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Montauk Renewables, Inc. (MNTK)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 revenue was $43.3M, down 18.6% y/y as Montauk strategically deferred transferring 4.7M D3 RINs amid price volatility; those RINs were fully committed and transferred in Q3 at an average realized price of $3.32, above Q2’s D3 index average of $3.20 .
  • Net loss was $0.7M vs. net income of $1.0M in Q2 2023; Adjusted EBITDA fell to $7.0M (–63.7% y/y) on lower RINs sold and higher RNG and REG maintenance expenses, partially offset by higher realized RIN pricing y/y .
  • Management reaffirmed full-year 2024 outlook for RNG and REG revenues and production, despite severe weather/power outages in Texas in Q2 and anticipated hurricane-season impacts in Q3, citing wellfield investments and optimization as offsets .
  • Near-term catalysts: monetization cadence pivoted to sell deferred Q2 RINs in Q3 at higher realized prices; multiple development projects progressing (NC swine waste project, second Apex RNG, Blue Granite, Bowerman RNG, biogenic CO2 with European Energy) with selective CapEx timing shifts (Bowerman component into 2025) .

What Went Well and What Went Wrong

  • What Went Well

    • Strategic RIN monetization: 4.7M unsold Q2 RINs sold in Q3 at $3.32, above Q2’s $3.20 D3 index average; 44.1% of Q3 RNG volume also pre-committed at ~$3.33 .
    • Stronger realized RIN pricing y/y: average realized D3 in Q2 2024 was $3.12 vs. $2.16 in Q2 2023 (+44.4%), offsetting part of lower RIN volumes .
    • Project execution pillars: Pico digestion expansion drove +13k MMBtu y/y in Q2; NC Ag Renewables pilot reactor commissioned; NC Utilities Commission approval of NREF amendment received in Aug; ongoing progress on Apex 2, Blue Granite, Bowerman, and European Energy CO2 initiative .
    • Quote: “We made a strategic decision to not transfer all available D3 RINs… We have since entered into commitments to transfer all of these RINs during the third quarter of 2024 at an average realized price of approximately $3.32” .

  • What Went Wrong

    • Lower RIN volumes and revenue: RINs sold declined to 10.0M (–42.7% y/y) due to deferred transfers, driving revenue down 18.6% y/y to $43.3M .
    • Weather-related outages: Texas facilities produced 47k fewer MMBtu due to severe power outages; management also flagged similar hurricane-driven challenges expected in Q3 .
    • Cost pressure and margin compression: RNG O&M +18.9% y/y; REG O&M +37.3% y/y; operating income fell to $0.9M (–93.6% y/y) .

Financial Results

  • Income statement snapshot vs prior periods and estimates
MetricQ2 2023Q1 2024Q2 2024Consensus (Q2 2024)
Revenue ($M)$53.256 $38.787 $43.338 Unavailable (S&P Global API limit)
Operating Income ($M)$13.557 $2.368 $0.868 Unavailable
Net Income ($M)$1.003 $1.850 $(0.712) Unavailable
Diluted EPS ($)$0.01 $0.01 $(0.01) Unavailable
EBITDA ($M)$18.898 $8.862 $6.741 Unavailable
Adjusted EBITDA ($M)$19.175 $9.473 $6.961 Unavailable
  • Margins (computed from reported figures)
MarginQ2 2023Q1 2024Q2 2024
Operating Margin %25.5% (13.557/53.256) 6.1% (2.368/38.787) 2.0% (0.868/43.338)
Net Income Margin %1.9% (1.003/53.256) 4.8% (1.850/38.787) –1.6% (–0.712/43.338)
  • Segment revenue
Segment Revenue ($M)Q2 2023Q1 2024Q2 2024
Renewable Natural Gas (RNG)$48.6 $34.0 $38.8
Renewable Electricity (REG)$4.6 $4.8 $4.5
  • KPIs and RIN metrics
KPIQ2 2023Q1 2024Q2 2024
RNG Production (MMBtu)~1.4M ~1.4M ~1.4M
RINs Sold (M)17.4 7.9 10.0
RINs Unsold at Period End (M)3.0 3.4 4.7
Avg Realized D3 RIN Price ($/RIN)$2.16 $3.25 $3.12
D3 Index Avg ($/RIN)$2.16 $3.12 $3.20
Renewable Electricity (MWh)49k 54k 45k

Notes: Q2 revenue decline was primarily driven by fewer self-monetized RINs due to deferred transfers, partly offset by stronger realized RIN pricing; cost increases tied to preventative maintenance and utilities also pressured margins .

Guidance Changes

  • Management reaffirmed the full-year 2024 outlook (unchanged from May 9 and reiterated on August 8).
MetricPeriodPrevious Guidance (May 9, 2024)Current Guidance (Aug 8, 2024)Change
RNG Revenues ($M)FY 2024$195–$215 $195–$215 Maintained
RNG Production (MMBtu)FY 20245.8–6.1M 5.8–6.1M Maintained
REG Revenues ($M)FY 2024$18–$19 $18–$19 Maintained
REG Production (MWh)FY 2024190k–200k 190k–200k Maintained

Management reiterated guidance despite weather-related outages in Houston during Q2 and expected hurricane-season disruptions in Q3, citing wellfield investments and optimization as offsets .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23)Previous Mentions (Q1’24)Current Period (Q2’24)Trend
RIN monetization strategyEmphasis on placing RINs directly with obligated parties; portfolio diversification; 2024 RVO set; European Energy CO2 project announced Deferral of RINs in Q1; 3.4M RINs unsold at 3/31; realized $3.25; focus on obligated-party cadence 4.7M Q2 RINs deferred and later sold in Q3 at $3.32; 44.1% of Q3 pre-committed at ~$3.33; Q2 realized $3.12 vs index $3.20 Maturing/Optimizing
Regulatory (EPA/CARB/LCFS)2024 outlook framed; Blue Granite delayed to 2026 due to interconnection EPA RVO for 2024 highlighted; no waiver; bullish for RIN pricing CARB rulemaking expected Nov; potential 2025 impact; constructive on LCFS uplift; no internal price guidance Constructive but pending
Project execution (Pico, Apex 2, Blue Granite, Bowerman)Pico expansion underway; Apex 2 Q4’24; Blue Granite 2026 Pico fully commissioned; Apex 2 shifted to Q1’25; progress on NC Ag Renewables Pico output +13k MMBtu y/y; NC pilot reactor commissioned; Bowerman component spend moved into 2025; continued progress on Apex 2, Blue Granite On track with timing shifts
Weather/operationsN/ARumpke process equipment issue resolved by Q2; RNG sites mixed Houston outages cut ~47k MMBtu in Q2; similar outages expected in Q3 due to hurricane Ongoing headwind
CapEx outlook2023 CapEx $63.1M; 2024 projects mapped Q1 2024 CapEx $22.0M; detail by project 2024 CapEx range cut (Bowerman component to 2025) without changing project start dates Timing optimization
CO2 monetizationEuropean Energy CO2 volumes expected from TX facilities in 2027 Continued progress (no new numbers) Site surveys and first site plans received from EE North America Advancing

Management Commentary

  • Strategic RIN placement: “We made a strategic decision to not transfer all available D3 RINs… We have since entered into commitments to transfer all of these RINs during the third quarter of 2024 at an average realized price of approximately $3.32” .
  • Monetization cadence: “The leading driver is the purchasing cadence of the obligated parties… we place those attributes… in the hands of the obligated parties” .
  • Guidance reaffirmation despite weather: “We are reaffirming our full year 2024 outlook… This range, though unchanged, accounts for impacts resulting from the hurricane… in July 2024” .
  • LCFS outlook: “We’re bullish that… rulemaking will be beneficial and have an appreciable increase in LCFS pricing… Pico… will be primed to benefit” .
  • Project progress: “During the second quarter… commissioned our first reactor for our swine waste to energy development project in North Carolina… installed the majority of… feedstock collection process equipment on 2… farms” .

Q&A Highlights

  • Guidance durability vs. weather: Management maintained FY guidance based on expected second-half uplift from wellfield investments and optimization, despite two consecutive quarters of Houston weather impacts; Q2 and Q3 outages estimated at ~5–8 days each .
  • RIN monetization approach: Sales volume and timing are driven by obligated-party purchase cadence, not attempts to “time” the market; new 10-Q table added to help track RINs generated but unsold .
  • LCFS and elections: No internal price guidance; constructive on CARB’s pending rulemaking potentially benefiting LCFS credits, with Pico positioned to benefit .
  • CapEx reduction: 2024 CapEx range lowered primarily due to Bowerman component timing shift into 2025; no impact to project commissioning timelines communicated .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 revenue/EPS/EBITDA was unavailable at the time of request due to S&P Global daily API rate limits. As a result, we cannot assess beats/misses vs. consensus for this quarter. We will update this section when access is restored.

Key Takeaways for Investors

  • The quarter’s revenue/EBITDA softness was largely timing-related from deferred RIN transfers; those RINs were subsequently sold in Q3 at higher realized prices, improving near-term visibility on cash generation .
  • Pricing tailwinds: Realized D3 RIN pricing continues to trend above prior-year levels; potential LCFS uplift in 2025 could provide an additional long-term pricing catalyst, particularly for Pico .
  • Execution vs. weather: Weather remains a near-term headwind, but management is offsetting through wellfield investments and operational optimization while reaffirming FY 2024 guidance .
  • CapEx/Project cadence: Select timing shifts (Bowerman) help smooth cash needs without altering commissioning plans; NC Ag Renewables and Apex 2 remain key incremental volume drivers into 2025 .
  • Balance sheet/liquidity: Cash of ~$42.3M at 6/30 and $117.5M revolver availability, alongside term debt outstanding of ~$60M, underpins monetization flexibility and project execution .
  • Trading setup: Near-term narrative hinges on the pace of Q3 RIN monetization and confirmation of LCFS rulemaking trajectory; sustained RNG production and limited additional weather disruption would support FY guidance credibility .
Citations
- Q2 2024 8-K results press release and financials: **[1826600_0000950170-24-094106_mntk-ex99_1.htm:0]** **[1826600_0000950170-24-094106_mntk-ex99_1.htm:1]** **[1826600_0000950170-24-094106_mntk-ex99_1.htm:6]** **[1826600_0000950170-24-094106_mntk-ex99_1.htm:7]** **[1826600_0000950170-24-094106_mntk-ex99_1.htm:8]** **[1826600_0000950170-24-094106_mntk-ex99_1.htm:9]**
- Q2 2024 earnings call transcript: **[1826600_MNTK_3397587_1]** **[1826600_MNTK_3397587_2]** **[1826600_MNTK_3397587_3]** **[1826600_MNTK_3397587_4]** **[1826600_MNTK_3397587_5]** **[1826600_MNTK_3397587_7]** **[1826600_MNTK_3397587_8]** **[1826600_MNTK_3397587_9]** **[1826600_MNTK_3397587_10]** **[1826600_MNTK_3397587_12]**
- Q1 2024 8-K results press release and financials: **[1826600_0000950170-24-057078_mntk-ex99_1.htm:0]** **[1826600_0000950170-24-057078_mntk-ex99_1.htm:1]** **[1826600_0000950170-24-057078_mntk-ex99_1.htm:7]** **[1826600_0000950170-24-057078_mntk-ex99_1.htm:9]**
- Q1 2024 earnings call transcript: **[1826600_MNTK_3388619_1]** **[1826600_MNTK_3388619_3]** **[1826600_MNTK_3388619_4]** **[1826600_MNTK_3388619_5]** **[1826600_MNTK_3388619_7]** **[1826600_MNTK_3388619_8]** **[1826600_MNTK_3388619_9]**
- FY 2023 8-K press release: **[1826600_0000950170-24-031574_mntk-ex99_1.htm:0]**