Good morning, ladies and gentlemen, and welcome to the Altius Renewable Royalties Q2 2023 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 2nd, 2023. I would now like to turn the conference over to Flora Wood. Please go ahead. Thank you, Eric. Good morning, everyone, and welcome to our Q2 2023 call. Our press release and SEDAR+ filings were released yesterday after the close and are available on our website under Investors Reports. This event is being webcast live, and you'll be able to access replay along with the presentation slides that have been added to our website in two spots at arr.energy. Brian Dalton, CEO of ARR, and Frank Getman, CEO of Great Bay Renewables, are our main speakers on the call, and in the Q&A, we'll also have Ben Lewis, CFO of ARR, available for questions. The forward-looking statement on slide two applies to everything we say, both in our opening remarks and during the Q&A. With that, I will turn over to Brian. Thank you, Flora. Thank you everyone for joining today. The business continues to execute on its goal of adding scale and diversity to its portfolio, having now added more than 15 GW of wind, solar, and storage-based development projects to its portfolio. These span most of the U.S. power regions. This puts us well ahead of where we imagined our progress to be at this stage of the company's development. Moreover, through the combination of greater awareness of the royalty financing model and more difficult conditions for competing forms of financing, such as debt and equity, we are seeing a strong uptick in deal origination activity. I'll turn it over to Frank now to explain things in better detail and will stand by to take any questions after his remarks. Over to you, Frank. Thank you, Brian. Good morning, everyone. I'm excited to share with you today an update on our continued progress in building Great Bay and its broad, diversified portfolio of renewable royalties. Our royalty portfolio, revenue, and cash flow profile continue to benefit from the addition of operational stage royalties in late 2022. Revenue for the first half of 2023 was $4 million versus $2.4 million in 2022. Revenues were subject to continued soft merchant prices during Q2. Our revenues are generally back half weighted due to seasonality, we've seen an uptick in merchant prices in recent, recent weeks with higher summer temperatures and increased power demand. I'd note that in 2022, two-thirds of Great Bay's revenue was earned in the second half of the year, I would expect a similar profile this year. In Q2, we also announced our most recent developer deal, a $45 million investment into Hexagon Energy. We are thrilled to add another world-class developer to our portfolio. Matt Hantzmon, the CEO of Hexagon, has a long track record of success as a developer. Over the past seven years, Hexagon has built an impressive 5.3 GW pipeline, comprised of 43 solar, solar plus storage, and standalone storage projects across the U.S.. Matt, as a former partner of Apex Founder Sandy Reisky and Board Member at Apex, was well aware of the value of Great Bay's non-dilutive royalty financing for developers and sought out Great Bay as a partner to help them accelerate and grow Hexagon's pipeline. I'm particularly excited to have our first exposure to royalties on standalone storage projects as part of the Hexagon deal. As I've noted previously, we've struggled to find the right structure to align everyone's interests, to provide long-term royalty financing on standalone storage, while this may not be our final structure for standalone storage, it represents an important first step. With Hexagon's assistance, we were able to create a structure where we receive a smaller royalty on standalone storage projects, 1% versus 2.5% on solar and solar plus storage, for a shorter period of 7 years, where we have greater revenue visibility and at our option, have access to a greater share of cash proceeds from the sale of projects to apply towards Great Bay's IRR threshold. While our standalone storage royalties will last for 7 years, we'll be using a 5-year period when determining the NPV that gets credited towards Great Bay's return threshold. There is some built-in conservatism to help deal with the less predictable revenue streams. It's important to note that we expect standalone storage to represent less than 5% of our overall return on the Hexagon investment. This isn't a major part of the deal, but it will give us important exposure and learning as to the actual operating characteristics of standalone storage. We feel this is a smart and measured way to start. With the addition of Hexagon, Great Bay now has over 15 GW of wind, solar, and storage development projects in our developer portfolio, which provide a built-in growing stream of royalties and revenue to GBR for the foreseeable future. We believe this represents an incredibly exciting and impressive backlog of new royalties. I'd now like to make a few comments about overall market conditions in renewables and the prospects for future capital deployment for Great Bay. I look at current market conditions as almost a tale of two cities. On one hand, there remains robust activity and tailwinds coming on the back of the IRA legislation passed last year. Overall, renewables development activity has accelerated, and there's been a number of new entrants to the market. The backlog of new projects across the industry continues to grow. There remains an insatiable demand for renewable energy from corporate buyers, as indicated by the continued march higher of PPA prices nationwide. The most recent LevelTen Q2 PPA price index shows wind and solar PPA prices increasing over 6.5% from Q4 2022 to Q1 2023, and over 26% from Q1 2022 to Q1 2023. On the other hand, however, interconnection backlogs continue to worsen, with MISO being the most recent, our regional transmission organization, to announce a moratorium on new applications as they undertake a restructuring and reorganization process similar to what PJM has undergone over the last several years. Development timelines for everyone have been pushed to the right. Moreover, the cost of both equity and debt financing has increased materially over the last year. The combination of robust activity and demand for renewables, coupled with delays and higher costs of capital, have created an increased demand for alternative sources of capital, such as Great Bay's royalty financing. Needless to say, it's an exciting time for Great Bay. Finally, I'd note that we are busy looking at all options, including non-dilutive forms of capital, to fund our business moving forward to optimize value for shareholders. That's it for my update. I'll turn it back to you, Brian. Thank you, Frank. With that, floor, I guess we can open up the questions. Eric, do you want to poll for questions? Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to withdraw your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from David Quezada with Raymond James. Please go ahead. Thanks. Morning, everyone. My first question here, just, just I guess, related to the Hexagon deal. Just curious what you see as the outlook for other developers, of this stage. Like, are the industry tailwinds you're seeing causing more of them to crop up? You know, would you still expect, in general, for investments to follow the barbell approach that you outlined a couple of quarters ago? Just interested in any color year, for this type of developer. Sure. The thing that I was really excited about Hexagon is, is they have a, a very attractive pipeline, existing pipeline and a great team, you know, a full team already in place. I mentioned in my remarks that there's a lot of new entrants into the market. Many of these are two- and three-person shops who are just getting going, looking for, you know, initial funding, and that doesn't really fit our model that well. We, we made it with Declan Flanagan, we made a bit of an exception, went very early stage, but it was also someone with an incredible track record, and he was able to, you know, put the band back together pretty quickly and have a substantive team. He was also raising $100 million as part of that initial capital raise that, that we were a part of. It wasn't as though it was a, you know, a few guys in a PowerPoint deck trying to start a company. I think that what Hexagon represents is someone who is further along. I don't know that I think the interesting dynamic is that even established developers, even some of the larger developers, are all facing these struggles with everything getting pushed to the right. I think they're becoming more and more open to additional and supplemental sources of capital, even if they, even if they had a big partner who they signed up in the last, you know, 24 months or something. The, the need for capital is increasing. I don't know that we're going to be doing many early, early-stage developers, which there's a fair number of those outstanding, but, you know, I do think there's still opportunities with established players to, you know, for us to invest further. That's a long-winded answer to the answer your question, David. I'm sorry. Absolutely. No, that's great color. Thanks, Frank. Yeah. Appreciate that. Just, just one more for me. Again, I think just relating to the tailwinds you're seeing, just related to rising cost of capital for developers. Would things get to a point for you that, like, will this manifest itself primarily as just an increased pace of capital deployment? Or do you see maybe even potential to realize, you know, higher returns, I guess, compared to that the 8-12 range that you've communicated in the past? Like, I guess, does, does the backdrop affect your return expectations? Yeah, both. In fact, we're already. You know, if you look at our Hodson and Hexagon deals, you know, they're at the high end of that range, but they also have, you know, incremental value, whether it's in the form of equity warrants or profit sharing in the case of Hexagon. You know, we're already above that range, and we're continuing to, you know, pigs get fat, hogs get slaughtered. We want to make sure we capture the business, but, I think there is some opportunity, to, you know, we're looking at ways to increase those returns. Excellent. Thanks for that. I'll turn it over. Thank you. Your next question comes from Nicholas Boychuk with Cormark Securities. Please go ahead. Thanks. Good morning. Frank, can you talk about how delays in interconnection and construction are impacting your thinking about capital allocation? Like, does that make you more or less inclined to look at operating projects now, or, or has that improved the potential entry point for you to now work with some of those Hexagon-type developer opportunities? I think it's a, it's a little bit of both, Nick, and I think that one important point is that I'm not aware of another structure out there in renewables that is protected as well as we are from these delays for our existing investments into, you know, both TGE, now Enbridge, and Hexagon, and, you know, Hodson. You know, where our capital is continuing to accrue, and they definitely have plenty enough projects that we feel confident, well, even with that delay and the, and the additional amount they owe us, they still have plenty of projects for us to get enough royalties to earn our return. That's the first point I'd make, is just that these delays, we're protected from these delays on our existing investments. I, I think that the delays are, are, are one of the things that's interesting is, is both Hodson and Hexagon have projects that were already in the. In the case of PJM, I think we're looking smart right now. I don't know if you remember back when we made the, the Hodson investment, a lot of folks were running from PJM. PJM has opened up again for business. They've, they've hit their transition date. They're starting to issue, you know, ISAs again, and, you know, folks that kind of, you know, were, were patient and, and continued to persevere through that, through that period now are, are sitting pretty. I think Hodson has some projects in that, in that category. Yeah, Hexagon has some projects that were, you know, will be grandfathered in the MISO queue as well. From that perspective, we feel great about our portfolio. I don't know that the delays really make a difference as to whether it's something we'd invest in an operating project or a, a, a developer deal. We kind of look at it on a, a case-by-case basis. Okay, that makes sense. If you're thinking about the capital that you have available relative to the commitments that you have outstanding to prior partnerships, how are you thinking about that need for the non-dilutive capital you mentioned, and how much do you think you could still do for this year? Um, I think- Sure. Yeah, just on the non- Go ahead. dilutive capital element. Obviously, as scale is built in the portfolio and the operating profile has started to ramp up, we've, you know, we've been out there talking to banks and other strategics and whatnot about other forms of capital. That's, that's an ongoing process, and it's being, I think, very well received, you know, both on traditional debt, green debt, that sort of thing. There's, I do think we have some good alternatives available to us, but we'll see how that, that plays out overall. Again, as I said many times before, what we tell Frank and the team is, you find the deals and the money will be there. That, that stands. Okay. As far as the pace of deployment, Nick, I'd just say that I expect there to be not just for Great Bay, for the whole industry, a flurry of activity in the second half of the year. The first half of the year, people were still adjusting to this higher rate environment and this higher cost of capital environment, which actually, you know, drove down valuations of some projects and things that were in the market. There was not as much activity as one might expect, because I think there was a feeling-out process between buyers and sellers and investors and to try to figure out what is the new normal. I think that's getting sorted, and I think there's going to be a, you know, a flurry of activity in renewables in the second half. Okay, makes sense. Just last for me, relative to the guidance that you gave at the start of the year, I think that was calling for $11.5 million-$13.5 million of GBR level royalty revenue. What has to happen in Q3, in particular from a production and merchant power price dynamic, to hit that guidance, and how confident are you in that range still? You tell me what the weather's going to be in August in, in Texas, and I'd, I'd be able to give you a much better indication. I think, you know, purchases have definitely picked up in, in the, in the last few weeks with, the heat they've been having down in, in Texas for the last month, actually. You know, I think we're going to have to just take a look at things, you know, heading into September, we'll have a much better idea. I mean, we're not seeing some of the crazy spikes we saw last year, but we are still seeing strong pricing, throughout ERCOT. You know, we're just looking at the same dashboard that everyone else can look at, that's on the, the ERCOT website. I don't have any insight yet because we don't know the exact operating characteristics until there's a lag till we get that information. Even though I see high pricing, I'm not necessarily certain whether our plants are operating at full capacity or not, when, even when I'm seeing that pricing. It's really hard. It's, it's a function of, you know, both price and volume to forecast ahead of time, when you have this kind of volatility in the summer months. Got it. Okay. Thanks, Frank. Thanks, Brian. I'll add, I'll add there, Nick, that it's. You know, Frank mentioned in his remarks, just the nature of pricing cycles through the year. You know, our revenues will be typically back-end weighted, with a lot of, a lot of that in these current months. Last year, I think Frank mentioned, it was 2/3 in the second half. We'll revisit it as we get a little further along here, but, you know, you just do the quick math on the first half and last year's kind of ratios, we didn't see any real reason to change anything at this point. Okay. Thank you. Thank you. Your next question comes from Rupert Merer with National Bank. Please go ahead. Hi. Yeah, good morning, everyone. You've talked about the higher activity levels. Are you able to quantify how your pipeline is evolving, and, and do you have the resources you need to, to manage activity levels? Yes, as far as quantifying, we have a, you know, Zach has done a great job organizing this. We have a very defined funnel now with initial calls, follow-ups, term sheets, and, and, you know, when things are negotiated. We have it, we follow it all the way through now, so we're doing a much better job of tracking and organizing our, you know, our significant uptick in activity. I think we're fine on the resources, on the execution right now. You know, if anything, we might want a junior analyst or something like that, but I think that by and large, we're in good shape. You know, for now, I think, you know, we'll see going forward how things evolve, but I think we're okay right now. Are you able to quantify how that funnel has grown over the last few quarters? Oh, well, let's see. It's, I don't have the numbers in front of me, but I would say it's the activity has, you know, the number of discussions we're having has more than doubled from where we were, you know, a number of months ago. Okay. Well, that's great. On the type of investment, it sounds like you're looking more at, well, advanced developers and operating assets. Is there any way to quantify perhaps how the funnel is looking relative to the two ends of the barbell? Are you now focused more on operating assets? It's a balance of both. I think, you know, the operating assets tend to be opportunistic. It tends to be something's happened with it. You know, look, if a project has a, you know, 30-year PPA, busbar PPA, they're likely not going to need our capital. It's going to be someone who is maybe, you know, has much immersion, rich in exposure or is looking to partially unwind a hedge or to acquire a project or something. They're very kind of opportunistic or case by case. You know, versus the developers, there's just a steady pipeline of those. I think, I think we'd like to do an operating project, but I can't necessarily promise that that'll be the next investment. I think, you know, it's all, it's all very, you know, case by case when you get into the operating projects. All right, great. Just finally, you do have the spot exposure. You say PPA prices are moving up. Are there any opportunities for your off-takers to sign contracts on their projects going forward? Yes. Yeah, that, there, that's a common strategy among these folks. Either they unwind the hedge, maybe at some point to then they felt that the timing and the price was right, and the deal was right to then recontract. That's always an option for these folks, and I think it's something they're probably seriously considering, I don't have any- Do they involve you in those discussions? No, we're not. Those are the way we are, we are price takers from any, from that perspective, as far as our royalty goes. You know, they're economically incentivized, I think, to do the right thing. Thank you. Yeah. Just in terms of the dynamic, though, it's interesting that, you know, this time last year, you would have had market prices averaging well above PPA prices, and that sort of shifted. That, you know, that, that, you know, overlaying those two charts, market versus contracted long term, probably tells you everything you need to know about what most developers are going to do when they, when they go live, right? It's just a function of that, that dynamic and what those spreads are, opportunity costs. It is interesting to see the PPA prices moving up more or less in line with, you know, increasing costs and timelines and whatnot, and, and how that impacts, you know, models and, and IRRs for, for these, these developers. The, the people, the end buyers are actually accepting that this project needs this price in order to go forward if I want that power. While there's much more volatility, obviously, still in the, in the, in the spot market. It's, it's, it continues to be incredibly dynamic. Thank you. Your next question comes from John Mould with TD Cowen. Please go ahead. Thanks. Morning, everybody. Maybe just following up on the, the liquidity and, you know, capital commitments. You know, I think it's been, has been noted, most of your liquidity is, is at least, you know, spoken for, not, not allocated yet. Some of it does look like it's backweighted maybe towards later in 2024. I guess just given the current, you know, funding picture, does this nudge you at all, you know, towards later stage or operating investments that are immediately cash flowing and, and maybe help support that midterm liquidity a little bit? Is the, you know, the scale of the potential opportunity that you're looking at over the midterm such that you're just really focused on the best risk-adjusted returns, you know, and securing those while, while ARR maybe advances its, its work on, on funding in parallel? Like, how are you thinking about that balance right now? I mean, all things being equal, yeah, I think we'd, we'd do an operating project today versus another developer deal, but it's not always things aren't always equal. We are, I think, a little bit more in the, in the latter camp of looking at the best risk-adjusted return. I mean, Hexagon is a developer deal, but it's a fantastic deal, and it's a great developer with a fantastic team and a fantastic pipeline and a fantastic, you know, a better deal than, you know, maybe our best deal yet, you know. I don't, I don't want to preclude other developer deals, but all things being equal, you know, we'd prefer the more immediate cash flow. The returns will be less too, just to be clear. Yep. No, I, I hear you on that. Okay, I think most of my other questions have been answered, but maybe just circling back to the interconnection challenges out there. You know, Frank, you referenced your, your view on PJM and how that had played out, you know, with the Hodson investment. I'm just wondering, are there any markets where you're hoping to get more of a pipeline because you've got a view that, you know, interconnection challenges as they're perceived today, might ease? You know, as you said in the past, more broadly, does it really come down to developers in aggregate are, are gonna make this decision in terms of where they spend, you know, their time developing projects, and your, you know, royalty investments will trend over time, you know, with the market as, as you make, you know, further agreements on the developer side? I think the way that it plays out is where there is friction, where there is uncertainty, where there are delays, is oftentimes creating the best opportunity for capital like ours, which is long-term and patient, versus a private equity fund, which may have a three-year window to try to, you know, or a 3-5 year window to think it's gonna get in and out of investment. They look at MISO right now and say, Oh my gosh, 3-5 years, you know, maybe will they still, will even be done with, with this restructuring? Nobody knows how long it's gonna take or what it's gonna look like. So they may run from that in the short term, creating opportunities. I don't know that it's it's not that we, you know, take a, a specific view about this market or that market, but I think that the market dynamics oftentimes present opportunities which we then are, hopefully, will be available to take, take advantage of. We kind of like, you know, let the market play out and then look where the best opportunities are because of, frankly, other people's inability or unwillingness to, you know, to, to take a longer term perspective on things. I really think that distinguishes us in the market. Okay, thanks. Thanks for that. Maybe just one last one on, on investments outside of the U.S. I know you've discussed this from time to time, you know, whether there's maybe opportunities in Canada and, and, you know, Bluestar has international activities it's, it's engaged in as well, as well. You know, are you seeing any opportunities that, that are interesting, outside of the U.S.? We've got some, some leads in Canada. I would, I would note that we, we, we, we haven't had that many in the past. We have some there. We're having some discussions. Bluestar has announced a deal in Australia. Now, that's our primary investment is in Nova, the U.S. subsidiary, but we do have some exposure through an equity ownership of 11.7%, I think, in Bluestar. I talk to Declan regularly and say, you know, he's aware of our capital, and if, if and when the opportunity comes, you know, for something that Bluestar is working on in Australia or another international market, I think, you know, we'll, we'll have those conversations, but nothing, nothing to speak of yet. Okay, I'll leave it there. Thank you very much for taking my questions. Yeah. Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Jonathan Lamers with Laurentian Bank. Please go ahead. Good morning. That's a couple of. Good morning. Yeah. Hi, Frank. I actually have a couple of project-specific questions here. I'm not sure if we have Ben or Frank on the line, but, you know, whoever, whoever wants to take them can. Just on the Apex El Sauz wind project, it looks like that one was delayed from a Q2 COD to later this year. Do we know what caused the delay? Could you just remind us when the revenue starts accruing and when you would expect the cash accruing to be paid out? Sure. I, it's delayed. It's in construction. It's in advanced construction. You know, as far as we know, it's close to completion, but we don't know the exact nature of what the complications are, what the delays are caused. We know that it's, you know, it's, it's well along the path to hitting COD. I think this is, I believe this is Terna's first operating project in the U.S., and I think they're gonna, you know, do everything they can to make it a successful project. They are a large player, and I think they'll want to have a long future in the U.S., so I think they'll do whatever it takes to, to get this project online. That's just, that's our best guess. It's actually, I don't know if it'll be sooner, but it was our case of just saying, let's put something out there a little further this time because it seems to keep being delayed, and we don't. You know, we'd rather hopefully under promise. We'll see. As far as when the cash comes in, once it goes operational, we, we book revenue when they receive cash. Think of it as a two, two-month lag from when they book revenue to when they actually receive revenue, then is when we would book revenue for our royalty. Then it's, it's paid, I think, within shortly thereafter. I, I don't know. I'd have to check on whether it's monthly or quarterly on the payments, but we would book revenue when they receive the cash. Right. Thanks. Is there an accrual, though, from Q2 to whenever the project is operational? No, we don't have any visibility into what the, what the final, you know, the exact, what the end of you know, project could say it's going to be 200 MW project, but it ends up being 195. You know, so that's why we have this true-up mechanism, with Apex, with, with all our developers, because it's not always exactly as designed, so we, we want to know exactly what we're getting before we give them credit. Okay, thanks for going through that. Just on Titan Solar, just because it is a fairly big piece of the annual revenue this year. It looks like the first half royalty revenue contribution was around 20% of the full year revenue you would expect from that project. Is production tracking in line with expectations, and is it just a timing of receipts issue there? Yeah. There's also some events later in the year that will result in some larger revenue chunks coming our way at that project. You know, so far it's been a good project, and I think it, you know, seems to be on track. Okay. I guess with the, with the revenue recognition being based on the timing of receipts, is it fair to say the seasonality for this would be, you know, later than the typical seasonality profile for a, for a typical solar production project? I don't know that that's the case. I think it's more that there are some, there were some escrows and things that were being held based on some work that was being done, and then that gets released, and it gets released. We get our share of that, which would be a little lumpier. That's part of why you can't just take the first half and multiply it by two and say, that's what Titan's gonna do for the rest of the year. Okay, understood. Yeah, my other questions were answered. Thank you. Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. At this time, there are no further questions. Please proceed with your closing remarks. Thank you, Eric, and thank you to everybody who joined. It was a great Q&A session, and we'll look forward to speaking with you after Q3. Thanks, everyone. Thank you. This does conclude the conference for today. You may now disconnect your lines.