Montauk Renewables Q1 2025 Earnings Call Transcript

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May 9, 2025

There are 8 speakers on the call.

Operator

Good day, everyone, and thank you for participating in today's conference call. I'd like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward looking statements and non GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead.

Speaker 1

Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter twenty twenty five financial and operating results and developments. I'm Josh Rulley, Chief Legal Officer and Secretary at Montauk. Joining me today are Sean McLean, Montauk's President and Chief Executive Officer, to discuss business development and Kevin Van Aslin, Chief Financial Officer, to discuss our first quarter twenty twenty five financial and operating results. At this time, I would like to direct your attention to our forward looking disclosure statement.

Speaker 1

During this call, certain comments we make constitute forward looking statements and, as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non GAAP financial measures. We present EBITDA and adjusted EBITDA metrics 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. These non GAAP financial measures are not prepared in accordance with generally accepted accounting principles.

Speaker 1

Additional details regarding these non GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, can be found in our slide presentation and our first quarter twenty twenty five earnings press release and Forms 10 Q issued and filed on 05/08/2025. These are available on our website at ir.montaurenewables.com. After our remarks, we will open the call to questions. We do ask that you please keep one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean.

Speaker 2

Thank you, John. Good day, everyone, and thank you for joining our call. On 03/07/2025, the Environmental Protection Agency announced its delay of the 2024 Renewable Fuel Standard compliance deadline for all categories. The EPA has yet to decide on a proposed partial waiver of the 2024 cellulosic biofuel fuel volume requirements or the timing of its decision on this matter since its origination in their 12/05/2024 EPA announcement. As we have sold all of our V3 RINs associated with our 2024 RNG production, we have zero exposure to the timing and resolution of this 2024 proposed compliance waiver.

Speaker 2

We have entered into commitments to transfer the majority of our RINs in inventory related to 2025 RNG production at prices approximating the D3 RIN Index. The EPA biogas regulatory reform rule became effective in 2025, requiring the separation of RINs after dispensing, which is delayed approximately by one additional month, the ability to have RINs available for sale from current year production. Additionally, we believe the EPA extending the compliance period for 2024 has further delayed the timing of obligated party purchases of RINs from 2025 RNG production. Though regulatory uncertainty continues to impact the renewable natural gas industry in a variety of ways, We believe our overall financial position, our prudent operational and commercial practices, and our capacity under our existing $200,000,000 credit facility provides us the ability to maintain stability through this period of economic ambiguity. Our development efforts in North Carolina continue in full force, with an expectation to commence significant production and revenue generation activities in 2026.

Speaker 2

As previously noted, the favorable change in swine renewable energy credit generation enacted by the State of North Carolina in 2024 has us engaged in various stages of negotiations with obligated utilities to provide RECs from our expected 2026 production. Correspondingly, we continue to negotiate with utilities to purchase the power we intend to generate from the conversion of swine waste to energy starting in 2026. Our collection and transportation of feedstock swine waste continues to be refined to maximize feedstock solids and caloric value to minimize the transportation of low energy liquid waste and to pelletize a stable, odorless fuel supply for our patented reactor process. We are in the final commissioning stages of our second facility at our APEX site and expect completion in the second quarter of twenty twenty five. As previously discussed throughout 2024, we continue to expect a period of excess production capacity while the landfill host increases their waste intake.

Speaker 2

We continue to work with the landfill host as well as alternative gas transportation, offtake and equipment providing partners to evaluate alternatives to develop our Blue Granite project. As previously discussed, we have received notice from the utility in February 2025 that it will no longer accept R and D from any producer into its distribution system, a statement in direct opposition to the letter of intent they issued when we were awarded the gas rights to that site. We have prioritized our Atascifida location as the first of our biogenic CO2 projects to be developed, related to our previously announced agreement with European Energy. As previously announced, we are also progressing with our design and construction plans to incorporate food grade CO2 processing at our Rumke RNG project location, with an expected commissioning of Q3 twenty twenty seven and expected volumes of approximately 50,000 metric tons per year of food grade CO2 to be monetized independently from our agreement with European Energy. In October 2024, we announced a collaboration with Embolon to transform methane emissions from waste stream biogas into high value carbon negative fuel.

Speaker 2

Leveraging Embolon's patented technology, the initial pilot is a small scale demonstration of recovering and converting biogas into green methanol. The pilot project at our Atascocita facility in Houston, Texas, continues with Emvalon having installed their patented containerized processing technology. We do not expect short term financial benefits from this demonstration nor a disruption to our operations. And with that, I will turn the call over to Kevin.

Speaker 3

Thank you, Sean. I will be discussing our first quarter twenty twenty five financial and operating results. Please refer to our earnings press release and the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price and environmental attributes, including the market price for RINs. As we self market a significant portion of our RINs, a strategic decision not to commit to transfer available RINs during a period will impact our revenue and operating profit.

Speaker 3

We sold approximately 9,900,000 RINs, representing all RINs from 2024 gas production. Additionally, the impact of EPA rulemaking associated with the implementation of BRRR K2 separation and the extension of the 2024 RIN compliance period has temporarily impacted our entrance into RIN commitments for 2025 RNG production. As a result, we have approximately 3,900,000 RINs in inventory from 2025 RNG production. Also related to the new EPA BRRR rules, we have approximately 1,500,000 RINs generated but not yet separated to be available for sale. We have subsequently entered into commitments to transfer the majority of our RINs in inventory as of 03/31/2025, at prices approximating the D3 RIN Index.

Speaker 3

The average second quarter to date D3 RIN index price was approximately $2.47 Total revenues in the first quarter of twenty twenty five were $42,600,000 an increase of $3,800,000 or 9.8% compared to $38,800,000 in the first quarter of twenty twenty. The primary driver for this increase relates to an increase of 2,000,000 written sold in the first quarter of twenty twenty five compared to the first quarter of twenty twenty four due to the monetization of prior period RINs of approximately $6,800,000 that were carried into 2025. All 9,900,000 RINs sold within the first quarter of twenty twenty five related to 2024 RNG. Partially offsetting this impact was a decrease in realized RIN pricing during the first quarter of twenty twenty five to 2.46 compared to $3.25 in the first quarter of twenty twenty. Total general and administrative expenses were $8,800,000 for the first quarter of twenty twenty five, a decrease of $700,000 or 7.1% compared to $9,400,000 in the first quarter of twenty twenty four.

Speaker 3

Employee fee related costs, including stock based compensation, were $5,000,000 for the first quarter of twenty twenty five, a decrease of $700,000 or 12.5% compared to $5,700,000 in the first quarter of twenty twenty four. Turning to our segment operating metrics. I'll begin by reviewing our Renewable Natural Gas segment. We produced approximately 1,400,000.0 MMBtu of RNG during the first quarter of twenty twenty five, flat as compared to the approximate 1,400,000 during the first quarter of twenty twenty four. The Grumpy facility produced 39,000 MMBtu more in the first quarter of twenty twenty five compared to the first quarter of twenty twenty four as a result of previously disclosed plant processing equipment failure that occurred in

Speaker 4

the first quarter of twenty twenty four.

Speaker 3

Offsetting this increase was our APEC facility that produced 57,000 fewer MMBtu in the first quarter of twenty twenty five compared to the first quarter of twenty twenty four as a result of cold weather conditions impacting gas feedstock availability, well field extraction environmental factors, and site processing equipment failures. Revenues from the renewable natural gas segment during the first quarter of twenty twenty five were $38,500,000 an increase of $4,500,000 or 13.1% compared to 34,000,000 during the first quarter of twenty twenty four. Average commodity pricing for natural gas for the first quarter of twenty twenty five was 62.9% higher than the prior year period. During the first quarter of twenty twenty five, we self marketed 9,900,000 RINs, representing a $2,000,000 increase or 25.3% compared to 7,900,000 RINs self marketed during the first quarter of twenty twenty four. Average realized RIN price average pricing realized in RIN sales during the first quarter of twenty twenty five was $2.46 as compared to $3.25 during the first quarter of twenty twenty four, a decrease of 24.3%.

Speaker 3

This compares to the average D3 RIN index price for the first quarter of twenty twenty five of approximately $2.43 being approximately 22.1% lower than the average B3 RIN index price for the first quarter of twenty twenty four of $3.12 At 03/31/2025, we had approximately 400,000 MMBtu available for RIN generation, 1,500,000 RINs generated but unseparated, and 3,900,000 RINs separated and unsold. At March 2024, we had approximately 400,000 MMBtu available for RIN generation and 3,400,000 RINs generated and unsold. At 03/31/2024, there were no RINs generated but unseparated. Operating and maintenance expenses for our RNG facility during the first quarter of twenty twenty five were $14,100,000 an increase of $1,900,000 or 16.1 percent compared to $12,100,000 during the first quarter of twenty twenty four. The primary drivers of this increase were timing of preventative maintenance, media change out maintenance and well foot operational enhancement programs at our Apex, McCrory, Rumpy and Coastal facilities, respectively.

Speaker 3

We produced approximately 46,000 megawatt hours in renewable electricity during the first quarter of twenty twenty, a decrease of approximately 8,000 megawatt hours or 14.8% compared to 54,000 megawatt hours during the first quarter of twenty twenty four. Approximately 6,000 of this decrease in the first quarter of twenty twenty five compared to the first quarter of twenty twenty four resulted from our ceasing operations at our security facility in the first quarter of twenty twenty four resulting from the sale of the gas rights back to the landfill host. Revenues from renewable electricity facilities during the first quarter of twenty twenty five were $4,200,000 a decrease of $600,000 or 13.5% compared to $4,800,000 during

Speaker 4

the first quarter of twenty twenty four.

Speaker 3

The decrease is primarily driven by the aforementioned cessation of operations at our security facility. Our renewable electricity generation operating and maintenance expenses during the first quarter of twenty twenty five were $3,400,000 an increase of $1,100,000 or 46.2% compared to $2,300,000 during the first quarter of twenty The increase was primarily driven by an increase in noncapitalizable costs at our Montauk Ag Renewables project in Turkey, North Carolina. Our Tulsa facility operating and maintenance expenses increased approximately $300,000 primarily related

Speaker 1

and maintenance.

Speaker 3

During the first quarter of twenty twenty five, we reported impairments of $2,000,000 an increase of $1,500,000 compared to $500,000 in the first quarter of twenty twenty four. The increase primarily relates to the specifically identified impairment of RNG equipment design at our Blue Granite RNG project. The local gas utility informed us that it would no longer be accepting RNG into their distribution system, which has been changed from the letter of intent we received from the utility when we reported the gas price for the site. We did not report any impairments related to our assessment of future cash flows. Operating income for the first quarter of twenty twenty five was $400,000 a decrease of $2,000,000 compared to operating income of $2,400,000 in the first quarter of twenty twenty five.

Speaker 3

R and D operating income for the first quarter of twenty twenty five was $10,400,000 a decrease of $1,200,000 or 10.5% compared to operating income of $11,600,000

Speaker 4

for the first quarter of twenty twenty four.

Speaker 3

Renewable electricity generation operating loss for the first quarter of twenty twenty five was $1,000,000 a decrease of 1,400,000.0 compared to an operating income of $400,000 for

Speaker 4

the first quarter of twenty twenty four.

Speaker 3

Turning to our balance sheet. At 03/31/2025, dollars '50 '3 million was outstanding under our term loan. As of 03/31/2025, the company's capacity available for borrowing under our existing revolving credit facility remained at $117.89 During the first quarter of twenty twenty five, we generated $9,100,000 of cash from operating activities, a 36% decrease from the prior year fiscal period ended 03/31/2024, of cash provided by operating activities of $14,300,000 Based on our estimates of the present value of obligation, we recorded a decrease of $400,000 to the liability at 03/31/2021. This decrease was recorded through our RNG segment royalty expense. In the first quarter of twenty twenty five, capital expenditures were approximately 11,600,000.0 of which approximately $6,100,000 and $5,900,000 were related to our ongoing development of Montauk Ag Renewables in our second APAC facility, respectively.

Speaker 3

As of 03/31/2025, we had cash and cash equivalents, net of restricted cash, of approximately $40,100,000 We had accounts and other receivables of approximately $8,500,000 We don't believe we have any collectability issues within our receivables status. Adjusted EBITDA for the for the first fiscal quarter of twenty twenty five was 8,800,000 a decrease of $700,000 or 7.2% compared to adjusted EBITDA of $9,500,000 for the first quarter of twenty twenty. EBITDA for the first quarter of twenty twenty five was approximately $6,700,000 a decrease of $2,100,000 or 24.1% compared to EBITDA of $8,900,000 for the first quarter of twenty twenty four. Net loss for the first quarter of twenty twenty five was $500,000 a decrease of 2,300,000 as compared to net income of $1,900,000 for

Speaker 4

the first quarter of twenty twenty four.

Speaker 3

Our income tax expense decreased approximately $600,000 for the first quarter of twenty twenty five as compared to the first quarter of twenty twenty four. The difference in effective tax rates between the twenty twenty five first quarter and the twenty twenty four first quarter primarily relates to the decrease in pretax income for the first quarter of twenty twenty five as compared to the first quarter of twenty twenty four. And with that, I'll now turn the call back over to Sean.

Speaker 2

Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations on the market price of environmental attributes, including the market price of D3 RINs, we are reaffirming our full year 2025 outlook provided in March 2025. For 2025, we expect our RNG production volumes to range between five point eight million and six million MMBtus, with corresponding RNG revenues to range between 150,000,000 and 170,000,000. We expect our 2025 renewable electricity production volumes to range between 364,000 MWh, with corresponding renewable electricity revenues to range between $17,000,000 and $18,000,000 And with that, we will pause for any questions.

Operator

As a reminder, if you'd like to ask a question at this time, please press 11 on your telephone Our first question comes from Samya Jayan with UBS.

Speaker 5

Hi, good morning guys. Could you provide more color on the RNG project at American Environmental Landfill? Are there there opportunities there for expansion, or how are you guys looking at that going forward?

Speaker 2

Yes. Earlier this year, we announced an exciting opportunity to convert or actually to build and construct an RNG processing facility at the American Environmental Landfill in Tulsa, Oklahoma. Currently that is the location of our smaller renewable electricity facility that will continue to be in operation as we are constructing that facility and will remain upon the completion of that facility. The decision to expand and to add the RNG facility is a product of a measurable amount of the increase in available gas feedstock associated with the collaboration with the landfill and some very targeted well field investment over the past six to nine months. So very excited to announce that project and to have another project in the portfolio that will have dual capacity for different production of commodities statutes.

Operator

Our next question comes from Matthew Blair with Tudor Pickering Holt.

Speaker 6

Thank you. And, good morning, Kevin and Sean. Do you have any more details on why you're having to relocate your Rumpke site? Is this something that the landowner is requiring? And if so, why?

Speaker 6

And then it sounds like the new site will be up in 2028. Will the existing Rumpke RNG plant be able to produce up until then? Or should we expect a gap in production at some point?

Speaker 2

Thanks, Matthew. Those are all excellent questions. Working in reverse, no, you will not expect any hiccups or pauses in production as we are taking the technology that exists there right now, which is really scattered across three separate facilities and different varying technologies and generations of it, into a consolidated facility that will have the capacity to now add food grade CO2 processing. It is born out of a contractual requirement associated with the gas rights, but is a great opportunity, as we have discussed in previous earnings releases, some of the challenges that we have had at that facility. It is one of our older technology deployments in our portfolio and to have the ability to target a refresh of that equipment as well as add what is hopefully going to be a very exciting food grade CO2 facility alongside of opportunity that's come out of that required change.

Operator

Our next question comes from Betty Jiang with Scotiabank. Thanks, good morning. Could I ask, in the first quarter, did you record any 45z credits?

Speaker 3

No. We have not as of yet.

Operator

As a reminder, if you'd like to ask a question at this time, please press 11 on your touch tone phone. Our next question comes from Tim Moore with Clear Street.

Speaker 7

Yes, hi. During their conference call last week, Waste Management mentioned they're advancing construction of eight additional RNG facilities on track for completion this year. Are you seeing any slowdown in RNG at any landfills or any of your customers?

Speaker 3

We

Speaker 2

are seeing, Tim, a slowdown in some of the acquisition opportunities that have come into the market space. You know, one can only speculate that that is due to some of the uncertainties. The EPA has has delayed the compliance periods for the renewable fuel standard, and new projects may or may not get delayed depending on how those projects are deployed by individual businesses. Where Montauk is focused on its current development projects and getting ahead of the curve on long lead time items, particularly those that are sourced external to The United States, and trying to reposition as much of the equipment that is necessary for these development projects to be sourced domestically. I think a lot of folks are also taking some form of pause as they're trying to evaluate the impacts that things like tariffs can have on their projects.

Speaker 2

To say that it's been a widespread delay or that it would be unusual for waste management to disclose that or for others in the space. We do have a significant amount of development going on internally to date, and so I see it as cautiously optimistic.

Operator

We have a follow-up question from Matthew Blair with Tudor Pickering Holt.

Speaker 6

Great. Thank you. Your North Carolina swine project is a little unique in the space. You know, we we don't see many swine projects. And so I was hoping you could just provide, you know, some rules of thumb and and a little bit more clarity on on the project, especially in regards to how it compares to your your opportunities on the dairy side.

Speaker 6

It it looks like the North Carolina swine project in terms of total size is is going to be pretty comparable to a typical dairy project. But how does it stack up versus dairy on things like a CI score, operating costs, and just overall capital efficiency?

Speaker 2

Matthew, that is a very complicated but exciting question. The North Carolina project that we are developing is definitively one of the most exciting projects that we have designed and constructed to date. It does differ significantly not only from our landfill projects, but also from projects that we have done previously in the agriculture space. The differences span just about every aspect of it. The approach that you are collaborating with the farming community is a much broader spoken hub process, dozens of farms, potentially more than that.

Speaker 2

The number of hog spaces that you're servicing, the turnover factor associated with that animal count. You are serving as a waste remover for the farming community as opposed to traditional landfill gas to energy projects where you're getting sort of traditional structures for the rights to that gas. You're providing a service which in turn provides you an opportunity to monetize on that feedstock. The centralization of that project has the capability of expanding to multiple sizes of a traditional, even a large dairy cluster project. This first phase where we will have seven of our patented reactor trains is legitimately the first phase, the ability to expand that multiple times just on the location that we've secured in Turkey, North Carolina, is truly an exciting opportunity.

Speaker 2

The diversification of what you produce out of that project, everything from the notion as to how we are going to create the feedstock, to create a stable, odorless, storable, pelletized fuel source, and to be able to use that fuel source in our patented reactor process to be able to generate methane that can be converted to RNG, to be able to create a number of nonmethane gases, which inclusive of methane can be used for electric generation, the ability to take advantage of the renewable electric credit program that is in North Carolina specifically for swine waste, the ability to expand that ultimately to pipeline quality RNG, to create char products that can serve either as an amendment to soil for rehabilitation or a meaningful component into mass production for fertilizer products, and the ability to attract a theoretical CI score which is significantly lower than what the best agriculture projects are out there due to the fact that it is an entirely closed loop system. All of those projects features make this a very attractive hedge in a portfolio that allows you to diversify not only the commodities that you're going to produce, but everything from how you approach your feedstock collection to the rights to it, to what you do with it in terms of commodity and attributes.

Speaker 2

It gives you an opportunity to be very patient in terms of how you deploy the capital, allow you to choose how and when you expand, targeting the farming community specifically to maximize the efficiency of transportation and the so called liquid management features of the waste. And so hopefully that gives

Speaker 3

you a little bit of

Speaker 2

a flavor for it. In 2026 we'll be very excited to showcase this project and to be able to expand in the analyst community to be able to really come on-site and see what this is all about.

Operator

We have a follow-up question from Tim Moore with Clear Street.

Speaker 7

Thanks. My follow-up question is around the operating and maintenance expense as a percentage of revenue. I know it was a bit high in the December and the March, you mentioned the Apex and the Ag facility and some one off expenses. So how should we think about that maybe as a percentage of revenues for the rest of the year? I mean, should we model closer to maybe 40% of revenue?

Speaker 2

Tim, that's always a challenge,

Speaker 3

sort of whatever we're focused on modeling our operating expenses as a percent of revenue, given our especially in twenty twenty five first and second quarter with this BRRRR impact and maybe a temporary pause in obligated parties sort of purchasing obligations from a RIN standpoint. So we try not to focus our operating costs as a function of revenues. And I know that that's not what an analyst wants to hear. We do a lot of work around focusing our operating cost as a unit of production. And to the extent that you're able to do that from a modeling standpoint, you might be able to more I don't want to say accurately, but better sort of project where our costs are going to go.

Speaker 3

And then that normal caveat with our though a smaller portion, our operating costs in our electric side are obviously going to be, have some timing differences on length and age of engines, for example, our broader power plant has been in service now for a number of years. And as we get to sort of the upper end of those run times on those engines, that expense over the next year or so to generally start increasing as the overhaul and maintenance on the original equipment manufacturer is going to increase. On the RNG side, we try to manage our timing for preventative maintenance in areas that find them whenever we're having a normal day or two outage. But as feedstock or environmental factors change, that could impact forward timing from sedative maintenance or a change in some more minor carbon media change outs. The long winded way of saying we do all of our internal modeling on operating costs by segment as from a basis of production as opposed to a percentage of revenue.

Speaker 3

And again, I know that that's not a good answer for you. We do all of our modeling from production to try to avoid the timing instances that we have from selling or not selling RINs in a given quarter.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Sean McLean for closing remarks.

Speaker 2

Thank you all for taking the time to join us on the conference call today. We look forward to speaking with you when we present our second quarter results for 2025.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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