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MR

Montauk Renewables, Inc. (MNTK)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered a strong rebound: revenue $65.9M (+18.4% y/y), diluted EPS $0.12 (+$0.03 y/y), and Adjusted EBITDA $29.4M (+31.3% y/y), driven by higher self-marketed RIN volumes and pricing despite weather-related production outages .
  • Management cut 2024 guidance on RNG revenues and volumes and lowered Renewable Electricity outlook due to landfill host delays in wellfield infrastructure and recent pathway sharing trends; 2025 guidance may be limited to production only, a clear narrative shift and potential stock catalyst .
  • Operational headwinds: Hurricane Beryl reduced Q3 RNG production by ~50k MMBtu; several projects saw timing and interconnection delays (Blue Granite pushed to 2027; Bowerman commissioning at risk) .
  • Commercial actions: committed to transfer a portion of Q4 RINs at ~$3.52 and evaluating increased fixed-price monetization in 2025 to mitigate pathway share pressure; strategic for cash flow stability if attribute markets remain volatile .
  • Wall Street consensus (S&P Global) was unavailable; relative to prior quarters, Q3 exceeded internal trend expectations on revenue/EBITDA given RINs sold and pricing; estimates likely need to reset lower for FY on guidance changes (S&P Global consensus unavailable).

What Went Well and What Went Wrong

What Went Well

  • Higher RIN volumes and pricing: RINs sold rose to 15.8M (+14.5% y/y) and realized RIN pricing increased ~9.5% y/y, supporting revenue growth and margin expansion .
  • Profitability inflection: Operating income $22.7M (+35.3% y/y), net income $17.0M (+31.8% y/y), Adjusted EBITDA $29.4M (+31.3% y/y) .
  • Targeted risk mitigation: “We have entered into commitments to transfer a portion of the RINs we expect to generate from 2024 fourth quarter production at an average price of approximately $3.52.” – CFO .

What Went Wrong

  • Weather disruptions: Hurricane Beryl caused multi-day utility outages; Q3 RNG production was unfavorably impacted by ~50k MMBtu, the second consecutive quarter of weather-driven utility issues in Houston .
  • Landfill host delays: “Several of our landfill hosts have begun to delay their installation of or delay our ability to install wellfield collection infrastructure… We expect these trends to continue through 2025.” – CEO .
  • Development timeline push-outs: Blue Granite interconnection delayed to 2027 due to Hurricane Helene remediation; Bowerman commissioning at risk pending wellfield/flare changes, elevating execution risk and deferring volumes/cash flows .

Financial Results

Core Financials vs prior quarters

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$38.8 $43.3 $65.9
Diluted EPS ($)$0.01 $(0.01) $0.12
Net Income ($USD Millions)$1.9 $(0.7) $17.0
Operating Income ($USD Millions)$2.4 $0.9 $22.7
EBITDA ($USD Millions)$8.9 $6.7 $28.9
Adjusted EBITDA ($USD Millions)$9.5 $7.0 $29.4

Year-over-Year (Q3 2024 vs Q3 2023)

MetricQ3 2023Q3 2024
Revenue ($USD Millions)$55.7 $65.9 (+18.4% y/y)
Diluted EPS ($)$0.09 $0.12 (+$0.03 y/y)
Net Income ($USD Millions)$12.9 $17.0 (+31.8% y/y)
Adjusted EBITDA ($USD Millions)$22.4 $29.4 (+31.3% y/y)

Segment Breakdown

Segment RevenueQ3 2023Q3 2024
RNG ($USD Millions)$50.9 $61.8
Renewable Electricity ($USD Millions)$4.8 $4.2

KPIs and Operating Metrics

KPIQ1 2024Q2 2024Q3 2024
RNG Production (MMBtu)~1.4M ~1.4M ~1.4M (impacted by ~50k MMBtu loss)
RINs Sold (Millions)7.9 10.0 15.8
Realized RIN Price ($/RIN)—~$3.32 (July commitments of Q2 inventory) $3.34
RINs Generated & Unsold (Millions)~0.003 4.7 (as of 6/30) 0.1 (as of 9/30)
Renewable Electricity Production (MWh)54k 45k 41k

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RNG Revenues ($USD Millions)FY 2024$195–$215 $175–$185 Lowered
RNG Production (MMBtu)FY 20245.8–6.1M 5.5–5.7M Lowered
Renewable Electricity Revenues ($USD Millions)FY 2024$18.0–$19.0 $17.0–$18.0 Lowered
Renewable Electricity Production (MWh)FY 2024190–200k 180–185k Lowered
2025 RNG Outlook BasisFY 2025Revenues + production (typical)Considering limiting to production only Strategic shift

Drivers: landfill hosts delaying wellfield infrastructure in active waste areas, increasing pathway provider share percentages in renewals, and weather-related outages .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2024)Trend
Environmental Attribute/RIN StrategyQ1/Q2 strategically withheld/managed RIN transfers amid price volatility; Q2 committed 4.7M unsold RINs at ~$3.32 Committed portion of Q4 RINs at ~$3.52; realized $3.34 in Q3; considering more fixed-price contracts for 2025 Increasing price lock-in and monetization discipline
Wellfield/Feedstock ManagementQ1: Pico digestion expansion boosted output; Q2: maintenance and utility timing impacts Landfill-driven delays in wellfield infrastructure installations; expected to continue through 2025 Deteriorating timing visibility
Weather/Utility OutagesQ2: Houston outages reduced production; Q1: cleaner run-rate Hurricane Beryl caused multi-day outages; ~50k MMBtu lost; second consecutive quarter affected Persistent exogenous disruption risk
Project PipelineQ1/Q2: Montauk Ag progress; European Energy CO2 plans initiated Second Apex commissioning 2025; Blue Granite interconnection delayed to 2027; Bowerman at risk; CO2 capture commissioning 2027 with $65–$75M capex Mixed: schedule elongation; capital phasing
Regulatory/Pathway SharingQ2: approvals in NC; pathway renewals normalizing Renewals at higher percentages; proposed renewals significantly higher than historical; may limit 2025 guidance to production More onerous sharing; guidance conservatism

Management Commentary

  • “Several of our landfill hosts have begun to delay their installation of or delay our ability to install wellfield collection infrastructure... We expect these trends to continue through 2025.” – Sean McClain, CEO .
  • “We have entered into commitments to transfer a portion of the RINs we expect to generate from 2024 fourth quarter production at an average price of approximately $3.52.” – Kevin Van Asdalan, CFO .
  • “We remain on schedule for a 2025 commissioning [for the second Apex RNG facility]... Blue Granite interconnection delays shift commissioning into 2027.” – Sean McClain, CEO .
  • “Adjusted EBITDA for the third quarter of 2024 was $29.4 million, an increase of $7.0 million or 31.3%...” – Kevin Van Asdalan, CFO .

Q&A Highlights

  • Pathway sharing and fixed-price strategy: Management addressed near-term pathway renewal percentages trending higher and the consideration of increasing fixed-price contract volumes in 2025 to mitigate revenue-sharing pressure .
  • Guidance framework: Clarified that 2025 RNG guidance may be limited to production only given heightened uncertainty in attribute generation pathways and offtake terms .
  • Project timelines: Discussed second Apex (2025), Blue Granite (2027 interconnection-driven delay), Bowerman risks tied to host wellfield/flare changes; tone cautious yet focused on schedule management and capital pacing .
  • Weather resiliency: Reiterated actions to protect operability and safety amid repeated Houston utility outages; highlighted production losses and contingency measures .

Estimates Context

  • S&P Global Wall Street consensus for Q3 2024 and forward quarters was unavailable due to request limits; therefore, no consensus comparison is presented. Values retrieved from S&P Global data were unavailable for estimates in this analysis.
  • Implication: Post-Q3, published 2024 guidance was lowered, suggesting Street models likely need to reset RNG revenue and volume trajectories downward and reflect more conservative pathway sharing and interconnection timing assumptions for Blue Granite/Bowerman .

Key Takeaways for Investors

  • Q3 execution outperformed internal trend: revenue/EBITDA strength on higher RIN volumes and pricing despite outages; near-term momentum supported by committed Q4 RIN transfers at ~$3.52 .
  • FY guidance reset is a material negative: lower RNG revenues/volumes and Renewable Electricity outlook driven by landfill wellfield delays and pathway sharing pressure; expect estimate cuts and a narrative pivot to production guidance in 2025 .
  • Attribute market strategy evolving: management is willing to increase fixed-price monetization to stabilize cash flows if pathway splits remain elevated; watch 2025 contract mix disclosures .
  • Development timeline risk elevated: Blue Granite slip to 2027 and Bowerman uncertainties defer optionality; capital pacing mitigates spend but delays push out growth inflection .
  • Operational concentration risk: Houston outages have hit two consecutive quarters; diversification and resilience investments matter for production stability .
  • KPI trajectory favorable in Q3: RINs sold and realized pricing improved; unsold RIN inventory sharply down at quarter end (0.1M), reducing near-term revenue timing risk .
  • Trading lens: near-term stock reaction likely driven by guidance cut and attribute pathway narrative; watch RIN index pricing, 2025 guidance framework, and host wellfield timing for catalysts .