MNTK (2021 - Q2)

Good afternoon, everyone, and thank you for participating in today's conference call. I would now like to turn the call over to Mr. John Ciroli as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. John, please go ahead. John Cir

Thank you, and good afternoon, everyone. Welcome to Montauk Renewables' Second Quarter 2021 Earnings Conference Call. I'm John Ciroli, Vice President, General Counsel and Secretary at Montauk Renewables. Joining me today are Sean McClain, Montauk's, Chief Executive Officer and President; and Kevin Van Asdalan, Chief Financial Officer. And they are here to discuss our second quarter 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 time, including, without limitation, statements relating to acquisition and other growth opportunities such as with Pico, monetization of renewable natural gas production abroad and diversification of Montauk's monetization strategy. These statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our safe harbor provision for forward-looking statements that can be found in our second quarter 2021 earnings press release issued this afternoon, in our Form 10-Q filed this afternoon and our most recent Form 10-K annual report and in our other reports on file with the SEC 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 second quarter 2021 earnings release and Form 10-Q issued and filed this afternoon, which are available on our website at ir.montaukrenewables.com. With that, I will turn the call over to Sean.

Thank you, John. Hello, everyone, and thank you for joining our call. This is a very exciting time for Montauk. Our strength and longevity in the renewable energy industry, combined with the tailwinds of the federal, state and now international attribute incentive programs that support renewable natural gas, have enabled us to execute and progress through our multipronged growth strategy. We continue to identify, develop and prioritize opportunities to optimize and grow within our existing portfolio, most recently evidenced by our feedstock supply amendment, which we refer to as the Pico feedstock amendment, at our dairy digester cluster project in Jerome, Idaho, which we refer to as our Pico project. With that amendment, we intend to both increase the capacity and optimize the technology of our facility to provide best-in-class manure management for the dairy farms supported while increasing the efficiency of our methane recovery and optimizing our production of renewable natural gas. For the first time in the company's history, our renewable natural gas production is supporting international renewable fuel programs such as the Renewable Energy Directive of the European Commission through the qualification and registration of our facilities under the International Sustainability & Carbon Certification program. This strategy to redirect and monetize RNG production abroad has the potential to help stabilize domestic attribute pricing both at the federal and state levels for renewable natural gas production. The continued optimization and expansion of our existing portfolio, combined with the diversification of our monetization strategies, creates the financial stability to support groundbreaking development and exciting new ways to address environmental impacts of industrial agriculture. Our recent acquisition of business assets in North Carolina, a pioneering environmental technology company with specialized patent-pending, near-zero emissions technology to convert animal and agricultural waste into renewable energy alternatives, is a great example. The acquisition provides us an exciting opportunity to service the swine farming community in North Carolina and help address their challenges of lagoon management while deploying a highly efficient technology that converts approximately 95% of the BTU value of animal and agriculture feedstock into multiple product fractions, all of which have the potential to provide expansive growth opportunities for Montauk for years to come. And with that, I'll turn the call over to Kevin Van Asdalan, our Chief Financial Officer. Kevin?

Thank you, Sean. I will be discussing our second quarter 2021 financial and operating results on this call. Please refer to our earnings press release and the supplemental slides that have been posted to our website for additional information. Total revenues in the second quarter of 2021 were $31.7 million, an increase of $3.8 million or 13.5% compared to $27.9 million in the second quarter of 2020. The primary driver for this increase relates to higher revenues of $4.6 million recognized under counterparty sharing agreements. Partially offsetting this increase was a decrease in the volume of RINs sold during the second quarter of 2021 due to inter-period timing of transfers of RINs as the majority of our RINs are self-marketed. As a reminder, we entered 2021 with forward commitments of approximately 50% of our expected 2021 RIN generation. These forward commitments were based on D3 RIN index prices at the time of the commitment, which is now below the D3 RIN index. As a result, realized prices for environmental attributes monetized in a year may not correspond directly to index prices in the current year due to the forward selling of commitments. Total general and administrative expenses were $7.3 million for the second quarter of 2021, an increase of $3.6 million or 95% compared to $3.8 million for the second quarter of 2020. Of the total in the second quarter of 2021, $2.2 million related to stock-based compensation costs primarily associated with the IPO and reorganization transaction. Excluding the impact of IPO-related stock-based compensation, general and administrative expenses increased approximately $1.5 million. This increase in general and administrative expenses was primarily driven by increased corporate insurance premiums and, to a lesser extent, professional fees. Turning to our segment operating metrics. I'll begin by reviewing our Renewable Natural Gas segment. We produced approximately 1.4 million MMBtu of RNG during the second quarter of 2021, a decrease of approximately 0.1 million MMBtu or 8.2% over the 1.5 million MMBtu produced in the second quarter of 2020. Of the second quarter 2021 volumes, approximately 30,000 MMBtu of RNG was produced from development sites commissioned during 2020. Of the 0.1 million lower MMBtus of RNG produced at our other locations, this reduction relates primarily to process equipment failures at our McCarty facility. We have repaired the equipment failures at our McCarty facility. Revenues from the Renewable Natural Gas segment in the second quarter of 2021 were $27.6 million, an increase of $3.7 million or 15.6% compared to $23.9 million in the second quarter of 2020. During the second quarter of 2021, we self-monetized 8.8 million RINs, representing a 3.3 million decrease or 27.1% compared to 12 million in the second quarter of 2020. This decrease was primarily related to inter-period timing of transfers of RINs as the majority of our RINs are self-marketed, resulting in fewer commitments for the second quarter of 2021 versus the second quarter of 2020. Average pricing realized on RIN sales during the second quarter of 2021 was $1.78 as compared to $1.37 in the second quarter of 2020, an increase of 29.9%. This compares to the average D3 RIN index price for the second quarter of 2021 of $3.06, being more than double the average D3 RIN index price in the second quarter of 2020. Operating and maintenance expenses for our RNG facilities in the second quarter of 2021 were $10.2 million, an increase of $3.1 million or 43% as compared to $7.1 million in the second quarter of 2020. Approximately $1 million of the increase is related to development sites commissioned during 2020. Exclusive of the effects of these development sites, operating and maintenance expenses for the second quarter of 2021 were $9.2 million, an increase of $2.1 million or 29.5% compared to the second quarter of 2020. This increase is related to additional media changes (sic) [ changeouts ] and disposal expenses, increased repair expenses due to elevated levels of hydrogen sulfide contaminants and site outage timing at our Atascocita, Galveston and Rumpke facilities, respectively. We produced approximately 47,000 megawatt hours in renewable electricity during the second quarter of 2021, a decrease of 4,000 megawatt hours from the 51,000 megawatt hours or 7.8% produced in the second quarter of 2020. Of the decrease, 3,000 megawatt hours related to our security facility having 0 production in the second quarter of 2021 compared to 3,000 megawatt hours produced in the second quarter of 2020. Revenues from renewable electricity in the second quarter of 2021 were $4.1 million, a decrease of $0.4 million or 9.6% compared to $4.5 million in the second quarter of 2020. Prior to its commissioning in 2020, the results of our Pico facility were reported in our renewable electricity segment until October 2020. Operating and maintenance expenses for our renewable electricity facilities in the second quarter of 2021 were $2.3 million, a decrease of $0.7 million or 23.8% compared to $3 million in the second quarter of 2020. Of the 2020 period total, Pico contributed $0.4 million. And exclusive of Pico, renewable electricity facility operating and maintenance expenses decreased in the second quarter of 2021 compared to the second quarter of 2020 by $0.3 million or 40.3%. The decrease is primarily a result of timing of scheduled engine preventative maintenance intervals at our Bowerman facility. Operating loss in the second quarter of 2021 was a loss of $0.5 million, a decrease of $4.1 million or 115% compared to the operating profit of $3.6 million in the second quarter of 2020. RNG operating profit for the second quarter of 2021 was $7.6 million, a decrease of $0.5 million or 6.5% compared to $8.1 million in the second quarter of 2020. Renewable Electricity Generation operating profit for the second quarter of 2021 was $16,000, an increase of $0.8 million or 102.1% compared to an operating loss of $0.8 million in the second quarter of 2020. During the second quarter of 2021, associated with our purchase of RINs at market prices, we recorded an adjustment of $0.7 million to reduce the RINs to net realizable value. Turning to the balance sheet. As of June 30, 2021, $25.0 million was outstanding under our term loan, and $36.7 million was outstanding under our revolving credit facility. The company's capacity available for borrowing under the revolving credit facility was $37.5 million. During the first 6 months of 2021, we generated $11.2 million of cash from operating activities, a 28.8% increase from the first 6 months of 2020 of $8.7 million. For the first 6 months of 2021, our capital expenditures were $4.5 million, of which approximately $1.6 million of our first 6 months of 2021 capital expenditures were related to optimization projects at our recently commissioned facilities and $1.0 million related to the Pico feedstock amendment. Including acquisition costs of $0.3 million, we acquired assets for the business in North Carolina of $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. Adjusted EBITDA for the 3 months ended June 30, 2021, was $5.2 million, a decrease of $3.7 million or 41.5% over adjusted EBITDA of $8.8 million for the 3 months ended June 30, 2020. The reduction in adjusted EBITDA in the second quarter of 2021 is primarily from our $3.1 million increased net loss as compared to adjusted EBITDA in the second quarter of 2020. With the announcement of the acquisition of the North Carolina business assets, the amendment of our Pico feedstock agreement and the current D3 RIN market index price, we look forward to the rest of 2021. We will now turn the call over to the operator for Q&A.

[Operator Instructions] And we have a question from [ Adrian Zetler ] of [ Active Investments ].

My first question is just around the production performance. Can you please clarify what exactly happened at McCarty? Because if memory serves me correctly, we had an engine failure at McCarty in Q1 in 2020, which I understood was a completely abnormal event. And that would have impacted Q2 2020 production as well. And then in this quarter, Q2 2021, you seem to have another -- an engine failure issue. Can you just clarify exactly what's going on there?

Sure, [ Adrian ]. Happy to provide clarity on that. The issues that you're referring to are separate and distinct. We did have an engine failure in the former issue that you referred to. That is the compressor. There's 2 large compressors at that facility, each providing about 50% of the production capacity. That has since been remediated. That engine is back online. The issues that we had with the equipment failures in this past quarter are separate and distinct. Those issues have all been resolved, call it, more balance of plant equipment. And subsequent to those repairs, all of the critical spare equipment has been replenished as well as root cause analyses to minimize any chance of recurrence.

Should we consider these to be abnormal events? Or are they...

No. That's a very good question. Yes, the robustness of our maintenance programs are over years and years of interval measurements of failure rates of the equipment, our critical spare matrices based on lead times and on likelihood of failures. Although we are speaking about 1 facility that did have equipment challenges in 2 separate reporting periods, they are separate and distinct. And they have resulted in the same course of action that is applied to any of those failures that we have across our portfolio, which is immediate corrective action, replenishment of the critical spares and then a minimalization of the likelihood of reoccurrence of that failure as the root cause analysis dictates why the piece of the equipment has failed outside of its normal maintenance interval.

Okay. So what would McCarty daily production be now going forward normalized?

[ Adrian ], one of the things that we have not done to date is disclose specific production statistics for our operating facilities individually.

Okay. I mean, now that, that's behind you, I mean, you said there was a 100,000 MMBtu setback. So can we expect a normalized run rate of 1.5 million MMBtu per quarter for the remaining 2 quarters?

I think a better way to look at it, [ Adrian ], is the deviation that we referenced in the comparative periods has been explained by this nonrecurring unusual equipment failure. And so the expectation would be going forward that you would recapture that lost production that's been explained. But short of giving the forward-looking guidance that you've asked for that we have not at this point, what I would point you to is the growing portfolio and optimization that we have for the facilities that we've commissioned recently and the likelihood that the issues that we're referring to at the McCarty facility, as an example, will not, without a high degree of probability, be recurring obviously for the next quarter.

Yes. I mean, if that's not [indiscernible], then the $1.5 million should be almost a minimum, given the ramp-up of new facilities and the nonrecurrence of these kinds of one-offs?

I think that it's a reasonable expectation. But keep in mind that these projects sit on very large active landfills, the majority of the portfolio. And there are a lot of intersections between the filling patterns or management of those landfills and what would normally be the optimization of renewable natural gas production. So there will always be sort of nonlinear ebbs and flows in terms of what you could do to become closer or farther away from your ultimate production capacity at each of those locations. But all things being equal, had you not had that equipment failure at McCarty, you would have recaptured to the levels at least for the past quarter that you're referring to.

So Sean, I mean, you guys did a good job in disclosing the production capacity of each site, which if you work it out, it works out to about 12 million MMBtu for the overall portfolio of gas sites. Now I mean, you're way below that in terms of actual production. I mean, you're looking at the current run rate probably of, call it, 5.5 million for this year or maybe 6 million next year. I mean, how do we think about that actual production number versus your capacity going forward? Because it's a big, big gap. So how do you think about that gap?

How we look at it internally is an opportunity to become closer to capacity but never -- unlikely reaching the full capacity of each facility. When these facilities are designed and commissioned, it is under a very specific set of circumstances, contaminants in the methane that's being collected, the volumes, the current filling practices of the landfill, the current waste intake that's happening at that landfill, dairy projects, the current management of the herd at each of the different dairies that are supported, the level of contaminants that are in what's going into the digestate. All of those factors have a tendency to change. The primary host business model necessitates changes in that, either taking in large amounts of construction waste at a landfill or different varying levels of sand or other sediment in the manure feedstock that you would take from a dairy digestion project. All of those things can challenge reaching higher levels of production versus the capacity of those facilities. Now with that said, there are a lot of opportunities that we continue to look at that we model, that we evaluate what additional optimization or modifications to equipment or even processes as to how we collect the feedstock, be it either the methane in the landfill or the agriculture or animal waste at the dairy or our future development projects in North Carolina. So that we can determine and then prioritize what those opportunities look like for us and make those appropriate investments. One of the biggest examples that we can have of that is how we're looking to expand the dairy project in Jerome, Idaho. That project has stated capacity that is in excess of what current production is, the limiting factors being on the digestion side. And so with the expansion opportunity that we're taking there, it paves the way for an investment to optimize the technology that is most beneficial for the production of renewable natural gas. And the byproduct of that will be edging that project closer and closer to the stated capacity of the actual RNG production facility.

But I mean, if -- sure, with all due respect, but I'm trying to forecast earnings for this business over the next 1, 3 and 5 years. I mean, a crucial element -- my starting point is going to be production volumes. And at this stage, all you've disclosed is your capacity per site. So I mean, how should I think about it? I mean, there's massive gap. You're currently at 45% of production capacity. I mean, does that number go to 50%? Does it go to 60%? Does it go to 70% of your actual -- of your capacity? I mean, that is critical in trying to evaluate the earnings part of your business.

[ Adrian ], I can -- sure, I can appreciate that question. What we have not done to date is offer forward-looking guidance on production volumes or expenses or any of those components. What I would recommend is looking at the business with the run rate, realizing that there is opportunity to increase production relative to the capacity at a number of our projects. And those are announced at the time that we commenced those, similar to the announcement that we did with the dairy project. And when we make those investments to optimize and bring those production numbers closer to the potential production at each of those projects, that will allow for you to model and incorporate those into your forward-looking views.

Are we -- we're not sitting with the risk here that you have overinvested in capacity. And we're never going to get anywhere close to the actual production capacity that you disclosed.

I would say that we have not overinvested at any of the facilities. The facilities that have excess capacity have the opportunity to reach that capacity or near that capacity, better said, with the appropriate adjustments or optimization in how the feedstock is collected and potential peripheral pieces of equipment to treat contaminants, higher levels of H2S, higher levels of sediment or sand and animal waste. All of those items don't necessarily point you to a risk of an overinvestment in a facility, but rather an appropriate investment in a higher capacity facility that paves the way for thoughtful investments at a smaller scale to optimize those projects to have them reach closer to the ultimate capacity levels of the RNG facilities themselves.

Okay. Can I just ask a question around pricing? So firstly, the $1.78 is obviously way below where the [ spot rate ] is, and that's because of your hedging. Now can you clarify what hedges are still in place? So my thinking is that most of the hedges should have rolled off by 30 June 2021. And now you have only the European hedge, the 900,000 MMBtu starting on 1 July going forward. Is that correct? Or is there anything else that we should be aware of?

Yes. The hedge that we put in place as we're referring to, the forward commitments for the RIN monetization at the end of 2020 into 2021 was a -- I would characterize it as an anomaly. It was centered around a high degree of concern over the political environment or the futures environment of the attribute programs that we sell into for our renewable natural gas. And so as we work through those commitments through 2021, you're right, what remains as we get closer to the end of the year is a subset of some of the volumes that have been under fixed price contracts to date. A subset of that is rolling into this European Union hedge, if you call it, but at a fixed price, selling into starting July 1.

And [ Adrian ], to supplement what Sean has said is that we still will be monetizing these forward commitments that we entered into in the fourth quarter of 2020. We'll still be monetizing those throughout the remainder of 2021 as well.

That's right, [ Adrian ]. Although the commitments don't represent 100% of production for 2021, the transfer timing of those commitments aren't necessarily in a first in, first out basis. They're transferred per the terms of the counterparty or the obligated party that you sell forward to in 2020 for 2021, and some of those will not transfer until you get to the end of the year. But the majority of the production that you're creating in the back half of this year will start to monetize closer to the index pricing that you can enjoy at today's current markets.

So how much exposure do I have to the spot market going into H2? So -- or as another way of putting it, I mean, how much volumes are still subject to some sort of hedge commitment for the second half of the year?

Kevin, within the confines of our -- you go ahead.

Yes. We -- [ Adrian ], we hedged approximately 50% of our production in the fourth quarter of 2020 for 2021.

Okay. But did you say it does decrease going into the last 2 quarters of this year?

Yes. We will be able to benefit from the spot price of the D3 we're in, in the latter half of 2021.

Yes. But what is -- I mean -- again, if we come back to -- we need to have enough information to be able to forecast earnings for the last few quarters and for next year. I mean, a critical component of that would be the pricing. So I need to understand -- we need to understand what -- how many -- how much volumes are still subject to a hedge and what that pricing for that hedge is. I consider that pretty material information.

That's correct, [ Adrian ]. And we just haven't released or provided any forward guidance associated with the future results of the company at this point.

It's not -- I don't consider it forward guidance. I consider it historical contracts that you've entered into. I mean, the company has commitments under those contracts. So there's no guidance really. It should be factual.

Right. And I would just point you back, [ Adrian ], to the approximately 50% of our expected RIN generation that we've hedged throughout 2021.

Can you -- I mean, can you tell me what the European hedges are priced at going forward?

What we can offer in that regard is that at the time we announced the agreement, the fixed price agreement that we bid into in the fourth quarter of 2020, the price that we bid into it was respective of the RIN prices at the tail end of 2020.

The spot prices at the end of 2020.

That's right. That's right. When you bid into these opportunities into the European Union, the pricing that you can enjoy is very similar to the prices that you can get domestically for D3 RINs, the advantage obviously being taking more and more of your product out of the domestic market and relieving some pressure on the supply-demand mechanics. That would ultimately underpin an RVO that would be set for the subsequent years.

And are you able to lock that price in for the full duration of the hedge, for the 4.5 years?

You are able to lock that in for extended periods of time. In the case of this first one that we did, we had the opportunity to lock that price for the full 4.5 years.

Okay. I mean, I don't have a pricing chart in front of me. But it should be already about $1.80 to $2. Does that sound about right?

I think that the price as we headed into the average for Q4 might have been a little bit south of that but directionally correct. And keep in mind that when you monetize your domestic RINs, you are selling those. It's sort of a marketplace assumption. And the sharing components that you give away as part of the pathways that you monetize these attributes on all go into the pricing mechanics even when you're bidding abroad to have these volumes support the renewable energy directives in the European Union. So it's not a perfect correlation to an index price because even when we sell at those index prices domestically, there's always a component of it that is distributed amongst the pathway providers to be able to generate and monetize those attributes.

Okay. I mean, I think we're going to have to agree to disagree. My question is for the company in terms of disclosures, I really think you should be providing more detailed production guidance per site and giving us a better idea of where production gets to as a percentage of available capacity. I think it's critical in being able to forecast the earnings and the earnings power for this business and the cash flows. And then also just on your pricing, again, we need to know at what price you are hedging these volumes at. I mean, you are hedging significant volumes. And it's very material to the numbers going forward, which is my tradition.

No. I can appreciate the comment, [ Adrian ].

Okay. I mean, I'll -- let me see if there's anybody else who wants to ask questions now.

[Operator Instructions] We have a question from [ Andre van der Veen ] of Marblehead.

Sean, I'm just picking up on a question which [ Adrian ] asked. I think it's important for the market to understand a bit more about the future cash flow potential of the assets. I think the big disparity between production capacity versus actual production is a key part of the business that you need to clarify. You do have issues at Rumpke, Valley, Monroeville that I think you need to speak to the market. And I do think that the exact pricing on the hedging which you do contract is an important number, even though it's not forward-looking, but it's an actual number which you need to disclose to the market. So I think the Board needs to consider those numbers. I think it's important for the Board, in terms of full disclosure, to disclose those numbers to the public market, both in terms of the SEC regulations and in terms of their responsibility to investors. So there has to be some guidance, which is what I want to indicate to you. I think the company is set up for quite an exciting period going ahead, but I think the disclosure both in terms of the Pico and the dairy acquisition and the potential going forward is a gray area which you need to clarify to the market and provide some guidance. I mean, I think at this moment, you give us, let's say, opaque CapEx indications but no income indications. So I don't require you to forecast the income potential. But do you think it's important for the market to understand the sensitivity of changes in RIN prices vis-à-vis income potential and changes in income on the, let's say, the big farms vis-à-vis income going forward? So we can do our own calculations about the EBITDA going forward, but you need to give us some sensitivity indications in terms of changes to RIN prices and changes to LCFS prices and the impact on EBITDA going forward. At the moment, the only people that have got insight into those parameters are the directors, and I think that's unfair to investors. And I think you need to just think about disclosing sensitivity parameters of the market so that investors can make their own calls about their views of RIN prices and also best prices as you're going forward and where EBITDA could turn out and potential production numbers. So at the moment, you disclose production capacity, for example, to the market, but we've got no idea where the potential production capacity would be versus actual capacity. And I think that's the point which [ Adrian ] was making in the call previously, where he indicated that you're sitting at 50% of production capacity, but we've got no idea of what your estimate of production capacity is going forward. And we've got no idea of what the potential change in the LCFS parameters are per plant or per type of production vis-à-vis EBITDA. So that makes it very difficult for an external investor to determine or even build models which indicates what the EBITDA is going forward. I don't need you to make a call on EBITDA, but I do think that you need to think about disclosing sufficient information to the external market to enable external investors to make their own calls of those parameters which influence EBITDA going forward. So that's the point which I want to make to you. At this stage, investors are in the dark, and the only people that have got information are the directors and management. And I think that's unfair. It's unfair to us. So I think the Board and the directors need to consider those parameters.

Well, [ Andre ], I appreciate those comments to try and respond in kind to a number of your points. With respect to pricing, one of the things that we try to disclose on a recurring basis is the percentage of our monetization that is self-marketed versus what's under fixed price. So it gives you a sense per quarter -- per annum in terms of what volumes are able to be monetized at current market pricing. And I stress current to say that there's always a monetization of those attributes that take place 1, 2, 3 quarters in advance, to readdress [ Adrian's ] question in terms of what percentage of your production is still under a hedge or a forward sale commitment, that's a function of exactly what I'm saying that the transfers of those attributes are not always a day, a week, a month later. Sometimes they're 2, 3 quarters in advance. And in the case of 2020 to 2021, it was longer than that, which is disproportionate to what we typically try to do. As far as production is concerned, the capacity disclosures are in effect the goal that we aspire to achieve for each of our locations. Save for one of our operating projects, all of these are on open and growing landfills and open and thriving dairy farms. And so the opportunities have to be paired with the investment that's required to achieve that. Sometimes it is investment in the collection systems for the methane. Sometimes it is the investment in the operating practices of the dairies. Sometimes it is in additional processing equipment to take contaminants out of the feedstock supply that was not originally contemplated in the design of those facilities, not to say that they're not invested properly, not to say that they're failing facilities. But as the host industry, the host projects or business continues to evolve, sometimes those parameters change to the point where to reach a higher level of percentage of capacity, it does require a corresponding investment. So the challenge with trying to disclose the increases as to what we can expect, you also have to disclose what the investment that you intend to make to be able to realize that increased level of production, which is what we're trying to choose thoughtfully and effectively as part of our multipronged growth strategy in looking at those projects. The most recent one being the dairy, the project that we are investing in there and the capital commitment is to do exactly what you're referring to, which is realize as close to the production capacity of that RNG facility as it was designed. And so the hope is as we continue to progress in that investment, and it is coupled with the expansion of the dairy that they have committed to give to us in terms of feedstock, that we'll realize the full potential of that facility or something very close to it. But all of your points are well documented.

Yes. I think that you need to differentiate between dairy and landfill. I think those are 2 different investment cases, and you recognize that. Both on Rumpke and on Valley and Monroeville, those are 2 different investment cases. And I think that the danger that you face is that if you disclose production capacity per site, which is vastly different to actual production, you create the impression that there's, let's say, an imminent possibility that those production capacities could be met. And I think that you need to give my guidance to the market there. With respect to dairy, it doesn't, let's say, require a rate of return calculation. So I assume that when you sit down as a Board, you've got an IRR that you want to achieve in a project, and you need to disclose to the market at some stage whether you've achieved that IRR or not. So between dairy and landfill, those are 2 vastly different investment cases, and you should treat them as different cases. The point which I'm trying to make is that at the moment, your disclosures do not enable external investors to make their determination, and it's left in the gray area. And as a management team and as a Board, your goal should be to eliminate gray areas as far as possible. And at the moment, there's too many gray areas. And I would say that with respect to your forward hedging capacity or program with respect to Europe, I don't know what the price is. I don't know how long it is and I don't know how many MMBtus you've hedged. So we can use long and intricate words to disclose it all at once because I want to know how many MMBtus you've hedged, for how long and at what price into Europe. If you're not willing to disclose that, you should say that you're not willing to disclose that, and there's a competitive reason for that. But at the moment, you're talking around the issue, and that is not in our interests. So that's what I'm trying to get to. I don't know what percentage of your capacity is hedged into Europe. I don't know what percentage of your capacity is hedged in terms of your landfill portfolio, and I don't know what your program is on LCFS. So if you talk about the disclosures you made so far, you talk about percentages and you talk about the sensitivity to percentages. The problem with percentages is it's a relative concept. So we don't know where the starting point is. My view is that it would be more beneficial to investors to understand a simple metric which is that for every $0.10 change in the MMBtu price, this is the change in EBITDA, not a percentage. The percentage is a relative concept, if you understand what I'm saying. So when the RIN price goes from $1 to $2 to $3, the percentage changes. That's not helpful. What I'm trying to understand is that if the RIN price changes by $0.10 per MMBtu, this is the effect on EBITDA. Now that would be beneficial to shareholders. At the moment, you talk about percentages. It's not beneficial to shareholders because I don't have the share in percentage, and I don't have the RIN starting point. So if you're asking for feedback from shareholders, what I'm trying to understand is trying to understand the sensitivity to price changes, and the disclosures are not adequate at the moment to enable me to do that. If you don't want to do that, then you just say that it's pricing-sensitive information, it's confidential, and we don't disclose it. But we shouldn't talk around the issue.

I appreciate the comments. The European Union hedge that we have sold forward on, the price was not specifically disclosed due to confidentiality of this first agreement that we had done with Iogen as well as competitive reasons for the ability to continue to explore opportunities into that market. So I understand your point about disclosing what we can but being very explicit as to why there are certain items that we're choosing not to disclose.

Okay. Sean, can I be honest? Sean, can I just be honest on that point? Then it means that no director is able to create shares while this information is not disclosed because that's material nonpublic information. Do you understand that point? And in terms of SEC rules, you cannot create any share while nonpublic information have been shared to shareholders. So I'm happy that you don't disclose that, but then you need to understand the implications of not doing that because that's a material price point to shareholders. I mean, I understand completely that it's confidential information. But then say it's confidential. And then the directors and the management and including your share options should be bound by that restriction. And you need to understand that point, and I'm happy with that. If you're willing to be bound by that point, then you're bound by that point. But you cannot hide beyond confidentiality when it suits you.

[ Andre ], I can appreciate and we'll definitively acknowledge that the Board and the management understand and will be bound by any requirements to not trade being in possession of material nonpublic information.

And my point, Sean, is not in the interest of shareholders. So if you signed an agreement with a European counterpart and agreed to confidentiality restrictions, it's not in the interest of shareholders and the potential of the business going forward to be bound by those restrictions. So I don't think it was smart to be bound by those restrictions because we're all in the interest of promoting the potential of this company, which we think is vast, and we are supportive of the management team. And I think that under your guidance, we will take this business forward in a path which makes me very excited. But at some stage, you've got to recognize that you've got to explain the potential of this company to the market. And if you can't explain the potential of this company, the LCFS potential, the RIN potential and the European potential to the market, our share price will be constrained. And to be bound by a confidentiality agreement is not smart. I mean, you have got a company now which is sitting in the sweet spot of sweetness in America, in an industry which has got vast potential, and now we can't talk about the potential upside of this business in the market. It doesn't seem to me to be very smart. I mean, the way which you as the management team make money is through your share options and your shares. But why would you want to constrain the growth of the shares by restricting information which indicates the vast potential of this business going forward? Like with what you're doing in the dairy industry is transformative, it is smart, it is going to change the income potential of this business going forward, but we can't talk about it. It just doesn't make sense to me. Now the way in which you build confidence in a business and attract shareholders is explaining in very clear, concise terms to the market what are the income drivers of the business. But I can tell you, looking at this business from your disclosures, that you need a PhD to understand what this business does and secondly, to calculate it. Now the way which we will grow our collective wealth and collective interest in this business is to make this very easy to understand and to explain to the market that, look, we are in the best possible industry, which has existed in the last 50 years. But it seems to me in the way that you're answering the questions, when you're trying to make information opaque, that you're just making it difficult for people to understand why it's sensible to invest in this business. And that is my frustration at the moment.

Well, as far as the guidance or the explanations that we have provided publicly, what we have is disclosures regarding the historical run rate of all of our production facilities. We have explained where there are deviations from what our expectations or year-over-year or quarter-over-quarter comparisons have been. And so the resolution of those issues and those anomalies should result in a clearer picture of a run rate save for any additional investments. Now increases in additional investments, the gap between current production run rate, say, for those anomalies and for the capacity potential of each of those facilities needs to be appropriately matched with the prioritization and the disclosure of the investment that's going to be made to realize the potential of those RNG facilities. As far as the dairy project is concerned, the acknowledgment of the investment that we're making and the capital investment that we're making and the potential -- revenue potential at the prices that we disclosed would give you a relatively clear view as to what the revenue potential is for that facility, realizing it's very close to capacity production potential after the investment that is made in that additional digestion capacity and equipment and how that materially contributes to the financials. The sensitivities would be at indices for the attributes for RFS and for LCFS, and they would be correlated to the production percentages that we disclosed that are not tied to fixed prices and contracts. So I do appreciate the need for additional transparency, and we always take that under advisement. But definitively, there is a run rate trajectory and explanations in the financials and the commentary that have been provided that can allow for an investor to understand what the base potential is for the business at varying points of view that the investor has on the outlook of attribute pricing, which makes up the majority of the revenue stream of the business. But definitively...

No. No. Sean, I actually disagree. Firstly, you've made no disclosures about sensitivity to LCFS, have you?

Disclosures over LCFS.

No. You've made no disclosures about the sensitivity of a price based -- price change in LCFS to EBITDA.

That's because the component of our...

The only disclosure of LCFS which you've made is very limited. It's verbal, not percentages or run rates. A major part of your business going forward would be the dairy component, in which the carbon index or the index related to LCFS is a major component of the income potential of those assets. There is no way an investor could model that at the moment.

The existing dairy project has not yet begun to monetize those LCFS credits. So they have not had a material impact to the financials. The future...

Not the impact but the potential of dairy would be in the following ratio relating to LCFS. Secondly, the existing facilities, you haven't disclosed LCFS sensitivity.

The existing component of LCFS revenue is not a material enough of a component of the legacy portfolio to adjust it for sensitivities. The majority of the business is driven by the RFS, the D3 RIN monetization and the fixed price contracts that we have for power generation.

So would you say that going forward, if LCFS becomes material, you'll disclose that? And could you give me guidance on what is the material percentage which would trigger disclosing the requirements?

Definitely, we are moving into more and more agriculture production, feedstock production. And so as we move into North Carolina and develop the swine opportunity, a definitive component of this will be LCFS credit monetization. We will begin to be able to disclose what the sensitivities are similar to how we do financially about changes in the D3 RIN pricing and the impacts they can have on the financials of the business. We will do that in kind once LCFS credit monetization becomes a material component of the business.

But Sean, can I just ask you a question? Why -- the Board has made a decision to invest in this very exciting dairy opportunity. Why would the Board and management not see...

Pardon for the interruption, presenters. We have reached the end of our duration. Do you have any closing remarks?

Other than to thank everyone for taking the time to join us on the conference call today. We look forward to speaking to you again on our third quarter call.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.