10-Q 1 d352918d10q.htm 10-Q 10-Q
falseQ1--12-31Montauk Renewables, Inc.0001826600First quarter of 2021 EBITDA ReconciliationFirst quarter of 2022 EBITDA Reconciliation 0001826600 2022-03-31 0001826600 2021-12-31 0001826600 2022-01-01 2022-03-31 0001826600 2021-01-01 2021-03-31 0001826600 2021-03-31 0001826600 2021-01-26 2021-01-26 0001826600 2021-01-26 0001826600 2021-01-01 2021-12-31 0001826600 2022-05-04 0001826600 2020-12-31 0001826600 us-gaap:LandMember 2022-03-31 0001826600 us-gaap:BuildingAndBuildingImprovementsMember 2022-03-31 0001826600 us-gaap:OtherMachineryAndEquipmentMember 2022-03-31 0001826600 us-gaap:DrillingRightsMember 2022-03-31 0001826600 us-gaap:ConstructionInProgressMember 2022-03-31 0001826600 mntk:LandUseRightsMember 2022-03-31 0001826600 mntk:InterconnectionMember 2022-03-31 0001826600 us-gaap:CustomerContractsMember 2022-03-31 0001826600 us-gaap:CorporateMember 2022-03-31 0001826600 mntk:RenewableElectricityGenerationMember 2022-03-31 0001826600 mntk:RenewableNaturalGasMember 2022-03-31 0001826600 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2022-03-31 0001826600 us-gaap:FairValueMeasurementsRecurringMember 2022-03-31 0001826600 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2022-03-31 0001826600 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2022-03-31 0001826600 mntk:TermLoansMember 2022-03-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2022-03-31 0001826600 us-gaap:RevolvingCreditFacilityMember 2022-03-31 0001826600 mntk:FromTwoThousandAndTwentyFiveAndUptoTwoThousandAndTwetnySixMember mntk:SecondAmendmentAndRestatedRevolvingCreditAndTermLoanAgreementMember mntk:TermLoansMember mntk:MehMember 2022-03-31 0001826600 us-gaap:LetterOfCreditMember 2022-03-31 0001826600 mntk:MnkAndHoskenConsolidatedInvestmentsLimitedMember 2022-03-31 0001826600 us-gaap:BuildingAndBuildingImprovementsMember 2021-12-31 0001826600 us-gaap:OtherMachineryAndEquipmentMember 2021-12-31 0001826600 us-gaap:DrillingRightsMember 2021-12-31 0001826600 us-gaap:ConstructionInProgressMember 2021-12-31 0001826600 us-gaap:LandMember 2021-12-31 0001826600 mntk:LandUseRightsMember 2021-12-31 0001826600 mntk:InterconnectionMember 2021-12-31 0001826600 us-gaap:CustomerContractsMember 2021-12-31 0001826600 us-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001826600 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel3Member 2021-12-31 0001826600 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001826600 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001826600 mntk:TermLoansMember 2021-12-31 0001826600 mntk:NitrogenOxidenoxCreditsMember 2021-12-31 0001826600 mntk:MnkAndHoskenConsolidatedInvestmentsLimitedMember 2021-12-31 0001826600 us-gaap:TreasuryStockMember 2022-01-01 2022-03-31 0001826600 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001826600 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001826600 mntk:NaturalGasCommodityMember us-gaap:TransferredAtPointInTimeMember 2022-01-01 2022-03-31 0001826600 mntk:NaturalGasCommodityMember us-gaap:TransferredOverTimeMember 2022-01-01 2022-03-31 0001826600 mntk:NaturalGasCommodityMember 2022-01-01 2022-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:NaturalGasEnvironmentalAttributesMember 2022-01-01 2022-03-31 0001826600 mntk:NaturalGasEnvironmentalAttributesMember 2022-01-01 2022-03-31 0001826600 mntk:ElectricCommodityMember us-gaap:TransferredOverTimeMember 2022-01-01 2022-03-31 0001826600 mntk:ElectricCommodityMember 2022-01-01 2022-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:ElectricEnvironmentalAttributesMember 2022-01-01 2022-03-31 0001826600 mntk:ElectricEnvironmentalAttributesMember 2022-01-01 2022-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember 2022-01-01 2022-03-31 0001826600 us-gaap:TransferredOverTimeMember 2022-01-01 2022-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:RenewableNaturalGasMember 2022-01-01 2022-03-31 0001826600 mntk:RenewableNaturalGasMember us-gaap:TransferredOverTimeMember 2022-01-01 2022-03-31 0001826600 mntk:RenewableNaturalGasMember 2022-01-01 2022-03-31 0001826600 mntk:RenewableElectricityGenerationMember us-gaap:TransferredAtPointInTimeMember 2022-01-01 2022-03-31 0001826600 us-gaap:TransferredOverTimeMember mntk:RenewableElectricityGenerationMember 2022-01-01 2022-03-31 0001826600 mntk:RenewableElectricityGenerationMember 2022-01-01 2022-03-31 0001826600 us-gaap:DrillingRightsMember 2022-01-01 2022-03-31 0001826600 us-gaap:CustomerContractsMember 2022-01-01 2022-03-31 0001826600 mntk:InterconnectionMember 2022-01-01 2022-03-31 0001826600 srt:NaturalGasPerThousandCubicFeetMember us-gaap:SalesMember us-gaap:CommodityContractMember 2022-01-01 2022-03-31 0001826600 us-gaap:CommodityContractMember us-gaap:OtherIncomeMember srt:NaturalGasPerThousandCubicFeetMember 2022-01-01 2022-03-31 0001826600 us-gaap:InterestRateSwapMember us-gaap:InterestExpenseMember 2022-01-01 2022-03-31 0001826600 us-gaap:CorporateMember 2022-01-01 2022-03-31 0001826600 mntk:RenewableNaturalGasMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerAMember 2022-01-01 2022-03-31 0001826600 mntk:RenewableElectricityGenerationMember mntk:CustomerCMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-01 2022-03-31 0001826600 mntk:CustomerEMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-01 2022-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerEMember mntk:RenewableNaturalGasMember 2022-01-01 2022-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerDMember 2022-01-01 2022-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerDMember mntk:RenewableNaturalGasMember 2022-01-01 2022-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerCMember 2022-01-01 2022-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerBMember 2022-01-01 2022-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerBMember mntk:RenewableNaturalGasMember 2022-01-01 2022-03-31 0001826600 mntk:CustomerAMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2022-01-01 2022-03-31 0001826600 mntk:SafeHarborContributionMember 2022-01-01 2022-03-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2022-01-01 2022-03-31 0001826600 us-gaap:EmployeeStockOptionMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2022-01-01 2022-03-31 0001826600 us-gaap:RestrictedStockUnitsRSUMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2022-01-01 2022-03-31 0001826600 us-gaap:RestrictedStockMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2022-01-01 2022-03-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2022-01-01 2022-03-31 0001826600 us-gaap:RestrictedStockMember 2022-01-01 2022-03-31 0001826600 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001826600 mntk:MnkAndHoskenConsolidatedInvestmentsLimitedMember 2022-01-01 2022-03-31 0001826600 mntk:NitrogenOxidenoxCreditsMember 2022-01-01 2022-03-31 0001826600 us-gaap:CommonStockMember 2021-01-01 2021-03-31 0001826600 mntk:MembersEquityMember 2021-01-01 2021-03-31 0001826600 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0001826600 us-gaap:TreasuryStockMember 2021-01-01 2021-03-31 0001826600 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:NaturalGasCommodityMember 2021-01-01 2021-03-31 0001826600 mntk:NaturalGasCommodityMember us-gaap:TransferredOverTimeMember 2021-01-01 2021-03-31 0001826600 mntk:NaturalGasCommodityMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:NaturalGasEnvironmentalAttributesMember 2021-01-01 2021-03-31 0001826600 mntk:NaturalGasEnvironmentalAttributesMember 2021-01-01 2021-03-31 0001826600 mntk:ElectricCommodityMember us-gaap:TransferredOverTimeMember 2021-01-01 2021-03-31 0001826600 mntk:ElectricCommodityMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:ElectricEnvironmentalAttributesMember 2021-01-01 2021-03-31 0001826600 mntk:ElectricEnvironmentalAttributesMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredOverTimeMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:RenewableNaturalGasMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredOverTimeMember mntk:RenewableNaturalGasMember 2021-01-01 2021-03-31 0001826600 mntk:RenewableNaturalGasMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredAtPointInTimeMember mntk:RenewableElectricityGenerationMember 2021-01-01 2021-03-31 0001826600 us-gaap:TransferredOverTimeMember mntk:RenewableElectricityGenerationMember 2021-01-01 2021-03-31 0001826600 mntk:RenewableElectricityGenerationMember 2021-01-01 2021-03-31 0001826600 us-gaap:DrillingRightsMember 2021-01-01 2021-03-31 0001826600 srt:NaturalGasPerThousandCubicFeetMember us-gaap:SalesMember us-gaap:CommodityContractMember 2021-01-01 2021-03-31 0001826600 srt:NaturalGasPerThousandCubicFeetMember us-gaap:OtherIncomeMember us-gaap:CommodityContractMember 2021-01-01 2021-03-31 0001826600 us-gaap:InterestExpenseMember us-gaap:InterestRateSwapMember 2021-01-01 2021-03-31 0001826600 us-gaap:CorporateMember 2021-01-01 2021-03-31 0001826600 mntk:CustomerDMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2021-01-01 2021-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:RenewableNaturalGasMember mntk:CustomerBMember 2021-01-01 2021-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerDMember mntk:RenewableNaturalGasMember 2021-01-01 2021-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerCMember 2021-01-01 2021-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerCMember mntk:RenewableNaturalGasMember 2021-01-01 2021-03-31 0001826600 mntk:CustomerBMember us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2021-01-01 2021-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerAMember 2021-01-01 2021-03-31 0001826600 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember mntk:CustomerAMember mntk:RenewableNaturalGasMember 2021-01-01 2021-03-31 0001826600 us-gaap:EmployeeStockOptionMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-01-01 2021-03-31 0001826600 us-gaap:RestrictedStockUnitsRSUMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-01-01 2021-03-31 0001826600 us-gaap:RestrictedStockMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-01-01 2021-03-31 0001826600 us-gaap:StockAppreciationRightsSARSMember us-gaap:GeneralAndAdministrativeExpenseMember 2021-01-01 2021-03-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember us-gaap:GeneralAndAdministrativeExpenseMember mntk:SectionEightyThreeBMember 2021-01-01 2021-03-31 0001826600 mntk:MnkAndHoskenConsolidatedInvestmentsLimitedMember 2021-01-01 2021-03-31 0001826600 mntk:MnkMember mntk:LoansAdvancedToRelatedPartiesMember 2021-01-26 2021-01-26 0001826600 mntk:SecondAmendmentMember mntk:MehMember 2019-09-12 2019-09-12 0001826600 mntk:MehMember mntk:TermLoansMember 2019-09-12 2019-09-12 0001826600 mntk:SecondAmendmentMember mntk:MehMember 2019-09-12 0001826600 mntk:MehMember mntk:SecondAmendmentMember 2021-12-21 2021-12-21 0001826600 mntk:MehMember mntk:TermLoansMember mntk:SecondAmendmentAndRestatedRevolvingCreditAndTermLoanAgreementMember mntk:ThroughTwoThousandAndTwentyFourMember 2021-12-21 2021-12-21 0001826600 mntk:SecondAmendmentMember mntk:MehMember 2021-12-21 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-01-31 2021-01-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-01-31 0001826600 mntk:RenewableNaturalGasMember 2021-03-31 0001826600 mntk:RenewableElectricityGenerationMember 2021-03-31 0001826600 us-gaap:CorporateMember 2021-03-31 0001826600 mntk:SectionEightyThreeBMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-03-31 0001826600 us-gaap:CommonStockMember 2021-12-31 0001826600 us-gaap:TreasuryStockMember 2021-12-31 0001826600 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001826600 us-gaap:RetainedEarningsMember 2021-12-31 0001826600 us-gaap:EmployeeStockOptionMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-12-31 0001826600 us-gaap:RestrictedStockUnitsRSUMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-12-31 0001826600 us-gaap:RestrictedStockMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-12-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember us-gaap:RestrictedStockMember 2022-03-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember us-gaap:RestrictedStockUnitsRSUMember 2022-03-31 0001826600 mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember us-gaap:EmployeeStockOptionMember 2022-03-31 0001826600 us-gaap:CommonStockMember 2022-03-31 0001826600 us-gaap:TreasuryStockMember 2022-03-31 0001826600 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001826600 us-gaap:RetainedEarningsMember 2022-03-31 0001826600 mntk:MembersEquityMember 2022-03-31 0001826600 mntk:MembersEquityMember 2020-12-31 0001826600 us-gaap:EmployeeStockOptionMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2020-12-31 0001826600 us-gaap:RestrictedStockUnitsRSUMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2020-12-31 0001826600 us-gaap:RestrictedStockMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2020-12-31 0001826600 us-gaap:EmployeeStockOptionMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-03-31 0001826600 us-gaap:RestrictedStockUnitsRSUMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-03-31 0001826600 us-gaap:RestrictedStockMember mntk:MontaukRenewablesIncEquityAndIncentiveCompensationPlanMember 2021-03-31 0001826600 us-gaap:CommonStockMember 2021-03-31 0001826600 us-gaap:TreasuryStockMember 2021-03-31 0001826600 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001826600 us-gaap:RetainedEarningsMember 2021-03-31 0001826600 mntk:MembersEquityMember 2021-03-31 iso4217:USD xbrli:shares utr:Year xbrli:pure iso4217:USD xbrli:shares mntk:Employees mntk:ReportableSegments
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                
Commission File Number:
001-39919
 
 
MONTAUK RENEWABLES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
85-3189583
(State or Other Jurisdiction of Incorporation or
 
(IRS Employer Identification No.)
Organization)
   
   
680 Andersen Drive, 5th Floor Pittsburgh,
   
Pennsylvania
 
15220
(Address of Principal Executive Offices)
 
(Zip Code)
(412)
747-8700
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
MNTK
 
The Nasdaq Capital Market
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.    Yes  ☒    No  ☐
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).    Yes  
    No  ☐
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:
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Smaller reporting company  
       
         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 4
, 2022 was 143,603,681 shares.
 
 
 

TABLE OF CONTENTS
 
        
Page
 
   
     6  
     
ITEM 1.
       6  
     
ITEM 2.
       27  
     
ITEM 3.
       42  
     
ITEM 4.
       42  
   
     43  
     
ITEM 1.
       43  
     
ITEM 1A.
       43  
     
ITEM 2.
       43  
     
ITEM 3.
       44  
     
ITEM 4.
       44  
     
ITEM 5.
       44  
     
ITEM 6.
       44  
   
     45  

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:
 
   
ADG
” refers to anaerobic digested gas.
 
   
CARB
” refers to the California Air Resource Board.
 
   
CNG
” refers to compressed natural gas.
 
   
CI
” refers to carbon intensity.
 
   
CWCs
” refers to cellulosic waiver credits.
 
   
D3
” refers to cellulosic biofuel with a 60% GHG reduction requirement.
 
   
D5
” refers to advanced biofuels with a 50% GHG reduction requirement.
 
   
EHS
” refers to environment, health and safety.
 
   
EIA
” refers to the U.S. Energy Information Administration.
 
   
EPA
” refers to the U.S. Environmental Protection Agency.
 
   
Environmental Attributes
” refer to federal, state and local government incentives in the United States, provided in the form of RINs, RECs, LCFS credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy.
 
   
FERC
” refers to the U.S. Federal Energy Regulatory Commission.
 
   
GHG
” refers to greenhouse gases.
 
   
JSE
” refers to the Johannesburg Stock Exchange.
 
   
LCFS
” refers to Low Carbon Fuel Standard.
 
   
LFG
” refers to landfill gas.
 
   
LNG
” refers to liquefied natural gas.
 
   
“MMBtu” refers to Metric Million British Thermal Unit.
 
   
PPAs
” refers to power purchase agreements.
 
   
RECs
” refers to Renewable Energy Credits.
 
   
Renewable Electricity
” refers to electricity generated from renewable sources.
 
   
RFS
” refers to the EPA’s Renewable Fuel Standard.
 
   
RINs
” refers to Renewable Identification Numbers.
 
   
RNG
” refers to renewable natural gas.
 
   
RPS
” refers to Renewable Portfolio Standards.
 
   
RVOs
” refers to renewable volume obligations.
 
   
WRRFs
” refers to water resource recovery facilities.
 
 
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. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “assume,” “believe,” “can have,” “contemplate,” “continue,” “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 future results of operations, financial condition, expectations and plans of the Company, including expected benefits of the Pico amendment and the Montauk Ag project in North Carolina, the anticipated completion of the engine repairs and resumption of operations at the Security facility, the resolution of gas collection issues at the McCarty facility, our estimated and projected costs, expenditures, and growth rates, our plans and objectives for future operations, growth, or initiatives, or strategies 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:
 
   
the impact of the ongoing COVID-19 pandemic on our business, financial condition and results of operations;
 
   
our ability to develop and operate new renewable energy projects, including with livestock farms;
 
   
reduction or elimination of government economic incentives to the renewable energy market;
 
   
delays in acquisition, financing, construction and development of new projects, including expansion plans into new areas such as agricultural waste;
 
   
the inability to complete strategic development opportunities;
 
   
disruptions in our supply chain due to transportation delays, travel restrictions, raw material cost increases and shortages, closures of businesses or facilities, and the associated costs and inflation related thereto;
 
   
the length of development and optimization cycles for new projects, including the design and construction processes for our renewable energy projects;
 
   
dependence on third parties for the manufacture of products and services;
 
   
the quantity, quality and consistency of our feedstock volumes from both landfill and livestock farm operations;
 
   
identifying suitable locations for new projects;
 
   
reliance on interconnections to distribution and transmission products for our Renewable Natural Gas and Renewable Electricity Generation segments;
 
   
our projects not producing expected levels of output;
 
   
the anticipated benefits of the Pico feedstock amendment and the Montauk Ag project in North Carolina and the anticipated completion of engine repairs and resumption of operations at the Security facility;
 
   
resolution of gas collection issues at the McCarty facility;
 
   
concentration of revenues from a small number of customers and projects;
 
   
dependence on our landfill operators;
 
   
our outstanding indebtedness and restrictions under our credit facility;
 
   
our ability to extend our fuel supply agreements prior to expiration;
 
   
our ability to meet milestone requirements under our PPAs;
 
4

   
existing regulations and changes to regulations and policies that effect our operations;
 
   
decline in public acceptance and support of renewable energy development and projects;
 
   
our expectations regarding Environmental Attributes;
 
   
our expectations regarding Environmental Attribute and commodity prices;
 
   
our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act (“JOBS Act”);
 
   
our expectations regarding future capital expenditures, including for the maintenance of facilities;
 
   
our expectations regarding the use of net operating losses before expiration;
 
   
our expectations regarding more attractive CI scores by regulatory agencies for our livestock farm projects;
 
   
market volatility and fluctuations in commodity prices and the market prices of Environmental Attributes and the impact of any related hedging activity;
 
   
regulatory changes in federal, state and international environmental attribute programs;
 
   
profitability of our planned livestock farm projects;
 
   
sustained demand for renewable energy;
 
   
security threats, including cyber-security attacks;
 
   
the need to obtain and maintain regulatory permits, approvals and consents;
 
   
potential liabilities from contamination and environmental conditions;
 
   
potential exposure to costs and liabilities due to extensive environmental, health and safety laws;
 
   
impacts of climate change, changing weather patterns and conditions, and natural disasters;
 
   
failure of our information technology and data security systems;
 
   
increased competition in our markets;
 
   
continuing to keep up with technology innovations;
 
   
our belief that the measures taken to remediate the material weakness identified in our internal control over financial reporting will improve our internal control over financial reporting
 
   
concentrated stock ownership by a few stockholders and related control over the outcome of all matters subject to a stockholder vote; and
 
   
other risks and uncertainties detailed in the section titled “Risk Factors” in our latest Annual Report on Form
10-K.
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.
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


MONTAUK RENEWABLES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data):
 
 
 
 
 
 
 
 
 
 
    
As of March 31,
2022
   
As of December 31,
2021
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 59,794     $ 53,266  
Accounts and other receivables
     5,578       9,338  
Related party receivable
     8,940       8,940  
Prepaid expenses and other current assets
     3,655       2,846  
Assets held for sale
     —         777  
    
 
 
   
 
 
 
Total current assets
   $ 77,967     $ 75,167  
Restricted cash -
non-current
   $ 328     $ 328  
Property, plant and equipment, net
     178,263       180,893  
Goodwill and intangible assets, net
     13,898       14,113  
Deferred tax assets
     10,806       10,570  
Non-current portion of derivative asset
 
 
368
 
 
 
 
Operating lease
right-of-use
assets
     231       305  
Other assets
     5,121       5,104  
    
 
 
   
 
 
 
Total assets
  
$
286,982
 
 
$
286,480
 
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 5,118     $ 4,973  
Accrued liabilities
     9,351       10,823  
Current portion of lease liability
     225       296  
Current portion of derivative
liability
     3,621       650  
Current portion of long-term debt
     7,828       7,815  
    
 
 
   
 
 
 
Total current liabilities
   $ 26,143     $ 24,557  
Long-term debt, less current portion
   $ 69,427     $ 71,392  
Non-current
portion of lease liability
     25       27  
Non-current
portion of derivative
liability
     —         189  
Asset retirement obligation
     5,379       5,301  
Other liabilities
     2,587       2,721  
    
 
 
   
 
 
 
Total liabilities
   $ 103,561     $ 104,187  
    
 
 
   
 
 
 
STOCKHOLDERS’ EQUITY
                
Common stock, $0.01 par value, authorized 690,000,000 shares; 143,603,681
and 143,584,827 shares 
issued at March 31, 2022
 
and December 31, 2021, respectively
; 141,057,772
and 141,015,213 
 

shares outstanding at March 31, 2022
 
and December 31, 2021, respectively
   $ 1,410     $ 1,410  
Treasury stock, at cost, 959,344
and 950,214
shares at March 31, 2022 and December 31, 2021,

respectively
     (10,904     (10,813
Additional
paid-in
capital
     198,558       196,224  
Retained deficit
     (5,643     (4,528
    
 
 
   
 
 
 
Total stockholders’ equity
   $ 183,421     $ 182,293  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
  
$
286,982
 
 
$
286,480
 
    
 
 
   
 
 
 
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
 
7
MONTAUK RENEWABLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for share and per share data):
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended
March 31,
 
    
2022
   
2021
 
Total operating revenues
   $ 32,169     $ 31,447  
Operating expenses:
                
Operating and maintenance expenses
   $ 13,201     $ 10,612  
General and administrative expenses
     8,495       20,452  
Royalties, transportation, gathering and production fuel
     7,206       6,218  
Depreciation, depletion and amortization
     5,153       5,737  
Gain on insurance proceeds
     (313     (82
Impairment loss
     51       626  
Transaction costs
     27       88  
    
 
 
   
 
 
 
Total operating expenses
   $ 33,820     $ 43,651  
Operating loss
   $ (1,651   $ (12,204
Other (income) expenses:
                
Interest expense
   $ 32     $ 646  
Net gain on sale of assets
     (293    
 
Other (income) expense
     (17     33  
    
 
 
   
 
 
 
Total other (income) expenses
   $ (278   $ 679  
Loss before income taxes
   $ (1,373   $ (12,883
Income tax (benefit)
 
expense
     (258     1,382  
    
 
 
   
 
 
 
Net loss
   $ (1,115   $ (14,265
    
 
 
   
 
 
 
Loss per share:
                
Basic
   $ (0.01   $ (0.10
Diluted
   $ (0.01   $ (0.10
Weighted-average common shares outstanding:
                
Basic
     141,045,477       141,015,213  
Diluted
     141,045,477       141,015,213  
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
 
8

MONTAUK RENEWABLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Common Stock
    
Treasury Stock
         
Additional

Paid-in

Capital
    
Retained

Earnings
(Deficit)
       
    
Shares
    
Amount
    
Shares
    
Amount
   
Member’s
Equity
   
Total
Equity
 
Balance at December 31, 2020
  
 
—  
 
  
$
—  
 
  
 
—  
 
  
$
—  
 
 
$
159,622
 
 
$
—  
 
  
$
—  
 
 
$
159,622
 
Effect of reorganization transactions
     138,312,713        1,383        —          —         (159,622     158,239        —            
IPO common stock
     2,702,500        27        —          —         —         15,566        —         15,593  
Treasury stock
     —                   950,214        (10,813     —                  —         (10,813
Net loss
     —          —          —          —         —         —          (14,265     (14,265
Stock-based compensation
     —          —          —          —         —         14,598        —         14,598  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balance at March 31, 2021
  
 
141,015,213
 
  
$
1,410
 
  
 
950,214
 
  
$
(10,813
 
$
—  
 
 
$
188,403
 
  
$
(14,265
 
$
164,735
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2021
  
 
141,015,213
 
  
$
1,410
 
  
 
950,214
 
  
$
(10,813
 
$
—  
 
 
$
196,224
 
  
$
(4,528
 
$
182,293
 
Vesting of stock awards
 
 
42,559
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock
     —          —          9,130        (91     —         —          —         (91
Net loss
     —          —          —          —         —         —          (1,115     (1,115
Stock-based compensation
     —          —          —          —         —         2,334        —         2,334  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balance at March 31, 2022
  
 
141,057,772
 
  
$
1,410
 
  
 
959,344
 
  
$
(10,904
 
$
—  
 
 
$
198,558
 
  
$
(5,643
 
$
183,421
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.
 
9

MONTAUK RENEWABLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands):
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended
March 31,
 
    
2022
   
2021
 
Cash flows from operating activities:
                
Net loss
   $ (1,115   $ (14,265
Adjustments to reconcile net
loss
to net cash provided by operating activities:
                
Depreciation, depletion and amortization
     5,153       5,737  
(Benefit) provision
for deferred income taxes
     (236     1,066  
Stock-based compensation
     2,334       14,598  
Derivative
mark-to-market
and settlements
     2,415       (418
Gain on property insurance proceeds
     (313     (82
Accretion of asset retirement obligations
     98       138  
Net gain on sale of assets
     (293    
 
Amortization of debt issuance costs
     108       137  
Impairment loss
     51       626  
Changes in operating assets and liabilities:
                
Accounts and other receivables and other current assets
     2,949       2,634  
Accounts payable and other accrued expenses
     (1,554     (2,402
    
 
 
   
 
 
 
Net cash provided by operating activities
   $ 9,597     $ 7,769  
Cash flows from investing activities:
                
Capital expenditures
   $ (2,378   $ (1,335
Proceeds from insurance recovery
     313       82  
Proceeds from sale of assets
     1,088      
 
    
 
 
   
 
 
 
Net cash used in investing activities
   $ (977   $ (1,253
Cash flows from financing activities:
                
Repayments of long-term debt
   $ (2,000   $ (2,500
Proceeds from initial public offering
     —         15,593  
Treasury stock purchase
     (91     (10,813
Related party receivable
    
      (7,140
    
 
 
   
 
 
 
Net cash used in financing activities
   $ (2,091   $ (4,860
Net increase in cash and cash equivalents and restricted cash
   $ 6,529     $ 1,656  
Cash and cash equivalents and restricted cash at beginning of period
   $ 53,612     $ 21,559  
    
 
 
   
 
 
 
Cash and cash equivalents and restricted cash at end of period
   $ 60,141     $ 23,215  
    
 
 
   
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash at end of period:
                
Cash and cash equivalents
   $ 59,794     $ 22,643  
Restricted cash and cash equivalents - current
     19       —    
Restricted cash and cash equivalents -
non-current
     328       572  
    
 
 
   
 
 
 
    
$
60,141
 
 
$
23,215
 
    
 
 
   
 
 
 
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 30 years of experience in the development, operation and management of landfill methane-fueled renewable energy projects. The Company has current operations at 15 operating projects located in California, Idaho, Ohio, Oklahoma, Pennsylvania, North Carolina and Texas. The Company sells RNG and Renewable Electricity, taking advantage of Environmental Attribute premiums available under federal and state policies that incentivize their use.
Two of the Company’s key revenue drivers are the selling of captured gas and the selling 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 60% greenhouse gas reduction requirement) RIN. The RINs are compliance units for fuel blenders that were created by the RFS program in order to reduce greenhouse gases and imported petroleum into the United States.
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 selling 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, rebates, 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.
Background and Reorganization Transactions
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. Prior to the Reorganization Transactions, MNK’s business and operations were conducted entirely through Montauk USA and its U.S. subsidiaries, and MNK held no substantial assets other than equity of Montauk USA. The Company had no significant operations or assets prior to January 4, 2021 when it engaged in the equity exchange with Montauk USA and MNK.
 
11

After completion of the Reorganization Transactions, (i) Montauk USA ceased to own any substantial assets and (ii) all entities through which MNK’s business and operations were conducted became owned, directly or indirectly, by the Company. MNK adopted a plan contemporaneously with the completion of the Reorganization Transactions that authorized the liquidation and dissolution of MNK.
On January 15, 2021, MNK sold the membership interest of Montauk USA to a third party. On January 26, 2021, MNK distributed all of the outstanding shares of the Company’s common stock as a pro rata dividend to the holders of MNK’s ordinary shares (the “Distribution”), subject to any tax withholding obligations under applicable South African law. Each ordinary share of MNK outstanding on January 21, 2021, the record date for the Distribution (the “Record Date”), entitled the holder thereof to receive one share of the Company’s common stock.
On January 26, 2021, the Company closed the initial public offering of its common stock on the Nasdaq Capital Market (the “IPO”) with the shares traded under the symbol “MNTK”. Montauk Renewables issued 2,702,500 shares at $8.50 per share and received gross proceeds of $22,971. The Company’s common stock was also secondarily listed on the Johannesburg Stock Exchange
(“JSE”) under the trading symbol “MKR”. 
On January 26, 2021, the Company entered into a Loan Agreement and Secured Promissory Note (as amended on February 22, 2021 and December 22, 2021) with MNK pursuant to which the Company advanced a cash loan to MNK for MNK to pay its dividends tax liability arising from the Reorganization Transactions under the South African Income Tax Act, 1962 (Act No. 58 of 1962), as amended. The terms of the loan following the amendments are substantially similar to the initial loan agreement and were primarily entered into to increase the principal amount outstanding under the loan to $8,940 in the aggregate, in accordance with Montauk Renewables’ obligations set forth in the Transaction Implementation Agreement. MNK is currently an affiliate of the Company and certain of the Company’s directors and executive officers are also directors and executive officers of MNK. See Note 17 for more information.
MNK was delisted from the JSE on January 26, 2021. MNK is expected to be liquidated within 24 months of the Distribution.

12


COVID-19
In March 2020, the World Health Organization classified the outbreak of
COVID-19
as a pandemic and recommended containment and mitigation measures worldwide. In response to the
COVID-19
pandemic and related mitigation measures, we began implementing changes in our business in March 2020 to protect our employees and customers, and to support appropriate health and safety protocols. For example, we arranged shifts at facilities to stagger employees to assist with following social distancing protocols, utilized overnight and weekend remote facility monitoring during normal operating shifts, implemented extensive cleaning and sanitation processes for both facilities and office spaces, incorporated temperature checks and facial covering requirements, instituted employee and visitor fitness questionnaires, restricted corporate travel and visitor access to sites and implemented work-from-home initiatives for certain employees. Further, we established the Infectious Disease and Response Committee (the “
IDRC
”) to lead the development and implementation of Montauk Renewables’ Infectious Disease and Response Plan and to oversee the company’s response to any infectious disease event. These measures resulted in additional costs, which we expect to continue to incur as we work to address employee safety.
While we have not experienced any material disruptions in our ability to continue business operations or experienced a material negative impact to our financial results due to the
COVID-19
pandemic for the year ended December 31, 2021 or the three months ended March 31, 2022, certain aspects of our business, financial condition and results of operations were negatively impacted during the year ended December 31, 2020. These disruptions included the delay of commissioning of development sites for up to five months resulting in delays to registrations and qualifications necessary for EPA pathways and delays in revenue streams from these facilities, contract cancellations, and a decrease in operational efficiency in maintenance and operations.
The situation surrounding the
COVID-19
pandemic remains uncertain. The extent to which the
COVID-19
pandemic may affect our business, operating results, financial condition, or liquidity in the future will depend on future developments, including the duration of the outbreak, the emergence of more contagious or virulent strains of the virus, travel restrictions, business and workforce disruptions, the availability, uptake and efficacy of vaccines, and the effectiveness of actions taken to contain and treat the disease. Even after the
COVID-19
pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting supply chain disruptions or economic downturn. Furthermore, the impacts of potential worsening of global economic conditions, inflation, and continued disruptions to and volatility in the financial markets remain unknown.
 
13

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions of the SEC on Form
10-Q
and Rule
10-01
of Regulation
S-X.
Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form
10-K
filed with the SEC on March 16, 2022 (the “2021 Annual Report”). The results of operations for the three months ended March 31, 2022 in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2021, has been derived from the audited financial statements as of that date. For further information, refer to our audited financial statements and notes thereto included for the year ended December 31, 2021 in the 2021 Annual Report.
Retrospective Presentation of Ownership Exchange
As discussed in Note 1, as a result of the Reorganization Transactions, the Company acquired the assets and entities (excluding Montauk USA) which were previously owned by MNK. As part of the Reorganization Transactions, a 1:1
pro rata exchange of shares of the Company’s common stock was made to holders of MNK’s ordinary shares. The Reorganization Transactions resulted in a pro rata exchange whereby the ownership of the Company after the Reorganization Transactions was identical to the ownership of MNK prior to the Reorganization Transactions and was therefore akin to a common control transaction. All member’s equity in the financial statements and notes have been retrospectively adjusted to give effect to the 1:1 ratio, as if such pro rata exchange occurred as of all pre-IPO periods presented, including periods presented on the unaudited condensed consolidated balance sheets, condensed consolidated statements of operations, consolidated statements of stockholders’ equity and notes to the condensed consolidated financial statements contained herein. 
Segment Reporting
The Company reports segment information in three segments: RNG, Renewable Electricity Generation and Corporate. This is consistent with the internal reporting provided to the chief operating decision maker who evaluates operating results and performance. The aforementioned business services and offerings described in Note 1 are grouped and defined by management as two distinct operating segments: RNG and Renewable Electricity Generation. Below is a description of the Company’s operating segments and other activities.
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 & Other 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.
 
14

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.
Equity-Based Compensation
The Company accounts for equity-based compensation under the provisions of ASC 718, Compensation—Stock Compensation, (“ASC 718”). ASC 718 requires compensation costs related to share-based payment transactions, measured based on the fair value of the instruments issued, be recognized in the consolidated financial statements over the requisite service period of the award. Stock options are initially measured on the grant date using the Black-Scholes valuation model, which requires the use of subjective assumptions related to the expected stock price volatility, term, risk-free interest rate and dividend yield. For restricted stock and restricted stock units, the Company determines the grant date fair value based on the closing market price per share of the stock on the date of the grant.
Recently Issued Accounting Standards
In September 2016, the FASB issued ASU No. 2016-13,
Financial Instruments—Credit Losses
. The new guidance changes how entities measure credit losses on financial instruments and the timing of when such losses are recorded. The new standard is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06,
Debt: Debt with Conversion and Other Options
(Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)
, which simplifies the accounting for convertible instruments and contracts in an entity’s own equity. This guidance is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2020. The Company currently does not anticipate this ASU will have a material impact on its consolidated financial statements or related financial statement disclosures.
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 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.
NOTE 3 – ASSET IMPAIRMENT
The Company recorded an impairment loss of $51 and $626
for the three months ended March 31, 2022 and 2021, respectively. The first quarter 2022 impairment related to computer software and hardware no longer being utilized. The first quarter 2021 impairment was due to a notice received from a landfill host in February 2021 amending the underlying gas rights agreement to remove and begin decommissioning activities related to one of the Company’s renewable electric generation sites. 
NOTE 4 – REVENUES FROM CONTRACTS WITH CUSTOMERS
The following tables display the Company’s revenue by major source, excluding realized and unrealized gains or losses under the Company’s gas hedge program, based on product type and timing of transfer of goods and services for the three months ended March 31, 2022 and 2021:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2022
 
    
Goods
transferred
at a point in time
    
Goods
transferred
over time
    
Total
 
Major Goods/Service Line:
                          
Natural Gas Commodity
   $ 405      $ 9,488      $ 9,893  
Natural Gas Environmental Attributes
     22,710        —          22,710  
Electric Commodity
     —          2,385        2,385  
Electric Environmental Attributes
     1,649        —          1,649  
    
 
 
    
 
 
    
 
 
 
     $ 24,764      $ 11,873      $ 36,637  
    
 
 
    
 
 
    
 
 
 
Operating Segment:
                          
RNG
   $ 23,115      $ 9,488      $ 32,603  
REG
     1,649        2,385        4,034  
    
 
 
    
 
 
    
 
 
 
     $ 24,764      $ 11,873      $ 36,637  
    
 
 
    
 
 
    
 
 
 
 
15

 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2021
 
    
Goods
transferred at
a point in time
    
Goods
transferred
over time
    
Total
 
Major Goods/Service Line:
                          
Natural Gas Commodity
   $ 3,976      $ 6,695      $ 10,671  
Natural Gas Environmental Attributes
     17,452        —          17,452  
Electric Commodity
     —          2,273        2,273  
Electric Environmental Attributes
     1,051        —          1,051  
    
 
 
    
 
 
    
 
 
 
     $ 22,479      $ 8,968      $ 31,447  
    
 
 
    
 
 
    
 
 
 
Operating Segment:
                          
RNG
   $ 21,428      $ 6,695      $ 28,123  
REG
     1,051        2,273        3,324  
    
 
 
    
 
 
    
 
 
 
     $ 22,479      $ 8,968      $ 31,447  
    
 
 
    
 
 
    
 
 
 
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 condensed consolidated statements of operations.
 
For the three months ended March 31, 2022 and 2021, there were no reserves for uncollectible accounts.
Accounts and other receivables consist of the following as of March 31, 2022 and December 31, 2021:
 
 
 
 
 
 
 
 
 
 
    
March 31,
2022
    
December, 31
2021
 
Accounts receivables
   $ 5,518      $ 9,281  
Other receivables
     35        26  
Reimbursable expenses
     25        31  
    
 
 
    
 
 
 
Accounts and other receivables
   $ 5,578      $ 9,338  
    
 
 
    
 
 
 
NOTE 6 – ASSETS HELD FOR SALE
In 2021, the Company initiated a plan to sell nitrogen oxide (“NOx”) emissions allowances credits. The Company concluded that it met the criteria under applicable guidance for a long-lived asset to be held for sale, and accordingly reclassified the emissions allowances of
 $777
as current assets held for sale on the Consolidated Balance Sheet at December 31, 2021. The Company estimated the fair value of these assets and concluded that the fair value exceeded the carrying value and no impairment was recorded by the Company for the year ended December 31, 2021. In March 2022, the NOx emissions allowances credits were sold for
 $1,088
.
A $311 gain on sale of intangible assets was recorded for the three months ended March 31, 2022.
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following as of March 31, 2022 and December 31, 2021:
 
 
 
 
 
 
 
 
 
 
    
March 31,
2022
   
December, 31
2021
 
Land
   $ 595     $ 595  
Buildings and improvements
     28,967       28,693  
Machinery and equipment
     247,667       246,670  
Gas mineral rights
     34,551       34,551  
Construction work in progress
     12,698       12,725  
    
 
 
   
 
 
 
Total
     324,478       323,234  
Less: Accumulated depreciation and amortization
     (146,215     (142,341
    
 
 
   
 
 
 
Property, plant & equipment, net
   $ 178,263     $ 180,893  
    
 
 
   
 
 
 
Depreciation expense for property plant and equipment was $4,810 and $4,955 and amortization expense for gas mineral rights was $128 and $491 for the three months ended March 31, 2022 and 2021, respectively.
 
16

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS, NET
Intangible assets consist of the following as of March 31, 2022 and December 31, 2021:
 
 
 
 
 
 
 
 
 
 
    
March 31,
2022
    
December 31,
2021
 
Goodwill
   $ 60      $ 60  
Intangible assets with indefinite lives:
                 
Land use rights
     329        329  
Intangible assets with finite lives:
                 
Interconnection, net of accumulated amortization of $3,241 and $3,034
   $ 12,320      $ 12,526  
Customer contracts, net of accumulated amortization of $17,094 and $17,085
   $ 1,189      $ 1,198  
    
 
 
    
 
 
 
Total intangible assets with finite lives:
   $ 13,509      $ 13,724  
    
 
 
    
 
 
 
Total Goodwill and Intangible assets
  
$
13,898
 
  
$
14,113
 
    
 
 
    
 
 
 
The weighted average remaining useful life of the customer contracts and interconnection is approximately 15 years and 17 years, respectively. Amortization expense was $215 and $291 for the three months ended March 31, 2022 and 2021, respectively.
NOTE 9 – ASSET RETIREMENT OBLIGATIONS
The following table summarizes the activity associated with asset retirement obligations of the Company as of March 31, 2022 and December 31, 2021:
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended
March 31,

2022
   
Year Ended

December 31,
2021
 
Asset retirement obligations - beginning of period
   $ 5,301     $ 5,689  
Accretion expense
     98       (160
Decommissioning
     (20     (228
    
 
 
   
 
 
 
Asset retirement obligations - end of period
   $ 5,379     $ 5,301  
NOTE 10 – DERIVATIVE INSTRUMENTS
To mitigate market risk associated with fluctuations in energy commodity prices (natural gas) and interest rates, the Company utilizes various derivative contracts to secure energy commodity pricing and interest rates 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. As a result of the economic hedging strategies employed, the Company had the following realized and unrealized gains and losses in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021:​​​​​​​
 
 
 
 
 
 
 
 
 
 
 
 
 
 
           
Three Months Ended
 
Derivative Instrument
  
Location
    
March 31,
2022
   
March 31,
2021
 
Commodity contracts:
                         
Realized natural gas
     Gas commodity sales      $ (1,016   $     
Unrealized natural gas
     Other income        (3,451         
Interest rate swaps
     Interest expense        1,036       418  
             
 
 
   
 
 
 
Net gain (loss)
            $ (3,431   $ 418  
             
 
 
   
 
 
 
 
17

NOTE 11 – 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, 2022 and December 31, 2021, set forth by level, within the fair value hierarchy:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
March 31, 2022
 
    
Level 1
   
Level 2
   
Level 3
   
Total
 
Commodity derivative liability
   $ (3,451    
     
    $ (3,451
Interest rate swap derivative asset
    
      368      
      368  
Interest rate swap derivative liability
              (170   $        $ (170
Asset retirement obligations
                       (5,379     (5,379
Earn-out
liability
                       (2,721     (2,721
    
 
 
   
 
 
   
 
 
   
 
 
 
     $ (3,451   $ 198     $ (8,100   $ (11,353
    
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
December 31, 2021
 
    
Level 1
    
Level 2
   
Level 3
   
Total
 
Interest rate swap derivative liability
   $         $ (839   $        $ (839
Asset retirement obligations
                        (5,301     (5,301
Earn-out
liability
                        (2,721     (2,721
    
 
 
    
 
 
   
 
 
   
 
 
 
     $         $ (839   $ (8,022   $ (8,861
    
 
 
    
 
 
   
 
 
   
 
 
 
A summary of changes in the fair values of the Company’s Level 3 instruments, attributable to asset retirement obligations, for the three months ended March 31, 2022 and the year ended December 31, 2021 is included in Note 9. 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 value are determined to be less than its carrying value. See Note 3 for additional information.
NOTE 12 – ACCRUED LIABILITIES
The Company’s accrued liabilities consists of the following as of March 31, 2022 and December 31, 2021:
 
 
 
 
 
 
 
 
 
 
    
March 31, 2022
    
December 31, 2021
 
Accrued expenses
   $  4,042      $ 3,551  
Payroll and related benefits
     1,340        1,239  
Royalty
     2,458        4,630  
Utility
     1,152        1,274  
Other
     359        129  
    
 
 
    
 
 
 
Accrued liabilities
   $ 9,351      $ 10,823  
    
 
 
    
 
 
 
NOTE 13 – DEBT
The Company’s debt consists of the following as of March 31, 2022 and December 31, 2021:
 
 
 
 
 
 
 
 
 
 
    
March 31, 2022
   
December 31, 2021
 
Term Loans
   $ 78,000     $ 80,000  
Less: current principal maturities
     (8,000     (8,000
Less: debt issuance costs (on long-term debt)
     (573     (608
    
 
 
   
 
 
 
Long-term Debt
   $ 69,427     $ 71,392  
Current Portion of Long- term Debt
     7,828       7,815  
    
 
 
   
 
 
 
    
$
77,255
 
 
$
79,207
 
    
 
 
   
 
 
 
 
18
Amended Credit Agreement
On December 12, 2018, Montauk Energy Holdings LLC (“MEH”) 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) replaces 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 August 28, 2019 the Company received a temporary waiver for an anticipated Event of Default (as defined in the Credit Agreement) for the consecutive three-month period ended on August 31, 2019 (the “Specified Event of Default”). The Specified Event of Default was waived through October 1, 2019. On September 12, 2019, the Company entered into 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 $80,000, redefined the Total Leverage Ratio (as defined in the Credit Agreement) and eliminated the RIN Floor (as defined in the Second Amendment) as an Event of Default. In connection with the Second Amendment, the Company paid down the outstanding term loan by $38,250 and the resulting quarterly principal installments were reduced to $2,500.
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 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
 
$80,000 term loan and a $120,000 revolving credit facility. The term loan amortizes in quarterly installments of $2,000 through 2024, then increases to $3,000 from 2025 to 2026, with a final payment of $32,000 in late 2026.
As of March 31, 2022, $78,000 was outstanding under the term loan. In addition, the Company had $3,905 of outstanding letters of credit as of March 31, 2022. Amounts available under the revolving credit facility are reduced by any amounts outstanding under letters of credit. As of March 31, 2022, the Company’s capacity available for borrowing under the revolving credit facility was $116,095. Borrowings of the term loans and revolving credit facility bear interest at the Bloomberg Short-Term Bank Yield Index Rate plus an applicable margin. Interest rates as of March 31, 2022 and December 31, 2021 were 2.40% and 2.91%, respectively.
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 $2,027 in fees. Of this amount, $326 was expensed and $1,701 was capitalized and will be amortized over the life of the Credit Agreement. Amortized debt issuance expense was $108 and $137 for the three months ended March 31, 2022 and 2021, respectively and was recorded as interest expense on the statement of operations.
As of March 31, 2022, the Company was in compliance with all applicable financial covenants under the Credit Agreement.
 
19

NOTE 14 – 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(s) in which they occur. For the first quarter of 2022, the Company utilized full year
pre-tax
income and calculated an estimated effective tax rate for the three months ended March 31, 2022. The Company utilized the actual effective tax rate for the three months ended March 31, 2021 as the Company’s best estimate for the first quarter of 2021.
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended
 
    
March 31, 2022
   
March 31, 2021
 
(Benefit) expense provision for income taxes
   $ (258   $ 1,382  
Effective tax rate
     18.8     (10.7 )% 
Income tax expense for the three months ended March 31, 2022 was calculated using an estimated effective tax rate which differs from the U.S. federal statutory rate of
 21%
primarily due to the adjustment for production tax credits. 
The effective tax rate of 18.8% for the three months ended March 31, 2022 was higher than the rate for the three months ended March 31, 2021 of (10.7)%
 
primarily due to the use of year to date pre-tax income used to complete the effective tax rate calculation and a required 162(m) executive compensation limitation permanent adjustment. The March 31, 2022 rate included utilization of production tax credits and certain discrete items. 
NOTE 15 – SHARE-BASED COMPENSATION
In January 2021, Montauk Renewables undertook the Reorganization Transactions which resulted in the Company owning all of the assets and entities (excluding Montauk USA) through which MNK’s business and operations were conducted. As a result of the Distribution, the options outstanding under MNK’s Employee Share Appreciation Rights Scheme (the “SAR Plan”) were cancelled. The Company recorded $2,050 of accelerated compensation expense in its consolidated statements of operations within general and administrative expenses in connection with the cancellation of the options under the SAR Plan for the three months ended March 31, 2021.
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 stock awards to the employees of Montauk Renewables and its subsidiaries in January 2021. In connection with the restricted stock grants the officers of the Company made elections under Section 83(b) of the Code.
 
Pursuant to such elections, the Company withheld 950,214 shares of common stock from such awards at a price of $11.38
per share from such awards. The Company records and reports share-based compensation for stock options, restricted stock, and restricted stock units over the requisite vesting period, and such awards will be settled in shares of common stock of Montauk Renewables. As of March 31, 2022, unrecognized MRI EICP compensation expense for awards the Company expects to vest approximated 
$9,929 and will be recognized over approximately 5 years.
In connection with a May 2021 asset acquisition, 1,250,000 restricted stock awards (“RS Awards”) were granted to two employees of the Company in connection with their respective employment. The RS Awards vest over a five-year period and are subject to the achievement of time and performance based vesting criteria over such period. The performance targets in the RS Awards relate to the attainment of three EBITDA goals as defined in the underlying agreements beginning on or after the third anniversary of the grant date. The Company completed its assessment and no compensation expense for the RS Awards has been recorded for the three months ended March 31, 2022. The grant date fair value of the RS Awards is $11,300.
The restricted shares, restricted stock units and option awards are subject to vesting schedules that commence or conclude, in the case of the option and restricted stock unit awards, on the
one-year
anniversary of the grant date and are subject to the terms and conditions of the MRI EICP and related award agreements including, in the case of the restricted stock awards, each officer having made an election under Section 83(b) of the Code. The Company recorded $10,813 of compensation expense in its condensed consolidated statements of operations within general and administrative expenses for the three months ended March 31, 2021 in connection with the withheld 950,214 shares associated with the Section 83(b) elections.
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 date the award was granted and the exercise and settlement of options into shares as of the exercise date. The fair value of the MRI EICP options were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions (no dividends were expected):
 
 
 
 
 
 
    
Grant Date
 
Risk-free interest rate
     0.5
Expected volatility
     32.0
Expected option life (in years)
     5.5  
Grant-date fair value
   $ 3.44  
 
20

The following table summarizes the restricted shares, restricted stock units and options outstanding under the MRI EICP as of March 31, 2022 and March 31, 2021, respectively:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Restricted Shares
    
Restricted Stock Units
    
Options
 
    
Number of
Shares
   
Weighted Average
Grant Date

Fair Value
    
Number
of
 
Shares
   
Weighted Average
Grant Date

Fair Value
    
Number
of Shares
   
Weighted Average
Exercise Price
 
End of period - December 31, 2021
  
 
2,569,613
 
 
$
10.08
 
  
 
377,984
 
 
$
10.23
 
  
 
950,214
 
 
$
11.38
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
Beginning of period - January 1, 2022
     2,569,613     $ 10.08        377,984     $ 10.23        950,214     $ 11.38  
Granted
                                                  
Vested
    
(23,705
)
   
11.38
       (27,984  )       11.38        (950,214     11.38  
Forfeited
                                                      
Exercised
            
      

   
                    
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
End of period - March 31, 2022
  
 
2,545,908
 
 
$
10.07
 
  
 
350,000
 
 
$
10.13
 
  
 
  
 
 
$
  
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
   
 
 
 
950,214 options vested for the three months ended March 31, 2022. None of the 950,214 vested options were exercised during the three months ended March 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Restricted Shares
    
Restricted Stock Units
    
Options
 
    
Number of
Shares
   
Weighted Average
Grant Date

Fair Value
    
Number
of
Shares
   
Weighted Average
Grant Date

Fair Value
    
Number
of Shares
    
Weighted Average
Exercise Price
 
End of period - December 31, 2020
  
 
—  
 
 
$
—  
 
  
 
—  
 
 
$
—  
 
  
 
—  
 
  
$
—  
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
Beginning of period - January 1, 2021
            $                  $                   $     
Granted
     2,092,836       11.38        29,568       11.38        950,214        11.38  
Vested
     (950,214     11.38                 —          —              
Forfeited
     —         —          (792     11.38                      
Exercised
  
 
—  
 
 
 
—  
 
  
 
—  
 
 
 
—  
 
  
 
—  
 
  
 
—  
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
End of period – March 31, 2021
  
 
1,142,622
 
 
$
11.38
 
  
 
28,776
 
 
$
11.38
 
  
 
950,214
 
  
$
11.38
 
    
 
 
   
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
NOTE 16 – DEFINED CONTRIBUTION PLAN
The Company maintains a 401(k) defined contribution plan for eligible employees. The Company matches 50% of an employee’s deferrals up to 4%. The Company also contributes 3% of eligible employee’s compensation expense as a safe harbor contribution. The matching contributions vest ratably over four years of service, while the safe harbor contributions vest immediately. Incurred expense related to the 401(k) plan was $167 and $135 for the three months ended March 31, 2022 and 2021, respectively.
Note 17 – RELATED PARTY TRANSACTIONS
On January 26, 2021, the Company entered into a Loan Agreement and Secured Promissory Note (the “Promissory Note”) with MNK. MNK is currently an affiliate of the Company and certain of the Company’s directors and executive officers are also directors and executive officers of MNK. Pursuant to the Initial Promissory Note, the Company advanced a cash loan
 of $5,000
to MNK for MNK to pay its dividends tax liability arising from the Reorganization Transactions under the South African Income Tax Act, 1962 (Act No. 58 of 1962), as amended (the “South African Income Tax Act”). On February 22, 2021 and December, 22, 2021, the Company and MNK amended and restated the Promissory Note (together, the “Amended Promissory Note”) to increase the principal amount of the loan to a total of
 $8,940,
in the aggregate, in accordance with the Company’s obligations set forth in the Transaction Implementation Agreement entered into by and among the Company, MNK and the other party thereto, dated November 6, 2020, and amended on January 14, 2021. The terms of the Amended Promissory Note provide the Company a security interest over
 
800,000
shares of the Company and require MNK to use the proceeds of any such sale of the shares to repay the Amended Promissory Note. The Amended Promissory Note also has default provisions where MNK can deliver any unsold shares of the Company back to the Company to satisfy repayment of the note. The Amended Promissory Note matures on December 31, 2022. 
 
 
21

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.
Related Party Reimbursements
Periodically the Company will reimburse MNK and HCI Managerial Services Proprietary Limited, the administrator for the Company’s secondary listing on the JSE, for expenses incurred on behalf of the Company. Amounts reimbursed were
 $3 and $727 for the three months ended March 31, 2022 and 2021, respectively. $19 and $0 were owed as of March 31, 2022 and December 31, 2021, respectively.                
NOTE 18 – SEGMENT INFORMATION
The Company’s reportable segments for the three months ended March 31, 2022 and 2021 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. The following tables are consistent with the manner in which the chief operating decision maker evaluates the performance of each segment and allocates the Company’s resources. In the following tables “RNG” refers to Renewable Natural Gas and “REG” refer to Renewable Electricity Generation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2022
 
    
RNG
    
REG
   
Corporate
   
Total
 
Total Revenue
   $ 32,665      $ 3,971     $ (4,467   $ 32,169  
Net Income (Loss)
     12,940        (1,178     (12,877     (1,115
EBITDA
     16,620        214       (13,022     3,812  
Adjusted EBITDA (1)
     16,327        214       (9,493     7,048  
Total Assets
     147,981        56,818       82,183       286,982  
Capital Expenditure
     1,012        1,361       5       2,378  
(1) First quarter of 2022 EBITDA Reconciliation
 
 
22

The following table is a reconciliation of the Company’s reportable segments’ net income from continuing operations to Adjusted EBITDA for the three months ended March 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2022
 
    
RNG
    
REG
    
Corporate
    
Total
 
Net Income (loss)
   $ 12,940      $ (1,178    $ (12,877    $ (1,115
Depreciation and amortization
     3,680        1,392        81        5,153  
Interest expense
     —          —          32        32  
Income tax benefit
     —          —          (258      (258
    
 
 
    
 
 
    
 
 
    
 
 
 
EBITDA
   $ 16,620      $ 214      $ (13,022    $ 3,812  
    
 
 
    
 
 
    
 
 
    
 
 
 
Impairment loss
     —          —          51        51  
Net gain on sale of assets
     (293                        (293
Transaction costs
     —          —          27        27  
Non cash hedging charges
     —          —          3,451        3,451  
    
 
 
    
 
 
    
 
 
    
 
 
 
Adjusted EBITDA
   $ 16,327      $ 214      $ (9,493    $ 7,048  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2021
 
    
RNG
    
REG
   
Corporate
   
Total
 
Total Revenue
   $ 28,123      $ 3,324     $ —       $ 31,447  
Net Income (Loss)
     10,561        (2,241     (22,585     (14,265
EBITDA
     14,779        (765     (20,514     (6,500
Adjusted EBITDA (1)
     14,779        (139     (20,426     (5,786
Total Assets
     157,436        50,156       45,770       253,362  
Capital Expenditure
     1,306        23       6       1,335  
(1) First quarter of 2021 EBITDA Reconciliation
The following table is a reconciliation of the Company’s reportable segments’ net income from continuing operations to Adjusted EBITDA for the three months ended March 31, 2021:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2021
 
    
RNG
    
REG
   
Corporate
   
Total
 
Net Income (loss)
   $ 10,561      $ (2,241   $ (22,585   $ (14,265
Depreciation and amortization
     4,218        1,474       45       5,737  
Interest expense
     —          —         646       646  
Income tax expense 
     —          2       1,380       1,382  
    
 
 
    
 
 
   
 
 
   
 
 
 
EBITDA
   $ 14,779      $ (765   $ (20,514   $ (6,500
    
 
 
    
 
 
   
 
 
   
 
 
 
Impairment loss
     —          626       —         626  
Transaction costs
     —          —         88       88  
    
 
 
    
 
 
   
 
 
   
 
 
 
Adjusted EBITDA
   $ 14,779      $ (139   $ (20,426   $ (5,786
    
 
 
    
 
 
   
 
 
   
 
 
 
For the three months ended March 31, 2022 and 2021, five and four customers, respectively, made up greater than 10% of our total revenues.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2022
 
    
RNG
   
REG
   
Corporate
    
Total
 
Customer A
     24.3     —         —          24.3
Customer B
     16.1     —         —          16.1
Customer C
             11.2     —          11.2
Customer D
     10.6     —         —          10.6
Customer E
     10.3                      10.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended March 31, 2021
 
    
RNG
   
REG
    
Corporate
    
Total
 
Customer A
     26.2     —          —          26.2
Customer B
     13.1     —          —          13.1
Customer C
     11.0     —          —          11.0
Customer D
     10.0                       10.0
                            
 
23

NOTE 19 – 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 2024. 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.
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 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 short-term lease arrangements, generally those with a lease term of less than twelve months, for all classes of underlying assets. 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.
 
24

Supplemental information related to operating lease arrangements was as follows:
 
 
 
 
 
 
 
 
 
 
    
Three Months Ended

March 31,
 
    
2022
   
2021
 
Cash paid for amounts included in the measurement of operating lease liabilities
   $ 64     $ 76  
Weighted average remaining lease term (in years)
     1.05       1.51  
Weighted average discount rate
     5.00     5.00
Future minimum lease payments are as follows:
 
 
 
 
 
 
Year Ending
        
Remainder of 2022
   $ 241  
2023
     8  
2024
     2  
Interest
     (1
    
 
 
 
Total
   $ 250  
NOTE 20 – LOSS PER SHARE
Basic loss per share was computed using the following common share data for the three months ended March 31, 2022 and March 31, 2021, respectively:
 
 
 
 
 
 
 
 
 
    
Three months ended

March 31, 2022
   
Three months ended

March 31, 2021
 
Net loss
   $ (1,115   $ (14,265
Basic weighted-average shares outstanding
     141,045,477       141,015,213  
Dilutive effect of share-based awards
                  
Diluted weighted-average shares outstanding
     141,045,477       141,015,213  
Basic loss per share
   $ (0.01   $ (0.10
Diluted loss per share
   $ (0.01   $ (0.10
 
 
25

As a result of incurring a net loss for the three months ended March 31, 2022 and March 31, 2021, potential common shares of 3,846,122 and 2,121,612 were excluded from diluted loss per share because the effect would have been antidilutive.
NOTE 21 – SUBSEQUENT EVENTS
The Company evaluated its March 31, 2022 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.
 
26

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 are expressed in thousands, except for per share amounts and MMBtu 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 2021 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 three Renewable Electricity projects through self-development, partnerships, and acquisitions that span six 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, while 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. The industry experienced volatile D3 RIN index prices during the first quarter ended March 31, 2022. Though the average market price of D3 RINs during the first quarter ended March 31, 2022 was approximately $3.25, the market price declined as low as $2.85 and generally decreased during the first quarter. We viewed this reduction in price as temporary and, accordingly, we determined not to transfer a significant amount of D3 RINs generated and available for transfer. As a result, for the period ended March 31, 2022, we had approximately 4,394 RINs in inventory as compared to 622 RINs in inventory for the period ended March 31, 2021.
The market price of D3 RINs index has subsequently improved during the second quarter of 2022 with an average year to date D3 RIN index price of approximately $3.27. We have entered into commitments to transfer all RINs in inventory, subsequent to March 31, 2022. We have also entered into agreements to transfer the majority of RINs expected to be generated and available for transfer during the second quarter of 2022. The average realized price of these commitments is approximately $3.40. The average D3 RIN index price during the month of April was approximately $3.33. We have not currently committed to transfer a significant amount of RINs during the second half of 2022.
Pico Digestion Capacity Increase
Our Pico facility continues to meet our expectations after the completion of the improvements to the existing digestion process. Production has more than doubled in the first quarter of 2022 as compared to production volumes in the first quarter of 2021. We continue to anticipate that CARB will complete their review of our CI Score Pathway and we expect to receive approval of our score during the second half of 2022. While we continue to store gas in 2022, we expect to begin to release gas from storage in the third quarter of 2022. While we do not expect to receive LCFS credit revenue on 2022 production until 2023, we do anticipate recognizing revenues on RINs generated from gas released from storage over the second half of 2022.
Related to our Pico Feedstock Amendment, we expect the dairy to begin to deliver increased feedstock volumes in the second half of 2022. The improved efficiencies of our existing digestion process has provided the opportunity to pursue additional process changes related to water management. The volume of water in the existing digestion process limits the amount of feedstock we can process. We expect that our water management improvements will enable us to process the increased feedstock volumes expected from the dairy in the second half of 2022. Our improved water management has allowed us to further work with the dairy to meet their needs and interests related to enhanced water purification. Changes to water purification benefits the dairy by improving the quality of water being sent to lagoons, and has the potential of reducing our costs of operations, though has elongated the timeline of certain components of the overall capacity expansion. We expect the final phase of designing our digestion capacity project to be completed during the third quarter of 2022, including the water management and purification improvements.
 
27

Montauk Ag Renewables
In the second quarter of 2021, through our newly formed wholly owned subsidiary, Montauk Ag Renewables, we completed the 2021 asset purchase related to developing technology to recover residual natural resources from waste streams of modern agriculture and to refine and recycle such waste products through proprietary and other processes to produce high quality renewable natural gas,
bio-oil
and biochar (the “Montauk Ag Renewables Acquisition”). The assets acquired include real property, intellectual property, mobile equipment, and other equipment related to operating the business and real property of an approximate 9.35 acre parcel in Magnolia, North Carolina. We subsequently closed on a transaction to acquire approximately 146 acres and an existing approximately 500,000 square foot structure in Turkey, North Carolina which we plan to use as we expand the production processes purchased in the Montauk Ag Renewables Acquisition.
We continue to work with our engineer of record through the optimization of improvements to the now patented reactor technology, which is currently functional in Magnolia. We have not completed our improvements, however, and have not reached commercial operations at this location. The improvements to the reactor technology are intended to be deployed at the Turkey location.
While these project developments continue, we are in various stages of discussion with regulatory agencies in North Carolina related to the resulting power generation derived from swine waste to ensure its eligibility for Renewable Energy Credits under North Carolina’s Renewable Energy Portfolio Standards in anticipation of commercial production. Our Magnolia, North Carolina location has an existing electricity interconnection which can be reactivated pending those discussions. We are also in varying stages of corresponding negotiations with power purchasers.
We are at the beginning stages of developing the opportunities associated with Montauk Ag Renewables and can give no assurances that our plans related to this acquisition will meet our expectations. We continue to design and plan for the development of the facility to be used for production. We do not currently expect production to commence during 2022 based on the current development timeline. We intend to contract with additional farms to secure feedstock sources, as we commission commercial production and increase our production capabilities, which we anticipate will secure additional feedstock for future production processes.
Key Trends
Market Trends Affecting the Renewable Fuel Market
We believe demand for RNG produced from biogas remains strong due to increasing public policy initiatives focused on reducing greenhouse gas emissions, including methane, as well as continued public and private sector interest in the development of additional renewable energy sources to offset traditional fossil fuel energy sources.
Key drivers for the long-term growth of RNG include the following factors:
 
   
Regulatory or policy initiatives, including the federal RFS program and state-level
low-carbon
fuel programs in states such as California and Oregon, that drive demand for RNG and its derivative Environmental Attributes (as further described below).
 
   
Efficiency, mobility and capital cost flexibility in RNG operations enable them to compete successfully in multiple markets. Our operating model is nimble, as we commonly use modular equipment; our RNG processing equipment is more efficient than its fossil-fuel counterparts.
 
   
Demand for compressed natural gas (“CNG”) from natural
gas-fueled
vehicles. The RNG we create is pipeline quality and can be used for transportation fuel when converted to CNG. CNG is commonly used by medium-duty fleets that are close to fueling stations, such as city fleets, local delivery trucks and waste haulers.
 
   
Regulatory requirements, market pressure and public relations challenges increase the time, cost and difficulty of permitting new fossil fuel-fired facilities.
Factors Affecting Our Future Operating Results:
Conversion of Electricity Projects to RNG Projects:
We periodically evaluate opportunities to convert existing facilities 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.
<