RE Royalties Ltd. (TSX.V: RE) , hosted the third quarter conference call and live webcast on Friday, December 6, 2024 to discuss the third quarter results along with a question-and-answer session with analysts and investors.
Please find the Q3 financial highlights summary, transcript and recording of the conference call below.
· Quarterly revenue and income for the three months ended September 30, 2024, of $1,692,000, a decrease of $221,000 or 12% over the similar quarter in the prior year. The decrease was due to lower finance income as a result of early repayment of loans from clients during the quarter.
· Year-to-date revenue and income for the nine months ended September 30, 2024, of $6,157,000, a decrease of $1,018,000 or 14% over the similar period in the prior year. The decrease was as a result of a one-time royalty buyout in the prior year of $1,564,000, which was not applicable in the current period.
· Quarterly gross profit, including changes in fair value of financial assets, of $1,587,000, a decrease of $218,000 or 12% over the similar quarter in the prior year.
· Year-to-date gross profit, including changes in fair value of financial assets, for the nine months ended September 30, 2024, of $5,849,000, a decrease of $1,095,000 or 16% over the similar period in the prior year.
· Quarterly Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for the three months ended September 30, 2024 of $1,038,000, an increase of $2,641,000 over the similar quarter in the prior year. This increase was the result of a $3,078,000 provision for expected credit loss in the prior year quarter, which was not applicable during the quarter. This provision also had a negative impact to the prior year-to-date EBITDA, prior year quarterly net loss, and prior year-to-date net loss (below).
· Year-to-date Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) for the nine months ended June 30, 2024 of $3,359,000, an increase of $1,461,000 or 77% over the similar period in the prior year.
· Quarterly net loss after income tax for the three months ended September 30, 2024 of $195,000, compared to a quarterly net loss after tax of $2,769,000 in the similar quarter in the prior year.
· Year-to-date net loss after income tax for the nine months ended September 30, 2024 of $193,000, compared to a year to date net loss after income tax of $1,089,000 in the similar period in the prior year.
· Cash and cash equivalents of $18,442,000, including restricted cash, as of September 30, 2024.
Transcript:
Company Participants
Bernard Tan - CEO
Luqman Khan - CFO
Peter Leighton - COO
Bernard Tan
Welcome everyone to the RE Royalties third quarter 2024 conference call.
I am your host for today’s call, Bernard Tan, CEO. Joining me on this call as well are, Peter Leighton, COO, and Luqman Khan, CFO.
All company executives will participate in the Q&A session after management’s formal remarks.
As usual, before we get into opening remarks, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. For further information on these risks and uncertainties I encourage you to read the cautionary note that accompanies our MD&A and the related news release, as well as the risk factors particular to our company.
The financial information presented on the call today will be in Canadian dollars, unless otherwise indicated.
I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release.
Following opening remarks, we will address some previously submitted investor questions. If we do not get to your question today, please email investor@reroyalties.com and we would be happy to follow up with an answer.
From the end of August up until this week, we completed our Series 4 Green Bonds and raised a total gross proceeds of approximately $7m. Along with our cash on hand, we have a very healthy cash balance of $20m to work with in deploying into a number of opportunities.
As you likely saw from the various news releases from the past few weeks, we were able to complete 3 different transactions with existing and returning clients.
These include:
- A secured loan and royalty to Abraxas Power for up to $10m for the construction of a portfolio of solar projects in the Maldives.
- A $3m construction facility and royalty acquisition to Solarbank Corporation for the construction of three (3) separate 5 megawatt battery energy storage systems in Ontario, Canada; and
- A $6.3m secured loan and royalty to support a letter of credit for Alpin Sun to meet their security requirement with the Alberta Electricity System Operator for a 200 megawatt project outside of Edmonton, Alberta.
Peter will discuss in further details on each of these investments we have made.
From a financial perspective, while our financial metrics were slightly lower in the third quarter compared to the prior year due to the early repayment of loans from our clients, the recent investments we have made will put us back on a growth trajectory, and we expect to see continue growth in our revenues and income, EBITDA and cash flows in future quarters to come.
We currently have $9.5 million in cash on our balance sheet and our team is further evaluating additional new transactions with current and prospective clients.
I will now pass it over to Peter to discuss some of these opportunities and performance on our portfolio.
Peter Leighton
Thank you Bernard, and thanks to everyone for joining us today.
Since the last quarter, the Company has completed four transactions that have previously been announced:
· In November 2024, the Company entered into an agreement with Abraxas Power Maldinvest Ltd., a wholly-owned subsidiary of Abraxas Power Corp., an Ontario-based energy transition developer, to provide up to a $10 Million secured loan (the "Abraxas Loan") to support the construction of solar projects in the Maldives. The first tranche of $1.4 Million was advanced in mid November for the construction of two rooftop solar projects (the "Projects") with a combined generation capacity of 0.77 MWDC. The Projects are located at a hospital in Malé, the capital of the Maldives, and on an island resort, approximately 50km north of Malé. They will generate revenue from power purchase agreements ("PPAs") for a term of up to 15 years. The Abraxas Loan will have an 18-month term and an interest rate of 13% per annum on advanced funds, compounded monthly. The Company will receive a gross revenue royalty of 2.0% on the Projects for the term of the PPAs
· In November 2024, the Company entered into an agreement with a wholly-owned subsidiary of SolarBank Corporation, an independent renewable energy project developer and owner, focusing on distributed and community solar projects in Canada and the United States, to support the construction of three 4.99 MW Battery Energy Storage System ("BESS") projects to be located in Ontario, Canada. The BESS have long term contracts with the Ontario Independent Electricity System Operator under the E-LT1 program. The Company provided a secured loan of $3.0 Million with a 12-month term at an interest rate of 11% per annum. The Company will receive a 0.40% royalty on the gross revenues generated for the life of the BESS, estimated at 20 years. The royalty rate will be reduced to 0.25% if the Loan is repaid within the first six months.
· In November 2024, the Company settled the outstanding loans with Switch Power Battery Operating Company ("SPOBOC") and with Switch Power Solar Operating Company ("SPOSOC"). Under the terms of the settlement the Company will retain the shares of SPOBOC and SPOSOC in full and final satisfaction of the outstanding debt and SPOBOC and SPOSOC are now wholly owned subsidiaries of the Company. The Company currently owns and operates nine operating battery storage projects totalling 5.3MW/12.3 MWh, and a single operating 428 kWdc rooftop solar project in Ontario, Canada
· In December 2024, the Company entered into an agreement with Alpin Solar SA, a German-Romanian renewable energy company focused on the development, construction and operation of solar power plants globally. The Company provided a secured loan (“Alpin Loan”) to support a $6.3 million letter of credit (“LC”) on behalf of Alpin to meet their security requirement with the Alberta Electricity System Operator for the 200 megawatt Sol Aurora Project located in Sturgeon County, Alberta, Canada. The Alpin Loan carries an annual interest rate of 13% with an initial term of 12 months. The Company will also receive a gross revenue royalty of $0.25 per MWh of energy production from the Sol Aurora Project for the life of the project.
As at the end of September 2024, the Company has 114 royalties under contract covering projects that generate solar and wind energy, projects that convert waste to energy, storage projects and energy efficiency projects. Cumulatively these represent approximately 428 MW of clean energy capacity and generate
approximately one million MWh of clean energy every year. This is enough clean energy to power approximately 136 thousand homes, offsetting approximately 429 thousand tonnes of CO2 emissions annually.
We continue to see a substantial number of new high-quality investment opportunities from both existing and new clients to add to our project pipeline and backlog. Our team is currently undertaking detailed due diligence on several of these opportunities in order to determine the best allocation of our current cash on hand. We have a number of transactions that we are evaluating that are still subject to completion of due diligence, definitive documents, conditions precedent for each transaction and approval by the Company’s Board of Directors. There is no assurance that any of the opportunities under evaluation will result in a completed transaction.
I will now pass it over to Luqman to discuss the financial results.
Luqman Khan
Thanks Peter.
During Q3-2024, the Company recorded an aggregate amount of $1.7 in revenue and income – a decrease of 12% over the similar quarter in the prior year. The decrease was due to lower finance income as a result of early repayment of loans from clients during the current year.
During the nine months ended September 30, 2024, the Company recorded an aggregate amount of $6.2 mil in revenue and income – a decrease of 14% over the similar period in the prior year. The decrease was as a result of a one-time royalty buyout of $1.6 mil in the prior year, which was not applicable in the current period.
For Q3-2024, the Company reported a quarterly gross profit, including changes in fair value of financial assets, of $1.6 mil – a decrease of 12% over the similar quarter in the prior year. For the nine months ended September 30, 2024, the Company reported a gross profit, including changes in fair value of financial assets, of $5.8 mil – a decrease of $1.1 mil or 16% over the similar period in the prior year.
EBITDA for Q3-2024 was $1 mil, an increase of $2.6 mil over the similar quarter in the prior year. EBITDA for the nine months ended September 30, 2024 was $3.3 mil, an increase of $1.5 mil or 77% over the similar period in the prior year.
This increase was the result of a $3.1 mil provision for expected credit loss in the prior year quarter, which was not applicable during the quarter. This provision also had a negative impact to the prior year-to-date EBITDA, prior year quarterly net loss, and prior year-to-date net loss.
A net loss after income tax of $195,000 was reported for the three months ended September 30, 2024, compared to a quarterly net loss after income tax of $2.8 mil in the similar quarter in the prior year. A net loss after income tax of $193,000 was reported for the nine months ended September 30, 2024, compared to a year-to-date net loss after income tax of $1.1 mil in the similar period in the prior year.
At September 30, 2024, the Company had cash and cash equivalents of $18.4 mil, including restricted cash.
With that, I will now pass it back to Bernard.
Bernard Tan
So, with that, I would like to thank everyone for the time they took to join us on the call today.
Q3 2024 was a transformative quarter for us as we raised additional capital from our Series 4 Green Bonds and built up our cash reserves. After the end of the quarter, we were able to deploy a portion of this cash reserves into the 3 transactions discussed earlier. These investments will provide cash flows, revenues and income for the coming quarters. We are also evaluating some very good opportunities and doing due diligence on, and with the existing cash on hand, we feel that the Company is poised to build on this success even more in the coming quarters.
That concludes the formal part of the conference call, and we will now turn it over for submitted questions.
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