance obligations as of March 31, 2024 and December 31, 2023, respectively.
NOTE 5 – ACCOUNTS AND OTHER RECEIVABLES
The Company extends credit based upon an evaluation of the customer’s financial condition and, while collateral is not required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. Reserves for uncollectible accounts, if any, are recorded as part of general and administrative expenses in the consolidated statements of operations.
Accounts and other receivables consist of the following as of March 31, 2024 and December 31, 2023:
|
March 31, 2024 |
|
December 31, 2023 |
|
||
Accounts receivables |
$ |
|
$ |
|
||
Other receivables |
|
|
|
|
||
Reimbursable expenses |
|
|
|
|
||
Accounts and other receivables, net |
$ |
|
$ |
|
||
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following as of March 31, 2024 and December 31, 2023:
|
March 31, 2024 |
|
December 31, 2023 |
|
||
Land |
$ |
|
$ |
|
||
Buildings and improvements |
|
|
|
|
||
Machinery and equipment |
|
|
|
|
||
Gas mineral rights |
|
|
|
|
||
Construction work in progress |
|
|
|
|
||
Total |
$ |
|
$ |
|
||
Less: Accumulated depreciation and amortization |
|
( |
) |
|
( |
) |
Property, plant & equipment, net |
$ |
|
$ |
|
||
Depreciation expense for property plant and equipment was $
In February 2024, the Company completed an Asset acquisition with a privately-held entity. The Company paid $
14
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets consist of the following as of March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Goodwill |
|
$ |
|
|
$ |
|
||
Intangible assets with indefinite lives: |
|
|
|
|
|
|
||
Land use rights |
|
|
|
|
|
|
||
Total intangible assets with indefinite lives: |
|
$ |
|
|
$ |
|
||
Intangible assets with finite lives: |
|
|
|
|
|
|
||
Interconnection, net of accumulated amortization |
|
$ |
|
|
$ |
|
||
Customer contracts, net of accumulated |
|
|
|
|
|
|
||
Total intangible assets with finite lives: |
|
$ |
|
|
$ |
|
||
Total Goodwill and Intangible assets |
|
$ |
|
|
$ |
|
||
NOTE 8 – ASSET RETIREMENT OBLIGATIONS
The Company accounts for asset retirement obligations by recording the fair value of the liability in the period in which it is incurred. The Company estimates the fair value of asset retirement obligations by calculating the estimated present value of the cost to retire the asset. Factors that are considered when determining the present value of the cost to retire the asset include future inflation and discount rates, along with estimates date(s) of retiring the asset. Additionally, changes in legal, regulatory, environmental, and political environments can affect the fair value of the obligations. As such, asset retirement obligations are considered a level 3 financial instrument.
The $
The following table summarizes the activity associated with asset retirement obligations of the Company as of March 31, 2024 and December 31, 2023:
|
Three months ended |
|
|
Year ended December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Asset retirement obligations—beginning of period |
$ |
|
|
$ |
|
||
Accretion expense |
|
|
|
|
|
||
Changes in estimate |
|
|
|
— |
|
||
Liabilities associated with properties sold |
|
( |
) |
|
— |
|
|
Asset retirement obligations—end of period |
$ |
|
|
$ |
|
||
NOTE 9 – DERIVATIVE INSTRUMENTS
To mitigate market risk associated with fluctuations in interest rates, the Company utilizes swap contracts under a board-approved program. The Company does not apply hedge accounting to any of its derivative instruments, and all realized and unrealized gains and losses from changes in derivative values are recognized in earnings each period.
|
|
Three months ended March 31, |
|
||||
Derivative Instrument |
Location |
2024 |
|
2023 |
|
||
Interest rate swaps |
Interest expense |
|
|
|
( |
) |
|
gain (loss) |
|
$ |
|
$ |
( |
) |
|
15
NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s assets and liabilities that are measured at fair value on a recurring basis include the following as of March 31, 2024 and December 31, 2023, set forth by level, within the fair value hierarchy:
|
March 31, 2024 |
|
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Interest rate swap derivative asset |
$ |
|
$ |
|
$ |
— |
|
$ |
|
|||
Asset retirement obligations |
|
|
|
|
|
( |
) |
|
( |
) |
||
Pico earn-out liability |
|
|
|
|
|
( |
) |
|
( |
) |
||
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
||
|
December 31, 2023 |
|
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Interest rate swap derivative asset |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Asset retirement obligations |
|
|
|
|
|
( |
) |
|
( |
) |
||
Pico earn-out liability |
|
|
|
|
|
( |
) |
|
( |
) |
||
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
||
The three levels of the fair value hierarchy under authoritative guidance are described as follows:
Level 1: Observable inputs that reflect unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices for similar assets or liabilities in inactive markets and other observable information that can be corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data, but significant to the fair value measurement.
A summary of change in the fair value of the Company’s Level 3 instrument, attributable to asset retirement obligations, for the three months ended March 31, 2024 and the year ended December 31, 2023 is included in Note 8. The Company’s earn-out fair value liability at its Idaho digester site is determined by calculating the estimated present value of the future obligation. The present value is assessed quarterly and is based on macro-economic factors such as inflation and risk free US Treasury rates. Company specific estimates utilized include current and future interest rates, digester inlet gas flow and projected EBITDA. A weighted average probability approach is utilized for the variables discussed above. The earn-out is classified as a Level 3 financial instrument and changes in the balance are recorded in Accrued liabilities and Other liabilities within the Consolidated Balance Sheets and in the Royalties, transportation, gathering and production fuel within the Consolidated Statements of Operations. Interest rate swap derivatives are classified as Level 2 financial instruments and are valued utilizing quoted forward Bloomberg Short-Term Bank Yield Index Rates. In addition, certain assets are measured at fair value on a non-recurring basis when an indicator of impairment is identified and the assets’ fair values are determined to be less than its carrying value. See Note 3 for additional information.
NOTE 11 – ACCRUED LIABILITIES
The Company’s accrued liabilities consists of the following as of March 31, 2024 and December 31, 2023:
|
March 31, 2024 |
|
December 31, 2023 |
|
||
Accrued expenses |
$ |
|
$ |
|
||
Payroll and related benefits |
|
|
|
|
||
Royalty |
|
|
|
|
||
Utility |
|
|
|
|
||
Accrued interest |
|
|
|
|
||
Other |
|
|
|
|
||
Accrued liabilities |
$ |
|
$ |
|
||
16
NOTE 12 – DEBT
The Company’s debt consists of the following as of March 31, 2024 and December 31, 2023:
|
March 31, 2024 |
|
December 31, 2023 |
|
||
Term loans |
$ |
|
$ |
|
||
Less: current principal maturities |
|
( |
) |
|
( |
) |
Less: debt issuance costs (on long-term debt) |
|
( |
) |
|
( |
) |
Long-term debt |
$ |
|
$ |
|
||
Current portion of long-term debt |
|
|
|
|
||
Total debt |
$ |
|
$ |
|
||
Amended Credit Agreement
On December 12, 2018, Montauk Energy Holdings LLC (“MEH”), a wholly owned subsidiary of the Company, entered into the Second Amended and Restated Revolving Credit and Term Loan Agreement (as amended, “Credit Agreement”), by and among MEH, the financial institutions from time to time party thereto as lenders and Comerica Bank, as the administrative agent, sole lead arranger and sole bookrunner (“Comerica”). The Credit Agreement (i) amended and restated in its entirety MEH’s prior revolving credit and term loan facility, dated as of August 4, 2017, as amended, with Comerica and certain other financial institutions and (ii) replaced in its entirety the prior credit agreement, dated as of August 4, 2017, as amended, between Comerica and Bowerman Power LFG, LLC, a wholly-owned subsidiary of MEH.
On March 21, 2019, MEH entered into the first amendment to the Credit Agreement (the “First Amendment”), which clarified a variety of terms, definitions and calculations in the Credit Agreement. The Credit Agreement requires the Company to maintain customary affirmative and negative covenants, including certain financial covenants, which are measured at the end of each fiscal quarter. On September 12, 2019, the Company entered into the second amendment to the Credit Agreement (the "Second Amendment"). Among other matters, the Second Amendment redefined the Fixed Charge Coverage Ratio (as defined in the Credit Agreement), reduced the commitments under the revolving credit facility to $
On January 4, 2021, the Company, Montauk Holdings Limited (“MNK”) and Montauk Holdings USA, LLC (a direct wholly-owned subsidiary of MNK at the time, “Montauk USA”) entered into a series of transactions, including an equity exchange and a distribution collectively referred to as the “Reorganization Transactions,” that resulted in the Company owning all of the assets and entities (other than Montauk USA) previously owned by Montauk USA, and Montauk Renewables became a direct wholly-owned subsidiary of MNK. In connection with the completion of the Reorganization Transactions and the IPO, the Company entered into the third amendment to the Credit Agreement (the “Third Amendment”). This amendment permitted the Change of Control provisions, as defined in the underlying agreement, to permit the Reorganization Transactions and the IPO to be completed.
On December 21, 2021, MEH entered into the fourth amendment to the Second Amended and Restated Revolving Credit and Term Loan Agreement ("the Fourth Amendment"). The current credit agreement, which is secured by a lien on substantially all assets of the Company and certain of its subsidiaries, provides for a $
The Company accounted for the Fourth Amendment as both a debt modification and debt extinguishment in accordance with ASC 470, Debt (“ASC 470”). In connection with the Credit Agreement, the Company paid $
As of March 31, 2024, $
As of March 31, 2024, the Company was in compliance with all applicable financial covenants under the Credit Agreement.
17
NOTE 13 – INCOME TAXES
The Company’s provision for income taxes in interim periods is typically computed by applying the estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. For the three months ended March 31, 2024, the Company utilized an estimated effective tax rate.
|
|
Three months ended |
|
|||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
Expense (benefit) provision for income taxes |
|
$ |
|
|
$ |
( |
) |
|
Effective tax rate |
|
|
% |
|
|
% |
||
The effective tax rate of
Income tax expense for the three months ended March 31, 2024 was calculated using an estimated effective tax rate which differs from the U.S. federal statutory rate of
NOTE 14 – SHARE-BASED COMPENSATION
The board of directors of Montauk Renewables adopted the Montauk Renewables, Inc. Equity and Incentive Compensation Plan (“MRI EICP”) in January 2021. Following the closing of the IPO, the board of directors of Montauk Renewables approved the grant of non-qualified stock options, restricted stock units and restricted share awards to the employees of Montauk Renewables and its subsidiaries in January 2021. In connection with the restricted share awards, the officers of the Company made elections under Section 83(b) of the Code. Pursuant to such elections, the Company withheld
In connection with a May 2021 asset acquisition,
In April 2023, the board of directors of the Company approved the grant of non-qualified stock options to the executive officers of the Company, which vest ratably over a period of three to five years. In September 2023, the board of directors approved the grant of non-qualified stock options to a new executive officer of the Company, which vest ratably over a period of three to five years. Stock compensation expense related to these awards was $
The restricted shares, restricted stock units and option awards are subject to vesting schedules and are subject to the terms and conditions of the MRI EICP and related award agreements including, in the case of the restricted share awards, each officer having made an election under Section 83(b) of the Code.
Options granted under the MRI EICP allow the recipient to receive the Company’s common stock equal to the appreciation in the fair market value of the Company’s common stock between the grant date and the exercise and settlement of options into shares as of the exercise dates. The fair value of the MRI EICP options was estimated using the Black-Scholes option pricing model. Three
18
blocks of options have been awarded since inception of the plan with the following weighted-average assumptions (no dividends were expected):
|
|
September 2023 Awards |
|
|
Options awarded |
|
|
|
|
Risk-free interest rate |
|
|
||
Expected volatility |
|
|
||
Expected option life (in years) |
|
|
||
Grant-date fair value |
|
$ |
|
|
|
|
|
|
|
|
|
April 2023 Awards |
|
|
Options awarded |
|
|
|
|
Risk-free interest rate |
|
|
||
Expected volatility |
|
|
||
Expected option life (in years) |
|
|
||
Grant-date fair value |
|
$ |
|
|
|
|
|
|
|
|
|
January 2021 Awards |
|
|
Options awarded |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Expected volatility |
|
|
% |
|
Expected option life (in years) |
|
|
|
|
Grant-date fair value |
|
$ |
|
|
The following table summarizes the restricted shares, restricted stock units and options outstanding under the MRI EICP as of March 31, 2024 and March 31, 2023, respectively:
|
|
Restricted Shares |
|
|
Restricted Stock Units |
|
|
Options |
|
|||||||||||||||
|
|
Number of |
|
|
Weighted |
|
|
Number of |
|
|
Weighted |
|
|
Number of |
|
|
Weighted |
|
||||||
End of period - December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Beginning of period - January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
End of period - Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
End of period - December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Beginning of period - January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forfeited |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
End of period - March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
As of March 31, 2024 none of the
NOTE 15 – DEFINED CONTRIBUTION PLAN
The Company maintains a 401(k) defined contribution plan for eligible employees. The Company matches
NOTE 16 – RELATED PARTY TRANSACTIONS
On January 26, 2021, the Company entered into a Loan Agreement and Secured Promissory Note (the “Initial Promissory Note”) with Montauk Holdings Limited (“MNK”). MNK is currently an affiliate of the Company and certain of the Company’s directors are also directors and executive officers of MNK. Pursuant to the Initial Promissory Note, the Company advanced a cash
19
loan of $
Under applicable guidance for variable interest entities in ASC 810, Consolidation, the Company determined that MNK is a variable interest entity. The Company concluded that it is not the primary beneficiary of the variable interest entity, as the Company does not have a controlling financial interest and does not have the power to direct the activities that most significantly impact the economic performance of MNK. Accordingly, the Company concluded that presentation of the Amended Promissory Note as a related party receivable remains appropriate. The maximum exposure to loss is limited to the Promissory Note principal and accrued interest, which totaled $
MNK was delisted from the JSE on January 26, 2021. The MNK Board of Directors and Shareholders held its annual general meeting in March 2023 and voted to take MNK private.
Related Party Reimbursements
Periodically the Company will reimburse MNK and HCI Managerial Services Proprietary Limited, the administrator for the Company’s secondarily listed Johannesburg Stock Exchange trading symbol, for expenses incurred on behalf of the Company. Amounts reimbursed were $
NOTE 17 – SEGMENT INFORMATION
The Company’s operating segments for the three months ended March 31, 2024 and 2023 are Renewable Natural Gas and Renewable Electricity Generation. Renewable Natural Gas includes the production of RNG. Renewable Electricity Generation includes generation of electricity at biogas-to-electricity plants. The corporate entity is not determined to be an operating segment but is discretely disclosed for purposes of reconciliation of the Company’s condensed consolidated financial statements.
|
|
For the three months ended March 31, 2024 |
|
|||||||||||||
|
|
RNG |
|
|
REG |
|
|
Corporate |
|
|
Total |
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
EBITDA |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Adjusted EBITDA (1) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
20
The following table is a reconciliation of the Company’s reportable segments’ net income (loss) from continuing operations to Adjusted EBITDA for the three months ended March 31, 2024:
|
|
For the three months ended March 31, 2024 |
|
|||||||||||||
|
|
RNG |
|
|
REG |
|
|
Corporate |
|
|
Total |
|
||||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Depreciation, depletion and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
EBITDA |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Impairment loss |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Net loss on sale of assets |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transaction costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
For the three months ended March 31, 2023 |
|
|||||||||||||
|
|
RNG |
|
|
REG |
|
|
Corporate |
|
|
Total |
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income (loss) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
EBITDA |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Adjusted EBITDA (2) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(2)
The following table is a reconciliation of the Company’s reportable segments’ net income (loss) from continuing operations to Adjusted EBITDA for the three months ended March 31, 2023:
|
|
For the three months ended March 31, 2023 |
|
|||||||||||||
|
|
RNG |
|
|
REG |
|
|
Corporate |
|
|
Total |
|
||||
Net income (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Depreciation, depletion and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
EBITDA |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Impairment loss |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss on sale of assets |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Transaction costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Adjusted EBITDA |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
For both the three months ended March 31, 2024 and 2023, four customers made up greater than 10% of total revenues.
|
|
For the three months ended March 31, 2024 |
|
|||||||||||||
|
|
RNG |
|
|
REG |
|
|
Corporate |
|
|
Total |
|
||||
Customer A |
|
|
% |
|
|
— |
|
|
|
— |
|
|
|
% |
||
Customer B |
|
|
% |
|
|
— |
|
|
|
— |
|
|
|
% |
||
Customer C |
|
|
% |
|
|
— |
|
|
|
— |
|
|
|
% |
||
Customer D |
|
|
— |
|
|
|
% |
|
|
— |
|
|
|
% |
||
21
|
|
For the three months ended March 31, 2023 |
|
|||||||||||||
|
|
RNG |
|
|
REG |
|
|
Corporate |
|
|
Total |
|
||||
Customer A |
|
|
— |
|
|
|
% |
|
|
— |
|
|
|
% |
||
Customer B |
|
|
% |
|
|
— |
|
|
|
— |
|
|
|
% |
||
Customer C |
|
|
% |
|
|
— |
|
|
|
— |
|
|
|
% |
||
Customer D |
|
|
% |
|
|
— |
|
|
|
— |
|
|
|
% |
||
NOTE 18 – LEASES
The Company leases office space and other office equipment under operating lease arrangements (with initial terms greater than twelve months), expiring in various years through 2033. These leases have been entered into to better enable the Company to conduct business operations. Office space is leased to provide adequate workspace for all employees in Pittsburgh, Pennsylvania and Houston, Texas. Office space and office equipment agreements that exceed 12 months are accounted for as operating leases in accordance with ASC 842, Leases.
The Company also leases safety equipment for the various operational sites in the United States. The term of certain equipment exceeds twelve months and is accordingly classified as a finance lease under ASC 842. These finance leases expire in 2024 and were entered into in order to provide a safe work environment for operational employees.
The Company determines if an arrangement is, or contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. For all operating and finance lease arrangements, the Company presents at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
The Company has elected, as a practical expedient, not to separate non-lease components from lease components, and instead account for each separate component as a single lease component for all lease arrangements, as lessee. In addition, the Company has elected, as a practical expedient, not to apply lease recognition requirements to leases with a term of one year or less. In determination of the lease term, the Company considers the likelihood of lease renewal options and lease termination provisions.
The Company uses its incremental borrowing rate, as the basis to calculate the present value of future lease payments, at lease commencement. The incremental borrowing rate represents the rate that would approximate the rate to borrow funds on a collateralized basis over a similar term and in a similar economic environment.
Supplemental information related to operating lease arrangements was as follows:
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash paid for amounts included in the measurement of |
|
$ |
|
|
$ |
|
||
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
Future minimum operating lease payments are as follows:
Year Ending |
|
|
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Imputed interest |
|
|
( |
) |
Total |
|
$ |
|
|
22
Supplemental information related to finance lease arrangements was as follows:
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash paid for amounts included in the measurement of |
|
$ |
|
|
$ |
|
||
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
Future minimum finance lease payments are as follows:
Year Ending |
|
|
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Imputed interest |
|
|
( |
) |
Total |
|
$ |
|
|
NOTE 19 – INCOME (LOSS) PER SHARE
Basic and diluted income (loss) per share was computed using the following common share data for the three months ended March 31, 2024 and 2023, respectively:
|
|
For the three months ended March 31, |
|||||||
|
|
2024 |
|
|
2023 |
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
|
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
||
Dilutive effect of share-based awards |
|
|
|
|
|
|
|
||
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
||
Basic income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
|
Diluted income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
|
As a result of incurring a net loss for the three months ended March 31, 2023, potential common shares
NOTE 20 – COMMITMENTS AND CONTINGENCIES
Environmental
The Company is subject to a variety of environmental laws and regulations governing discharges to the air and water, as well as the handling, storage and disposing of hazardous or waste materials. The Company believes its operations currently comply in all material respects with all environmental laws and regulations applicable to its business. However, there can be no assurance that environmental requirements will not change in the future or that the Company will not incur significant costs to comply with such requirements.
Contingencies
The Company, from time to time, may be involved in litigation. At March 31, 2024, management does not believe there are any matters outstanding that would have a material adverse effect on the Company’s financial position or results of operations.
NOTE 21 – SUBSEQUENT EVENTS
The Company evaluated its March 31, 2024 condensed consolidated financial statements through the date the financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. Throughout this section, dollar amounts and production volumes are expressed in thousands, except for per share amounts, MMBtu, MWh, and RIN pricing amounts and unless otherwise indicated.
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1A.–Risk Factors” of our 2023 Annual Report and elsewhere in this report.
Overview
Montauk Renewables is a renewable energy company specializing in the recovery and processing of biogas from landfills and other non-fossil fuel sources for beneficial use as a replacement to fossil fuels. We develop, own, and operate RNG projects, using proven technologies that supply RNG into the transportation industry and use RNG to produce Renewable Electricity. We are one of the largest U.S. producers of RNG, having participated in the industry for over 30 years. We established our operating portfolio of 12 RNG and two Renewable Electricity projects through self-development, partnerships, and acquisitions that span eight states.
Biogas is produced by microbes as they break down organic matter in the absence of oxygen (during a process called anaerobic digestion). Our two current sources of commercial scale biogas are LFG or ADG. We typically secure our biogas feedstock through long-term fuel supply agreements and property lease agreements with biogas site hosts. Once we secure long-term fuel supply rights, we design, build, own, and operate facilities that convert the biogas into RNG or use the processed biogas to produce Renewable Electricity. We sell the RNG and Renewable Electricity through a variety of term length agreements. Because we are capturing waste methane and making use of a renewable source of energy, our RNG and Renewable Electricity generate valuable Environmental Attributes which we are able to monetize under federal and state renewable initiatives.
Our current operating projects produce either RNG or Renewable Electricity by processing biogas from landfill sites or agricultural waste from livestock farms. We view agricultural waste from livestock farms as a significant opportunity for us to expand our RNG business, and we continue to evaluate other agricultural feedstock opportunities. We believe that our business model and technology are highly scalable given availability of biogas from agriculturally derived sources, which will allow us to continue to grow through prudent development and complimentary acquisitions.
Recent Developments
RINs Generated but Unsold
Our profitability is highly dependent on the market price of Environmental Attributes, including the market price for RINs. As we self-market a significant portion of our RINs, a decision not to commit to transfer available RINs during a period will impact our revenue and operating profit. We made a strategic determination to not transfer all available D3 RINs generated and available for transfer during the first quarter of 2024. As a result, we have approximately 3,351 RINs in inventory from 2024 RNG production but we sold all of our RINs generated and available for sale from our 2023 RNG production in the first quarter of 2024. We have not entered into commitments to transfer these RINs from 2024 production in inventory nor have we entered into agreements to transfer future RINs generated from forecasted future production. The average D3 RIN index price for the first quarter of 2024 was approximately $3.12.
24
Capital Development Summary
The following summarizes our ongoing development growth plans expected capacity contribution, anticipated commencement of operations, and capital expenditure estimate, respectively excluding Montauk Ag Renewables Development Project:
Development Opportunity |
Estimated Capacity Contribution (MMBtu/day) |
Anticipated Commencement Date |
Estimated Capital Expenditure |
Second Apex RNG Facility |
2,100 |
2025 first quarter |
$25,000-$35,000 |
Blue Granite RNG Facility |
900 |
2026 |
$25,000-$35,000 |
Bowerman RNG Facility |
3,600 |
2026 |
$85,000-$95,000 |
European Energy Facility |
N/A |
2027 |
Up to $15,000/facility |
Pico Digestion Capacity Increase
During the first quarter of 2024, we successfully commissioned the last expansion of our digestion capacity which is necessary to process the final tranche of anticipated increased feedstock expected to be received in 2025. However, we are processing all current feedstock and continue to expect to ramp up production through the second quarter of 2024. With the increased digestion capacity, we produced approximately 39% more MMBtu during the first quarter of 2024 as compared to the first quarter of 2023. We still anticipate that our dairy host will deliver the final increase in feedstock volumes in 2025, at which point we will make the final contractual payment to the dairy host.
Second Apex RNG Facility
In 2022, we announced the planned construction of a second RNG processing facility at the Apex landfill. Currently, the landfill host is providing biogas feedstock in excess of our existing processing capacity, therefore triggering the addition of a second facility based on our existing fuel supply agreement. As the landfill host continues to increase waste intake, we believe that the additional 2,100 MMBtu per day of production capacity will allow us to process the currently forecasted increase in biogas feedstock volumes. While the landfill host continues to increase waste intake, we expect there could be a period where we have excess available capacity after the second facility is commissioned. We continue to incur capital expenditures for this project and currently expect commercial operations in the first quarter of 2025. We do not expect a material operational production impact in 2024 based on the commissioning of the second facility.
Blue Granite RNG Project
In 2023, we announced the planned entrance into South Carolina with the development of a new landfill gas-to-RNG facility. The planned project is expected to contribute approximately 900 MMBtu per day of production capacity upon commissioning. We continue to design and plan for the development and location of the facility as we continue to incur capital expenditures. We continue to review various alternatives related to interconnection opportunities as part of our considerations for offtake options with the understanding those alternatives may differ from initial development project assumptions. We expect the utility interconnection initially included in our development assumptions to accept the production from this facility but will require other upgrades not impacting our interconnection. However, these upgrades have delayed our expectation of commissioning of the facility into 2026. Our pace of capital deployment for this project will match the expected timing related to the utility interconnection.
Bowerman RNG Project
In 2023, we announced a planned development of a renewable natural gas landfill project in Irvine, CA at the Frank R. Bowerman Landfill. The project is anticipated to process the large and growing volumes of biogas in excess of the existing capacity of the REG facility. We continue to target commissioning in 2026, we continue to expect the capital investment to range between $85,000 - $95,000, which is anticipated to have production nameplate capacity of approximately 3,600 MMBtu per day, assuming currently forecasted biogas feedstock volumes that are projected to be available from the host landfill at the time of commissioning. We continue to incur capital expenditures for this project.
Montauk Ag Renewables Acquisition
In 2021, through a wholly-owned subsidiary Montauk Ag Renewables, we completed an asset purchase related to developing technology to recover residual natural resources from the waste streams of modern agriculture and to refine and recycle such waste
25
products through proprietary and other processes in order to produce high quality renewable natural gas to generate electricity, North Carolina swine RECs, and micronutrient organic fertilizer alternatives (the “Montauk Ag Renewables Acquisition”).
In connection with the July 2023 REC agreement with Duke Energy (“Duke”), our Board of Directors approved funding for the first phase of the North Carolina development project in September 2023. Once construction has been completed on the first phase and the facility has been fully commissioned, the project will provide sufficient capacity to satisfy the Duke REC agreement through the deployment of up to eight operational processing lines at the Turkey Creek facility. Including the original equipment acquired in the Montauk Ag Renewables Acquisition, the Turkey, NC asset acquisition, and the relocation of the Magnolia, NC site reactor to Turkey, NC, we currently expect the first phase capital investment to range between $140,000 and $160,000.
We continue to engage with regulatory agencies in North Carolina to confirm that power generation from swine waste will be eligible for Renewable Energy Credits under North Carolina’s Renewable Energy Portfolio Standards in anticipation of commercial production. In early 2024, we received notification from the North Carolina Utilities Commission that the Turkey, NC location was approved for a New Renewables Energy Facility ("NREF") designation and Certificate of Public Convenience and Necessity. In the first quarter of 2024, we submitted an amendment to our NREF application and expect a decision on the NREF designation in 2024. Obtaining this designation could have an impact on the timing of utility infrastructure at the location. We signed a receipt interconnection agreement with Piedmont Natural Gas for the Turkey, NC location. This agreement is structured to coincide with the development timeline at the Turkey, NC location.
In April 2024, we signed our second feedstock supply agreement which includes our ability to access more than twice the hog spaces we are currently contracted for at our future discretion. When added to the first feedstock supply agreement signed in December 2023, we believe we are on pace to target the 120 thousand hog spaces which will provide sufficient feedstock under our Duke Energy REC agreement signed in July 2023. We also believe these agreements are strategic because they will allow us to bring additional hog spaces under contract as we commission our first phase of development for Montauk Ag Renewables.
These feedstock supply agreements have allowed us to continue to refine our expected feedstock collection process. This process will involve installing equipment on the farms under agreements to collect feedstock and process the waste through multiple phases of solids concentration at both the farm and our Turkey, NC location.
In connection with the build-out of the Turkey, NC processing facility, we believe that we have substantially completed the engineering of the reactors to be installed. We have placed orders for significant components related to the construction of the reactors, certain electrical componentry, and expect to enter into an engineering, procurement, and construction contract during the second quarter of 2024 to enable us to meet our commissioning schedule.
We expect to have the first of the eight processing lines operational in the second quarter of 2024 and, we are currently planning for a rolling commissioning schedule for the remaining processing lines beginning in the second half of 2024 through the second half of 2025. We expect to begin generating revenues in 2025 and have sufficient capacity to satisfy the Duke REC agreement upon final commissioning during the second half of 2025.
We continue to develop the opportunities with Montauk Ag Renewables and can give no assurances that our plans related to this acquisition will meet our expectations. Utility interconnection, both inbound to and outbound from our centralized Turkey, NC processing facility is dependent on factors outside of our control. Our current construction timeline and costs are subject to delays or costs increases, respectively. We continue to design and plan for the development of the Turkey, NC facility to be used for commercial production. We expect the Magnolia, NC location to be used for various feedstock processing needs. Based on our current development timeline expectations, we do not expect to commence significant revenue generating activities until 2025. We intend to contract with additional farms to secure feedstock sources for future production processes.
Carbon Dioxide Beneficial Use Opportunity
In February 2024, we signed a contract for the delivery of 140 thousand tons per year of biogenic carbon dioxide (“CO2”) from our four Texas facilities. We intend to capture, clean and liquefy CO2 at select Texas facilities, at which point it will be transported to EE North America (“EENA”), a Texas-based e-methanol facility. The delivery term is expected to last at least 15 years and we continue to expect first delivery to begin in 2027. We continue to anticipate commissioning to begin in 2027 and we continue to expect the capital investment to be approximately $15,000 per facility with anticipating spend beginning second half of 2024, though we have not yet committed capital to this project.
REG Facility Sale
26
In February 2024, we reached an agreement with the site host to sell the gas rights ahead of the fuel supply expiration of one of our existing REG operating facilities. We received proceeds of $1,000 and no longer have obligations to decommission or remove any machinery or equipment at the site. The proceeds received were in excess of the carrying value of the site. The PPA at this site expires during 2024 at which time we estimated that the revenues from this site would significantly decrease adversely impacting this sites future cash flows from operations. The effective date of the sale is October 1, 2024. We ceased operations at this site due to a utility interconnection upgrade that is not compatible with the existing operations and recorded an impairment charge of approximately $312. In connection with the sale, we secured fuel supply agreement amendments to extend the terms of our existing RNG operating facilities, Atascocita and Coastal Plains.
Key Trends
Market Trends Affecting the Renewable Fuel Market
We believe rising demand for RNG is attributable to a variety of factors, including growing public support for renewable energy, U.S. governmental actions to increase energy independence, environmental concerns increasing demand for natural gas powered vehicles, job creation, and increasing investment in the renewable energy sector.
Key drivers for the long-term growth of RNG include the following factors:
Factors Affecting Our Future Operating Results:
Conversion of Electricity Projects to RNG Projects:
We 'll continue to evaluate opportunities to convert our remaining facility from Renewable Electricity to RNG production. These opportunities tend to be most attractive for any merchant electricity facilities given the favorable economics for the sale of RNG plus RINs relative to the sale of market rate electricity plus RECs. This strategy has been an increasingly attractive avenue for growth since 2014 when RNG from landfills became eligible for D3 RINs. However, during the conversion of a project, there is a gap in production while the electricity project is offline until it commences operation as an RNG facility, which can adversely affect us. This timing effect may adversely affect our operating results as a result of our potential conversion of Renewable Electricity projects. Upon completion of a conversion, we expect that the increase in revenue upon commencement of RNG production will more than offset the loss of revenue from Renewable Electricity production. Historically, we have taken advantage of these opportunities on a gradual basis at our merchant electricity facilities, such as Atascocita and Coastal Plains.
Acquisition and Development Pipeline
The timing and extent of our development pipeline affects our operating results due to:
27
Regulatory, Environmental and Social Trends
Regulatory, environmental and social factors are key drivers that incentivize the development of RNG and Renewable Electricity projects and influence the economics of these projects. We are subject to the possibility of legislative and regulatory changes to certain incentives, such as RINs, RECs and GHG initiatives. On July 12, 2023, the EPA issued final rules in the Federal Register for the RFS volume requirements for 2023-2025. Final volumes for cellulosic biofuel were set at 838, 1,090 and 1,376 million RINs for the three years 2023, 2024 and 2025, respectively. The final rule also included significant changes to the existing RFS program, referred to as biogas regulatory reform, that will require the RNG industry to modify how all RINs are generated. New RFS participating facilities that register July 1, 2024, or after will have to meet the biogas regulatory reform provisions beginning July 1, 2024. Existing RFS participating facilities which registered prior to July 1, 2024, will have until January 1, 2025, to come into compliance with biogas regulatory reforms. For existing registrants, registration updates must be submitted by October 1, 2024. On January 1, 2025, all RFS participants must comply with biogas regulatory reform provisions. The EPA finalized a limitation that biogas from one facility has a single use under the RFS as proposed (i.e., biointermediate, RNG or CNG/LNG via biogas closed distribution system). The EPA clarified that this does not preclude non-RFS uses at same facility.
In December 2023, CARB released the formal proposal for new LCFS rules. CARB held a public workshop for the proposed rules on April 10, 2024. Final rules are expected for public comment sometime in the third quarter of 2024 with LCFS amendments in first quarter of 2025. The proposed rules will increase the stringency of CI reduction targets from 20% to 30% in 2030 and create a 2045 target of 90%. This reduction would have the potential impact of reducing the number of net credits in the program. The industry may see pricing volatility including potential increase to LCFS credit prices. However, price increases are not anticipated until after 2025. Also in the proposed rules is a phase out of avoided methane crediting for dairy and swine manure pathways by 2040 for CNG usage and through 2045 for RNG used to produce hydrogen. The RNG deliverability/book and claim provisions for out-of-region projects will be eliminated for all projects that break ground after 2030. These projects will be required to demonstrate physical deliverability requirements beginning in 2041.
Changes to the LCFS program require annual verification of the CI score assigned to a project. Annual verification could significantly affect the profitability of a project, particularly in the case of a livestock farm project.
Factors Affecting Revenue
Our total operating revenues include renewable energy and related sales of Environmental Attributes. Renewable energy sales primarily consist of the sale of biogas, including LFG and ADG, which is either sold or converted to Renewable Electricity. Environmental Attributes are generated and monetized from the renewable energy.
We report revenues from two operating segments: Renewable Natural Gas and Renewable Electricity Generation. Corporate relates to additional discrete financial information for the corporate function; primarily used as a shared service center for maintaining functions such as executive, accounting, treasury, legal, human resources, tax, environmental, engineering, and other operations functions not otherwise allocated to a segment. As such, the corporate entity is not determined to be an operating segment but is discretely disclosed for purposes of reconciliation to the Company’s consolidated financial statements.
28
Our operating revenues are priced based on published index prices which can be influenced by factors outside our control, such as market impacts on commodity pricing and regulatory developments. Strategic decisions to not monetize RINs available to be transferred will have an impact on our operating revenues and operating profit. As we self market a significant portion of our RINs and as the RFS is based on annual compliance, any strategic decision to not monetize available RINs in a quarter could impact the timing of operating revenues recognized during a fiscal year. With our royalty payments structured as a percentage of revenue, royalty payments fluctuate with changes in revenues. Due to these factors, we place a primary focus on managing production volumes and operating and maintenance expenses as these factors are more controllable by us.
RNG Production
Our RNG production levels are subject to fluctuations based on numerous factors, including:
Disruptions to Production: Disruptions to waste placement operations at our active landfill sites, severe weather events, or failure or degradation of our or a landfill operator’s equipment or interconnection or transmission problems could result in a reduction of our RNG production. We strive to proactively address any issues that may arise through preventative maintenance, process improvement and flexible redeployment of equipment to maximize production and useful life.
Pricing
Our Renewable Natural Gas and Renewable Electricity Generation segments’ revenues are primarily driven by the prices under our off-take agreements and PPAs and the amount of RNG and Renewable Electricity that we produce. We sell the RNG produced from our projects under a variety of termed agreements to counterparties, with contract terms varying from three years to five years. Our contracts with counterparties are typically structured to be based on varying natural gas price indices for the RNG produced. All of the Renewable Electricity produced at our biogas-to-electricity projects is sold under long-term contracts to creditworthy counterparties, typically under a fixed price arrangement with escalators.
29
The pricing of Environmental Attributes, which accounts for a substantial portion of our revenues, is subject to volatility based on a variety of factors, including regulatory and administrative actions and commodity pricing.
The sale of RINs, which is subject to market price fluctuations, accounts for a substantial portion of our revenues. We manage against the risk of these fluctuations through forward sales of RINs, although currently we only sell RINs in the calendar year they are generated. We have not entered into commitments to transfer significant RINs generated from 2024 production. Realized prices for Environmental Attributes monetized in a year may not correspond directly to index prices due to the forward selling of commitments.
Factors Affecting Operating Expenses
Our operating expenses include royalties, transportation, gathering and production fuel expenses, project operating and maintenance expenses, general and administrative expenses, depreciation and amortization, net loss (gain) on sale of assets, impairment loss and transaction costs. Our operating expenses can be subject to inflationary cost increases that are largely out of our control.
30
Key Operating Metrics
Total operating revenues reflect both sales of renewable energy and sales of related Environmental Attributes. As a result, our revenues are primarily affected by unit production of RNG and Renewable Electricity, production of Environmental Attributes, and the prices at which we monetize such production. Set forth below is an overview of these key metrics:
31
Comparison of Three Months Ended March 31, 2024 and 2023
The following table summarizes the key operating metrics described above, which metrics we use to measure performance.
|
|
For the three months ended |
|
|
|
|
|
Change |
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% |
|
||||
(in thousands, unless otherwise indicated) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Renewable Natural Gas Total Revenues |
|
$ |
33,988 |
|
|
$ |
14,785 |
|
|
$ |
19,203 |
|
|
|
129.9 |
% |
Renewable Electricity Generation Total Revenues |
|
$ |
4,799 |
|
|
$ |
4,369 |
|
|
$ |
430 |
|
|
|
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
RNG Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CY RNG production volumes (MMBtu) |
|
|
1,411 |
|
|
|
1,352 |
|
|
|
59 |
|
|
|
4.4 |
% |
Less: Current period RNG volumes under fixed/floor- |
|
|
(330 |
) |
|
|
(304 |
) |
|
|
(26 |
) |
|
|
8.6 |
% |
Plus: Prior period RNG volumes dispensed in current |
|
|
358 |
|
|
|
368 |
|
|
|
(10 |
) |
|
|
(2.7 |
%) |
Less: Current period RNG production volumes not |
|
|
(384 |
) |
|
|
(418 |
) |
|
|
34 |
|
|
|
(8.1 |
%) |
Total RNG volumes available for RIN generation (1) |
|
|
1,055 |
|
|
|
998 |
|
|
|
57 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
RIN Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current RIN generation ( x 11.727) (2) |
|
|
12,373 |
|
|
|
11,700 |
|
|
|
673 |
|
|
|
5.8 |
% |
Less: Counterparty share (RINs) |
|
|
(1,241 |
) |
|
|
(1,224 |
) |
|
|
(17 |
) |
|
|
1.4 |
% |
Plus: Prior period RINs carried into current period |
|
|
108 |
|
|
|
739 |
|
|
|
(631 |
) |
|
|
(85.4 |
%) |
Less: CY RINs carried into next CY |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
Total RINs available for sale (3) |
|
|
11,240 |
|
|
|
11,215 |
|
|
|
25 |
|
|
|
0.2 |
% |
Less: RINs sold |
|
|
(7,889 |
) |
|
|
(2,949 |
) |
|
|
(4,940 |
) |
|
|
167.5 |
% |
RIN Inventory |
|
|
3,351 |
|
|
|
8,266 |
|
|
|
(4,915 |
) |
|
|
(59.5 |
%) |
RNG Inventory (volumes not dispensed for RINs) (4) |
|
|
384 |
|
|
|
418 |
|
|
|
(34 |
) |
|
|
(8.1 |
%) |
Average Realized RIN price |
|
$ |
3.25 |
|
|
$ |
2.01 |
|
|
$ |
1.24 |
|
|
|
61.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Renewable Natural Gas Operating Expenses |
|
$ |
18,138 |
|
|
$ |
14,808 |
|
|
$ |
3,330 |
|
|
|
22.5 |
% |
Operating Expenses per MMBtu (actual) |
|
$ |
12.85 |
|
|
$ |
10.95 |
|
|
$ |
1.90 |
|
|
|
17.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
REG Operating Expenses |
|
$ |
2,813 |
|
|
$ |
3,328 |
|
|
$ |
(515 |
) |
|
|
(15.5 |
%) |
$/MWh (actual) |
|
$ |
52.11 |
|
|
$ |
72.35 |
|
|
$ |
(20.24 |
) |
|
|
(28.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Metrics |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Renewable Electricity Generation Volumes Produced |
|
|
54 |
|
|
|
46 |
|
|
|
8 |
|
|
|
17.4 |
% |
Average Realized Price $/MWh (actual) |
|
$ |
88.87 |
|
|
$ |
94.98 |
|
|
$ |
(6.11 |
) |
|
|
(6.4 |
%) |
32
The following table summarizes our revenues, expenses and net income (loss) for the periods set forth below:
|
|
For the three months ended |
|
|
|
|
|
Change |
|
|||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
% |
|
||||
Total operating revenues |
|
$ |
38,787 |
|
|
$ |
19,154 |
|
|
$ |
19,633 |
|
|
|
102.5 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating and maintenance expenses |
|
|
14,451 |
|
|
|
14,182 |
|
|
|
269 |
|
|
|
1.9 |
% |
General and administrative expenses |
|
|
9,427 |
|
|
|
9,475 |
|
|
|
(48 |
) |
|
|
(0.5 |
)% |
Royalties, transportation, gathering and |
|
|
6,518 |
|
|
|
3,933 |
|
|
|
2,585 |
|
|
|
65.7 |
% |
Depreciation, depletion and amortization |
|
|
5,434 |
|
|
|
5,196 |
|
|
|
238 |
|
|
|
4.6 |
% |
Impairment loss |
|
|
528 |
|
|
|
451 |
|
|
|
77 |
|
|
|
17.1 |
% |
Transaction costs |
|
|
61 |
|
|
|
83 |
|
|
|
(22 |
) |
|
|
(26.5 |
)% |
Total operating expenses |
|
|
36,419 |
|
|
|
33,320 |
|
|
|
3,099 |
|
|
|
9.3 |
% |
Operating income (loss) |
|
$ |
2,368 |
|
|
$ |
(14,166 |
) |
|
$ |
16,534 |
|
|
|
(116.7 |
)% |
Other expenses: |
|
|
105 |
|
|
|
1,682 |
|
|
|
(1,577 |
) |
|
|
(93.8 |
)% |
Income (loss) before income taxes: |
|
|
2,263 |
|
|
|
(15,848 |
) |
|
|
18,111 |
|
|
|
(114.3 |
)% |
Income tax expense (benefit) |
|
|
413 |
|
|
|
(12,060 |
) |
|
|
12,473 |
|
|
|
(103.4 |
)% |
Net income (loss) |
|
$ |
1,850 |
|
|
$ |
(3,788 |
) |
|
$ |
5,638 |
|
|
|
(148.8 |
)% |
Revenues for the Three Months Ended March 31, 2024 and 2023
Total revenues in the first quarter of 2024 were $38,787 an increase of $19,633 (102.5%) compared to $19,154 in the first quarter of 2023. The increase is primarily related to an increase in self-monetized RINs in the first quarter of 2024 compared to the first quarter of 2023 as a result of our strategic decision in the first quarter of 2023 to not self market a significant amount of RINs from 2023 RNG production due to our belief that first quarter of 2023 D3 RIN index volatility was temporary. Of the 7,889 RINs sold in the first quarter of 2024, 4,000 RINs were related to 2024 RNG production. Also contributing to the increase is an increase in Realized RIN pricing of approximately 61.7% during the first quarter of 2024 compared to the first quarter of 2023.
Renewable Natural Gas Revenues
We produced 1,411 MMBtu of RNG during the first quarter of 2024, an increase of 59 MMBtu (4.4%) over the 1,352 MMBtu produced in the first quarter of 2023. Our Coastal facility produced 38 MMBtu more in the first quarter of 2024 compared to the first quarter of 2023 as a result of plant processing equipment improvements and wellfield operational enhancements. Our McCarty facility produced 24 MMBtu more in the first quarter of 2024 as compared to the first quarter of 2023 as a result of wellfield enhancements by our landfill host. Our Galveston facility produced 19 MMBtu more in the first quarter of 2024 compared to the first quarter of 2023 as a result of a temporary reduction of feedstock inlet during modifications to process equipment in the first quarter of 2023. Our Pico facility produced 9 MMBtu more in the first quarter of 2024 compared to the first quarter of 2023 as a result of commissioning our dairy digestion expansion project. Offsetting the improvements was our Rumpke facility which produced 55 MMBtu less in the first quarter of 2024 compared to the first quarter of 2023 as a result of a process equipment failure that occurred during the first quarter of 2024.
Revenues from the Renewable Natural Gas segment in the first quarter of 2024 were $33,988, an increase of $19,203 (129.9%) compared to $14,785 in the first quarter of 2023. Average commodity pricing for natural gas for the first quarter of 2024 was $2.24 per MMBtu, 34.5% lower than the first quarter of 2023. During the first quarter of 2024, we self-monetized 7,889 RINs, representing a 4,940 increase (167.5%) compared to 2,949 in the first quarter of 2023. Average pricing realized on RIN sales during the first quarter of 2024 was $3.25 as compared to $2.01 in the first quarter of 2023, an increase of 61.7%. This compares to the average D3 RIN index price for the first quarter of 2024 of $3.12 as compared to $2.03 in the first quarter of 2023, an increase of approximately 53.7%. At March 31, 2024, we had approximately 384 MMBtu available for RIN generation and we had approximately 3,351 RINs generated and unsold. At March 31, 2023, we had approximately 418 MMBtu available for RIN generation and 8,266 RINs generated and unsold.
Renewable Electricity Generation Revenues
We produced approximately 54 MWh in Renewable Electricity in the first quarter of 2024, an increase of 8 MWh (17.4%) from 46 MWh in the first quarter of 2023. Our Security facility produced approximately 3 MWh more in the first quarter of 2024 compared to the first quarter of 2023 as a result of the completion of prior period engine maintenance. Our Bowerman facility produced
33
approximately 3 MWh more in the first quarter of 2024 compared to the first quarter of 2023 primarily related to the timing of preventative engine maintenance.
Revenues from Renewable Electricity facilities in the first quarter of 2024 were $4,799, an increase of $430 (9.8%) compared to $4,369 in the first quarter of 2023. The increase is primarily driven by the increase in our Security and Bowerman facility production volumes.
In the first quarter of 2024, 100.0% of Renewable Electricity Generation segment revenues were derived from the monetization of Renewable Electricity at fixed prices associated with underlying PPAs, as compared to 99.8% in the first quarter of 2023. This provides us with certainty of price resulting from our Renewable Electricity sites.
Expenses for the Three Months Ended March 31, 2024 and 2023
General and Administrative Expenses
Total general and administrative expenses were $9,427 for the first quarter of 2024, a decrease of $48 (0.5%) compared to $9,475 for the first quarter of 2023. Employee related costs, including stock-based compensation costs were $5,724 in the first quarter of 2024, an increase of $731 (14.6%) compared to $4,993 in the first quarter of 2023. Our corporate insurance fees increased approximately $167 (12.2%) in the first quarter of 2024 compared to the first quarter of 2023. Our professional fees decreased approximately $1,006 (48.7%) in the first quarter of 2024 compared to the first quarter of 2023.
Renewable Natural Gas Expenses
Operating and maintenance expenses for our RNG facilities in the first quarter of 2024 were $12,141, an increase of $799 (7.0%) as compared to $11,342 in the first quarter of 2023. Included in our first quarter of 2024 total operating and maintenance expenses for our RNG facilities is utility expense of $3,942 an increase of $103 (2.7%) compared to $3,839 in the first quarter of 2023. Our Rumpke facility operating maintenance expenses increased approximately $668 primarily related to the timing of annual preventative maintenance expenses. Our Atascocita facility operating maintenance expenses increased approximately $533 as a result of utility expense and timing of annual preventative maintenance. Our Pico facility operating and maintenance expenses decreased approximately $313 primarily related to a decrease in utility expense.
Royalties, transportation, gathering and production fuel expenses for our RNG facilities for the first quarter of 2024 were $5,997, an increase of $2,531 (73.0%) compared to $3,466 in the first quarter of 2023. We recorded a reduction to our Pico facility earnout of approximately 16.6% during the first quarter of 2024. Royalties, transportation, gathering and production fuel expenses decreased as a percentage of RNG revenues to 17.6% for the first quarter of 2024 from 23.4% in the first quarter of 2023.
Renewable Electricity Expenses
Operating and maintenance expenses for our Renewable Electricity facilities in the first quarter of 2024 were $2,292, a decrease of $569 (19.9%) compared to $2,861 in the first quarter of 2023. Our Bowerman facility operating and maintenance expenses decreased approximately $298 which was primarily driven by the timing of annual original equipment manufacturer preventative maintenance expenses. Our Security facility operating and maintenance expenses decreased approximately $303 which was driven by the nonrecurring reversal of our asset retirement obligation liability related to the sale of the site.
Royalties, transportation, gathering and production fuel expenses for our Renewable Electricity facilities for the first quarter of 2024 were $521, an increase of $54 (11.6%) compared to $467 in the first quarter of 2023. As a percentage of Renewable Electricity Generation segment revenues, royalties, transportation, gathering and production fuel expenses increased to 10.9% from 10.7%.
Royalty Payments
Royalties, transportation, gathering, and production fuel expenses in the first quarter of 2024 were $6,518, an increase of $2,585 (65.7%) compared to $3,933 in the first quarter of 2023. We make royalty payments to our fuel supply site partners on the commodities we produce and the associated Environmental Attributes. These royalty payments are typically structured as a percentage of revenue subject to a cap, with fixed minimum payments when Environmental Attribute prices fall below a defined threshold. To the extent commodity and Environmental Attributes’ prices fluctuate, our royalty payments may fluctuate upon renewal or extension of a fuel supply agreement or in connection with new projects. Our fuel supply agreements are typically structured as 20-year contracts, providing long-term visibility into the margin impact of future royalty payments.
34
Depreciation
Depreciation and amortization in the first quarter of 2024 was $5,434, an increase of $238 (4.6%) compared to $5,196 in the first quarter of 2023. The increase is associated with timing of capital investment placed into service in the fourth quarter of 2023 compared to the fourth quarter of 2022.
Impairment loss
We calculated and recorded impairment losses of $528 in the first quarter of 2024, an increase of $77 (17.1%) compared to $451 in the first quarter of 2023. The impairment losses in the first quarter of 2024 primarily relate to the remaining book value of assets due to our decision to cease operations at the Security facility. We also impaired various RNG equipment that was deemed obsolete for current operations. The first quarter of 2023 impairment relates to feedstock processing machine component at an RNG site that was not in operational use.
Other Expenses
Other expenses in the first quarter of 2024 was $105, a decrease of $1,577 (93.8%) compared to $1,682 in the first quarter of 2023. The decrease is primarily related to proceeds received from the sale of gas rights ahead of the fuel supply agreement expiration of our Security facility.
Income Tax Expense
Income tax expense for the three months ended March 31, 2024 was calculated using an estimated effective tax rate which differs from the U.S. federal statutory rate of 21.0% primarily due to the benefit from production tax credits.
The effective tax rate of 18.2% for the three months ended March 31, 2024 was lower than the rate for the three months ended March 31, 2023 of 76.1% primarily due to the increase in pre-tax income for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.
Operating Income (Loss) for the Three Months Ended March 31, 2024 and 2023
Operating income in the first quarter of 2024 was $2,368, an increase of $16,534 (116.7%) compared to an operating loss of $14,166 in the first quarter of 2023. RNG operating income for the first quarter of 2024 was $11,580, an increase of $15,865 (370.2%) compared to an operating loss of $4,285 in the first quarter of 2023. Renewable Electricity Generation operating income for the first quarter of 2024 was $376, an increase of $623 (252.4%) compared to an operating loss of $247 for the first quarter of 2023.
Non-GAAP Financial Measures:
The following table presents EBITDA and Adjusted EBITDA, non-GAAP financial measures for each of the periods presented below. We present EBITDA and Adjusted EBITDA because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, EBITDA and Adjusted EBITDA are financial measurements of performance that management and the board of directors use in their financial and operational decision-making and in the determination of certain compensation programs. EBITDA and Adjusted EBITDA are supplemental performance measures that are not required by or presented in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered alternatives to net income (loss) or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities or a measure of our liquidity or profitability.
35
The following table provides our EBITDA and Adjusted EBITDA for the periods presented, as well as a reconciliation to net income (loss), which is the most directly comparable GAAP measure, for the three months ended March 31, 2024 and 2023:
|
|
|
|
|
|
|
|
|
||
|
|
|
For the three months ended |
|
|
|||||
|
|
|
2024 |
|
|
2023 |
|
|
||
|
Net income (loss) |
|
$ |
1,850 |
|
|
$ |
(3,788 |
) |
|
|
Depreciation, depletion and amortization |
|
|
5,434 |
|
|
|
5,196 |
|
|
|
Interest expense |
|
|
1,165 |
|
|
|
1,675 |
|
|
|
Income tax expense (benefit) |
|
|
413 |
|
|
|
(12,060 |
) |
|
|
Consolidated EBITDA |
|
|
8,862 |
|
|
|
(8,977 |
) |
|
|
|
|
|
|
|
|
|
|
||
|
Impairment loss (1) |
|
|
528 |
|
|
|
451 |
|
|
|
Net loss on sale of assets |
|
|
22 |
|
|
|
37 |
|
|
|
Transaction costs |
|
|
61 |
|
|
|
83 |
|
|
|
Adjusted EBITDA |
|
$ |
9,473 |
|
|
$ |
(8,406 |
) |
|
|
|
|
|
|
|
|
|
|
||
Liquidity and Capital Resources
Sources of Liquidity
At March 31, 2024 and March 31, 2023, our cash and cash equivalents, net of restricted cash, was $63,277 and $78,043 respectively. We intend to fund development projects using cash flows from operations and borrowings under our revolving credit facility. We believe that we will have sufficient cash flows from operations and borrowing availability under our credit facility to meet our debt service obligations and anticipated required capital expenditures (including for projects under development) for the next 12 to 24 months. However, we are subject to business and operational risks that could adversely affect our cash flows and liquidity.
At March 31, 2024, we had debt before debt issuance costs of $62,000, compared to debt before debt issuance costs of $64,000 at December 31, 2023.
Our debt before issuance costs (in thousands) are as follows:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Term loan |
|
$ |
62,000 |
|
|
|
64,000 |
|
Revolving credit facility |
|
|
— |
|
|
|
— |
|
Debt before debt issuance costs |
|
$ |
62,000 |
|
|
$ |
64,000 |
|
Amended Credit Agreement
On December 21, 2021, the Company entered into the Fourth Amendment with Comerica and certain other financial institutions. The current credit agreement, which is secured by a lien on substantially all of our assets and assets of certain of our subsidiaries, provides for a five-year $80,000 term loan, a five-year $120,000 revolving credit facility, and a $75,000 accordion feature.
36
As of March 31, 2024, $62,000 was outstanding under the term loan and we had no outstanding borrowings under the revolving credit facility. The term loan amortizes in quarterly installments of $2,000 through 2024, then increases to $3,000 through 2026, with a final payment of $32,000 in late 2026 with an interest rate of 6.18% and 6.11% at March 31, 2024 and December 31, 2023, respectively. The revolving and term loans under the Amended Credit Agreement bear interest at the Bloomberg Short-Term Bank Yield Index Rate plus an applicable margin based on our Total Leverage Ratio (in each case, as those terms are defined in the Amended Credit Agreement).
The Amended Credit Agreement contains customary covenants applicable to us and certain of our subsidiaries, including financial covenants. The Amended Credit Agreement is subject to customary events of default, and contemplates that we would be in default if, for any fiscal quarter (x) the average monthly D3 RIN price (as determined in accordance with the Amended Credit Agreement) is less than $0.80 per RIN and (y) the consolidated EBITDA for such quarter is less than $6,000. Consolidated EBITDA is defined under the Amended Credit Agreement as net income plus (a) income tax expense, (b) interest expense, (c) depreciation, depletion, and amortization expense, (d) non-cash unrealized derivative expense and (e) any other extraordinary, unusual, or non-recurring adjustments to certain components of net income, as agreed upon by Comerica in certain circumstances.
Under the Amended Credit Agreement, we are required to maintain the following ratios:
As of March 31, 2024, we were in compliance with all applicable financial covenants under the Amended Credit Agreement.
The Amended Credit Agreement replaced our prior credit agreements with Comerica and a portion of the proceeds of the term loan made under the Amended Credit Agreement were used by us to, among other things, fully satisfy an aggregate of $59,197 outstanding principal under such credit agreements. For additional information regarding the Amended Credit Agreement, see Note 12— Debt to our unaudited condensed consolidated financial statements.
Capital Expenditures
We have historically funded our growth and capital expenditures with our working capital, cash flow from operations and debt financing. We expect our non-development 2024 capital expenditures to range between $14,000 and $17,000. Our 2024 capital plans include annual preventative maintenance expenditures, annual wellfield expansion projects, other specific facility improvements, and information technology improvements. Additionally, we currently estimate that our existing 2024 development capital expenditures will range between $135,000 and $150,000. The majority of our 2024 development capital expenditures are related to our ongoing development of Montauk Ag Renewables, the second Apex facility, the Blue Granite RNG project, the Bowerman RNG project, and our EENA CO2 project. Our Amended Credit Agreement provides us with a $120,000 revolving credit facility, with a $75,000 accordion option, providing us with access to additional capital to implement our acquisition and development strategy. We are currently in various stages of discussions regarding a variety of strategic growth opportunities. Included amongst these opportunities are: approximately up to six LFG RNG, waste water treatment RNG, and CNG distribution opportunities. If we ultimately enter into definitive agreements for any of these opportunities, we expect to incur material capital expenditures related to either acquisition costs or development costs, or both. As we continue to explore strategic growth opportunities and while we have entered into nonbinding letters of intent for certain of these opportunities, we provide no assurances that our plans related to any or all of these strategic opportunities will progress to definitive agreements. We believe that our existing cash and cash equivalents, cash generated from operations, and credit availability under our Amended Credit Agreement would allow us to pursue and close on our identified strategic growth opportunities in addition to the previously discussed non-development and development capital expenditures.
37
Cash Flow
The following table presents information regarding our cash flows and cash equivalents for the three months ended March 31, 2024 and 2023:
|
|
For the three months ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
14,292 |
|
|
$ |
(11,838 |
) |
Investing activities |
|
|
(22,786 |
) |
|
|
(13,278 |
) |
Financing activities |
|
|
(2,020 |
) |
|
|
(2,018 |
) |
Net decrease in cash and cash equivalents |
|
|
(10,514 |
) |
|
|
(27,134 |
) |
Restricted cash, end of the period |
|
|
451 |
|
|
|
429 |
|
Cash and cash equivalents, end of period |
|
|
63,728 |
|
|
|
78,472 |
|
For the first quarter of 2024, we generated $14,292 of cash provided by operating activities compared to $11,838 of cash used in operating activities in the first quarter of 2023. For the first quarter of 2024, income and adjustments to income from operating activities provided $9,357 compared to income and adjustments to income used $8,565 in first quarter of 2023. Included within income and adjustments to income from operating activities for the first quarter of 2024 was a decrease of $13,282 related to our deferred tax provision adjustment. Working capital and other assets and liabilities provided $4,935 in the first quarter of 2024 compared to working capital and other assets and liabilities using $3,274 in the first quarter of 2023.
Our net cash flows used in investing activities has historically focused on project development and facility maintenance. Our capital expenditures for the first three months of 2024 were $21,986, of which $12,010, $4,335, $1,718, $1,548, and $1,279 were related to the Montauk Ag Renewables in North Carolina, second Apex RNG facility, Blue Granite RNG project, Bowerman RNG project, and the ongoing development of the Pico facility digestion capacity increase, respectively. We completed a land acquisition in Turkey, NC for 42 acres during the first quarter of 2024 for $820.
Our net cash flows used in financing activities of $2,020 for the first three months of 2024 increase by $2 compared to cash used in financing activities in the first three months of 2023 of $2,018.
Contractual Obligations and Commitments
Off-balance sheet arrangements comprise those arrangements that may potentially impact our liquidity, capital resources and results of operations, even though such arrangements are not recorded as liabilities under GAAP. Our off-balance sheet arrangements are limited to the outstanding letters of credit described below. Although these arrangements serve a variety of our business purposes, we are not dependent on them to maintain our liquidity and capital resources, and we are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on liquidity and capital resources.
The Company has contractual obligations involving asset retirement obligations. See Note 8 in the unaudited condensed consolidated financial statements for further information regarding the asset retirement obligations.
The Company has contractual obligations under our debt agreement, including interest payments and principal repayments. See Note 12 in the unaudited condensed consolidated financial statements for further discussion of the contractual commitments under our debt agreements, including the timing of principal repayments. During the first three months of 2024, we had approximately $2,505 of off-balance sheet arrangements of outstanding letters of credit. These letters of credit reduce the borrowing capacity of our revolving credit facility under our Amended Credit Agreement. Certain of our contracts require these letters of credit to be issued to provide additional performance assurances. There have been no draw downs on these outstanding letters of credit. During the first three months of 2023, we did not have off-balance sheet arrangements other than outstanding letters of credit of approximately $4,477.
The Company has contractual obligations involving operating leases. The Company leases office space and other office equipment under operating lease arrangements, expiring in various years through 2033. See Note 18 in the unaudited condensed consolidated financial statements for further information related to the lease obligations.
The Company has other contractual obligations associated with our fuel supply agreements. The expiration of these agreements range between 1-19 years. The minimum royalty and capital obligation associated with these agreements range from $8 to $1,645.
38
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in conformity with GAAP and require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such estimates may change if the underlying conditions or assumptions change.
Revenue Recognition
Our revenues are comprised of renewable energy and the related Environmental Attribute sales provided under a variety of short-term and medium-term agreements with our customers. All revenue is recognized when we satisfy our performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product to the customer either when (or as) the customer obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. We allocate the contract’s transaction price to each performance obligation using the product’s observable market standalone selling price for each distinct product in the contract.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring our products. As such, revenue is recorded net of allowances and customer discounts as well as net of transportation and gathering costs incurred. To the extent applicable, sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis.
The nature of the Company’s contracts may give rise to several types of variable consideration, such as periodic price increases. This variable consideration is outside of the Company’s influence as the variable consideration is dictated by the market. Therefore, the variable consideration associated with the long-term contracts is considered fully constrained.
RINs
We generate D3 RINs through our production and sale of RNG used for transportation purposes as prescribed under the RFS program. Our operating costs are associated with the production of RNG. The RINs are government incentives that are generated through our renewable operating projects and not a result of physical attributes of our RNG production. The RINs that we generate are able to be separated and sold as credits independently from the energy produced. Therefore, no cost is allocated to the RIN when it is generated. Revenue is recognized on these Environmental Attributes when there is an agreement in place to monetize the credits at an agreed upon price with a customer and transfer of control has occurred. We enter into forward commitments to transfer RINs. These forward commitments are based on D3 RIN index prices at the time of the commitment. Realized prices for RINs monetized in a year may not correspond directly to index prices due to the forward selling of commitments.
RECs
We generate RECs through our production and conversion of landfill methane into Renewable Electricity in various states, including California, Oklahoma, and Texas. These states have various laws requiring utilities to purchase a portion of their energy from renewable resources. Our operating costs are associated with the production of Renewable Electricity. The RECs are generated as an output of our renewable operating projects. The RECs that we generate are able to be separated and sold independently from the electricity produced. Therefore, no cost is allocated to the REC when it is generated. Revenue is recognized on these Environmental Attributes when there is an agreement in place to monetize the credits at an agreed upon price with a customer and transfer of control has occurred.
Income Taxes
We are subject to income taxes in the U.S. federal jurisdiction and various state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.
Our net deferred tax asset position is a result of fixed assets, intangibles, and tax credit carryforwards. The realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income during the periods in which those temporary differences become deductible, prior to the expiration of the tax attributes. The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and forecasting future profitability by tax jurisdiction.
39
We evaluate our deferred tax assets at reporting periods on a jurisdictional basis to determine whether adjustments to the valuation allowance are appropriate considering changes in facts or circumstances. As of each reporting date, management considers new evidence, both positive and negative, when determining the future realization of our deferred tax assets. We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.
Intangible Assets
Separately identifiable intangible assets are recorded at their fair values upon acquisition. We account for intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. Finite-lived intangible assets include interconnections, customer contracts, and trade names and trademarks. The interconnection intangible asset is the exclusive right to utilize an interconnection line between the operating project and a utility substation to transmit produced electricity. Included in that right is full maintenance provided on this line by the utility. Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful life. We evaluate our finite-lived intangible assets for impairment as events or changes in circumstances indicate the carrying value of these assets may not be fully recoverable. Events that could result in an impairment include, among others, a significant decrease in the market price or the decision to close a site.
If finite-lived or indefinite-lived intangible assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The fair value is determined based on the present value of expected future cash flows. We use our best estimates in making these evaluations, however, actual future pricing, operating costs and discount rates could vary from the assumptions used in our estimates and the impact of such variations could be material.
Our assessment of the recoverability of finite-lived and indefinite-lived intangible assets is determined by performing monitoring assessment of the future cash flows associated with the underlying gas rights agreements. The cash flows estimates are performed at the operating unit level and based on the average remaining length of the gas rights agreements. Based on our analysis, we concluded the cashflows generated to be well in excess of the carrying amounts. Changes in market conditions related to the various price indexes used in estimating these cash flows could adversely affect these estimates.
Finite-Lived Asset Impairment
In accordance with FASB ASC Topic 360, Property, Plant and Equipment and intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset or asset group to future undiscounted cash flows expected to be generated by the asset or asset group. Such estimates are based on certain assumptions, which are subject to uncertainty and may materially differ from actual results, including considering project specific assumptions for long-term credit prices, escalated future project operating costs and expected site operations. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is generally determined by considering (i) internally developed discounted cash flows for the asset group, (ii) third-party valuations, and/or (iii) information available regarding the current market value for such assets. We use our best estimates in making these evaluations and consider various factors, including future pricing and operating costs. However, actual future market prices and project costs could vary from the assumptions used in our estimates and the impact of such variations could be material. We identified discrete events and recorded impairment of $528 and $451 for the three months ended March 31, 2024 and 2023, respectively. See Note 3 in the unaudited condensed consolidated financial statements for further information related to asset impairments.
Emerging Growth Company
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act allows emerging growth companies to delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. We intend to utilize these transition periods, which may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2 of our unaudited condensed consolidated financial statements in this report.
40
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since our disclosure in Quantitative and Qualitative Disclosures About Market Risk included as Item 7A in our 2023 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report. Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, including our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, concluded that as of such date, our disclosure controls and procedures were effective at a reasonable level of assurance.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we and our subsidiaries may be parties to legal proceedings arising in the normal course of our business. We and our subsidiaries are currently not a party, nor is our property subject, to any material pending legal proceedings.
ITEM 1A. RISK FACTORS
We face a number of risks that could materially and adversely affect our business, results of operations, cash flow, liquidity, or financial condition. A discussion of our risk factors can be found in Part I, “Item 1A Risk Factors” in our 2023 Annual Report any of which could have a material effect on us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Use of Proceeds from Sale of Registered Securities
On January 21, 2021, our Registration Statement on Form S-1, as amended (File No. 333-251312) (the “Registration Statement”), was declared effective by the SEC in connection with our IPO. The underwriter for the IPO was Roth Capital Partners. A total of 3,399,515 shares of our common stock were sold pursuant to the Registration Statement, which was comprised of (1) 2,702,500 shares of new common stock issued by the Company and (2) 697,015 shares of the Company’s common stock held by MNK. The 3,399,515 shares were sold at an offering price of $8.50 per share and resulting in net proceeds to the Company of approximately $15.0 million, after deducting the underwriting discount of approximately $1.6 million and offering expenses payable by the Company of approximately $6.2 million.
The IPO closed on January 26, 2021. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.
From the closing of the IPO through March 31, 2024, approximately $15.0 million of the net proceeds from the IPO have been used by Montauk for the following: the Montauk Ag Asset Acquisition in May 2021, the purchase of the real-estate and property in October 2021 related to Montauk Ag, and subsequent development activities related to Montauk Ag Renewables. An immaterial amount has been used relating to other possible acquisitions and projects. As of March 31, 2024, all net proceeds were used by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
42
ITEM 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
|
|
|
104 |
|
Cover page formatted as Inline XBRL and contained in Exhibit 101 |
|
|
|
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
May 9, 2024 |
|
MONTAUK RENEWABLES, INC. |
|
|
|
|
|
|
|
By: |
/s/ SEAN F. MCCLAIN |
|
|
|
Sean F. McClain |
|
|
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
|
|
|
|
|
|
By: |
/s/ KEVIN A. VAN ASDALAN |
|
|
|
Kevin A. Van Asdalan |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
44
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT, AS AMENDED
I, Sean F. McClain, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Montauk Renewables, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2024
/s/ Sean F. McClain
|
Sean F. McClain |
Chief Executive Officer and President |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT, AS AMENDED
I, Kevin A. Van Asdalan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Montauk Renewables, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2024
/s/ Kevin A. Van Asdalan
|
Kevin A. Van Asdalan Chief Financial Officer |
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Montauk Renewables, Inc. (the “Company”) for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
Date: May 9, 2024
/s/ Sean F. McClain
|
Sean F. McClain |
Chief Executive Officer and President |
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Montauk Renewables, Inc. (the “Company”) for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
Date: May 9, 2024
/s/ Kevin A. Van Asdalan
|
Kevin A. Van Asdalan |
Chief Financial Officer (Principal Financial Officer) |