10-Q 1 mntk-20230930.htm 10-Q 10-Q
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Table of Contents

 

 

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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 September 30, 2023

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

Organization)

(IRS Employer Identification No.)

5313 Campbells Run Road, Suite 200

Pittsburgh, Pennsylvania

15205

(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 November 2, 2023 was 143,661,719 shares.


Table of Contents

 

 

TABLE OF CONTENTS

 

Page

PART I FINANCIAL INFORMATION

6

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

6

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

27

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

48

ITEM 4.

CONTROLS AND PROCEDURES

48

PART II OTHER INFORMATION

49

ITEM 1.

LEGAL PROCEEDINGS

49

ITEM 1A.

RISK FACTORS

49

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

49

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

49

ITEM 4.

MINE SAFETY DISCLOSURES

49

ITEM 5.

OTHER INFORMATION

49

ITEM 6.

EXHIBITS

50

SIGNATURES

51

 


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```

Glossary of Key Terms

This Quarterly Report on Form 10-Q uses several terms of art that are specific to our industry and business. For the convenience of the reader, a glossary of such terms is provided here. Unless we otherwise indicate, or unless the context requires otherwise, any references in this Quarterly Report on Form 10-Q to:

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.
D3” refers to cellulosic biofuel with a 60% GHG reduction requirement.
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.
“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.
RVOs” refers to renewable volume obligations.

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of U.S. federal securities laws that involve substantial risks and uncertainties. All statements other than statements of historical or current fact included in this report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. Forward-looking statements may include words such as “anticipate,” “assume,” “believe,” “can have,” “contemplate,” “continue,” “strive,” “aim,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “would,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. For example, all statements we make relating to future results of operations, financial condition, estimated and projected costs, and plans and objectives for future operations, growth, strategies or initiatives, including the Pico feedstock amendment, the Montauk Ag project in North Carolina, the Raeger capital improvement project, the Second Apex RNG Facility project, the Blue Granite RNG project, the Bowerman RNG project, the delivery of biogenic carbon dioxide volumes to European Energy, the resolution of gas collection issues at the McCarty facility, and the mitigation of wellfield extraction environmental factors at the Rumpke facility, 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:

our ability to develop and operate new renewable energy projects, including with livestock farms, and related challenges associated with new projects, such as identifying suitable locations and potential delays in acquisition financing, construction, and development;
reduction or elimination of government economic incentives to the renewable energy market;
the inability to complete strategic development opportunities;
widespread manmade, natural and other disasters (including severe weather events), health emergencies, dislocations, geopolitical instabilities or events, terrorist activities, international hostilities, government shutdowns, political elections, security breaches, cyberattacks or other extraordinary events that impact general economic conditions, financial markets and/or our business and operating results;
continued inflation could raise our operating costs or increase the construction costs of our existing or new projects;
rising interest rates could increase the borrowing costs of future indebtedness;
the potential failure to retain and attract qualified personnel of the Company or a possible increased reliance on third-party contractors as a result;
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 and our landfill operations;
the quantity, quality and consistency of our feedstock volumes from both landfill and livestock farm operations;
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;
potential benefits associated with the combustion-based oxygen removal condensate neutralization technology;
concentration of revenues from a small number of customers and projects;
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;
existing regulations and changes to regulations and policies that effect our operations;
expected benefits from the extension of the Production Tax Credit and Investment Tax Credit under the Inflation Reduction Act of 2022;
decline in public acceptance and support of renewable energy development and projects, or our inability to appropriately address environmental, social and governance targets, goals, commitments or concerns;

4


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our expectations regarding Environmental Attribute volume requirements and prices 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 and the need to obtain and maintain regulatory permits, approvals, and consents;
profitability of our planned livestock farm projects;
sustained demand for renewable energy;
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;
failure of our information technology and data security systems;
increased competition in our markets;
continuing to keep up with technology innovations;
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 and as otherwise disclosed in our filings with the SEC.

We make many of our forward-looking statements based on our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties. See the “Risk Factors” section in our latest Annual Report on Form 10-K and our other filings with the SEC.

We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

5


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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Page

Montauk Renewables, Inc.

Unaudited condensed consolidated financial statements

Unaudited condensed consolidated balance sheets

7

Unaudited condensed consolidated statements of operations

8

Unaudited condensed consolidated statements of stockholders’ equity

9

Unaudited condensed consolidated statements of cash flows

10

Notes to unaudited condensed consolidated financial statements

11

 

6


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MONTAUK RENEWABLES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data):

 

 

 

As of September 30,

 

 

As of December 31,

 

ASSETS

 

2023

 

 

2022

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,304

 

 

$

105,177

 

Accounts and other receivables

 

 

18,102

 

 

 

7,222

 

Current restricted cash

 

 

22

 

 

 

22

 

Related party receivable

 

 

10,128

 

 

 

9,000

 

Current portion of derivative instruments

 

 

991

 

 

 

879

 

Prepaid expenses and other current assets

 

 

4,841

 

 

 

2,568

 

 

 

 

 

 

 

Total current assets

 

$

107,388

 

 

$

124,868

 

 

 

 

 

 

 

Non-current restricted cash

 

$

409

 

 

$

407

 

Property, plant and equipment, net

 

 

205,528

 

 

 

175,946

 

Goodwill and intangible assets, net

 

 

15,026

 

 

 

15,755

 

Deferred tax assets

 

 

2,166

 

 

 

3,952

 

Non-current portion of derivative instruments

 

 

984

 

 

 

936

 

Operating lease right-of-use assets

 

 

4,420

 

 

 

4,742

 

Finance lease right-of-use assets

 

 

44

 

 

 

96

 

Other assets

 

 

9,646

 

 

 

5,614

 

 

 

 

 

 

 

Total assets

 

$

345,611

 

 

$

332,316

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,115

 

 

$

4,559

 

Accrued liabilities

 

 

15,225

 

 

 

15,090

 

Income tax payable

 

 

551

 

 

 

402

 

Current portion of operating lease liability

 

 

416

 

 

 

410

 

Current portion of finance lease liability

 

 

44

 

 

 

71

 

Current portion of long-term debt

 

 

7,884

 

 

 

7,870

 

 

 

 

 

 

 

Total current liabilities

 

$

30,235

 

 

$

28,402

 

 

 

 

 

 

 

Long-term debt, less current portion

 

$

57,586

 

 

$

63,505

 

Non-current portion of operating lease liability

 

 

4,230

 

 

 

4,341

 

Non-current portion of finance lease liability

 

 

 

 

25

 

Asset retirement obligations

 

 

5,797

 

 

 

5,493

 

Other liabilities

 

 

4,528

 

 

 

3,459

 

 

 

 

 

 

 

Total liabilities

 

$

102,376

 

 

$

105,225

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 690,000,000 shares; 143,682,811 shares issued at September 30, 2023 and December 31, 2022, respectively; 141,848,582 and 141,633,417 shares outstanding at September 30, 2023 and December 31, 2022, respectively

 

 

1,416

 

 

 

1,416

 

Treasury stock, at cost, 971,306 shares September 30, 2023 and December 31, 2022, respectively

 

 

(11,051

)

 

 

(11,051

)

Additional paid-in capital

 

 

212,055

 

 

 

206,060

 

Retained earnings

 

 

40,815

 

 

 

30,666

 

 

 

 

 

 

 

Total stockholders' equity

 

 

243,235

 

 

 

227,091

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

345,611

 

 

$

332,316

 

 

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

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MONTAUK RENEWABLES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except for share and per share data):

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total operating revenues

 

$

55,688

 

 

$

55,860

 

 

$

128,097

 

 

$

155,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expenses

 

 

14,212

 

 

 

14,134

 

 

 

43,614

 

 

 

42,205

 

General and administrative expenses

 

 

7,848

 

 

 

8,466

 

 

 

26,069

 

 

 

25,715

 

Royalties, transportation, gathering and production fuel

 

 

11,450

 

 

 

12,188

 

 

 

25,588

 

 

 

34,484

 

Depreciation, depletion and amortization

 

 

5,346

 

 

 

5,167

 

 

 

15,792

 

 

 

15,453

 

Gain on insurance proceeds

 

 

 

 

 

 

 

 

 

 

 

(313

)

Impairment loss

 

 

51

 

 

 

2,273

 

 

 

777

 

 

 

2,393

 

Transaction costs

 

 

 

 

 

 

 

 

86

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

$

38,907

 

 

$

42,228

 

 

$

111,926

 

 

$

119,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

16,781

 

 

$

13,632

 

 

$

16,171

 

 

$

35,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

1,295

 

 

$

36

 

 

$

3,681

 

 

$

339

 

Other (income)

 

 

(256

)

 

 

(131

)

 

 

(340

)

 

 

(463

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense (income)

 

$

1,039

 

 

$

(95

)

 

$

3,341

 

 

$

(124

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

15,742

 

 

$

13,727

 

 

$

12,830

 

 

$

36,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

2,808

 

 

 

2,540

 

 

 

2,681

 

 

 

6,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

12,934

 

 

$

11,187

 

 

$

10,149

 

 

$

29,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.08

 

 

$

0.07

 

 

$

0.21

 

Diluted

 

$

0.09

 

 

$

0.08

 

 

$

0.07

 

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

141,717,612

 

 

 

141,290,748

 

 

 

141,661,790

 

 

 

141,156,126

 

Diluted

 

 

142,299,875

 

 

 

142,722,396

 

 

 

142,000,827

 

 

 

142,627,711

 

 

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

8


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MONTAUK RENEWABLES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share data):

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional Paid-in Capital

 

 

Retained Earnings (Deficit)

 

 

Total Equity

 

Balance at June 30, 2023

 

 

141,633,417

 

 

$

1,416

 

 

 

971,306

 

 

$

(11,051

)

 

$

209,555

 

 

$

27,881

 

 

$

227,801

 

Vesting of stock awards

 

 

215,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,934

 

 

 

12,934

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

 

 

 

 

 

2,500

 

Balance at September 30, 2023

 

 

141,848,582

 

 

$

1,416

 

 

 

971,306

 

 

$

(11,051

)

 

$

212,055

 

 

$

40,815

 

 

$

243,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2022

 

 

141,290,748

 

 

$

1,410

 

 

 

959,344

 

 

$

(10,904

)

 

$

200,855

 

 

$

13,509

 

 

$

204,870

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,187

 

 

 

11,187

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

2,751

 

 

 

 

 

 

2,751

 

Balance at September 30, 2022

 

 

141,290,748

 

 

$

1,410

 

 

 

959,344

 

 

$

(10,904

)

 

$

203,606

 

 

$

24,696

 

 

$

218,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

141,633,417

 

 

$

1,416

 

 

 

971,306

 

 

$

(11,051

)

 

$

206,060

 

 

$

30,666

 

 

$

227,091

 

Vesting of stock awards

 

 

215,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,149

 

 

 

10,149

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

5,995

 

 

 

 

 

 

5,995

 

Balance at September 30, 2023

 

 

141,848,582

 

 

$

1,416

 

 

 

971,306

 

 

$

(11,051

)

 

$

212,055

 

 

$

40,815

 

 

$

243,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

141,015,213

 

 

$

1,410

 

 

 

950,214

 

 

$

(10,813

)

 

$

196,224

 

 

$

(4,528

)

 

$

182,293

 

Vesting of stock awards

 

 

275,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock

 

 

 

 

 

 

 

9,130

 

 

 

(91

)

 

 

 

 

 

 

 

 

(91

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,224

 

 

 

29,224

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

7,382

 

 

 

 

 

 

7,382

 

Balance at September 30, 2022

 

 

141,290,748

 

 

$

1,410

 

 

 

959,344

 

 

$

(10,904

)

 

$

203,606

 

 

$

24,696

 

 

$

218,808

 

 

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

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MONTAUK RENEWABLES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands):

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

10,149

 

 

$

29,224

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

15,792

 

 

 

15,453

 

Provision for deferred income taxes

 

 

1,786

 

 

 

6,002

 

Stock-based compensation

 

 

5,995

 

 

 

7,382

 

Derivative mark-to-market adjustments and settlements

 

 

(160

)

 

 

(1,359

)

Gain on property insurance proceeds

 

 

 

 

 

(313

)

Increase in earn-out liability

 

 

959

 

 

 

1,122

 

Net loss (gain) on sale of assets

 

 

37

 

 

 

(250