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RA Royalties, a renewable energy investment firm with a market capitalization of $41.6 million, reported a notable decrease in its fiscal 2024 revenue during its recent earnings call. According to InvestingPro analysis, the company appears undervalued at current trading levels. Despite a challenging year, the company highlighted significant growth in its royalty revenue and continued expansion in clean energy investments.
Key Takeaways
- Total revenue decreased by 12% from the previous year.
- Royalty revenue surged by 79% despite overall financial challenges.
- The company acquired full ownership of Switch Power Battery and Solar Operating Companies.
- RA Royalties made five new investments totaling $16.1 million.
- Anticipated strong cash flows from battery projects for fiscal 2025.
Company Performance
RA Royalties experienced a transitionary year in fiscal 2024, with total revenues reaching $8.6 million, a 12% decline from the previous year. This was attributed to various market dynamics, although the company managed to increase its royalty revenue by 79%, showcasing resilience in its core business model. The firm’s strategic acquisitions and investments in renewable energy projects reflect its commitment to long-term growth despite short-term financial setbacks.
Financial Highlights
- Total Revenue: $8.6 million, down 12% year-over-year
- Adjusted EBITDA: $4.4 million, a 22% decrease
- Net Loss After Income Tax: $9.3 million
- Cash and Cash Equivalents: $16.5 million as of December 31, 2024
Outlook & Guidance
Looking forward, RA Royalties is optimistic about its growth prospects. With an overall Financial Health Score of "GOOD" from InvestingPro, the company has signed a letter of intent for an $8 million loan to fund a 9.6 MW wind project expected to close in Q2 of fiscal 2025. This project is anticipated to contribute an additional $1.4 to $1.5 million in revenues. The firm continues to evaluate new investment opportunities, signaling a proactive approach to expanding its clean energy portfolio.
Executive Commentary
CEO Bernard Chan described fiscal 2024 as a "transitionary year" for RA Royalties, emphasizing the company’s focus on securing high-quality investment opportunities. He noted, "We continue to see a substantial amount of new high-quality investment opportunities," underscoring the firm’s strategic direction.
Risks and Challenges
- Market Volatility: Fluctuations in energy prices could impact revenue streams.
- Regulatory Changes: Potential changes in energy policies could affect operations.
- Project Delays: Delays in project completion could hinder expected revenue growth.
- Economic Conditions: Broader economic downturns may affect investment inflows.
Q&A
During the earnings call, analysts queried the impact of IFRS 3 accounting on asset valuation, with management confirming a full recovery for the OSEP loan by September 2026. The company also addressed questions regarding the Series One Green Bond maturity and potential refinancing strategies.
RA Royalties remains focused on expanding its clean energy initiatives, leveraging its unique royalty-based investment model to navigate the evolving renewable energy landscape.
Full transcript - Rock Energy Inc. (RE) Q4 2024:
Anisha, Conference Call Moderator, RA Royalties: Welcome everyone to the RA Royalties fourth quarter twenty twenty four conference call. Joining us today are Bernard Chan, CEO and You’ve been muted. To unmute yourself, press 6. All company executives will participate in the q and a session after the management’s formal remarks. As usual, before we get into opening remarks by management, 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 leave the cautionary note that accompanies our annual MD and A and the related news release as well as the risk factors particular to our company. 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 questions that may come in.
If you would like to submit a question, please use the Q and A function in Teams. And if we do not get to your question today, please email us at the investor@reroyalty.com, and we’d be happy to follow-up with an answer. Now I’d like to turn it over to CEO of Ken. Please go ahead.
Bernard Chan, CEO, RA Royalties: Thanks, Anisha, and thank you, and good afternoon, ladies and gentlemen. Thank you for joining us today, and welcome to the RE Royalties twenty twenty four year end results conference call. Twenty twenty four was a transitionary year for the company as we became asset operators by adding several new operating battery and solar assets to the company’s portfolio, in addition to several new loan and royalty investments from returning clients. These assets provide a strong, stable and recurring cash flow stream to support our objective of creating long term cash flows for our investors. Joining me today is our CFO, Lucian Kahn our Chief Operating Officer, Peter Layton, is currently traveling and will not be able to join us today.
I will highlight some of the key investments made during the year, and Luukman will then provide a summary of our financial results for the year. I will then provide an update on our deal flow and expectations for fiscal twenty twenty five. We will then wrap up with some questions received by email. During 2024, we announced five new investments, two with new clients and three with existing clients for a total investment of $16,100,000 In January of twenty twenty four, the company provided a $1,700,000 secured loan to Clean Communities Corporation, an Alberta based indigenous led clean energy company in order to support the construction of a four megawatt project in Cardston, Alberta. The company will receive a gross revenue royalty of 5 percent on the project once it reaches commercial operations.
Clean Communities has substantially completed construction of this project and is expected to generate electricity in the coming months. In February of twenty twenty four, the company closed a $4,000,000 loan and royalty agreement with Revolve Renewable Power Corp. In order to support Revolve’s acquisition of a portfolio of two operational run of river hydro projects in British Columbia and one operational wind project in Alberta with a combined growth capacity of 23 megawatts. This loan was repaid early by Revolve two years ahead of schedule in February of twenty twenty five. The company now holds a gross revenue royalty of 1% on these two hydro and one wind project for the remaining life of the power purchase agreement estimated between eleven to thirty five years.
In November of last year, the company entered into an agreement with a wholly owned subsidiary of Abraxas Power, an Ontario based energy transition company to provide up to a $10,000,000 secured loan to support construction of a number of solar projects in The Maldives. The first tranche of $1,100,000 was advanced for the construction of two rooftop solar projects with a combined generation capacity of 0.77 megawatts DC. The projects are located in a at a hospital in Male, the capital of The Maldives, and also on an island resort approximately 50 kilometers north of Male. The company receives a gross revenue royalty of 2% of the projects for the term of the power purchase agreement. Abraxas has substantially completed the construction of these first two projects and expect them to reach operational status in the next few months.
The company also provided a $3,000,000 secured loan to a wholly owned subsidiary of Solar Bank Corporation, an independent renewable energy project developer and owner, focusing on distributed and community solar projects in Canada and The US to support the construction of three five megawatt battery energy storage systems located in Ontario, Canada. These battery projects have long term contracts with the Ontario independent electricity service operator. The company also received a 0.4% royalty on the gross revenues generated for the life of the battery system estimated at twenty years. Solar Bank has completed its financial close on these projects, and they are currently in construction for this project. In December of twenty twenty four, the company also provided a 6,300,000.0 letter of credit facility on behalf of Alpen Solar SA, a renewable energy company focused on the development, construction and operation of solar power plants globally.
In order for Alpen to meet their security requirements with the Alberta Electricity System Operator for their 200 megawatt Sol Aurora project located in Sturgeon County, Alberta. The Alpen loan carries an annual interest rate of 13% with an initial term of twelve months. The company also received a gross revenue royalty equivalent to $0.25 cents per megawatt of energy produced from the Sol Aurora project for the life of the project. In November of last year, the company also took full ownership of Switch Power Battery Operating Company or Spolock and also Switch Power solar operating company, Sposok. Under the terms of the settlement with Switch, the company will retain the shares of Spobak and Sposok in full and final satisfaction of its outstanding debt.
The company now owns and operates nine operating battery storage projects totaling 5.3 megawatt or 12.3 megawatt hours and a single four twenty eight kilowatt DC rooftop solar project in Ontario, Canada. Management expects that Spobop will generate roughly 1,400,000.0 to $1,500,000 in energy revenues for the upcoming fiscal year and net cash flows of approximately 1,100,000.0 to 1,200,000.0 for fiscal twenty twenty five. Spobock has nine energy services contracts with clients with remaining terms ranging from three point eight to nine point four years with options to extend for an additional five year terms. For Spostock, management expects Spostock will generate roughly about $230,000 in energy revenues and net cash flows of $190,000 for the current fiscal year. As of the December 2024, we have hundred and six royalties under contract and nine batteries and a solar project that generates solar and wind energy and project sales to convert waste to energy, storage project and energy efficiency projects.
Cumulatively, these represent approximately six forty three megawatts of clean energy capacity and generates roughly 1,000,000 megawatt hours of clean energy every year. This is enough to power approximately 194,000 homes, offsetting approximately 658,000 tons of CO2 emissions annually. I will now pass it over to Ruthman to discuss the financial results. Thank you, Bernard. The company recorded total revenue and income of 8,600,000.0 in fiscal year twenty twenty four.
That represents a decrease of 1,200,000.0 or 12% from the prior year. This decrease was due to a onetime gain of 1,600,000.0 from a royalty buyout recorded in the prior year. No such gain was recorded in the current year. In the current year, the company’s royalty revenue increased by 79%, mainly due to revenue recorded from Nomad royalty, which varies with the timing of underlying sales of units by Nomad. Gross profit, changes in fair value of financial assets for fiscal year twenty twenty four was 7,650,000.00, representing a decrease of 1,700,000.0 or 20% from the prior year.
Adjusted EBITDA as presented in the company’s MD and A as a non GAAP measure for fiscal year twenty twenty four was 4,400,000.0, which represents a decrease of 1,200,000.0 or 22% from the prior year. This decrease, as mentioned before, was mainly due to the onetime gain from a royalty buyout in the prior year. The company recorded 9,300,000.0 in net loss after income tax for fiscal year twenty twenty four, which net loss represents an increase when compared to the prior year. This was primarily due to a noncash nonrecurring adjustment of 4,800,000.0 for the derecognition of this full box loan upon its settlement in November 2024 when the company acquired this operating entity. The cash and cash equivalents balance at 12/31/2024 was 16,500,000.0.
With that, I will now pass it back to Bernard. Good morning. In April of this year, we also signed a letter of intent to provide Revolve an existing client with a US dollar denominated a US equivalent of $8,000,000 secured loan to support Revolve’s proposed acquisition of a 95% interest in a 9.6 megawatt operating wind project in The United States. The loan will have a term of twenty four months and bear interest rate at 12% annually on drawn funds, with interest payable on a quarterly basis throughout the term. The company will also receive a royalty of 5% on gross revenues generated by this wind project for its remaining life.
The wind project consists of six one point six megawatt wind turbines generating revenue through a power purchase agreement with a regional utility. The closing of this transaction is expected to occur in the second quarter or current quarter of fiscal twenty twenty five and will allow us as a company to be substantially fully invested. This additional this investment represents one of our largest single investment and will add roughly about 1,400,000.0 to $1,500,000 in additional revenues, EBITDA and cash flow to our existing base. This investment is subject to several customary closing conditions, including the completion of the proposed acquisition by Revolt. We continue to see a substantial amount of new high quality investment opportunities from both existing and also new clients to add to our project pipeline and backlog.
Our team is currently undertaking detailed due diligence on several of these opportunities and are still subject to completion of definitive documents, conditions, precedents for each transaction and also approval by our company’s Board of Directors. There is no assurance that any of these opportunities under evaluation will result in a completed transaction. So with that, I would like to thank everyone for the time they took to join us on the call today. This concludes the formal part of the conference call, and we will now turn it over to Anisha for questions. Great.
Anisha, Conference Call Moderator, RA Royalties: Thank you, Bernard. Certainly, we have a couple of questions. The first one being, can you please explain how the estimates under IFRS three affected the loss on the recognition of the GlobalPlo. Sure. Thanks, Anisha.
In terms of the IFRS three’s impact on our p and
Bernard Chan, CEO, RA Royalties: l, just to provide sort of listeners just sort of a very high level overview. IFRS three, which is the business combination, requires us to fair value the assets and liabilities of an acquired company. So during the year, we acquired Spobot and Spozok as part of the settlement of the switch loans. Fair value can take a very different sort of forms and approaches, and these assets are also quite unique. In conjunction and working with our auditors, we decided that the most conservative approach was really to take a historical perspective approach, meaning looking at cash flows from previous years.
As most of our sort of investors know, because of of the nature of Robot, this is a sort of a first year of operations and the start up nature of it. The cash flows in the prior year were definitely much lower than what it would be going forward. So because of that sort of conservative approach, the acquisition value when calculated using sort of that historical cash flow approach resulted in a much lower carrying value compared with the carrying value of the loan. And the adjustments really were booked as sort of the main difference, which flow through the p and l. These adjustments are primarily for IFRS presentation purposes and also reporting and do not necessarily reflect the company’s view on what these assets are actually worth.
In fact, management feels that once these battery assets have had a longer operating track record, the value which we’re able to sell should we choose to do so would be much higher than what is currently stated. As sort of mentioned in the earnings call, on sort of a forward looking basis, we do expect these assets to generate roughly in the $1.4 to $1,500,000 in energy revenues and roughly about $1,100,000 in free cash flows.
Anisha, Conference Call Moderator, RA Royalties: Can you provide your outlook on the recovery of the OSEP and gas alone? Okay. Thanks for that question as well. So maybe I’ll touch with OSEP first.
Bernard Chan, CEO, RA Royalties: We do expect full recovery of the OSEP loan, and it is anticipated that it will likely everything would be fully repaid by September of twenty twenty six. The original agreement that we had posted anticipated two different repayment paths. One was based on a refinancing that was supposed to occur earlier in the year, and two, from, I would call it, the amortized position whereby internally generated cash flows from OSEP’s operation would be used to repay back the outstanding principal and interest. As a quick note, OSEP did repay material portion of the loan last year and paid it down. So the exposure is actually much lower than the original investment.
The initial accounting that we utilized on the refi option, and as such, when it became obvious that that OSEP would actually move towards the internally generated cash flow repayment option, we have to adjust the discount factor of the loan in order to reflect the additional time that was required for OCREP to repay the loan. This calculation resulted in an adjustment, which is then reflected in the financial statements and then booked. This is purely an IFRS calculation, and we actually do not see any additional risk to this loan. In fact, the risk today for OSEP is actually much lower than when we first initially invested, mainly because OSEP is now operating and generating cash flows and creating a higher level of certainty towards ensuring that this loan is fully repaid. One additional benefit for this delay instead of the final repayment is also the coupon that OSEP has to pay does increase from 16% to 19%, along with a small bump in the royalty rates as well, which means future cash flows to the company without additional capital.
In terms of Delta, as previously mentioned in the MD and A, Delta is currently undergoing an acquisition. We have been in regular communication with their management team relating to the proposed acquisition. And this acquisition is actually quite beneficial in the sense that roughly the US 1,000,000 plus that we have invested in would see a full repayment of roughly about US 3,000,000. So we do remain very patient because this is a very attractive outcome should Delta be able to complete it. And we remain patient as far as Delta’s management team to work through this process of completing dealer acquisition.
Delta’s management team has indicated to us that we do expect this transaction to be completed sometime this year, and we look are closely monitoring and communicating with them.
Anisha, Conference Call Moderator, RA Royalties: Great. Thank you, Bernard. The next question is, can you provide some color and insight on your plan for the Series one Green Bond?
Bernard Chan, CEO, RA Royalties: Sure. In terms of the Series one Green Bond, part of the Series one green bonds will be maturing later this year and specifically in q four. We currently do have the cash later in the year, mainly coming from maturing investments to fully repay the full amount of the green bonds. However, we have also started the outreach to the series one green bond holders to get an indication of interest to see if they would like to re up and reinvest those proceeds. And if so, we would likely anticipating a offering later in the year to re up those bondholders.
Anisha, Conference Call Moderator, RA Royalties: And finally, I’ll have to impact a tariff and US government policy on renewables affected the company.
Bernard Chan, CEO, RA Royalties: This is a very, I guess, current. In terms of the tariffs and U. S. Government policy, I would say it has been minimal to date on our especially on our existing portfolio as most of our U. S.
Deal flow focuses on operational assets. As previously mentioned in the call, currently, we are targeting to complete a transaction on a with Revolve on a operating wind farm in The U. S. Once assets become operational, the impact of things like tariffs and policies becomes, I guess, less effective due to sort of changing sort of patterns in in policy. However, we do continue to monitor this evolving landscape in The United States.
Obviously, there are emerging risks, but it’s also creating new opportunities because of these risks for us. So we we’re you know, our entire team remains very cautious, but also, very optimistic that no opportunities will be created. And for us, it’s just a matter of working through these opportunities. One of the things we do have noticed in the past few months is that there has been a higher a slightly higher increase in terms of inbound opportunities from The US, which we are working through right now.
Anisha, Conference Call Moderator, RA Royalties: K. Those are all the questions we have this year. In case we do not get to those today, feel free to email us at investorruloyalty dot com. And thank you once again for joining the twenty twenty four earnings call. Thank you, everyone, for joining us on the call, and we look to be providing you an update on Q1 in the next thirty days or so.
Bernard Chan, CEO, RA Royalties: Thank you.
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