Q3 2021 Montauk Renewables Inc Earnings Call

November 15, 2021

Good afternoon, everyone and thank you for participating in today's conference call.

I would like to turn the call over to Mr. Johnson.

I'll provide some important cautions regarding forward looking statements contained in the earnings materials or made on this call. John. Please go ahead.

Thank you and good afternoon, everyone welcome to Monotype Renewables third quarter 2021 earnings Conference call I'm, John slowly Vice President General Counsel and Secretary at Montauk. Joining me today are Shawn Mcclain montage, Chief Executive Officer and President.

And he will discuss business development, and Kevin Vann, Ashland's, Chief Financial Officer to discuss our third quarter of 2021 results. During this call certain statements. We make will be forward looking and based on management's beliefs and assumptions and information currently available to management at this.

This time, including without limitation statements relating to the company's future results of operations and financial condition as well as our expectations and plans for the company such as with our Montauk AG renewables asset acquisition, the Pico improvement project and Pico Ci.

Score. These statements are subject to known and unknown risks and uncertainties, many of which maybe beyond our control, including those set forth in our safe Harbor provision for forward looking statements that can be found in our third quarter 2021 earnings press release.

Our Form 10-Q for the third quarter of 2021.

Most recent annual report on Form 10-K, and in our other reports on file with the SEC and provide further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated.

Except as required by law, we undertake no obligation to update any forward looking statement.

Our remarks today May also include non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and 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 and in our third quarter 2021 earnings release and Form 10-Q issued and filed this afternoon. These.

These are available on our website at IR dot montage renewables dotcom.

After our prepared remarks, we will open the call to questions. We ask that you. Please keep to one question to accommodate as many questions as possible.

With that I will turn the call over to <unk>.

Sean.

Thank you John and good day, everyone and thanks for joining our call.

I would like to start this call with an update on two important developments. We are focused on as we continue to grow.

In May 2021, we completed the boardwalk egg renewables asset acquisition in North Carolina to purchase developing technology to recover residual natural resources from waste streams of modern agriculture.

Fine and recycles, such waste products through proprietary and other processes in order to produce high quality renewable natural gas bio oil and bio char.

During the third quarter of 2021.

We continue to execute on our plans for ballpark gag renewables.

In August 2021, we were granted a patent over 24 specific aspects of continuous feed closed loop reactor technology acquired in the acquisition.

We believe that the reactor enables near zero emissions conversion of agriculture waste into multiple non fossil and renewable fuel alternatives is capable of producing multiple units of renewable energy for each unit of conventional energy consumed and is capable of sequestering multiple tugs green.

House gas equivalent emissions for every ton emitted.

We expect the reactor with certain enhancements to better address some of the environmental challenges of industrial agriculture, including lagoon capacity constraints watershed contamination odor issues nutrient abundances and containment and disposal available wastes, regardless of location or size.

The reactor is operational and we continue to make improvements to the reactor to optimize its functionality and currently expect this facility to be commissioned with these improvements during 2022.

In October of 2021, we also closed on a $5 4 billion transaction to acquire approximately 146 acres and an existing approximately 500000 square foot structure, which we plan to use as we expand the production processes acquired in the mall and talk Agra.

Global's acquisition.

We have also executed master service agreements that provide access to waste feedstock for ballpark AG to process.

The waste feedstock will be sourced from swine waste contained in anaerobic lagoons and its removal will help to improve with good water flow and reduce capacity in the live goods.

As we commission and increase our production capabilities, we intend to add additional farms did these agreements as feedstock sources, which have the potential to secure more feedstock for our facility.

I also want to provide an update on our Pico facility and Jerome Idaho.

During the third quarter of 2021, and as part of our overall previously announced capacity expansion at the Pico facility.

We undertook significant efforts to improve the performance of the existing digestion process at our Pico facility.

We have temporarily idled RMG production at this facility in order to clean up.

Settled solids digester.

Replace the cover of the digester and make various other efficiency improvements.

After the improvements are completed we expect production to measurably increase from the current production levels of approximately 150 <unk> per day once we resume full operations at the peak of facility currently expected during the first quarter of 2022.

The improvement project has impacted the timeline for bottling peak goes initial Ci score pathway model and subsequent auditing approval by the California Air Resource Board.

We currently expect to submit the Ci pathway model and reapply for a temporary ci pathway in the fourth quarter of 2021.

The results of this approval could have a significant impact on our ability to generate L. CFS credit revenues in 2022 on our 2021 production.

And with that I will turn the call over to Kevin.

Thank you Sean I'll be discussing our third quarter of 2021 financial and operating results. Please refer to our earnings press release and the supplemental slides have been posted to our website for additional information.

Total revenues in the third quarter of 2021 were $39 7 million, an increase of $11 5 million or 47% compared to $28 3 million in the third quarter of 2020, and increasing the number of rigs sold accounted for over half or $6 9 million of the increase during the third quarter of <unk>.

2021.

Increased natural gas index prices of approximately 79, 8% have contributed to increases in our gas commodity revenues over the comparable period in the prior year.

Higher revenues of approximately $1 3 million recognized under counter party sharing agreements also contributed to this increase.

As a reminder, we entered 2021 with forward commitments of approximately 50% of our expected 2021 RIN generation.

These forward commitments were based on D. Three rent index prices at the time of the commitment which is now below the D. Three rent index.

As a result realized prices were environmental attribute monetize in a year may not correspond directly to index prices in the current year due to the forward selling of commitments are.

Our current RIN commitments expected to be recognized during the fourth quarter of 2021 will be realized at an approximate average realized price of $2 a night that.

We do not have any <unk>.

2022 vintage rents currently committed.

Total general and administrative expenses were $7 5 million for the third quarter of 2021, an increase of $3 4 million or 82% compared to $4 1 million for the third quarter of 2020.

The total quarter.

Of 2020 126 million related to stock based compensation costs, primarily associated with the IPO and reorganization transactions.

Excluding the impact of IPO related stock based compensation general and administrative expenses increased approximately <unk> 8 million.

Corporate insurance for the third quarter of 2021, an increase of approximately 0.8 million or 99.64% compared to the third quarter of 2020 due to increased premium associated with the IPO.

Turning to our segment operating metrics I'll begin by reviewing our renewable natural gas segment.

We produced $1 5 million and then Btu of R&D during the third quarter of 2021, a decrease of less than <unk> 1 million and then b to use or 0.7% over the $1 5 million <unk> produced in the third quarter of 2020.

The third quarter 2021 volumes.

31000, and then Btu of R&D was produced from development site commissioned during 2020.

0.1 million lower and then B to use of R&D produced at our other locations. This reduction relates primarily to wealthy when issues at our Mccarthy facility.

The collection system at the Mccarty facility has been hampered by increased volumes of water impacting collection.

Water volumes vary or increase the ability to draw feedstock can be reduced we are working with the landfill host to mitigate these matters, but expect this issue to continue into the fourth quarter of 2021.

Revenues from the renewable natural gas segment in the third quarter of 2021 were 35.0 million, an increase of 11.0 million or 45, 9% compared to 24.0 a million in the third quarter of 2020.

The primary driver for this increase relates to RIN volumes sold during the first nine months of 2021.

During the third quarter of 2021, we sold $13 3 million Rins, representing a $2 8 million increase or 27% compared to $10 4 million in the third quarter of 2020.

The increase was primarily related to inter period timing of transfers of RIN is the majority of Rins are self marketed resulting in higher commitments for the third quarter of 2021 versus the third quarter of 2020.

Average pricing realized from RIN sales during the third quarter of 2021 was $1 65 as compared to $1 54 in the third quarter of 2020, an increase of seven 1%.

This compares to the average D. Three rent index price for the third quarter of 2021 of $3 11.

Being double the average D. Three rent index price of $1 55 in the third quarter of 2020.

Operating and maintenance expenses for our R&D facilities in the third quarter of 2021 were $8 7 million a decrease of <unk> 3 million or 3% as compared to 9.0 a million dollars in the third quarter of 2020.

Approximately $1 3 million of the third quarter 2020, operating and maintenance expenses related to development sites commissioned during 2020.

Exclusive of the effects of these development sites operating and maintenance expenses for the third quarter of 2021 were $7 4 million, a decrease of $1 5 million or 17% compared to the third quarter of 2020.

Due to fewer media change out in disposal expenses, our mccarty, a task of Cedar and apex facilities operating and maintenance expenses decreased approximately 0.2 million <unk> $2 million and zero point $6 million, respectively compared to the third quarter of 2020.

Our lumpy facility had decreased operating and maintenance expenses of approximately zero point $5 million in the third quarter of 2021 due to general preventative maintenance work related to an annual planned outage.

We produced approximately 43000 megawatt hours in renewable electricity during the third quarter of 2021, a decrease of 6000 megawatt hours from the 49000 megawatt hours or 12, 2% produced in the third quarter of 2020.

The decrease is a result of engine maintenance at our <unk> facility or 3000 megawatt hours and our security facility, having zero production in the third quarter of 2021 due to previously announced engine failures compared to 2000 megawatt hours produced in the third quarter of 2020.

Operating and maintenance expenses for our renewable electric facility in the third quarter of 2021 were $3 5 million, an increase of $1 2 million or 51, 4% compared to $2 3 million in the third quarter of 2020.

We reported the results of Pico within the renewable electric generation segment until October 2020, and Pico contributed zero point $6 million to the 2020 period.

Exclusive of Pico renewable electricity facility operating and maintenance expenses increased in the third quarter of 2021 compared to the third quarter of 2020 by $1 8 million or 100 point 202, 1%.

Increase was primarily a result of the timing of scheduled engine preventative maintenance intervals at our <unk> facility, which was approximately $1 6 million higher in the third quarter of 2021 over the third quarter of 2020.

Operating profit in the third quarter of 2021 was $6 7 million, an increase of $1 9 million or 39, 2% compared to operating profit of $4 8 million in the third quarter of 2020.

R&D operating profit for the third quarter of 2021, with 16.0 million, an increase of $6 5 million or 68, 1% compared to $9 5 million in the third quarter of 2020.

Renewable electric generation operating loss for the third quarter of 2021 was $1 4 million a decrease of <unk> 9 million or 198, 5% compared to an operating loss of <unk> 5 million for the third quarter of 2020.

During the third quarter of 2021 associated with our risk adjusted analysis of the assessment of our Pico facility earn out obligation. We recorded a reduction to the liability of <unk> 7 million, which was reported within royalties transportation gathering and production fuel and our R&D segment.

Turning to the balance sheet as of September 32021, $22 5 million was outstanding under our term loan and $36 7 million without standing under the revolving credit facility.

The company's capacity available for borrowing under the revolving credit facility was $39 4 million.

During the first nine months of 2021, we generated $21 $3 million of cash from operating activities. A five 9% decrease from the first nine months of 2020 of $22 6 million.

For the first nine months of 2021, our capital expenditures were $7 7 million of which approximately $2 4 million of our first nine months of 2021 capital expenditures were related to optimization projects at our recently commissioned facilities and 1.0 million related to the peak of feedstock Amendment.

Including acquisition costs of <unk> 3 million, we acquired assets for the Montauk add renewable with acquisition in North Carolina, a $4 1 million.

We present EBITDA and adjusted EBITDA metrics, because we believe the measures 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 adjust.

Adjusted EBITDA for the three months ended September 32021 was $12 8 million, an increase of $2 7 million or 27, 2% over adjusted EBITDA of $10 1 million for the three months ended September 32020.

The increase in adjusted EBITDA in the third quarter of 2021 was primarily from our 11.0 million increased net income as compared to net income in the third quarter of 2020.

This increase was partially offset by an increase in our income tax expense of $9 7 million as compared to our income tax benefit in the third quarter of 2020.

I'll now turn the call back over to Sean.

Okay.

Thanks, Kevin and clothing, we want to provide our fourth quarter 2021 outlook.

We expect <unk> production volumes to range between one four and $1 7 million Btu with corresponding RMG revenues between 38 and $46 million we.

We expect renewable energy electricity production volumes to range between 47, and 57000 megawatt hours with corresponding renewable electricity revenues between $3 $84 7 million.

And with that we'll now pause for any questions.

As a reminder to ask a question you will need to press star one on your telephone do we draw your question press the pound key.

Standby, while we compile the Q&A roster.

Your first question comes from the line of Greg Sherri of Tower E. Vouchers. Your line is open.

Good morning, or good afternoon, sorry.

25, 5% sequential increase in revenue and $2 one.

$1 million increase in R&D from the second quarter is certainly a step in the right direction.

But it looks like your rins hedges that are considerably below market.

We're still limited in your upside.

Can you elaborate on the sequential improvement from the second quarter and provide some color as to the extent to which below market hedges are rolling off into the fourth quarter and first quarter 'twenty two.

Sure Craig. Thank you very much for that question, yes, as we noted that when we entered before the 2021, we had forward committed throughout 2021 for the for the now below market hedges those will be rolling we're still.

Working through a few of those commitments in the fourth quarter of 2021, but we anticipate having more reasonable.

And consistent with the three RIN price RIN commitments recognized in the fourth quarter. This year, bringing that average realized RIN price up to $2 nine.

However, still significantly below that the existing D. Three brand index, but we are working through the vast majority of those older commitments that are pulling down our realized sales price as.

As compared to the existing index.

And will all that be done by the first quarter 'twenty, two and any more color on I know you talked year over year, but any more color on the sequential improvement.

The yes, we do not currently have any 2022 vintage rents committed starting in January 2022, so unlike last year at this time, when we had 50% of our expected production forward. So we do not currently have any commitments.

For 2022 vintage rents so the underperformance of.

The rent that we recognized throughout this year will clear itself by the end of the fourth quarter and then in regards to the RIN sales improvement yet it is associated with.

Clearing through these these inter period transfers that we've experienced throughout the rest of the year and.

Finally clearing off the.

The closing out of the 2021 vintage by the end of the fourth quarter.

Got you, Okay I'll hop back in the queue. Thank you.

Again to ask a question. Please press star one on your telephone keypad.

Again that is star one on your telephone keypad.

There are no further audio question at this time I will now turn the call over to Shawn Mcclain for closing remarks.

Thank you Matt thank.

Thank you for taking part.

We still have a question a great share of value powders. Your line is open.

Hi, I'm, sorry, I thought were limited to a question, but if its hotels I'll just try to finish off if that's alright.

So the Pico dairy RMG digester improvements.

Are those seen ultimately improving the Ci score.

I assume that they are intended to increase ultimate volume.

And any idea if we could get a final carbs Ci score.

In the first half of next year or could it take as late as the second half.

The first question that you ask Craig relative to will some of the changes that we're making improve the ci score make it more negative toward that Pico project. The answer is it can.

It can in a couple of different factors one of the factors are the convergence of the manner in which we teach the digestion capacity through boilers as opposed to the legacy electric electric engines that we have on site.

That can have a positive impact to make the Ci score more negative.

Second piece of that is how the expansion of the herd by the five separate farms that we support for that project are allocated and the representation of the cattle that are under roof, which yields a higher collection of them the door volumes, which can have a positive.

The benefit of more negative Ci score as opposed to what the project had sort of pre expansion as far as the second piece is concerned.

We are in process.

Applying toward those Ci pathways.

It is possible.

But not definitive that we can receive that score during sort of mid to late 2022.

Gotcha.

And.

What drove that sequential drop of four megawatt hour 4000 megawatt hours from the second quarter, and our AG and as the security projects engine repairs all done at this point.

Yeah.

Craig I'll jump in and Sean.

The <unk> facility is doing.

Preventative maintenance one.

And engine at a time Debarment facility had seven production engine manufacturer suggested P. M schedules have us taking.

In gin offline for routine preventative maintenance.

Throughout 2021, that's generally the explanation for the decrease in <unk> as compared to 2020.

All seven engine were operational during 2020 and in regards to security sorry exceeded our.

Existing expectation as that facility will be up and running in the fourth quarter of 2021 and producing renewable electricity for us.

Great.

And.

Guidance and things are getting better, but the guidance ranges are very wide.

Is there a point in the future of what would it take.

For future guidance in coming quarters too narrow.

Hum.

It's a good question Craig we have not historically given any forward looking guidance in the past.

Obviously this is the first time the company has issued guidance, albeit only for the fourth quarter.

And we're looking to continue to refine that process and to give.

More helpful more detail narrower guidance to help drive modeling and investment purposes.

Okay.

And.

Last question for me sorry.

Sorry to go on so long.

North.

I know you've historically focused on.

Suffocation flexibility across your revenue stream.

Including project types off takers emission credit regimes.

As well as limiting the duration of your fixed.

Fixed or floor price offtake.

If I understand it.

Fixed floor price offtake on RMG has maybe three to five years.

But after the close a pure.

Landfill gas, operator announced a 21 year fixed price RMG off take agreement with a gas utility.

Do you plan to continue to limit the duration of off take hedges or could you start lettering your off taker contracts to diversify across time as well.

Yeah.

Our intentions.

The strategy that we're currently deploying score fixed versus market.

The attributes predominantly the RMG is to ensure that the fixed component.

Sufficient for all of our working capital purposes sufficient for a near term line of sight to the development capital that we need.

Or any due diligence any transactional costs in the initial stages of any additional expansion projects or expansions of existing projects or potential acquisitions of portfolios or or projects or technology like we did with the North Carolina acquisition per month Okay.

The reason for that is the growth of the atrophy program under which we monetize.

And with that growth has come opportunities to not only look at sequentially locking those.

Those opportunities longer than your three to five year duration.

But more importantly has made opportunities like what we do to enable the export of our fuel products into the EU at prices that are starting to become more and more competitive with the domestic attribute opportunities that we have on the spot market here today.

And so as we continue to move into.

2022, we're optimistic to look to continue that balance of walking what we have to to ensure the working capital needs, but to allow for the monetization of those attributes at prices that are more conducive similar to your first question at what point will our market price.

<unk> be more in line with what you see in the attribute spaces for Rendell CFS credits today, we're committed to have a portion of the majority of our portfolio start to reflect those current prices, but at the same time constantly keeping abreast of opportunities does allow for us.

Not necessarily limited to utilities or 10, or 20 year agreements looking at long term fixed price off takes domestic and abroad.

Great. Thank you very much.

Sure.

Your next.

Question comes from the line of Craig Irwin.

Roth Capital Partners. Your line is open.

No that's.

Close side, good evening, guys, congratulations on a really strong quarter here.

So actually.

Got it.

Youre welcome Kristina I wanted to ask about is Mccarty road.

You know facilities had some some bumps along the way it's still a very large chunk of your your R&D production production capacity.

How should we look at potential volatility there is this something that you.

You know every year or two there items that you come up and you have to address it.

Is this a highly unusual situation.

Given that you've owned this facility for many years and how volatile is the are the.

Production out of the major facilities like this.

That's a great. That's a great question Craig one of the.

<unk> challenges of highlighting a specific facility in your earnings releases is it does bring into question the reliability of the facility.

Itself or the predictability of the facility.

That large facility in Houston area is well maintained it is an older facility that has a very strong regimen of operating and maintenance protocols. It has been subjected to a number of failure incidents in the last two years that were specific.

Isolated and are not expected to reoccur.

Items that resulted in those failures.

<unk> met with a combination of insurance coverage were met with a combination of critical spare deployment, even so much as the larger componentry.

Componentry of the compressors that were at those facilities and were immediately responded with any adjustments or embellishment of our maintenance protocols as long. In addition to the replacement of the critical spares themselves. So the expectation is that those items are isolated and they won't reoccur.

The overall volatility of the type of production at our R&D facilities.

We'd be subjected to some form of ebbs and flows in the landfill itself.

Everything from the type or component tree of the waste intake large weather events that can bring in high degrees of construction materials, which could elevate H two S levels above the normal or optimized production capability or removal capability of our production facilities.

Weather events can cause water changes in filling patterns of landfills as they move from one phase of the landfill to the next cause a sort of fall along adjustments or pairing with our ability to maintain and enhance the collection system itself all of those items are.

All in all over the lifecycle of these projects relatively balanced and they're done so to prioritize production. It also do so as a complement to what the landfills are doing themselves, but definitively I would not look at this mccarty facility as an anomaly that would have a disproportionate.

Level of occurrences either in terms of mechanical failures or in terms of systemic issues associated with the landfill. Just so happens that this particular facility has had a number of events that have been in sequential reporting periods.

Understood. Thank you. So my second question is you guys were the first R&D company too.

Peer play Orangey company took it public right <unk> had their portfolio that was pretty successful for a while.

Between here and there there's been a lot of others to work to chase you into the market.

People are excited about the the carbon reduction potential.

And the profit that's available in that.

But there have been a couple failed transactions companies that have gone out with that.

<unk> plans and list of projects that look to bills, but limited real world experience some of them got substantial capital.

Before they really even got anything built.

And.

I was hearing that they were pushing pushing.

Pushing prices on different opportunities out there.

And at the site hosts were skeptical, but others Werent can you maybe talk a little bit about the market psychology out there on the part of your customers, who do work with many of the biggest names in.

No environmental waste.

What's the appetite for them.

New project development or people rational about their expectations for projects that are available for for investment.

Do you see this playing out for me talk over the next few years.

Ah.

We see the market is the most exciting that we have operated and at least with my tenure in the organization going on 11 years.

The market is very dynamic in terms of opportunities to enhance or convert landfill projects for medium to high btu to take landfills that have not yet reached MSP is compliance and make them viable projects the opportunity of the virtualization of pipelines are making progress.

<unk> that you would normally look at because they're not a size to justify the economics of the build in operation to projects that can be clustered together.

Because of the prevailing sort of the cost reductions you're seeing of pipeline virtualization across the country.

The exciting opportunity to deviate from a core landfill gas business into fuel decarbonization agriculture projects are very exciting they do come at very commanding multiples often times. When these projects are sort of at least initial stage developed and then they're put out into the tree.

Action space, but we're seeing such an abundance of opportunities to grow existing projects that we are.

Incorporating already into our portfolio and then paving the way into North Carolina to specifically address the swine waste opportunities across that state in particular right now.

There is there is an abundance of opportunity for folks that know how to develop projects that know the realistic economics of those projects to easily come in and to secure long term agreements from the waste didn't take the monetization of those attributes.

To be able to work closely with partners to be able to get those projects off the ground from a material standpoint and equipment standpoint kind.

And the deployment standpoint, and so.

The.

Moshe the tenure of the marketplace right now is still very exciting.

Is more aggressive than it's been in previous years in terms of how many projects are coming to market. We have looked at more project opportunities in the past six months than we've probably looked at in the past three years and those opportunities continue to come to a business like montage.

That has been in this space going into its fourth decade that knows that we can effectively model those projects. We know the economics behind it we know how to stress test those projects to ensure that they will not only do well in thriving attribute markets like we see today or.

If the prices start to normalize either due to regulatory changes or they're being a lesser economic barrier to entry at this point with the prices where they're at now that those projects as the prices start to normalize there's still strong contributors to our portfolio and to be able to articulate why we may pass on a lot.

Opportunities because they're not as strong as they look at other white paper or bottles of grand expectations that a transaction.

My presents to a buyer or potential buyers such as us.

To answer your question Craig absolutely no. It definitely does it definitely does.

One of the criticism one of the criticisms out there that that third parties are making right was it there. The people are whispering theres no growth at mom talking.

He knows that that's just categorically not true.

But can you sort of lay out some approximate guidepost as what you see as a clear growth rate, that's both responsible and achievable from.

<unk> over the next number of years.

No.

What would you also call out as risks for.

Pushing the pedal maybe a little too hard.

On growth versus <unk>.

What you typically target.

The business is not currently excited over opportunities that are buying EBITDA off of its balance sheet its looking for projects.

Thats add accretive value to the portfolio, but are doing so in a way where one we are prioritizing good stewardship of the environment. These are projects that definitively produce renewable energy at multiples of fossil fuel parasitic usage.

Projects that can sequester multiples of the carbon that it'd be minutes.

Opportunities to do those projects and also add value to the host businesses that give us the opportunity to be on their space to be part of their projects and to add value to solve environmental needs to avoid folks from from not being able to manage through.

Our core businesses and then thirdly to do so at project strength that allows for normalization of pricing that allows for flexibility in your cost per unit of operations to allow you to push the envelope a little wood prices justify.

That strategy, but to also dial it back in the event that you sort of have a normalization of pricing enough allow for you to focus on more sort of steady state operations, what we see as opportunities is the ability to continue to take advantage of existing strong long term relationships with.

Projects that are in our portfolio that have room for expansion room for conversion room for growth.

A line of sight to the type of fuel that we are managing the type of feedstock the relationships with those host existing pathways for attributes both at a federal and state level and even internationally.

And to be able to take advantage of those line of sight projects. So we definitively expect those opportunities to be in the near term future for the company.

And that as we had mentioned we are evaluating multiple transaction opportunities for midstream projects late stage projects portfolios of projects that span the gamut between landfill projects and also agriculture and we're looking at those projects under exactly the same criteria that we.

You just mentioned and prioritizing the progress that we're making on those not only with the burden and opportunities that we have with the existing portfolio, but also the opportunity to add meaningful value increase or broaden their relationships that we have in the industry and the counterparts that or the likes of.

Landfills in agriculture farmers.

And then thirdly, the exciting opportunity that we have to go into North Carolina and to deploy a patented technology that is more efficient than other forms of traditional anaerobic digestion. They can solve real needs of swine farming communities.

That are pressed with pressures from an environmental standpoint to maintain increase in some cases quite decrease of their farming operations and to do so in a way that is complementary to other folks that are in that space to address waste that cannot be done with traditional anaerobic digestion because of the need for Mike.

Robes, the ability to do it in a modular way that allows you to scale very quickly allows you to do so strategically and proximity to dozens of farms.

In clusters through these material feedstock service agreement that we'll have with these folks and the ability to do so multiple times as we move on.

As a core component of our development strategy.

All of those items will be the way in which ballpark will approach its growth and then continue to look for ways to maximize the value of it gets from that growth to have a large part of the portfolio to continue to be self marketing in these growing federal and state attribute programs to allow for it to take.

Vintage of its pathways to ultimately have their fuel utilized internationally at prices that will be respective of the federal and state attributes that you can receive domestically at the time that you get into those international opportunities and then lastly, too.

To find ways to continue to to look for diversification of products in particular with the deployment of this technology in North Carolina to reach beyond the confines of traditional electricity and R&D production and just start to look at electric generation that.

From oil and Char products the ability to look at soil amendment product sales the ability to get service revenue from the soil remediation Laguna the remediation efforts that will happen in the farming community. So it is definitively a very exciting time for ballpark from a growth standpoint.

Perfect and then last question for me if I may.

You have a I believe a very large.

Chunk of your R&D production that is hedged where those specific hedges I believe fall off at the end of this month.

Can you talk to us about your considerations.

For potentially entering new hedges or has montoc ever historically.

Operated unhedged on more than half of its production.

What do you see as a reasonable outlook.

The company has almost exclusively operated.

At less than 50% of its products being hedged.

Okay.

Great.

The phenomenon right. It's a phenomenon that we are rolling off this year is again, it's a byproduct of the uncertainty of the 2020 political election, where there was an appropriate amount of production hedged.

To sort of counter balance and again, taking the approach that in a variety of scenarios that could have come out of that election, what would be the responsible level to ensure that you have sufficient cash flow from operations and from a development standpoint near term.

Coming out of 2021, where Kevin had previously mentioned that none of our 2022 vintage rents have been committed you'll always have a little bit of a chasing the market index. If the market continues to rise from a price standpoint, you'll always be trailing a month or two in terms of the settlements of those commit.

So you won't be always 100% paired with the markets, but it will track much more closely than it has in this particular year.

We're always looking to hedge a component of the portfolio and to break that apart hedge not in terms of forward sales of your attributes, but hedge in terms of fixed price offtake the fixed price offtake will be a component of the play that we haven't hit the European Union.

We will continue to look at opportunities to take a medium to long term fixed price opportunities, we do look at opportunities to hedge with utilities.

Those do present themselves, but they do present themselves in this space at substantial discounts off of what the market ability is for your environmental attributes. So it is a a very calculated.

The equation to determine whether or not that makes the most sense for the business given the growth trajectory that it's trying to achieve.

And a question of clarification just for people that are maybe new to the story or haven't followed US closely can you remind us approximately when those hedges were.

Entered.

Yes, it was throughout the fourth quarter of 2020 Craig.

September October November timeframe before.

The election was settled in January of 2021 definitively or December of 2021.

I think if you go back and track.

What the D. Three index was throughout the fourth quarter of 2020, you'll see some price points that are again just significantly below.

The index price that <unk> Rins are currently trading at.

Great. Thank you Shawn Thanks, Kevin I'll hop back in the queue.

Thanks, Greg.

Again as a reminder to ask a question you will need to press the star one on your telephone keypad.

There are no further question at this time I will now turn the call over to Shawn Mcclain for closing remarks.

Thank you Mike.

Thank you all for taking the time to join US on our conference call. Today, we look forward to speaking with you again on our 2021 year end call.

Yeah.

Okay.

[music].

Okay.

Yes.

[music].

Yeah.

[music].

Good afternoon, everyone and thank you for participating in today's conference call.

I'd like to turn the call over to Mr. Johns to Raleigh.

Some important cautions regarding forward looking statements contained in the earnings materials or made on this call.

John Please go ahead.

And Kevin Van <unk>, Chief Financial Officer to discuss our third quarter of 2021 results.

This call certain statements, we make will be forward looking and based on management's beliefs and assumptions and information currently available to management at this time, including without limitation statements relating to the company's future results of operations and financial condition as well as our <unk>.

Expectations and plans for the company such as with our Montauk egg renewables asset acquisition, the Pico improvement project and pick a Ci score. These statements are subject to known and unknown risks and uncertainties, many of which maybe beyond our control, including those set forth.

And our safe Harbor provision for forward looking statements that can be found in our third quarter 2021 earnings press release, and our Form 10-Q for the third quarter of 2021, our most recent annual report on Form 10-K and in our other reports on file with the SEC.

And that provides further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated.

And except as required by law, we undertake no obligation to update any forward looking statement.

Our remarks today May also include non-GAAP financial measures. 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 and in our third quarter 2021 earnings release and Form 10-Q issued and filed this app.

Afternoon.

These are available on our website at IR Dot Montoc renewables dot com.

After our prepared remarks, we will open the call to questions. We ask that you. Please keep to one question to accommodate as many questions as possible.

With that I will turn the call over to Sean.

Thank you John and good day, everyone and thanks for joining our call.

I would like to start this call with an update on two important developments. We are focused on as we continue to grow.

In May 2021, we completed the ballpark egg renewables asset acquisition in North Carolina to purchase developing technology to recover residual natural resources from waste streams of modern agriculture and to refine and recycles such waste products through proprietary and other processes in order to produce high.

Quality renewable natural gas bio oil and bio char.

During the third quarter of 2021.

We continue to execute on our plans for ballpark gag renewables.

In August 2021, we were granted a patent over 24 specific aspects of continuous feed closed loop reactor technology acquired in the acquisition.

We believe that the reactor enables near zero emissions conversion of agriculture weighed into multiple non fossil and renewable fuel alternatives is capable of producing multiple units of renewable energy for each unit of conventional energy consumed and is capable of sequestering multiple tugs.

Greenhouse gas equivalent emissions for every ton emitted.

The reactor is operational and we continue to make improvements to the reactor to optimize its functionality and currently expect this facility to be commissioned with these improvements during 2022.

Renewables acquisition.

We have also executed master service agreements that provide access to waste feedstock for ballpark AG the process.

Feedstock will be sourced from swine waste contained in anaerobic lagoons and its removal will help to improve lagoon waterflood and reduced capacity in the live goods.

As we commission and increase our production capabilities, we intend to add additional farms to these agreements as feedstock sources, which have the potential to secure more feedstock for our facility.

I also want to provide an update on our Pico facility and Jerome Idaho.

During the third quarter of 2021, and as part of our overall previously announced capacity expansion at the Pico facility, we undertook significant efforts to improve the performance of the existing digestion process at our <unk> facility.

We have temporarily idled RMG production at this facility in order to clean out said it settled solids digester.

Replace the cover of the digester and make various other efficiency improvements.

After the improvements are completed we expect production to measurably increase from the current production levels of approximately 150 M. N V to use per day once we resume full operations at the Pico facility currently expected during the first quarter of 2022.

The improvement project has impacted the timeline for bottling peak goes initial Ci score pathway bottle and subsequent auditing approval by the California Air Resource Board.

We currently expect to submit the Ci pathway model and reapply for a temporary ci pathway in the fourth quarter of 2021.

The results of this approval could have a significant impact on our ability to generate L. CFS credit revenues in 2022 on our 2021 production.

And with that I will turn the call over to Kevin.

<unk> thousand 21.

Increased natural gas index prices of approximately 79, 8% have contributed to increases in our gas commodity revenues over the comparable period in the prior year.

Higher revenues of approximately $1 3 million recognized under counterparty sharing agreements also contributed to this increase.

As a reminder, we entered 2021 with forward commitments of approximately 50% of our expected 2021 RIN generation.

These forward commitments were based on D. Three rent index prices at the time of the commitment which is now below the D. Three rent index.

As a result realized prices were environmental attribute monetize in a year may not correspond directly to index prices and the current year due to the forward selling up commitments are.

Our current RIN commitments expected to be recognized during the fourth quarter of 2021 will be realized at an approximate average realized price of $2 <unk>.

We do not have any <unk>.

2022 vintage rents currently committed.

Total general and administrative expenses were $7 5 million for the third quarter of 2021, an increase of $3 4 million or 82% compared to $4 1 million for the third quarter of 2020.

The total quarter.

Of 2020 126 million related to stock based compensation costs, primarily associated with the IPO and reorganization transactions.

Excluding the impact of IPO related stock based compensation general and administrative expenses increased approximately zero point $8 million.

Corporate insurance for the third quarter of 2021, an increase of approximately zero point $8 million or 99.64% compared to the third quarter of 2020 due to increased premium associated with the IPO.

Turning to our segment operating metrics I'll begin by reviewing our renewable natural gas segment.

We produced $1 5 million and then Btu of R&D during the third quarter of 2021, a decrease of less than <unk> 1 million and then b to use or 0.7% over the $1 5 million and then Btu produced in the third quarter of 2020.

The third quarter 2021 volumes.

31000, and then B do you have R&D was produced from development site Commission during 2020.

0.1 million lower M b to use of R&D produced at our other locations. This reduction relates primarily to welfare issues at our Mccarthy facility.

The collection system at the Mccarty facility has been hampered by increased volumes of water impacting collection.

Revenues from the renewable natural gas segment in the third quarter of 2021, or 35.0 million, an increase of 11.0 million or 45, 9% compared to 24.0 a million in the third quarter of 2020.

The primary driver for this increase relates to RIN volumes sold during the first nine months of 2021.

During the third quarter of 2021, we sold $13 3 million Rins, representing a $2 8 million increase or 27% compared to $10 4 million in the third quarter of 2020.

Average pricing realized when RIN sales during the third quarter of 2021 was $1 65 as compared to $1 54 in the third quarter of 2020, an increase of seven 1%.

This compares to the average D. Three rent index price for the third quarter of 2021 of $3 11.

Being double the average D. Three rent index price of $1 55 in the third quarter of 2020.

Operating and maintenance expenses for our R&D facilities in the third quarter of 2021 were $8 7 million a decrease of <unk> 3 million or 3% as compared to nine point near $1 million in the third quarter of 2020.

Approximately $1 3 million of the third quarter 2020, operating and maintenance expenses related to development sites commissioned during 2020.

Due to fewer media change out in disposal expenses, our mccarty a task of feeder and apex facilities operating and maintenance expenses decreased approximately 0.2 million <unk> 2 million and <unk> 6 million, respectively compared to the third quarter of 2020.

Our Rumpty facility had decreased operating and maintenance expenses of approximately zero point $5 million in the third quarter of 2021 due to general preventative maintenance work related to an annual planned outage.

The decrease is a result of engine maintenance at our <unk> facility for 3000 megawatt hours and our security facility, having zero production in the third quarter of 2021 due to previously announced engine failures compared to 2000 megawatt hours produced in the third quarter of 2020.

Operating and maintenance expenses for our renewable electric facilities in the third quarter of 2021 were $3 5 million, an increase of $1 2 million or 51, 4% compared to $2 3 million in the third quarter of 2020.

We reported the results of Pico within the renewable electric generation segment until October 2020, and Pico contributed zero point $6 million to the 2020 period.

Exclusive of Pico renewable electricity facility operating and maintenance expenses increased in the third quarter of 2021 compared to the third quarter of 2020 by $1 8 million or 100 point 202, 1%.

Operating profit in the third quarter of 2021 was $6 7 million, an increase of $1 9 million or 39, 2% compared to operating profit of $4 8 million in the third quarter of 2020.

R&D operating profit for the third quarter of 2021 was 16.0 million an increase of $6 5 million or 68, 1% compared to $9 5 million in the third quarter of 2020 <unk>.

Turning to the balance sheet as of September 30th 2021 'twenty $2 5 million was outstanding under our term loan and $36 7 million without standing under the revolving credit facility the.

The company's capacity available for borrowing under the revolving credit facility was $39 4 million.

During the first nine months of 2020, one we generated $21 $3 million of cash from operating activities. A five 9% decrease from the first nine months of 2020 up $22 6 million.

Including acquisition costs of <unk> $3 million, we acquired assets for the Montauk Agrin doable with acquisition in North Carolina, a $4 1 million.

Adjusted EBITDA for the three months ended September 32021 was $12 8 million, an increase of $2 7 million or 27, 2% over adjusted EBITDA of $10 1 million for the three months ended September 32020.

The increase in adjusted EBITDA in the third quarter of 2021 was primarily from our 11.0 million increase in net income as compared to net income in the third quarter of 2020.

This increase was partially offset by an increase in our income tax expense of $9 7 million as compared to our income tax benefit in the third quarter of 2020.

I'll now turn the call back over to Sean.

Okay.

Thanks, Kevin and closing we want to provide our fourth quarter 2021 outlook.

We expect R&D production volumes to range between $1, four and $1 7 million Btu with corresponding RMG revenues between 38 and $46 million we.

We expect renewable energy electricity production volumes to range between 47, and 57000 megawatt hours with corresponding renewable electricity revenues between $3 $84 7 million.

And with that we'll now pause for any questions.

As a reminder to ask a question you will need to press star one on your telephone do withdraw your question press the counties. Please standby, while we compile the Q&A roster.

Your first question comes from the line of Greg Sherri E.

<unk> Rodgers your line is open.

Good morning, or good afternoon, sorry.

A 25, 5% sequential increase in revenue and $2 one.

$1 million increase in R&D from the second quarter is certainly a step in the right direction.

But it looks like your rents hedges that are considerably below market.

We're still limited in your upside.

Sure Craig. Thank you very much for that question, yes, as we noted that when we entered the fourth 2021, we had forward committed throughout 2021 for the for the now below market hedges those will be rolling we're still.

Working through a few of those commitments in the fourth quarter of 2021, but we anticipate having more reasonable.

And consistent with the three RIN price when commitments recognized in the fourth quarter. This year, bringing that average realized RIN price up to $2 nine.

However, still significantly below that the existing D. Three brand index, but we are working through the vast majority of those order commitments that are pulling down our realized sales price as.

As compared to the existing index.

And will all that be done by the first quarter 'twenty, two and any more color on I know you talked year over year, but any more color on the sequential improvement.

For 2022 vintage rents to the underperformance of.

The rent that we've recognized throughout this year will clear itself by the end of the fourth quarter and then in regards to the RIN sales improved media, where it's associated with.

Clearing through these these inter period transfers that we've experienced throughout the rest of the year and.

Finally clearing off the the.

Closing out of the 2021 vintage.

By the end of the fourth quarter.

Okay.

Gotcha, Okay I'll hop back in the queue. Thank you.

Again to ask a question. Please press star one on your telephone keypad.

Again that is star one on your telephone keypad.

There are no further audio question at this time I will now turn the call over to Shawn Mcclain for closing remarks.

Thank you Matt.

Thank you for taking our time.

We still have a question Oh, great Sherri of value powders. Your line is open.

Hi, I'm, sorry, I thought were limited to a question, but if its hotels I'll just try to finish off that's alright.

So the Pico dairy RMG digester improvements.

Are those seen ultimately improving the Ci score.

I assume that they are intended to increase ultimate volume.

And any idea if we could get a final carbs Ci score.

In the first half of next year or could it take as late as the second half.

The first question that you ask Craig relative to will some of the changes that we're making improve the ci score make it more negative toward that Pico project. The answer is it can.

That can have a positive impact to make the Ci score more negative.

<unk> benefit and more negative.

Score as opposed to what the project had sort of pre expansion as far as the second piece is concerned.

We are in process of applying for those Ti pathways.

It is possible.

But not definitive that we can receive that score during sort of mid to late 2022.

Gotcha.

And what drove the sequential drop of four megawatt hour 4000 megawatt hours from the second quarter, and our AG and as the security projects engine repairs all done at this point.

Okay.

Yeah.

Craig I'll jump in and Sean.

The <unk> facility is doing.

Preventative maintenance one.

And engine at a time debarment facility had seven production engine manufacturer suggested PM schedules have us taking an engine offline for routine preventative maintenance.

Throughout 2021, that's generally the explanation for the decrease in <unk> as compared to 2020 as all seven engine were operational during 2020 and in regards to security the yes, sorry.

Our existing expectation as that facility will be up and running in the fourth quarter of 2021 and producing renewable electricity for us.

Great.

And.

The guidance I mean things are getting better but the guidance ranges are very wide.

Is there a point in the future of what would it take.

For future guidance in coming quarters too narrow.

Hum.

It's a good question Craig we have not historically given any forward looking guidance in the past.

Obviously this is the first time the company has issued guidance, albeit only for the fourth quarter and we're looking to continue to refine that process and to give.

More helpful more detailed narrower guidance to help drive modeling and investment purposes.

Okay and.

Last question for me, sorry, sorry to go on so long.

North.

I know, you've historically focused on diversification and flexibility across your revenue stream, including project types off takers emission credit regimes.

As well as limiting the duration of your.

Fixed or floor price offtake.

If I understand that your fixed floor price offtake on RMG has maybe three to five years.

But after the close of a pure.

Philadelphia, Operator announced a 21 year fixed price or.

<unk> off take agreement with a gas utility.

Do you plan to continue to limit the duration of off take hedges or could you start lettering your off taker contracts to diversify across time as well.

Okay.

Are.

Our intention and our.

<unk> that we're currently deploying for fixed versus market of the attributes predominantly AR VR.

Is to ensure.

Ensure that the fixed component.

<unk> for all of our working capital purposes.

Officials for a near term line of sight to the development capital that we need.

For any due diligence any transactional costs in the initial stages of any additional expansion projects or expansions of existing projects or potential acquisitions of portfolios or or projects or technology like we did with the North Carolina acquisition for months lock egg.

The reason for that is the growth of the atrophy program under which we monetize.

And with that growth has come opportunities to not only look at sequentially locking those.

Those opportunities longer than your three to five year duration.

And so as we continue to move into.

2022, we're optimistic to look to continue that balance of walking what we have to to ensure the working capital needs, but to allow for the monetization of those attribute at prices that are more conducive similar to your first question at what point will our market price.

<unk> be more in line with what you see in the attributes spaces for Rins at all CFS credits today, we're committed to have a portion a majority of our portfolio start to reflect those current prices, but at the same time constantly keeping abreast of opportunities that will allow for us.

Not necessarily limited to utilities, or 10, or 20 year agreements, but looking at long term fixed price off takes domestic and abroad.

Great. Thank you very much.

Sure.

Your next question comes from the line of Craig Irwin.

Roth Capital Partners. Your line is open.

No.

It's close side good evening guys, congratulations on a really strong quarter here.

So no one asked I got it.

Yeah, you're welcome personally I wanted to ask about is Mccarty road.

You know facilities had some some bumps along the way it's still a very large chunk of your your R&D production production capacity.

How should we look at potential volatility there is this something that you know.

So every year or two there items that you come up and you have to address is this a highly unusual situation.

Given that you've owned this facility for many years and how volatile is the the production out of the major facilities like this.

That's a great. That's a great question Craig one of the.

Difficult challenges of highlighting a specific facility in your earnings releases is it does bring into question the reliability of the facility.

Well for the predictability of the facility.

That large facility in Houston area is.

Well maintained it is an older facility that has a very strong regimen of operating and maintenance protocols. It has been subjected to a number of failure incident and.

The last two years that were specific isolated and are not expected to reoccur.

The items that resulted in those failures.

With a combination of insurance coverage were met with a combination of critical spare deployments, even so much as the larger <unk>.

Ponant tree of the compressors that were at those facilities and were immediately responded with any adjustments or embellishment of our maintenance protocols as long. In addition to the replacement of the critical spares themselves. So the expectation is that those items are isolated and they won't reoccur.

The overall volatility of the type of production at our R&D facilities.

We will always be subjected to some form of ebbs and flows in the landfill itself.

The events can cause water changes in filling patterns of landfills as they move from one phase of the landfill to the next cause a sort of follow on adjustment or pairing with our ability to maintain and enhance the collection system itself. All of those items are all in.

All over the lifecycle of these projects relatively balanced and they're done so to prioritize production. It also do so as a complement to what the landfills are doing themselves, but definitively would not look at this mccarty facility as an anomaly that would have a disproportionate let.

Will of occurrences either in terms of mechanical failures or in terms of systemic issues associated with the landfill. Just so happens that this particular facility has had a number of events that have been in sequential reporting periods.

Understood. Thank you.

My second question is.

You guys were the first R&D company to a.

Pure play R&D company to go public right.

Go ahead, there their portfolio.

Pretty successful for a while.

Between here and there there's been a lot of others to work to chase you into the market.

People are excited about the the call.

Carbon reduction potential.

And the profit that's available in that.

But there have been a couple failed transactions companies that have gone out with that.

You know our business plans and list of projects, they look to bills, but limited real world experience some of them got a substantial capital upfront before they really even garden you think built.

And.

I was hearing that they were pushing pushing.

Pushing prices on different opportunities out there.

Environmental waste.

What's the appetite for them.

A new project development or people rational about their expectations for projects that are available for for investment.

How do you see this playing out for <unk> over the next few years.

We see the market is the most exciting that we have operated in.

With my tenure in the organization going on 11 years.

That you would normally look at because theyre not of size to justify the economics of the build in operation to projects that can be clustered together.

Because of the prevailing sort of the cost reductions you're seeing of pipeline virtualization across the country.

The exciting opportunity to deviate from a core landfill gas business into fueled the carbonization agriculture projects are very exciting they do come at very commanding multiples often times. When these projects are sort of at least initial stage developed and then they're put out into.

The transaction space.

But we're seeing such an abundance of opportunities to grow existing projects that we are.

Incorporating already into our portfolio and then paving the way into North Carolina to specifically address the swine waste opportunities across that state in particular right now.

There is there is an abundance of opportunity for folks that know how to develop projects that know the realistic economics of those projects to easily come in and to secure long term agreements from the waist intake the monetization of those attributes and to be able to work closely with.

Partners to be able to get those projects off the ground from a material standpoint and equipment standpoint.

And the deployment standpoint, and so.

The.

Emotion the tenure of the marketplace right now is still very exciting.

Is more aggressive than it's been in previous years in terms of how many projects are coming to market.

We have looked at more project opportunities in the past six months than we've probably looked at in the past three years and those opportunities continue to come to a business like <unk> that has been in this space going into its fourth decade that knows that we can effectively model those projects, we know the economics behind it we know how to.

Stress test those projects to ensure that they will not only do well in thriving attribute markets like we see today or.

Opportunities because they're not as strong as they look at other white paper or bottles of grand expectations that a transaction.

My presents to a buyer or potential buyers such as us.

To answer your question Craig absolutely no. It definitely does it definitely does.

One of the criticism one of the criticisms out there.

That third parties are making right is that their people are whispering theres no growth at mom's hawken.

We know that that's just categorically not true.

But can you sort of lay out some approximate guidepost as what you see as a care growth rate, that's both responsible and achievable from.

<unk> over the next number of years.

No.

What would you also call out as risks for.

Pushing the pedal maybe a little too hard.

On gross versus versus versus what you typically target.

The business is not currently excited over opportunities that are buying EBITDA off of its balance sheet. Its looking for projects that add accretive value to the portfolio, but are doing so in a way where one we are prioritizing.

Good stewardship of the environment. These are projects that definitively produce renewable energy at multiples of fossil fuel.

<unk> usage.

<unk> that can sequester multiples of the carbon that it'd be minutes.

Core businesses, and then thirdly to do so at project strength that allows for normalization of pricing that allows for flexibility in your cost per unit of operations to allow you to push the envelope a little when prices justify that strategy, but to also dial it back in.

In the event that you sort of have a normalization of pricing enough allow for you to focus on more sort of steady state operations.

We see as opportunities is the ability to continue to take advantage of existing strong long term relationships with projects that are in our portfolio that have room for expansion room for conversion room for growth.

With a line of sight to the type of fuel that we are managing the type of feedstock the relationships with those host existing pathways for attributes both at a federal and state level and even internationally.

And to be able to take advantage of those line of sight projects. So we definitively expect those opportunities to be in the near term future for the company beyond that as we had mentioned we are <unk>.

<unk> multiple transaction opportunities for midstream projects late stage projects portfolios of projects that span the gamut between landfill projects and also agriculture and we're looking at those projects under exactly the same criteria that we had just mentioned and prioritizing the prop.

Dress that we're making on those not only with the burden and opportunities that we have with the existing portfolio, but also.

The opportunity to add meaningful value increase or broaden their relationships that we have in the industry and the counterparts that or the likes of landfills in agriculture farmers.

And then thirdly the.

The exciting opportunity that we have to go into North Carolina and to deploy now patented technology that is more efficient than other forms of traditional anaerobic digestion. They can solve real needs of swine farming communities that are pressed with <unk>.

Pressures from an environmental standpoint to maintain increase in some cases five decrease of their farming operations and to do so in a way that is complementary to other folks that are in that space to address waste that cannot be done with traditional anaerobic digestion because of the need for microbes the ability.

If you do it in a modular way that allows you to scale very quickly allows you to do so strategically and proximity to dozens of farms.

In clusters through these material feedstock service agreement that we'll have with these folks and the ability to do so multiple times as we move on.

As a core component of our development strategy.

So all of those items will be the way in which ballpark will approach its growth and then continue to look for ways to maximize the value of it gets from that growth to have a large part of the portfolio to continue to be self marketing in these growing federal and state attribute programs to allow for it to take.

Vantage of its pathways to ultimately have their fuel utilized internationally at prices that will be irrespective of the federal and state of the attributes that you can receive domestically at the time that you get into those international opportunities and then lastly, too.

From oil and shower products the ability to look at soil amendment product sales the ability to get service revenue from the out of the soil remediation and the lagoon remediation efforts that will happen the farming community. So it is definitively a very exciting time for ballpark from a growth standpoint.

Perfect and then last question for me if I may.

You have a I believe a very large.

Chunk of your R&D production that is hedged.

For those specific hedges I believe fall off at the end of this month.

Can you talk to us about your considerations.

Potentially entering new hedges or has montoc ever historically.

Operated unhedged on more than half of its production.

What do you see as a reasonable outlook.

The company has almost exclusively operated.

At less than 50% of its products being hedged.

Okay.

Great cause me phenomenon right. It's a phenomenon that we are rolling off this year is again, it's a byproduct of the uncertainty of the 2020 political election, where there was an appropriate amount of production hedged.

Two sort of counterbalance and again, taking the approach that in a variety of scenarios that could have come out of that election.

What would be the responsible level to ensure that you have sufficient cash flow from operations and from a development standpoint near term.

Commitments, so you won't be always 100% paired with the markets, but it will track much more closely than it has in this particular year.

We're always looking to hedge a component of the portfolio and to break that apart hedged not in terms of forward sales of your attributes, but hedge in terms of fixed price offtake, the fixed price offtake will be a component of the play that we have into the European Union.

We will continue to look at opportunities to take medium to long term fixed price opportunities, we do look at opportunities to hedge with utilities.

Those do present themselves, but they do present themselves in this space at substantial discounts off of what the market ability is for your environmental attributes. So it is a a very calculated.

<unk>.

The equation to determine whether or not that makes the most sense for the business given the growth trajectory that it's trying to achieve.

And a question of clarification just for people that are maybe new to the story or haven't followed US closely can you remind us approximately when those hedges were.

Were entered.

Yes, it was throughout the fourth quarter of 2020 Craig.

September October November timeframe before.

The election was settled in January of 2021 definitively or December of 2021.

If you go back and track.

The <unk> index was throughout the fourth quarter of 2020, you'll see some price points that are again, just significantly below the index price that D. Three rins are currently trading at.

Great. Thank you Shawn Thanks, Kevin I'll hop back in the queue.

Thanks, Greg.

Again as a reminder to ask a question you will need to press star one on your telephone keypad.

There are no further questions at this time I will now turn the call over to Shawn Mcclain for closing remarks.

Thank you Mike and thank you all for taking the time to join US on our conference call. Today, We look forward to speaking with you again on our 2021 year end call.

Q3 2021 Montauk Renewables Inc Earnings Call

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