Montauk Renewables, Inc. (NASDAQ:MNTK) This autumn 2021 Earnings Convention Name March 16, 2022 5:00 PM ET

Firm Contributors

John Ciroli – VP, Normal Counsel & Secretary

Sean McClain – President, CEO & Director

Kevin Van Asdalan – CFO & Treasurer

Convention Name Contributors

Matthew Blair – Tudor, Pickering, Holt

Craig Irwin – ROTH Capital Companions

Craig Shere – Tuohy Brothers Funding Analysis

Operator

Good afternoon, everybody, and thanks for taking part in immediately’s convention name. I want to flip the decision over to Mr. John Ciroli as he offers some essential cautions concerning forward-looking statements contained within the earnings supplies or made on this name. John, please go forward.

John Ciroli

Thanks, and good afternoon, everybody. Welcome to Montauk Renewables Earnings Convention Name to evaluation fiscal 2021 monetary and working outcomes and developments. I am John Ciroli, Vice President, Normal Counsel and Secretary, at Montauk. Becoming a member of me immediately are Sean McClain, Montauk’s Chief Govt Officer and President, to debate enterprise developments; and Kevin Van Asdalan, Chief Monetary Officer, to debate our 2021 monetary and working outcomes.

Throughout this name, sure statements we make can be ahead wanting and based mostly on administration’s beliefs and assumptions and data at present out there to administration at the moment, together with with out limitation, statements regarding the corporate’s future outcomes of operations and monetary situations in addition to our expectations and plans for the corporate, equivalent to with our Montauk Ag Renewables venture in North Carolina, the Pico Enchancment Venture and Pico CI rating and market volatility and fluctuations in commodity costs and the market costs of environmental attributes. These statements are topic to identified and unknown dangers and uncertainties, a lot of which can be past our management, together with these set forth in our protected harbor provision for forward-looking statements that may be present in our 2021 earnings press launch, in our Type 10-Okay for the fiscal 12 months ended December 31, 2021 and in our different experiences in file with the SEC, and that gives additional element concerning the dangers associated to our enterprise.

Moreover, please notice that the corporate’s precise outcomes could differ materially from these anticipated and besides as required by regulation, we undertake no obligation to replace any forward-looking assertion. Our remarks immediately can also embody non-GAAP monetary measures. These non-GAAP monetary measures usually are not ready in accordance with usually accepted accounting ideas. Further particulars concerning these non-GAAP monetary measures, together with reconciliations to essentially the most instantly comparable GAAP monetary measures could be present in our slide presentation and in our fiscal 2021 earnings launch and Type 10-Okay issued and filed this afternoon. These can be found on our web site at ir.montaukrenewables.com. After our ready remarks, we’ll open the decision to questions. [Operator Instructions].

With that, I’ll flip the decision over to Sean.

Sean McClain

Thanks, John. Hey everybody, and thanks for becoming a member of our name. I need to begin this name with a abstract of the key occasions for Montauk throughout 2021. In January 2021, the corporate accomplished the preliminary public providing of its widespread inventory on the NASDAQ capital market and its associated reorganization transactions, together with the secondary itemizing of its widespread inventory on the Johannesburg Inventory Trade.

In Could of 2021, we accomplished the Montauk Ag renewables asset acquisition in North Carolina to buy creating know-how to get better residual pure assets from waste streams of contemporary agriculture and to refine and recycle such waste merchandise by way of proprietary and different processes as a way to produce top quality, renewable pure fuel, bio oil and biochar.

In August of 2021, we have been granted a patent of over 24 particular elements of our steady feed closed loop reactor know-how acquired within the acquisition. In October of 2021, we closed on a $5.5 million greenback transaction to accumulate roughly 146 acres and in current roughly 500,000 sq. foot construction in North Carolina, which we plan to make use of as we pursue our improvement venture related to the Montauk Ag renewables acquisition.

We now have additionally executed grasp service agreements that present entry to waste feed inventory for Montauk Ag to course of. The feedstock can be swine waste supply from our farming associate areas. We don’t at present count on vital manufacturing to begin at Montauk Ag renewables North Carolina venture throughout 2022, based mostly on the present improvement timeline.

I additionally need to present an replace on our first dairy cluster venture, the Pico facility in Jerome, Idaho. As a part of our general capability growth on the Pico facility, we undertook vital efforts to enhance the efficiency of its current digestion course of. We briefly idled RNG manufacturing at this facility as a way to clear out settled solids within the digester, substitute the duvet of the digester and to make varied different effectivity enhancements. We now have accomplished the enhancements and RNG manufacturing has resumed at Pico.

At this stage of the capability growth has impacted the timeline for modeling Pico’s preliminary CI rating pathway mannequin in subsequent auditing approval by CARB, we didn’t obtain a short lived CI pathway in 2021 and weren’t in a position to generate LCFS credit score income on 2021 manufacturing. We’re, and we can be storing 2022 manufacturing from Pico whereas CARB completes its CI rating pathway. Although we count on to obtain the outcomes of this approval in the course of the second half of 2022, we don’t at present count on to obtain LCFS credit score income on Pico’s 2022 manufacturing till 2023.

And with that, I’ll flip the decision over to Kevin Van Asdalan, our Chief Monetary Officer.

Kevin Van Asdalan

Thanks, Sean. I can be discussing our 2021 monetary and working outcomes. Please confer with our earnings press launch and the supplemental slides which were posted to our web site for extra data. Whole revenues in 2021 have been $148.1 million, a rise of $47.7 million or 47.5% in comparison with a $100.4 million in 2020. The first driver for this improve associated to a rise of 45.5% in realized RIN pricing throughout 2021 of a $1.91 in comparison with a $1.31 in 2020.

Moreover, an elevated in pure fuel index pricing of roughly 46% in 2021 of $3.84 in comparison with $2.63 in 2020 and better revenues below our counterparty sharing preparations of roughly $8 million in 2021, in comparison with 2020, primarily associated to elevated RIN pricing additionally contributed to greater revenues.

Because it pertains to 2022 RINs, we’ve not ahead offered a good portion of anticipated era and our present 2022 RIN commitments are at a median D3 RIN worth of roughly $3.40 with commitments by way of June 2022. Whole normal and administrative bills have been $42.6 million for 2021, a rise of $26.0 million or 156.4% in comparison with $16.6 million for 2020. Of the full expense in 2021, $22.4 million is expounded to stock-based compensation prices primarily related to the IPO and reorganization transaction. Excluding the impacts of the IPO associated stock-based compensation expense, normal and administrative bills elevated roughly $3.3 million.

Company insurance coverage premiums for 2021 elevated roughly $2.9 million or 110.3% in comparison with 2020 resulting from elevated premiums related to the IPO. Skilled charges elevated roughly $1.4 million or 46.8% throughout 2021, primarily ensuing from our profitable completion of the IPO.

Turning to our section working metrics, I will start by reviewing our renewable pure fuel section. We produced $5.7 million in MMBtu of RNG throughout 2021, basically unchanged as in comparison with the variety of MMBtu produced in 2020. Of the 2021 volumes $0.1 million MMBtu of RNG was produced from improvement websites commissioned throughout 2020. Of the $0.2 million 2021 improve as in comparison with 2020 MMBtu of RNG produced at our different areas, this discount relates primarily to our McCarty facility.

The efficiency of the gathering system on the McCarty facility was hampered in 2021 by elevated volumes of water negatively impacting biogas assortment. As water ranges differ or improve, the flexibility to attract feed inventory could also be diminished. We additionally expertise course of gear failures on the McCarty facility in 2021 that impacted our assortment system.

Revenues from the renewable pure fuel section in 2021 have been $131.8 million, a rise of $48.6 million or 58.3% in comparison with $83.2 million in 2020. Common commodity pricing for pure fuel for 2021 was 46.0% greater than the prior 12 months.

Throughout 2021, we self-marketed $42.6 million RINs representing a $3.3 million or 8.3% improve in comparison with $39.3 million in 2020. The rise was primarily associated to an off-take settlement change in 2021, offering extra RNG volumes out there to self-market.

Common pricing realized on RIN gross sales throughout 2021 was a $1.91 as in comparison with a $1.31 in 2020, a rise of 45.5%. This compares to the typical D3 RIN index worth for 2021 of $3.02 being roughly 102.7% greater than the typical D3 RIN index worth in 2020. Working and upkeep bills for our RNG services in 2021 have been $38.1 million a rise of $4.6 million or 13.6% as in comparison with $33.6 million in 2020. Roughly $4.7 million of this improve pertains to improvement websites commissioned throughout 2020. Unique of the consequences of those improvement websites, working and upkeep bills for 2021 or $33.5 million, a lower of $0.1 million or 0.3% in comparison with 2020.

Within the first quarter of 2021, our Houston, Texas services have been favorably impacted by decrease utility charges on account of the climate occasion. Sure of our utility contracts have provisions that when we’re not utilizing utilities, the suppliers are in a position to contribute that capability again into the market and we obtain credit score in opposition to our future payments. The 2021 climate occasion, which briefly impacted our Texas facility’s utility consumption resulted in our RNG utilities being roughly $0.5 million decrease in 2021 as in comparison with 2020.

We produced roughly 183,000 megawat hours in renewable electrical energy throughout 2021, a lower of three,000 megawat hours from the 186,000 megawat hours produced in 2020. In 2021, our Bowerman facility produced 152 megawat hours, a rise of eight megawat hours or 5.3% over the 144 megawat hours produced in 2020. The elevated manufacturing in 2021 was primarily pushed by the California wildfires that pressured the power to briefly shut down in October, 2020 negatively impacting our 2020 manufacturing at Bowerman.

Offsetting this improve was our safety facility that had zero manufacturing in 2021 in comparison with eight megawat hours in 2020 resulting from ongoing tasks to revive the engines at our safety facility. Working and upkeep bills for our renewable electrical energy services in 2021 have been $10.4 million in improve of $0.6 million or 6.3% in comparison with $9.8 million in 2020. We reported the outcomes of Pico inside the renewable electrical energy era section till October 2020, and Pico contributed $1.4 million to the 2020 interval.

Unique of Pico, renewable electrical energy facility working and upkeep bills elevated by $2 million or 19.2% in 2021, in comparison with 2020. The rise is primarily a results of the timing of scheduled engine preventative upkeep intervals at our Bowerman facility, which was roughly $2.8 million greater in 2021 over 2020. Working revenue in 2021 was $3.3 million, a lower of $0.2 million or 6.9% in comparison with an working revenue of $3.6 million in 2020. R&D working revenue for 2021 was $50.4 million a rise of $28.1 million or 126.5% in comparison with $22.2 million in 2020. Renewable electrical energy era working loss for 2021 was $3.1 million, a lower of $0.8 million or 35.5% in comparison with an working lack of $2.3 million for 2020.

Turning to the stability sheet as of December 31, 2021, $80 million was excellent below our time period mortgage and we had no borrowings below our revolving credit score facility. The corporate’s capability out there for borrowing below the revolving credit score facility was roughly $116.1 million. Throughout December, 2021, we refinanced our credit score facility and entered into the fourth modification to the amended credit score settlement. The amended credit score settlement offered for a 5 12 months $80 million time period mortgage and a 5 12 months $120 million revolving credit score facility.

Throughout 2021, we generated $42.9 million of money from working actions, a 49.5% improve from 2020 of $28.7 million. For 2021, our capital expenditures have been roughly $10 million of which roughly $2.4 million associated to optimization tasks at our not too long ago commissioned services and $1 million associated to the Pico feedstock modification.

We acquired property for the Montauk Ag renewables acquisition in North Carolina of $4.1 million, together with acquisition prices of $0.3 million. We additionally closed on a $5.5 million transaction to accumulate roughly 146 acres and an current roughly 500,000 sq. foot construction in North Carolina, which we plan to make use of as we pursue our improvement venture related to the Montauk Ag renewables acquisition.

We current EBITDA and adjusted EBITDA metrics as a result of we imagine the measures help buyers in analyzing our efficiency throughout reporting interval on a constant foundation by excluding objects that we don’t imagine are indicative of our core working efficiency. Adjusted EBITDA for 2021 was $27.9 million a rise of $1.9 million or 7.3% over adjusted EBITDA of $26 million for 2020. EBITDA for 2021 was $25.4 million a rise of $0.4 million or 1.5% over EBITDA of $25.1 million for 2020.

Internet loss for 2021 decreased roughly $9.1 million or 198.4% from web earnings for 2020. The lower was partially associated to earnings tax expense for 2021 of $4.1 million rising $10.2 million or 169.4% in comparison with a advantage of earnings taxes in 2020 of $6 million.

I will flip the decision again over to Sean.

Sean McClain

Thanks, Kevin. In closing, we need to present our full 12 months 2022 outlook. We count on RNG manufacturing volumes to vary between $5.5 million and $6.8 million MMBtu with corresponding RNG revenues between $181 million and $226 million. We count on renewable electrical energy manufacturing volumes to vary between 189 megawatt and 231,000 megawatt hours with corresponding renewable electrical revenues between $17 million and $20 million.

And with that, we’ll pause for any questions.

Query-and-Reply Session

Operator

[Operator instructions] Our first query comes from Matthew Blair of Tudor, Pickering, Holt. Your line is open.

Matthew Blair

Hey good afternoon, Sean and Kevin. Thanks for taking my questions right here. The primary one, so your 2022 RNG manufacturing steerage it appears prefer it’s anyplace from down 4% to up 19% for subsequent 12 months, I suppose this 12 months. What are the elements that may push you to the low finish of the vary versus the excessive finish of the vary? And are there any main tasks that we must be searching for beginning up in 2022?

Sean McClain

I will take that originally, Sean. Matthew provided that feedstock is a various kind of residing organism, we’re at all times managing landfill host impacts. We’re aware as we publicly disclose that our McCarty location is experiencing issues with the landfill host that’s going to drive down our McCarty manufacturing volumes from their regular historic ranges. After which regarding the upside, we do have some improvement, not improvement, we do have tasks at sure of those services particularly among the newer fee as they proceed to undergo optimization that we imagine may drive volumes to that higher vary.

Operator

Thanks. Our subsequent query comes from Craig Irwin of ROTH Capital. Your line is open.

Craig Irwin

Thanks for taking my questions. So are you able to replace us on the Pico Carbs certification? The place will we stand there? What’s the course of for us to really Montauk D3? Sorry. LCFS credit on prime of the D3 and do you have got a listing there you could perhaps share with us of fuel that is generated and ready for finals certification? Thanks.

Sean McClain

Yeah, positive. Craig, we will speak a little bit bit about what we have completed on the Pico facility normally, after which what which means by way of monetization. So with Pico, as we’ve introduced briefly idling the power. In 2021, we introduced an executed modification with the dairy associate that we had of an Idaho to increase the feedstock that is out there for the entire cluster venture.

After we proceeded with that growth, we decided the primary most helpful step was to really refurbish the prevailing digester to extend its capability, in addition to the effectivity for RNG manufacturing, versus what it was initially optimized for, which was fiber restoration for the dairy.

So it was decided that if we briefly idled the power, cleaned out the prevailing digester and made a variety of enhancements to the digester, in addition to the dealing with of the feedstock, it might lead to a rise to the feedstock fuel to the RNG facility and in flip RNG manufacturing due to the surplus capability of that RNG plant that the worth of which might be properly in extra of the chance of not reaching any LCFS credit score income on the run fee that we had for 2021 manufacturing.

After the entire enhancements have been accomplished, the manufacturing volumes have greater than doubled within the first quarter in 2022. The expectation is that we are going to monetize LCFS credit score income for all of our 2022 manufacturing, the timing of which is a operate of CARB, with the variety of tasks that it’s at present processing its analysis and approval for. And the expectation is we’ll obtain that notification from CARB within the second half of 2022. So there is a chance, however our present expectation is we’d monetize these in 2023, the earliest that it might occur could be 1 / 4 sooner, relying on the timing the CARB comes again with that notification.

Craig Irwin

Okay. Only a clarification of if I’ll. So the fuel that is produced at this facility this 12 months will generate an LCFS credit score stock that may be liquidated on certification. Is that appropriate?

Sean McClain

I feel a greater technique to say it Craig, is the fuel that’s going into storage is eligible to generate LCFS credit when it comes out of storage and it’ll in flip then have the ability to monetize the LCFS credit score income, however you are proper. It’s contingent on the timing wherein CARB comes again and accredited that certification.

Operator

Thanks. Our subsequent query comes from Craig Shere of Tuohy Brothers. Your line is open.

Craig Shere

Hello surprise in case you may give us a little bit replace on what to anticipate this 12 months, so far as determination making and steerage that could be popping out across the Swine RNG alternative? Do you count on some extra definitive bulletins over the following quarter or two?

Sean McClain

Certain. With respect to North Carolina, as we disclosed beforehand, we have continued down the trail of our preliminary 5 12 months improvement venture. We have disclosed publicly the entire milestones which were related to that endeavor. Particularly we introduced our profitable award of our know-how patent in August of 2021. Our closing on a $5.5 million actual property and constructing property in North Carolina, which is able to really home the operations of the event venture and the execution of some preliminary service agreements with the farming companions that may present the feedstock volumes of the venture itself.

As we proceed to succeed in these milestones by way of improvement and the capital that we’ve already offered steerage on 4 2022, we’ll announce these publicly in the end.

Operator

Thanks. Our subsequent query comes from David McCall [indiscernible]. Your line is open.

UnidentifiedAnalyst

Good afternoon guys. Thanks for taking the query. I will observe up within the North Carolina. I really like the Montauk Ag. So you’ve got received the patent, the property, the folks, the companions. The query is, is admittedly when do you assume we may see manufacturing? You appear to be checking all of the packing containers in direction of making a remaining funding determination. You have received the Magnolia idea, you are bettering on it. So what is the essential path that is left for a remaining funding determination? Is that one thing we may count on in 2022? What would trigger that to not occur and what would perhaps trigger that to occur?

Sean McClain

I feel the query on the funding determination has already been resolved with the asset acquisition that we did in 2021. The query is to how we proceed with that funding is as a way to maximize the worth that we get out of this primary cluster venture. The variety of farms that we’ll be taking into consideration, the deployment of the newly patented know-how to what extent to optimize the worth that we get from each the RIN and the LCFS credit score markets to make sure that we’re servicing the farming neighborhood in the best way that this venture was initially designed and meant.

All of these items are staged processes that have to occur so as of prioritization, ensuring that we’re securing the obligations in addition to the rights to the farmers on the similar time, that we’re securing the orders for the essential items of apparatus that we’re optimizing the engineering with the teachings that we proceed to study and develop by way of our commercially operatable know-how that is already in existence in North Carolina. One of many reactors of which we’re taking a look at constructing as much as 20 of these on this cluster venture, in the true property buy that we had in North Carolina and October.

And in order we proceed to develop that, as we proceed to safe increasingly of those feedstock agreements, as we proceed to professional with main gear orders, as we proceed to offer steerage on something related to further capital developments for the 12 months and as we’ve a line of sight as to when these deliveries and the additional construct out of that venture ends in us having an expectation for that quarter of when we will begin manufacturing, these are all objects that may talk publicly in future disclosures.

Operator

Thanks. Our subsequent query comes from Matthew Blair of Tudor Pickering Holt. Your line is open.

Matthew Blair

Hello, thanks. If I may simply circle again to this Pico LCFS alternative, you talked about you doubled capability. I beforehand have capability at 330K MMBtu per 12 months. So doubling, it might be 660. I am displaying dairy LCFS credit round $60 per MMBtu after which if I take off like a 20% royalty on that, principally placing all this collectively, I am attending to about $32 million of potential annual income from Pico LCFS, which presumably would additionally, simply translate to EBITDA. So, is that the best method to consider it? Do these numbers sound roughly appropriate? And, I suppose, ought to we consider your underlying earnings energy as being this $2.22 midpoint steerage for ’22 plus this PCO LCFS alternative?

Sean McClain

No, that is a superb query. The steerage that we’ve offered has been unique to the capability growth by way of our manufacturing expectations. So directionally appropriate, within the sense that we’d be doubling these manufacturing numbers in 2022. Regarding the worth that you just count on to realize for the income monetization itself, one has to have a selected view that the corporate doesn’t present steerage on by way of the expectations of these attribute costs on the time that they are monetized. They don’t seem to be monetized upfront of era, and we count on to monetize these attributes extra probably than not in 2023, based mostly on the 2022 manufacturing and the discharge from storage.

Operator

Thanks. I am displaying no additional questions at the moment. I might like to show the decision again over to Sean McClain for any closing remarks.

Sean McClain

Thanks. And thanks all for taking the time to affix us on the convention name immediately. We sit up for talking with you on our 2022 first quarter convention name.

Operator

Thanks, women and gents, this does conclude immediately’s convention. Thanks all for taking part. It’s possible you’ll all disconnect. Have a fantastic day.