Montauk Renewables, Inc. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Montauk Renewables, Inc.

10-K

Annual report

Filing date:

03/14/2025

TLDR:

ELI5:

Montauk Renewables makes energy from trash and farms. They made a little more money this year, but it cost them more to do it, so their profits went down. They’re trying to grow their business, but they face some risks.

Accession #:

0000950170-25-039495

Published on

March 16, 2025

Analyst Summary

Total operating revenues increased slightly by 0.5% to $175.7 million, driven by a 21% increase in the average realized RIN price, offsetting lower natural gas prices and decreased RIN sales volume.
Operating income decreased by 31.8% to $16.1 million due to higher operating expenses.
The company is strategically expanding into agricultural feedstocks and optimizing existing assets.
Management highlights challenges related to wellfield management impacting gas extraction and production volumes.
Gross Profit Margin decreased from 26.12% in 2023 to 23.43% in 2024, a decrease of 10.30%.
Operating Profit Margin decreased from 13.52% in 2023 to 9.17% in 2024, a decrease of 32.17%.
Net Profit Margin decreased from 8.55% in 2023 to 5.54% in 2024, a decrease of 35.21%.
Return on Assets (ROA) decreased from 4.27% in 2023 to 2.79% in 2024, a decrease of 34.66%.
Return on Equity (ROE) decreased from 5.97% in 2023 to 3.78% in 2024, a decrease of 36.68%.
EPS (Basic and Diluted) decreased from $0.11 in 2023 to $0.07 in 2024, a decrease of 36.36%.
Current Ratio decreased from 3.07 in 2023 to 1.71 in 2024, a decrease of 44.30%.
Quick Ratio decreased from 3.07 in 2023 to 1.71 in 2024, a decrease of 44.30%.
Cash Ratio decreased from 2.52 in 2023 to 1.36 in 2024, a decrease of 45.90%.
Debt-to-Equity Ratio decreased from 0.40 in 2023 to 0.36 in 2024, a decrease of 10.00%.
Debt-to-Assets Ratio decreased from 0.29 in 2023 to 0.26 in 2024, a decrease of 10.34%.
Interest Coverage Ratio decreased from 4.11 in 2023 to 3.06 in 2024, a decrease of 25.55%.
Price-to-Earnings Ratio (P/E) increased from 18.82 in 2023 to 29.57 in 2024, an increase of 57.12%.
Price-to-Book Ratio (P/B) decreased from 1.17 in 2023 to 1.15 in 2024, a decrease of 1.71%.
Enterprise Value to EBITDA (EV/EBITDA) increased from 6.26 in 2023 to 7.46 in 2024, an increase of 19.17%.
Adjusted EBITDA decreased from $46,451 (in thousands) in 2023 to $42,616 (in thousands) in 2024, a decrease of 8.26%.
Total RINs available for sale decreased from 44,936 in 2023 to 36,639 in 2024, a decrease of 18.46%.

Opportunities and Risks

Operational Risks: Potential for lower than expected output from renewable energy projects due to various factors, including equipment failures, feedstock supply issues, and weather events.
Customer Concentration: Significant reliance on a limited number of customers, exposing the company to credit risk and potential revenue loss if a major customer terminates its relationship.
Regulatory Risks: Dependence on government economic incentives and the potential for changes in regulations that could negatively impact the renewable energy market.
Competition: Intense competition in the renewable energy and waste-to-energy markets.
Project Development Risks: Challenges in identifying suitable locations for new projects and potential delays in construction and development.
Cybersecurity Risks: Potential for IT and data security breaches to disrupt operations and compromise sensitive information.
Expansion into Agricultural Feedstocks: Diversifying project portfolio beyond landfills by developing RNG recovery projects at livestock farms and WRRFs.
Optimization of Existing Assets: Increasing production at existing projects through operational improvements and capacity expansions.
Value-Added Service Offerings: Leveraging expertise in engineering, construction, and operations to provide services to other companies in the renewable energy sector.
Inflation Reduction Act: Potential benefits from tax credits and other incentives for clean energy production.
Carbon Dioxide Beneficial Use: Capturing, cleaning, and liquefying biogenic carbon dioxide at existing projects.

Montauk Renewables, Inc. (MNTK) – 10-K Filing Analysis (FY 2024)

Executive Summary

This report analyzes Montauk Renewables, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Key findings include a slight increase in overall revenue, driven by higher RIN prices offsetting lower natural gas prices and decreased RIN sales volume. The company is strategically expanding into agricultural feedstocks and optimizing existing assets. Risks include customer concentration, reliance on government incentives, and potential operational disruptions. Overall, Montauk appears to be navigating a complex market environment, but faces challenges in maintaining profitability and managing risks. A Hold rating is recommended, pending further evidence of successful execution of their growth strategy and mitigation of identified risks.

Company Overview

Montauk Renewables, Inc. (MNTK) is a renewable energy company specializing in the recovery and processing of biogas from landfills and other non-fossil fuel sources. They convert this biogas into renewable natural gas (RNG) and renewable electricity. The company operates 11 RNG projects and 2 Renewable Electricity projects across seven states. A key strategic focus is expanding into agricultural feedstocks, particularly dairy farms, for RNG production. The company is also focused on optimizing existing assets and exploring value-added service offerings.

Financial Statement Analysis

Revenue Analysis

Total operating revenues increased slightly by 0.5% to $175.7 million in 2024. This increase was primarily driven by a 21% increase in the average realized RIN price, which offset a 17.2% decrease in the natural gas index price and a decrease in RIN sales volume due to a strategic decision to hold back RINs in Q4 2024.

Key Revenue Drivers

RNG Production: Increased by 1.6% to 5,587 MMBtu.
Average Realized RIN Price: Increased by 21% to $3.28.

Operating Expenses

Total operating expenses increased by 5.5% to $159.6 million. Key drivers include:

Operating and Maintenance Expenses: Increased by 11.5% due to higher maintenance costs at several facilities.
General and Administrative Expenses: Increased by 5.5% due to higher employee-related costs.
Royalties, Transportation, Gathering and Production Fuel: Decreased by 9.6% due to lower royalty payments.

Profitability

Operating income decreased by 31.8% to $16.1 million, reflecting the higher operating expenses and the impact of lower natural gas prices.

Key Ratios

Ratio	2024	2023	Analysis
Operating Margin	9.2%	13.5%	Decreased due to higher operating expenses.

Liquidity and Capital Resources

Cash and cash equivalents decreased to $45.6 million. The company has an $80 million term loan and a $120 million revolving credit facility. The company is in compliance with all financial covenants.

Capital Expenditures

Capital expenditures were $62.3 million in 2024, primarily related to the Montauk Ag Renewables project, the second Apex RNG facility, and the Bowerman RNG project.

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the company’s strategic focus on expanding into agricultural feedstocks and optimizing existing assets. They also discuss the impact of regulatory changes and market trends on the renewable fuel market. The MD&A reveals challenges related to wellfield management at certain landfill sites, impacting gas extraction and production volumes.

Risk Assessment

Key Risks Identified:

Operational Risks: Potential for lower than expected output from renewable energy projects due to various factors, including equipment failures, feedstock supply issues, and weather events.
Customer Concentration: Significant reliance on a limited number of customers, exposing the company to credit risk and potential revenue loss if a major customer terminates its relationship.
Regulatory Risks: Dependence on government economic incentives and the potential for changes in regulations that could negatively impact the renewable energy market.
Competition: Intense competition in the renewable energy and waste-to-energy markets.
Project Development Risks: Challenges in identifying suitable locations for new projects and potential delays in construction and development.
Cybersecurity Risks: Potential for IT and data security breaches to disrupt operations and compromise sensitive information.

Opportunity Assessment

Key Opportunities Identified:

Expansion into Agricultural Feedstocks: Diversifying project portfolio beyond landfills by developing RNG recovery projects at livestock farms and WRRFs.
Optimization of Existing Assets: Increasing production at existing projects through operational improvements and capacity expansions.
Value-Added Service Offerings: Leveraging expertise in engineering, construction, and operations to provide services to other companies in the renewable energy sector.
Inflation Reduction Act: Potential benefits from tax credits and other incentives for clean energy production.
Carbon Dioxide Beneficial Use: Capturing, cleaning, and liquefying biogenic carbon dioxide at existing projects.

Conclusion and Actionable Insights

Montauk Renewables is operating in a dynamic and evolving market. While the company has demonstrated growth in RNG production and is strategically expanding into new areas, it faces significant risks related to customer concentration, regulatory changes, and operational challenges. The decrease in operating income and the reliance on government incentives raise concerns about long-term profitability. The company’s success hinges on its ability to effectively manage these risks and capitalize on its growth opportunities.

Recommendation: Hold. Monitor the company’s progress in diversifying its revenue streams, mitigating operational risks, and securing long-term contracts. A more positive outlook would require evidence of improved profitability and successful execution of their growth strategy.

1. Commentary

Montauk Renewables’ financial performance in 2024 shows mixed results. Revenue growth was marginal, with a slight increase in Renewable Natural Gas (RNG) revenues offset by a decrease in Renewable Electricity Generation (REG) revenues. Operating income declined significantly due to increased operating expenses, leading to a substantial decrease in net income. While the company managed to increase its RNG production volumes and average realized RIN price, challenges remain in managing operating expenses and achieving profitability in the REG segment.

2. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Metric: Calculated as (Total operating revenues – Operating and maintenance expenses – General and administrative expenses – Royalties, transportation, gathering and production fuel) / Total operating revenues.

2024: (175,736 – 66,663 – 36,286 – 31,502) / 175,736 = 23.43%

2023: (174,904 – 59,762 – 34,403 – 34,861) / 174,904 = 26.12%

Trend: Decreased from 26.12% in 2023 to 23.43% in 2024, a decrease of 10.30%.

Industry: Industry averages for renewable energy companies vary widely. A reasonable benchmark might be utility companies, which often have gross profit margins in the 30-50% range. Montauk’s margin is below this range.

Operating Profit Margin

Metric: Operating Income / Total operating revenues

2024: 16,123 / 175,736 = 9.17%

2023: 23,640 / 174,904 = 13.52%

Trend: Decreased from 13.52% in 2023 to 9.17% in 2024, a decrease of 32.17%.

Industry: For utility companies, operating profit margins typically range from 15-25%. Montauk’s operating margin is below this range, indicating lower operational efficiency or higher operating costs.

Net Profit Margin

Metric: Net Income / Total operating revenues

2024: 9,734 / 175,736 = 5.54%

2023: 14,948 / 174,904 = 8.55%

Trend: Decreased from 8.55% in 2023 to 5.54% in 2024, a decrease of 35.21%.

Industry: Utility companies often have net profit margins in the 5-15% range. Montauk’s net profit margin is at the lower end of this range.

Return on Assets (ROA)

Metric: Net Income / Total Assets

2024: 9,734 / 349,015 = 2.79%

2023: 14,948 / 350,238 = 4.27%

Trend: Decreased from 4.27% in 2023 to 2.79% in 2024, a decrease of 34.66%.

Industry: The average ROA for utility companies is typically around 2-4%. Montauk’s ROA is within this range but trending downwards.

Return on Equity (ROE)

Metric: Net Income / Total Stockholders’ Equity

2024: 9,734 / 257,417 = 3.78%

2023: 14,948 / 250,239 = 5.97%

Trend: Decreased from 5.97% in 2023 to 3.78% in 2024, a decrease of 36.68%.

Industry: The average ROE for utility companies is typically around 8-12%. Montauk’s ROE is below this range.

Earnings Per Share (EPS) – Basic and Diluted

Metric: Net Income / Weighted-average common shares outstanding

2024 Basic: 9,734 / 142,279,079 = $0.07

2024 Diluted: 9,734 / 142,397,493 = $0.07

2023 Basic: 14,948 / 141,727,905 = $0.11

2023 Diluted: 14,948 / 142,151,640 = $0.11

Trend: EPS (Basic and Diluted) decreased from $0.11 in 2023 to $0.07 in 2024, a decrease of 36.36%.

Industry: EPS varies significantly. It is important to compare Montauk’s EPS to its direct competitors in the renewable energy sector.

Liquidity

Current Ratio

Metric: Total Current Assets / Total Current Liabilities

2024: 57,224 / 33,528 = 1.71

2023: 90,175 / 29,350 = 3.07

Trend: Decreased from 3.07 in 2023 to 1.71 in 2024, a decrease of 44.30%.

Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. Montauk’s current ratio is within this range, but the decrease indicates a potential weakening of short-term liquidity.

Quick Ratio (Acid-Test Ratio)

Metric: (Total Current Assets – Inventory) / Total Current Liabilities. Assuming no inventory.

2024: 57,224 / 33,528 = 1.71

2023: 90,175 / 29,350 = 3.07

Trend: Decreased from 3.07 in 2023 to 1.71 in 2024, a decrease of 44.30%.

Industry: A quick ratio of 1.0 or higher is generally considered healthy. Montauk’s quick ratio is above 1.0, suggesting good short-term liquidity, but the decrease is concerning.

Cash Ratio

Metric: (Cash and cash equivalents) / Total Current Liabilities

2024: 45,621 / 33,528 = 1.36

2023: 73,811 / 29,350 = 2.52

Trend: Decreased from 2.52 in 2023 to 1.36 in 2024, a decrease of 45.90%.

Industry: A cash ratio of 0.5 to 1.0 is often considered adequate. Montauk’s cash ratio is above this range, but the significant decrease indicates a substantial reduction in readily available cash.

Solvency/Leverage

Debt-to-Equity Ratio

Metric: Total Liabilities / Total Stockholders’ Equity

2024: 91,598 / 257,417 = 0.36

2023: 99,999 / 250,239 = 0.40

Trend: Decreased from 0.40 in 2023 to 0.36 in 2024, a decrease of 10.00%.

Industry: A debt-to-equity ratio of 1.0 to 1.5 is common in the utility sector. Montauk’s ratio is significantly lower, indicating a conservative capital structure.

Debt-to-Assets Ratio

Metric: Total Liabilities / Total Assets

2024: 91,598 / 349,015 = 0.26

2023: 99,999 / 350,238 = 0.29

Trend: Decreased from 0.29 in 2023 to 0.26 in 2024, a decrease of 10.34%.

Industry: A debt-to-assets ratio of 0.5 to 0.6 is typical in the utility sector. Montauk’s ratio is lower, suggesting a lower level of financial risk.

Interest Coverage Ratio (Times Interest Earned)

Metric: Operating Income / Interest Expense

2024: 16,123 / 5,277 = 3.06

2023: 23,640 / 5,753 = 4.11

Trend: Decreased from 4.11 in 2023 to 3.06 in 2024, a decrease of 25.55%.

Industry: An interest coverage ratio of 3.0 or higher is generally considered healthy. Montauk’s ratio is at the lower end of this range, indicating a reduced ability to cover interest expenses with operating income.

Activity/Efficiency

Asset Turnover

Metric: Total operating revenues / Total Assets

2024: 175,736 / 349,015 = 0.50

2023: 174,904 / 350,238 = 0.50

Trend: No Change.

Industry: Asset turnover for utility companies is typically around 0.5 to 0.7. Montauk’s asset turnover is within this range, indicating average efficiency in utilizing assets to generate revenue.

Valuation

Price-to-Earnings Ratio (P/E)

Metric: Stock Price / EPS

Stock Price: $2.07

2024 EPS: $0.07

P/E Ratio: 2.07 / 0.07 = 29.57

2023 EPS: $0.11

P/E Ratio: 2.07 / 0.11 = 18.82

Trend: Increased from 18.82 in 2023 to 29.57 in 2024, an increase of 57.12%.

Industry: The average P/E ratio for the utility sector is around 15-20. Montauk’s P/E ratio is higher, suggesting that the stock may be overvalued relative to its earnings.

Price-to-Book Ratio (P/B)

Metric: Market Capitalization / Total Stockholders’ Equity

Market Cap = Shares Outstanding * Stock Price = (142,711,797) * $2.07 = $295,413,419.79 (in thousands $295,413)

2024: 295,413 / 257,417 = 1.15

2023: Shares Outstanding * Stock Price = (141,986,189) * $2.07 = $293,911,401.23 (in thousands $293,911)

2023: 293,911 / 250,239 = 1.17

Trend: Decreased from 1.17 in 2023 to 1.15 in 2024, a decrease of 1.71%.

Industry: A P/B ratio of 1 to 3 is common in the utility sector. Montauk’s P/B ratio is within this range, suggesting that the market values the company’s net assets reasonably.

Price-to-Sales Ratio (P/S)

Metric: Market Capitalization / Total operating revenues

Market Cap = Shares Outstanding * Stock Price = (142,711,797) * $2.07 = $295,413,419.79 (in thousands $295,413)

2024: 295,413 / 175,736 = 1.68

2023: Shares Outstanding * Stock Price = (141,986,189) * $2.07 = $293,911,401.23 (in thousands $293,911)

2023: 293,911 / 174,904 = 1.68

Trend: No Change.

Industry: A P/S ratio of 1 to 2 is typical in the utility sector. Montauk’s P/S ratio is within this range, suggesting that the market values the company’s revenue reasonably.

Enterprise Value to EBITDA (EV/EBITDA)

Metric: (Market Capitalization + Total Debt – Cash and Cash Equivalents) / EBITDA

Market Cap = Shares Outstanding * Stock Price = (142,711,797) * $2.07 = $295,413,419.79 (in thousands $295,413)

Total Debt (2024): $55,616

Cash and Cash Equivalents (2024): $45,621

EBITDA (2024): $40,969

EV/EBITDA: (295,413 + 55,616 – 45,621) / 40,969 = 7.46

Total Debt (2023): $63,500

Cash and Cash Equivalents (2023): $73,811

EBITDA (2023): $45,277

EV/EBITDA: (293,911 + 63,500 – 73,811) / 45,277 = 6.26

Trend: Increased from 6.26 in 2023 to 7.46 in 2024, an increase of 19.17%.

Industry: An EV/EBITDA ratio of 10-15 is common in the utility sector. Montauk’s EV/EBITDA ratio is below this range, suggesting that the company may be undervalued relative to its earnings potential.

Growth Rates

Revenue Growth

Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue

2024: (175,736 – 174,904) / 174,904 = 0.48%

Trend: Increased by 0.48%.

Net Income Growth

Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income

2024: (9,734 – 14,948) / 14,948 = -34.95%

Trend: Decreased by 34.95%.

EPS Growth

Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS

2024: (0.07 – 0.11) / 0.11 = -36.36%

Trend: Decreased by 36.36%.

Other Relevant Metrics

Adjusted EBITDA

Metric: A non-GAAP measure calculated as Net income + Depreciation, depletion and amortization + Interest expense + Income tax expense + Impairment loss + Transaction costs.

2024: $42,616 (in thousands)

2023: $46,451 (in thousands)

Trend: Decreased from $46,451 in 2023 to $42,616 in 2024, a decrease of 8.26%.

Significance: Adjusted EBITDA is used by the company to assess its operating performance without the impact of non-cash items and certain other expenses. The decrease in Adjusted EBITDA suggests a decline in the company’s core operating profitability.

Critique: While Adjusted EBITDA can provide a clearer picture of operating performance, it is important to consider the excluded items, such as depreciation and impairment losses, as these represent real economic costs. The adjustments seem reasonable, but investors should be cautious when relying solely on non-GAAP measures.

RINs Available for Sale and RINs Sold

Metric: Company tracks RINs (Renewable Identification Numbers) available for sale and the percentage of those RINs that are sold.

Significance: RINs are a key component of revenue for renewable fuel producers. Tracking the availability and sale of RINs provides insight into the company’s ability to monetize its renewable fuel production.

Trend: Total RINs available for sale decreased from 44,936 in 2023 to 36,639 in 2024, a decrease of 18.46%. RINs sold also decreased from 44,936 in 2023 to 36,639 in 2024, a decrease of 18.46%.