Q4 2023 Montauk Renewables Inc Earnings Call
Participants
John Ciroli; Chief Legal Officer & Secretary; Montauk Renewables Inc
Sean McClain; President, Chief Executive Officer, Director; Montauk Renewables Inc
Kevin Van Asdalan; Chief Financial Officer, Executive Director; Montauk Renewables Inc
Samuel Jiang; Analyst; UBS
Matthew Blair; Analyst; Tudor, Pickering, Holt & Co. Securities, LLC
Craig Shere; Analyst; Tuohy Brothers Investment Research, Inc.
Presentation
Operator
Good afternoon, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. Johnson Rowley SE's provide some important cautions regarding forward-looking statements. And non-GAAP financial measures contained in the earnings materials are made on this call. John, please go ahead.
John Ciroli
Thank you, and good afternoon, everyone. Welcome to Montauk Renewables earnings conference call to review fiscal 2023 financial and operating results and developments. I'm John Raleigh, Chief Legal Officer and Secretary at Monster. Joining me today are Sean McLain on talks, President and Chief Executive Officer to discuss business development, and Kevin Van Azlan, Chief Financial Officer, to discuss our 2023 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements and as such involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk renewables, SEC filings.
Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the majors assist investors in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation in our fiscal 2023 earnings press release and Form 10 K issued and filed this afternoon. Those are available also on our website at IR dot Montauk renewables.com. After our prepared remarks, we will open the call to questions and we ask that you please keep to one question to accommodate as many as possible. And with that, I will turn the call over to Sean.
Sean McClain
Thank you, John. Good day, everyone. And thank you for joining our call. I will begin by summarizing our announced series of development projects. We expect to materially contribute to Monotype's multifaceted growth strategy in December 2023, we finalized a contract for the delivery of 140,000 tons per year of biogenic carbon dioxide from our four Texas RNG facilities to a North American subsidiary of European energy. In satisfaction of this arrangement, we intend to capture clean and liquefy CO2, which will then be transported to a new Texas based E methanol facility of European energy for delivery term is expected to last at least 15 years with deliveries expected in 2027. We expect our capital investment to approximate $15 million per facility and anticipate that capital spend to begin during the second half of 2024 as we work to achieve our targeted 2027 COMMISSION.
During 2023, we announced our planned entrance into South Carolina through the development of a new landfill gas to RNG facility, an opportunity one by monetizing through a competitive bidding process. The planned project is expected to contribute approximately 900 MMBTUs a day of production capacity upon commission. We are in the development phase of the project and have started to incur capital expenditures. While we continue to expect the utility interconnection specifically included in our development assumptions to accept our production from this facility. The utility will require certain distribution system upgrades. So those upgrades do not directly impact our interconnection they do extend our expectation of the completion of that interconnection and the commissioning of our new RNG facility into 2026.
During 2023, we also announced our planned development of a landfill gas to RNG project in Irvine, California at the CHF, our Ballard landfill. This new RNG facility is anticipated to process a large and growing volumes of biogas in excess of the existing capacity of our existing renewable electric generation facility on the back of that landfill, which we intend to both retain and operate alongside the new R&D facility as previously disclosed, we continue to expect the capital investment to range between $85 million and $95 million and anticipate the fully commissioned facility in 2026 to contribute approximately 3,600 MMBTUs per day in production capacity, assuming currently forecasted bio stock feedstock volumes that are projected to be available from the host landfill at the time of commissioning in 2026.
I will now shift to an update on our various ongoing growth development projects, starting with our digestion capacity expansion of our Pecos dairy cluster project in Idaho. As previously disclosed, our dairy house began delivering the first two of three feedstock increases identified in our feedstock amendment. The catalyst for the expansion project. Also as previously disclosed, three of the four development payments were made to our dairy hosts related to those achieved feedstock increases. Our dairy has informed us that they expect to deliver the final increase in feedstock volumes in 2025, at which time we will make the final development payment. California Air Resource Board approved after the public comment period ended in March 2023. Our provisional carbon intensity score application with a CI. score of negative 261.56. We released the remaining gas from storage in the second quarter of 2023 and recognized both rent and LCFS credit revenues related to those storage releases during 2023.
Regarding the physical commissioning of our peak of dairy digestion capacity increase project, we successfully commissioned the first of two new digesters as well as our new reception pit, both of which became operational during the third quarter of 2023, we immediately began using the increased reception pit capacity and have been working to increase gas availability through the additional digesting capacity. We continue to commission that the second and last of our new additional digesters expect to complete commissioning during the second quarter of 2024 and increase gas availability into the third quarter of 2024. We continue to expect our digestion capacity expansion project will allow us to take advantage of the excess capacity in our existing RNG facility at this location.
I will now discuss the many developments we have had related to our North Carolina, swine waste energy developments, my talk at Renewables, we continue to work with our engineer of record through the optimization of improvements to our patented reactor technology during the first quarter of 2023, we completed the relocation of our existing reactor from its original location in Magnolia, North Carolina to our new Turkey, North Carolina facility. In an effort to centralize future feedstock processing. We executed a receipt interconnection agreement with Piedmont Natural Gas for our Turkey, North Carolina location related to our interconnection. We signed a lease agreement with Belmont natural gas to provide access to the Turkey North Carolina property during the construction of the interconnection.
In July 2023, we signed a renewable energy certificate record agreement with Duke Energy Duke, under which Duke will purchase the swine waste risks from the conversion of swine waste feedstock into renewable energy.
During the third quarter of 2023, our Board of Directors approved funding for the first phase of our development initiative in North Carolina. We continue to expect the first phase total capital investment to range between $140 million and $160 million, which includes approximately $33 million of cumulative expenditures through the end of 2023. We continue to expect the first of our eight processing lines of this first phase to be operational in the second quarter of 2024, and we are currently planning for a rolling commissioning schedule for the remaining processing lines beginning the second half of 2024 through the second half of 2025, with revenues beginning in 2025, our turkey North Carolina project location was approved to participate in the peak month natural gas renewable pilot program, which is a step towards obtaining the new renewable energy facility, and REP designation under the North Carolina Utilities Commission. The NCUC. in January 2024, we received notification from the NCUC. that our Turkey, North Carolina location was approved for both our MRF and a certificate of public convenience and necessity. This is a critical step towards obtaining the end rep designation and obtaining this designation could have an impact on the timing of utility infrastructure at our turkey North Carolina location.
In March 2024, we submitted an amendment to our ad rep designation to optimize its applicability to specific facility componentry for which we expect a decision on that amendment during 2024. Upon completion of our first full phase of the Turkey, North Carolina projects, we anticipate the ability to process feed stuff from over 140,000 hog faces per day, equating to over 200 tons of daily waste collection per day. We continue to expect to annually produce approximately 45,000 to 50,000 megawatt hour equivalents through the combination of 190,000 to 200,000 MMBTU and 25,000 to 30,000 megawatt hours. Additionally, we continue to estimate the first phase of this project will produce 17,000 to 20,000 tons of organic fertilizer alternatives annually.
During 2022, we announced our plans to construct a second RNG processing facility at the apex landfill. This project is being driven by projections of biogas feedstock availability from the host landfill as the landfill host continues to increase its waste intake. We believe that the additional 2,100 MMBTU per day of production capacity of our new facility will allow for us to process the landfill hose currently forecasted increases in biogas feedstock volumes related to their projected increases in waste intake. While the landfill host continues to increase waste intake, we expect there could be a period where we have excess available capacity after the second facilities commissioned. We currently expect commercial operations during the fourth quarter of 2024.
In 2024, we reached an agreement with one of our landfill hosts to sell back our gas rights in advance of their expiration impacting one of our smaller renewable electric generation operating facilities. The strategic decision to exit this facility was influenced by mid 2024 expiration of an above market power purchase agreement, the elimination of decommissioning asset removal or site restoration obligations, sale proceeds of $1 million being well in excess of the carrying value of this project. And the offer to extend our gas rates at two of our existing RNG operating facilities, the task I see that a coastal Plains for an additional five years each the effective date of this transaction will be October first, 2024.
And with that, I will turn the call over to Gary.
Kevin Van Asdalan
Thank you, Sean, and I will be discussing our 2023 financial and operating results, please refer to our earnings press release and the supplemental slides that have been posted to our website for additional information. Total revenues in 2023 were $174.9 million, a decrease of $30.7 million or 14.9% compared to $205.6 million in 2022. The primary driver for this decrease relates to a decrease of approximately 16.6% in realized rent pricing during 2023 of $2.71 compared to $3.25 in 2022.
Additionally, contributing to the decrease was a decrease in natural gas index pricing of approximately 58.7% in 2023 of $2.74 compared to $6.64 in 2022. Total general and administrative expenses were $34.4 million in 2023, an increase of $0.3 million or 0.8% compared to $34.1 million for 2022. Our general and administrative expenses for 2023 increased approximately $2.1 million compared to 2022 associated with the 2022 Montauk add renewable stock-based compensation amendments to restricted share awards.
Partially offsetting this increase was the reversal of approximately $1.0 million in stock-based compensation expense related to forfeited stock awards. Our professional fees expense was $4.6 million in 2023, a decrease of $0.7 million or 12.5% compared to $5.3 million in 2022. Montauk add renewables. Professional fees for 2023 increased approximately $0.4 million compared to 2022, which is included in the aforementioned total 2023 increase of $2.1 million for Montauk add renewables on only our rent expense was $0.7 million in 2023, an increase of $0.3 million or 69.6% compared to $0.4 million in 2022.
Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced 5.5 million MMBTU of RNG during 2023, flat compared to 5.5 million MMBTUs produced in 2020 to reduce preventative maintenance and wellfield optimization in 2023 at certain sites led to increased production, notably at our task to see the facility producing 84,000 MMBTU more in 2023 compared to 2022. Offsetting these improvements were unrelated wellfield quality issues at other sites and portfolio-wide weather anomalies, which lowered production that by our ramp, the facility producing 95,000 fewer MMBTU in 2023 compared to 2022.
Revenues from the renewable natural gas segment in 2022 were $156.4 million, a decrease of $39.8 million or 20.3% compared to $196.2 million in 2022. Average commodity pricing for natural gas for 2023 was 58.7% lower than the prior year. During 2023, we self marketed 44.9 million RINS, representing a 1.1 million increase or 2.5% compared to 43.8 million RIN in 2022. The increase was primarily related to the prior period RIN volumes carried over into 2023 compared to 2022.
Average realized pricing on renewed sales during 2023 was $2.71 as compared to $3.25 in 2022, a decrease of 16.6%. This compares to the average Y three rent index price for 2023 of $2.63 being approximately 11.7% lower than the average the three rent index price in 2022 of $2.98. At December 31st, 2023, we had approximately 0.4 million MMBTUs available for RIN generation and had approximately 0.1 million RIN generated in unsold. We had approximately 0.4 million MMBTUs available for wind generation and approximately 0.7 million RIN generated and sold at December 31st, 2022.
Our operating and maintenance expenses for our R&D facilities in 2023 were $47.9 million, an increase of $4.2 million or 9.5% compared to $43.7 million in 2022. Our RNG facilities reported reduced total segment utility expenses of approximately $2.1 million in 2023 as compared to 2022. Other RNG operating and maintenance expenses increased approximately $6.3 million in 2023 compared to 2022 as a result of a facility preventative maintenance repairs, wellfield operational enhancements and non-cost capitalizable costs. Non-capitalizable costs were reported at our Pecos facility in connection with the digestion of capacity increase project.
Our profitability is highly dependent on the market price of environmental attributes, including the market price for rents as we self market a significant portion of our rents, a decision not to commit to transfer available rents during a period will impact our revenue and operating profit, we strategically determined not to transfer a significant amount of the D3 RINs generated and available for transfer during the first quarter of 2024. Based on our internal expectations related to the price of D. three rents.
As a result, we have approximately 2.9 million RINs remaining in inventory for 2020 from 2023 gas production of approximately 7.3 million RINS in inventory from 2024 gas production. As of this call, the average price of the D3 RINs through the end of February was approximately $3.06. We produced approximately 194,000 megawatt hours in renewable electricity during 2023, an increase of approximately 4,000 megawatt hours or 2.1% compared to 190,000 megawatt hours in 2022. Our security facility produced 5,000 megawatt hours more in 2023 compared to 2022 as a result of the prior period.
Engine revenues from renewable electricity facilities in 2023 were $18.4 million, an increase of $1.2 million or 7.4% compared to $17.2 million in 2022. The increase is primarily driven by the timing of generation and monetization of REX and PPA pricing step-ups at our apartment facility.
Our renewable electricity generation, operating and maintenance expenses in 2023 were $11.7 million, a decrease of $1.3 million or 10.2% compared to $13.1 million in 2022. The decrease is primarily due to timing of scheduled preventative maintenance intervals at our apartment facility.
During 2023, we recorded impairments of $0.9 million, a decrease of $4.0 million or 81.4% compared to $4.9 million in 2022. In 2023, we recorded impairments of approximately $0.8 million for specifically identified RNG machinery and feedstock processing equipment that were no longer an operational use as well as $0.1 million in obsolete renewable electricity generation critical spares as to the remaining long-life asset groups we concluded based on our annual cash flow assessment conducted for monitoring potential indicators of impairment in 2023 that the cash flows to be generated are significantly in excess of their carrying values of our operating sites due primarily to the length of the underlying gas rights agreements, and we did not record any other impairments related to our cash flows assessment. This compares to a 2022 impairment of $2.1 million for a renewable electric generation site where into future forecast, cash flows did not exceed the carrying value of the sites, long-lived assets and other 2022, specifically identified impairments totaling approximately $2.5 million.
Operating profit in 2023 was $23.6 million, a decrease of $21.0 million or 47% compared to $44.6 million in 2022. RNG operating profit for 2023 was $59.3 million, a decrease of $35.1 million or 37.2% compared to $94.4 million in 2022. Renewable electricity generation operating loss for 2023 was $0.6 million, a decrease of $6.4 million or 91.5% compared to $7 million in 2022.
Turning to the balance sheet. In December 2023 -- Turning to the balance sheet. In December 2023, $66.0 million was outstanding under our term loan. As of December 31st, 2023, the Company's capacity available for borrowing under the revolving credit facility was $117.5 million. During 2023, we generated $41.1 million of cash from operating activities, a 49.4% decrease from the prior year ended December 31, 2022, to $81.8 million.
In December 2023, we entered into the Fourth Amended and Restated loan agreement and secured promissory notes. The M. and K. amendment I and between Monfalcone Montauk Holdings Limited, amending and restating in its entirety, the third loan agreement and secured promissory notes as amended. The balance of the loan remained unchanged at approximately $10 million. However, the amendment extended the maturity date to December 31st, 2033, in terms of the amendment are otherwise substantially similar to the original loan agreement.
As previous as previously disclosed, we entered into the M&A loan agreement in accordance with our obligations set forth in a transaction implementation agreement entered into by and among MNK. and the other party thereto in connection with our 2021 initial public. Based on our estimate of the present value of our PGO. earn-out obligation, we reported an increase of approximately $1.3 million to the earn-out liability during 2023, an increase of $0.1 million or 12.8% compared to $1.1 million increase in 2022.
This increase was reported through our RNG segment royalty expense. For 2023, our capital expenditures were $63.1 million, of which $18.6 million, $13.7 million, and $13.1 million were related to the ongoing development of Montauk ag renewables peaker facility digesting capacity increase in the second Apex facility perspective.
As of December 31st, 2023, we had cash and cash equivalents of approximately $73.8 million. Adjusted EBITDA for 2023 was $46.5 million, a decrease of $24.0 million or 34.0% compared to adjusted EBITDA of $70.5 million for 2022. Ebitda for 2023 was $45.3 million, a decrease of $20.4 million or 31.1% compared to EBITDA of $65.7 million for 2022.
Net income for 2023 decreased $20.3 million or 57.7% compared to net income for 2022. The decrease was primarily driven by price driven reductions to revenues of approximately $30.7 million that were offset through our tiered royalty structure which reduced our royalty expense in 2023 by approximately $9.3 million, leading to our $20.9 million reduction in 2023 operating income.
With that, I'll now turn the call back over to Sean.
Sean McClain
Thank you, Kevin. In closing and though, we don't provide guidance as to our internal expectations on the market price of environmental attributes, including market price of D3 rents, we would like to provide our full year 2024 outlook. For 2024, we expect our RNG production volumes to range between 5.8 million and 6.1 million MMBTUs with corresponding RNG revenues to range between $195 million and $215 million. We expect our 2024 renewable electricity production volumes to range between 190,000 and 200,000 megawatt hours with corresponding renewable electricity revenues to range between $18 million and $19 million.
And with that, we will pause for any questions.
Question and Answer Session
Operator
(Operator Instructions) [Samuel Jiang], UBS.
Samuel Jiang
I think you answered my question also for Slide 8 in the deck that was super helpful. I was wondering, do you have a long-term outlook regarding due to increasing LCFS pricing? Or how do you see potential COVID-19 continues?
Sean McClain
Excellent question. As we often times say, on these calls properties, but give guidance or our views on what the forward prices are for environmental attributes, particularly the three year ends. We do take note, however, of the three year guidance that has been provided by the EPA representing 30% increases in the demand for those attributes. And we do acknowledge based on available data, it is on the EPA's side for the renewable fuel standard, the relative monthly generation statistics, which do suggest a we're covering shortage of the generation of those attributes related to the run rate that would be more indicative of the demand that you will have for those three year RVO starting with 2024.
Operator
Matthew Blair, Tudor, Pickering, Holt.
Matthew Blair
Thank you and good, good afternoon. I'm hoping you could talk a little bit more about the Q4 production if I'm doing the math correctly, it looks like Q4 RNG production was actually down a little bit from Q3, which I remember was impacted by some weather issues. So did those weather issues reoccur in Q4? And then what is your outlook for Q1? Would you expect things to bounce back?
Kevin Van Asdalan
Thank you, Matthew. In regards to providing quarterly guidance, we continue to just provide annual guidance for which our guidance ranges are between 5.8 million and 6.1 million MMBTU in regards to the fourth quarter, weather contributed, but we also had some well of well, the host well field quality issues primarily at our large site in Cincinnati, Ohio, which impacted our expectations as we closed out the fourth quarter.
In regards to ongoing weather anomalies. I would similar to Sean, not wanting to predict the future rent prices. We tried to manage our expectations through weather. But as of right now, our existing guidance ranges of between 5.8 million and 6.1 million Mmbtu are contemplating all of our exit good contributions from our RNG portfolio across the year.
Operator
Craig Shere, Tuohy Brothers.
Craig Shere
Hi, thanks. Thanks for the states and taking the question. Any thoughts specifically about the EBITDA margin in '24 and more generally, about the EBITDA ramp that might be expected through 27 as the North Carolina swine waste project is completed. Your Pico expansion has brought online yet your Apex expansion and you also have the our Blue Granite and government projects.
Kevin Van Asdalan
Thanks, Craig. Yes, we do anticipate our EBITDA increase in 2024 to follow, along with our increase of expect from our increase in expectations of volumes on rent price, notwithstanding up based on our internal assumptions in regards to the ramp in 2025, specifically related to our North Carolina operation. Based on our current expectations, we look to fill around half of our expected output under the Duke swine rec agreement with revenue starting around the second half of 2025 thereafter, the EBITDA contributions from a more recent project that we announced, the European energy from a volumetric and price standpoint, I think it would be fair to say from a top line revenue contribution from European energy. The pricing of that agreement is generally in line with some expected prices from a Tom carbon sequestration tax credit view. However, I do want to note that is not a tax credit play for us. It is a revenue driver on increasing and diversifying our top line revenues whenever we start to deliver our volumetric CO2 to European energy.
Operator
Matthew Blair, TPH.
Matthew Blair
Hey, thanks for taking my follow-up. I was going to ask about your 2024 spending plans some, but I'm actually seeing it in the K here, it looks like it's approximately $150 million to $167 million. Is that correct? And could you talk about what's driving the increase year over year?
Kevin Van Asdalan
Yes, that is accurate, Matthew, thank you. More poignant Lee, our annual maintenance capital disaggregated, we expect that's going to be between $14 million and $17 million. Then our development project capital ranges between $135 million and $150 million. That's largely driven by our two larger products projects, the RNG build on the Frank, our arm and landfill in California, as well as our continued our development of the up to eight processing reactor lines at our North Carolina location.
Operator
Thank you. I'm showing no, I'm showing no further questions in the queue. I would now like to turn the call back over to Sean for closing remarks.
Sean McClain
Thank you. And thank you for taking the time to join us on the conference call today. We look forward to speaking with you on our 2024 first quarter conference call.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
