Montauk Renewables, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. Unless noted otherwise, dollar amounts are in millions. Montauk develops and operates landfill- and agricultural-biogas projects, selling renewable natural gas (RNG), renewable electricity and associated environmental attributes.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $19.2 | $32.2 | -40.5% |
| Operating loss | $(14.2) | $(1.7) | Loss widened |
| Net loss | $(3.8) | $(1.1) | Loss widened |
| Adjusted EBITDA (non-GAAP) | $(8.4) | $7.0 | Declined |
| Cash from operating activities | $(11.8) | $9.6 | Turned negative |
| Capital expenditures | $13.3 | $2.4 | Increased |
Operating margin was approximately -74% versus -5% a year earlier; net margin was approximately -20% versus -3%. Loss per share was $0.03 versus $0.01. The $12.1 million income tax benefit substantially reduced the reported net loss; pre-tax loss was $15.8 million, compared with $1.4 million in Q1 2022. The filing attributes the tax-rate difference principally to production tax credits and discrete items.
- Revenue mix: RNG revenue was $14.8 million, down 54.7%; renewable electricity revenue was $4.4 million, up 10.0%. RNG production was 1,352 MMBtu, down 1.2%, while electricity output was 46 thousand MWh, up 2.2%.
- RINs: Average realized RIN price fell to $2.01 from $3.46. Montauk sold 2,949 RINs versus 6,485, principally because it deferred sales amid price volatility. The filing reports 8,266 RINs generated and unsold at quarter-end, including carryover, and separately identifies approximately 7,325 RINs from 2023 production.
- Expenses and interest: Total operating expenses declined 1.5% to $33.3 million, but maintenance and G&A costs increased. Interest expense rose to $1.7 million from $0.03 million, reflecting higher borrowing costs.
Cash, debt and liquidity
At March 31, cash and cash equivalents were $78.0 million, down from $105.2 million at December 31, 2022; cash, cash equivalents and restricted cash totaled $78.5 million. The quarter’s $27.1 million cash decline reflected operating cash use, $13.3 million of capital spending and $2.0 million of debt repayments. Long-term debt was $70.0 million before issuance costs, with no revolver borrowings; $4.5 million of letters of credit left $115.5 million available under the revolver. The interest rate was 6.64%, versus 4.12% at year-end. The company reported compliance with its financial covenants and expects liquidity to cover obligations and anticipated capital needs for at least 12 months.
Changes, outlook and risks
- Management links the revenue decline chiefly to fewer RIN sales and lower RIN and natural-gas prices; Q1 2022 also included $3.5 million of gas-hedge losses. The decision to retain RINs deferred revenue recognition, rather than indicating that the credits were unsold permanently.
- Management expects 2023 non-development capital expenditures of $15–19 million and development spending of $70–100 million, including Pico, Montauk Ag, the second Apex facility and Blue Granite. These are estimates, not guaranteed outcomes.
- Blue Granite in South Carolina is planned at about 900 MMBtu/day, with commercial operations expected in 2025. The Pico capacity project is expected to be functionally completed in Q3 2023; final increased dairy feedstock deliveries are expected in 2024.
- Montauk Ag has not reached commercial operations at its Turkey, North Carolina site; significant revenue is not expected before 2024. Management cautions that development plans may not meet expectations. A Bowerman RNG expansion remained under negotiation.
- McCarty’s landfill feedstock quality and volume have been affected by changes to the host’s collection system; management expects lower-than-historical volumes through year-end 2023. Pico operations may also be affected during capacity expansion.
- RIN prices and policy are material uncertainties: EPA’s final 2023–2025 RFS rules were expected by June 14, 2023, and proposed rules contemplated changes to RIN generation and a new electricity-RIN program. Other cited risks include environmental-attribute price volatility, incentives and regulatory changes, project execution, inflation, interest rates, feedstock availability and customer concentration.
- Four customers each contributed more than 10% of Q1 revenue; together they represented approximately 68.6%. The company also had a $9.0 million related-party receivable from Montauk Holdings, with a June 30, 2023 maturity. A $0.45 million impairment related to an out-of-use feedstock-processing component was recorded.
Key facts for investors to verify
- Whether the retained RIN inventory was transferred in Q2 as expected, and the realized prices and resulting revenue.
- Progress and remaining funding needs for Pico, Apex, Blue Granite and Montauk Ag, including schedule, cost and permitting or interconnection milestones.
- McCarty feedstock recovery, operating performance and the effect on RNG production and margins.
- Cash burn against planned development spending, revolver availability, rising interest expense and compliance with credit covenants.
- Repayment of the related-party receivable by its stated maturity and the implications of the disclosed customer concentration.