Altius Renewable Royalties Corp

TSX:ARR

Earnings Call Transcript 2022-Q2

[Operator]

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to ARR's Q2 2022 Financial Results Conference Call. [Operator Instructions]

I would now like to introduce Flora Wood, Investor Relations. Please go ahead.

[Flora Wood, executive]

Thank you, Julianne. Good morning, everyone, and welcome to our Q2 2022 conference call. Our press release and filings were released yesterday after the close and are available on our website. This event is being webcast live and you'll be able to access a replay along with the presentation slides that have been added to our website.

Today, we're all together in person in the room, which is quite an achievement for our American visitors. Brian Dalton, CEO of ARR; Frank Getman, CEO of GBR, and Ben Lewis, CFO of ARR are all here together. In the Q&A, we're happy to have you direct questions to anyone.

The forward-looking statement on Slide 2 applies to everything we say in our formal remarks and during Q&A. And with that, I'll turn it over to Brian for his opening remarks.

[Brian Dalton, executive]

Thank you, Flora, and thank you, everyone, for joining. It's been an encouraging first half of the year on many fronts with continued growth of awareness and adoption of royalty financing across the renewable sector particularly evident.

Frank and the team in New Hampshire are experiencing significant interest both from project developers and from construction and operating stage players. Some of this obviously stems from reputational growth and awareness of the strong deployment pace GBR has been setting. But some can also be attributed to changes that are occurring quickly in the sector to preferred pricing mechanisms and project leverage ratios.

For the first element, our existing investee partners continue to be our best salespeople, which is resulting in strong inbound interest in our royalty financing. The fact that the GBR team has its own history of project development experience and awareness of the dynamic nature of the sector is being well appreciated by those leads as the renewable space continues its rapid evolution. Bluestar and Hodson deals announced thus far this year stand as clear evidence of this.

Team has also been very busy putting together indicative proposals that are tailored to specific needs with a continuing emphasis on becoming true project and corporate level partners. As simple as it sounds, this continues to be our competitive differentiator or secret sauce, if you will. Before increasing level of interest being experienced, GBR had been busy on the recruitment front and is in the process of adding more analytical, due diligence and deal-making depth to its roster.

To the second element, we are continuing to note an increasing shift away from below-market purchase price agreement structures and various hedging mechanisms to support project finance initiatives and the concurrent increase in appetite for more market-based price exposure.

The fact that power prices have been steadily increasing throughout the year, reversing several years of the decline trends is no doubt helping drive this shift and we are well positioned as competitive beneficiaries. Increasing market-based exposure demand is having the direct result of reducing the appetite of block return type investors and lowering project leverage ratios. This, in turn, means that more equity and other types of permanent capital are becoming needed as part of the project finance capital stack, and our royalty financing is becoming increasingly noted as a potential attractive source of it.

As a result, we continue to expect to participate in additional advanced-stage project financing and to support the refinancing of existing capital structures that are seeking to unwind fixed price exposures and hedge mechanisms in the months and quarters ahead.

I've said it before, and I'll say it again, the renewable sector is anything but a state utility like sector and is now coming out as the natural resources type industry that it really is, where all of the typical challenges and opportunities that make long-term royalty financing so appropriate. Exciting times indeed.

And with that, I'll turn it over to Frank for a more detailed update.

[Frank Getman, executive]

Thank you, Brian. First, I'd like to note that we continue to make great progress in building our company. And I wanted to share a few highlights and observations in a few important areas.

First, I'm going to chat about the continued revenue growth and positive cash flow at Great Bay. I'd like to make a few comments about the recently announced Hodson deal. I'll provide a brief update on the current state of the renewables industry in the U.S. And then finally, a few comments about the general outlook for Great Bay and our royalty financing.

On revenue growth, in our first quarter of -- our second quarter of positive cash flow at Great Bay. This is our second consecutive quarter of positive cash flow. Merchant prices were strong in Q2, which positively impacts our Cotton Plains portfolio, which is approximately 70% merchant and our Prospero 2 royalty, which is about 30% merchant.

I'd note that production at Prospero 2 was lower than forecast due to -- in Q2 due to damage from a hailstorm in early June, which has now largely been repaired. The lower production was partially offset by increased pricing during the period.

Merchant prices continued to remain strong. And we're hopeful for strong performance from our operating royalties in Q3 and for the remainder of the year.

We remain comfortable with the revenue guidance of $4.5 million to $5.5 million for 2022 from our current operating royalties. And we expect additional projects within our royalty portfolio to reach commercial operations later this year and further contribute to our revenue growth profile.

Next, a few comments about our Hodson deal. It's an exciting new $40 million developer deal with Hodson Energy. We have a 1.8 gigawatt that's AC portfolio of solar plus storage located primarily in Mid-Atlantic U.S. The portfolio is spread across 5 states and 3 regional transmission areas with the concentration in Virginia and PJM. It represents 35 projects with the largest project being around 150 megawatts and the smallest around 15 megawatts, with an average size of approximately 50 megawatts. Of our $40 million commitment, $14 million was funded upfront and the remaining $26 million is tranched in based on milestones over the next several years.

I'd like to note a few tweaks we've made to our developer royalty model with Hodson. First, Hodson's pipeline is a bit earlier stage than, say, TGEs or Apex's. Also, there's, the delays associated with the interconnection queue reform PJM and rising interest rates and overall a bit more uncertainty in the market. So our return threshold is at the higher end of the range we previously shared, which is appropriate.

Second, on the downside protection of the ledger, we negotiated for the right to receive at our option a portion of the proceeds from project sales. Any cash we elect to receive from project sales would get credited toward our investment return. So if we choose to do that, it would accelerate the timing of us achieving our return threshold and reduce the number of royalties we received. We hope to achieve our return from royalties. But we have the option to take some cash if for any reason we feel the need to. We also have the option to invest an additional $20 million in royalty financing in the future. Again, this is at our option. So if things are going well or we took some cash early from project sales, but later want to expand the program, we have the right to invest an additional $20 million.

As for incremental upside potential, we received warrants to acquire a minority stake in Hodson. We've seen with TGE and Apex where our capital was a real catalyst for growth and creation of significant company value. So hopefully, we're getting smarter along the way. And we negotiated for warrants to participate in that potential upside.

Finally, where Hodson currently has a concentration of projects in PJM, I want to share a few comments about the PJM interconnection backlog and queue reform process. In PJM, there's currently a large interconnection backlog resulting in a temporary moratorium and delays in approving interconnection applications. The good news is that PJM has announced its queue reform process in expected time lines. We factored those delays and time lines into our investment decision.

From our perspective, it's not like PJM is the only area within the U.S. that is suffering from an interconnection mob jam. Virtually every RTO in the country is overwhelmed with new renewables projects applications. In our view, and this isn't necessarily shared by everyone, PJM is ahead of the curve. The fact that they have a queue reform plan is a positive, not a negative. Yes, there are delays, but is it better to recognize those delays and be transparent about them or just keep announcing ongoing delays without a play in our time line?

PJM is a highly attractive market with a good solar resource, extremely strong demand for renewables projects and electricity demand generally and one of the best and most transparent wholesale power markets in the country. In our view, PJM is ahead of the curve, not behind it, and Hodson's projects are good projects and will eventually get built.

I'll remind everyone that if there are delays, our structure protects us from those delays. Hodson will simply owe us additional royalties.

Next, a few comments about the current state of renewables in the U.S. There remains an insatiable demand for shovel-ready renewable projects and virtually everyone and every industry seeks -- everyone seeks to reduce their carbon footprint. Continued strong demand from commercial and industrial buyers of renewable energy as everyone is trying to achieve their own ESG goals and mandates, through corporate PPAs or in some cases, direct investment in projects.

There's strong investor demand across the board. Yet, despite the strong demand for renewables, as we've talked about in the past, there are some serious headwinds the industry currently faces. Just mentioned the interconnection backlogs, which is probably the single biggest issue facing the industry. It's a 2-pronged issue, both: one the delays in processing applications; and two, the interconnection costs are coming in higher than anticipated.

There's supply chain constraints, physically getting access to solar panels and batteries, inflation, costs for everything are going up, panels, labor, balance of plant, equipment. As a result, many PPAs that had been previously signed are no longer economic and developers and sponsors are seeking to renegotiate in the need for higher prices to make those projects economic. I recently heard a number as high as 40% of all PPAs are in renegotiation discussions.

Buyers are generally agreeing to higher prices, but not in all cases. Industry-wide, there are fewer projects, especially solar projects getting into construction in '22 than would have been projected, say, 12 months ago due to supply chain constraints and interconnection delays. Those projects will still get built, but the time lines have been pushed out.

Finally, merchant prices, as Brian mentioned, they continue to adjust higher and the movement towards leaving more of the offtake to market prices continues. Fixed-price PPAs are a great thing when power prices are falling; in a rising price environment, not so much.

A few comments about the Inflation Reduction Act of '22, which is pending. If it passes, it's great news for the industry. It extends the PTC and the ITC for projects that go into construction through 2025. It includes some new technologies in the incentives, including battery storage. It provides domestic content incentives to hopefully stimulate U.S. production of equipment, which is designed to help address some of the supply chain issues, but that will take time. It provides the option for direct sale of tax credits. This sounds exciting as the current structure of monetizing tax incentives is quite complex. But it remains to be seen how much of this -- how much of this will be used as it doesn't include the tax benefits from depreciation or tax equity and the current model does.

And finally, a few comments, about the general outlook for Great Bay, and the royalty financing adoption and renewables. First, I want to thank our small but incredible team at Great Bay that has accomplished so much so quickly. Ray Faust, Josh Levine, Bill Rodgers, they're just doing an amazing job. I also want to recognize and thank Brian and the team at ARR and Apollo for their continued support. It's an exciting time and we're doing exciting and important work.

In many ways, the mounting pressures in the industry from supply chain disruptions and interconnection delays and the movement towards merchant exposure creates opportunity for flexible, innovative capital like ours. We see significant opportunities for our royalty financing, both in earlier-stage developer deals like our Bluestar and Hodson deals as well as for operating stage royalties like our Longroad and Northleaf deals.

The market seems to be moving in our direction. The demand for permanent flexible and non-dilutive partner-like capital is increasing. As a result, we're moving aggressively to add some folks to our team to be prepared to meet what we believe, is a tremendous market opportunity for Great Bay's royalty financing for the foreseeable future.

That's it for my update. I'll turn it back to you, Brian.

[Brian Dalton, executive]

Thank you, Frank. With that, I guess we'll open it up to questions.

[Operator]

[Operator Instructions] Our first question comes from David Quezada from Raymond James.

[David Quezada, analyst]

Maybe I'll just start with maybe a follow-up question on your Bluestar investment from earlier this year. I'm just curious if there's any color you can provide on activities that have been undertaken there to start developing that pipeline of projects. Just any update on that?

[Frank Getman, executive]

Well, we recently had our first Board meeting and we have a board seat and I participated on that and Declan's making good progress. He's still building out his team in many respects. And I think he's seen better value -- remember, this is a -- it's a global platform. And I think that in the U.S., they're focused on greenfield development, which is going to -- it will take some time to build out that pipeline. But that's probably the highest and best value that they see right now. In the U.S., the things are just still quite expensive. You're going to go out and try to acquire things. But I think they are finding opportunities in other areas of the world. So it's -- we're getting an interesting global perspective, which we didn't have prior to that investment.

So nothing specific, new to report other than he's making great progress on building out his team, and it's probably greenfield in the U.S. and then potentially some higher value acquisitions in other areas of the world.

[David Quezada, analyst]

And then maybe a broader question, just when you're looking at your business today and thinking about the balance of opportunities among operational development stage and even earlier stage, I guess, projects. Just curious maybe if you can qualify your view of how those opportunities break down today.

[Frank Getman, executive]

It's all the above. I think -- it really is truly -- that barbell is an accurate depiction. Like if you're a developer with a well-developed pipeline, I think the fact that Hodson is in PJM and there's these questions around the PJM interconnection reform and the like, that helped create the opportunity. Otherwise, I'm not even sure that it would have been there because they have a 1.8 gigawatt pipeline. But some of that uncertainty helps us. If something is pretty laid out, if the company has laid out development pipeline, there are other sources of capital. I don't know if you saw recently, the Longroad deal that was announced where they brought in outside new equity capital at an extremely high valuation.

So I think really focused on the earlier stage developers. And we're seeing -- it's hard to quantify. I don't know if you do it by megawatts or a number, just strong interest. And I think folks, there has been delays. And people, delays means money. Time is money. And so I think there's some pressures building there. And I think that's going to create opportunities for us. And then on the other side, whether it's unwinding hedges or new projects having more merchant exposure, as Brian indicated in his opening remarks, that opportunity is really starting to blow up. And I think that we just need to do -- continue to do a good job and increase the visibility of us as an option out there for these folks.

We live in our little world and we think we're -- we know all about our royalty financing and how it works. We're recognizing that this market is so massive. And that's in part why we're moving to bring on new folks so that we can -- I call it creating this flywheel, where we're finding new opportunities and then processing them and closing them versus just with limited resources. We've been doing things a little bit in a batch processing way. We're trying to get to that point where we're just an ongoing continuous flywheel of deals and that's where we're headed.

[David Quezada, analyst]

And then maybe just one last one for me. Frank, you mentioned a little bit of commentary about the Inflation Reduction Act. I'm just curious if the potential incentives for, I guess, more emerging technologies like standalone storage and maybe even carbon capture and hydrogen, could an acceleration in those industries if this bill is passed, prompt you to consider expanding your mandate to some of those opportunities?

[Frank Getman, executive]

Yes, 100%. Well -- all those are in our mandate. It's just that some of them -- as I've said previously, we're not out like a VC firm trying to choose the winning technology. We're really more when it reaches an economic stage and it's about deployment. Battery storage is there. But there's, 2 things. One has been a lack of being access to get batteries. And 2, the revenue model is uncertain. So with the inclusion of these tax incentives, you have a much more certain source of value and revenue, I think that it could definitely accelerate.

We've talked to a number of and are trying to find the right partner, try to find the right team to -- we're getting access to battery storage through Hodson and actually through TGE. A lot of their solar projects have battery storage included. But we are looking at some standalone battery storage developers, which I think would probably be an interesting opportunity for us.

[Brian Dalton, executive]

Maybe I'll just add a brief note on the hydrogen side. Obviously, it's much less known just in terms of how the economics are going to play out. But we do have an interesting standpoint, probably with Head-office in St. John's. We note that there's been some recent activity here. You've got Brookfield's and Peyton's of the world, all proposing big projects that have hydrogen and hydrogen exports at their route. So it seems like we might be living in the middle of what could be the proving ground here if this is going to work or not. And beyond that, there's also interest being shown from direct potential industrial customers in the iron ore space, in particular around those kinds of opportunities. So it's a little early, I think, on hydrogen. But some pretty smart folks seem to be lining up to try to make it work and of course, to the extent that there's a good commercial argument or case to be made. I think backing the renewable energy components of these projects would be within our long-term value.

[Operator]

Our next question comes from Rupert Merer from National Bank Financial.

[Rupert Merer, analyst]

So Brian or Frank, you talked about the increasing attractiveness of merchant exposure. How much would you be willing to take in the portfolio? Is there a right number? Would you look for a balance of contracted assets and merchant exposure?

[Frank Getman, executive]

I think we're kind of letting the market decide on that is kind of moving in that direction. Right now, most projects, new projects, the largest we've seen is actually the largest I've seen has been Prospero 2, the 30% merchant out of the box. So it's not as though new projects are 100% merchant by any means. But some -- there are cases where people are looking at hedges and things that maybe have -- I think the market is continuing to get smarter about potential risks. As Brian says, these things aren't bonds. And they're starting to recognize that some of these hedges they put in place, they thought to protect them, maybe don't provide the protection that they thought. So there's a desire to unwind some or part of those.

I don't -- and the other thing I think about, Rupert, is diversification of regions in the country. It's very different. Merchant is a merchant is a merchant. What I mean by that is we have a portfolio of merchant exposure in ERCOT, in PJM, in California, those are completely different markets. They are not even really that correlated, maybe a little bit for natural gas, but it's also heavily weather-dependent. It's also -- very local interconnection and -- excuse me, transmission issues. So I think you get a nice diversification and we're not anywhere near that. But we even if you had 100% merchant across the board throughout the U.S., you still would have a very attractive diversified portfolio. But I don't think we're headed towards fully merchant anytime soon.

[Brian Dalton, executive]

Frank and I have some wonderful debates on this. And in fact, even in the weekly working group when the whole team in Apollo was in place. So I tend to fall on the line of hedge nothing, no PPAs, all market, let's go, let's go, let's go, I'd say 100%. But then I care these very rational arguments back about the stability of a component of your production and all that. So -- but Frank is right. We're really just following along with the industry as it shifts. And there's no doubt in my mind that there is a growing appetite for at least a significant component of market-based exposure. And I also continue to believe that while being is not dissimilar to the way the gold industry transformed until 15 or 20 years ago away from a hedge-driven model to a more market-driven model. And I ultimately think it's the investors that will drive this.

So I think we're at the very leading edge of that. And as royalty financers with only top line exposure, not that bottom line exposure, we're probably the most suitable form of capital in the market to take on that kind of risk or opportunity, depending on how you look at it as the operators and ultimately, their investors drive the sector in that direction. So I think it's a big opportunity for us. But really, it's driven by the demand of the projects and the operators and their investors.

[Frank Getman, executive]

I would just add that -- tell me what the price of the PPA is to, and what the current wholesale price is, and I'll tell you whether we want that PPA and they have that exposure. And what I mean by that is what was happening is they were signing $17 and $20 megawatt hour PPAs in a market where the wholesale price was $30 and then people have finally realized, well, that's dumb, prices aren't going to continue to fall to make those things economic. But if you tell me we're signing a $50 PPA in a market where it's $30, well, which I think we could be headed in that direction because of the demand, the Amazons and the Google of the world, they kind of had the leverage. I think it's shifting back and they're having to pay higher prices. So it's also a function of what is the prices of the PPAs that are being signed to see how attractive those are.

[Rupert Merer, analyst]

And the assets on which you have the royalties, are any of those assets exposed to hedge contracts currently? Or are they typically just straight PPAs?

[Frank Getman, executive]

Yes, there is a hedge in, it's -- PPA - no, they're all merchant. There's a PPA for the solar with the U.S. government for the Cotton Plains portfolio. There's a PPA for part of that portfolio and then Prospero 2 is 70% hedged. It's a PPA. But it has a -- there is some basis risk in that. So in some ways, it looks like a hedge. And then the others are merchant. The rest of the Cotton Plains and the 30% at Longroad are merchant.

[Rupert Merer, analyst]

And how does the royalty agreement account for the hedge? Are you typically taking that basis risk as well? Or are you on sort of the gross merchant revenue, a project revenue than the net revenue?

[Frank Getman, executive]

We take the same risk that the sponsor takes, whatever it is. Like in some cases, they're able to negotiate where they don't have that basis risk. In some cases, they negotiate where the offtaker has -- just part of the negotiation, they end up taking some of that basis risk. It's really -- we want to make sure we -- because you can get into a situation, you don't want to be -- have a dis-alignment between you and the sponsor where one situation benefits you and not them and vice versa. So we take whatever the net revenue that they receive is what we -- our royalty is based off of.

[Rupert Merer, analyst]

Okay. But you've got a pretty limited exposure to hedges for that?

[Brian Dalton, executive]

Yes. Well, and I think the sponsors and operators are getting smarter around these risks and maybe they're starting to understand them better and pushing more of those back on to the offtake party.

[Frank Getman, executive]

I guess one important point, Rupert, is that we can never go negative.

[Operator]

Our next question comes from John Mould from TD Securities.

[John Mould, analyst]

Maybe just starting with your revenue guidance, Texas has obviously had really strong pricing tailwinds this year and the Q2 report does mention detail of Prospero 2 solar, congestion challenges in some other locations. And I'm just wondering what you've seen operationally in the first 6 months since maybe kept you from making any changes to your revenue forecast relative to what you originally anticipated when you updated that number in March when pricing was a lot lower, but you didn't have the same insights on the operational elements of your portfolio?

[Frank Getman, executive]

I guess, first, I know it's a pretty big band, so there's some room within that band to be at the upper side or -- so you could have some fairly significant movement still be within the band. But I think the bigger issue is lag is that there has been a very strong prices' in ERCOT this summer. We have not -- there's a lag between the reports that we get and when they -- the project generates revenue. We don't recognize that revenue until they get paid.

So we're just starting now to see there's -- basically 1.5 or 2 month lag between when they generate and seeing what that generation was. Like, it should be strong. But we want to make sure there weren't any congestion issues or anything that prevented us from maybe getting as much production as we would have hoped. The plants were running strong for the whole summer, then it should be strong. But we don't have that visibility yet. And I think that's what's preventing us from trying to tighten up or look at that forecast for the rest of the year. But that -- so I would expect, as the year goes on, we're obviously going to know those numbers and we'll be able to provide clear guidance.

[Brian Dalton, executive]

I guess part of the reason for the wide band as well as you got to remember that most of these assets are brand new. So they're still going through operational start-up issues and all kinds of things. So again, as Frank says, as we get into third and fourth quarter, we'll have much better visibility. But coming at this moment we're pretty early start kind of thing for most projects. And these market price shifts are also very new. So exciting, but uncertain.

[John Mould, analyst]

And then maybe that's a good pivot just to talking about Jayhawk a little bit. You've hit that 6-month post-COD period. But obviously, in your report, you note congestion challenges that have occurred there. So this is kind of the first test of the structure you've got in place there. And I appreciate maybe you don't want to get into too many details on your conversations with Apex there. But can you provide us just some insight on how that potentially plays out? Does it really just come down to give and take and reaching what's some reasonable assumptions around how congestion is going to evolve over time there and then what it means for project revenues?

[Frank Getman, executive]

Yes. I think that's largely what it is. We obviously can't talk specifics. But the process is underway and the true-up in valuation. Obviously, we're looking at the operating history from the start to now. But even since then, things -- they're trying to figure out how do we optimize and change and fix any transmission constraints that may have been unexpected and looking at how they can address those with upgrades and fixes to the system and they're doing that. And this is -- at the end of the day, this is a very long term -- it's a brand-new plant. This is a very long-term asset. So these issues are going to get resolved. It's just a question of how much they impact the value near term and we'll figure that out.

[John Mould, analyst]

And then maybe just one last question on -- maybe for Brian on funding. You've clearly made a lot of progress on royalty agreements even just in the past year. I'm just wondering how you're thinking about capital needs at the ARR level and funding the growth aspirations you got for the business, just given the deal flow you're seeing and the timing of outflows to your developer partners that are expected over the next couple of years?

[Brian Dalton, executive]

Yes. Nothing really to update from, I guess, past commentary there. Things have shifted a little bit from where we would have been at the time of the IPO, obviously, with the cash flow build up sort of being ahead of schedule. So having a few more options and arrows in the quiver as far as continuing capital raising needs go. Obviously, broader equity markets are a little tough right now. So those don't look all that attractive to us. But again, that's offset sometimes by just the strength of the deal flow and the types of return debt we're seeing. There's capital there now for what we immediately need. And obviously, there's the continuing backing and support of Minerals and its balance sheet and Apollo is there. So I'm not concerned at this point that capital availability will be -- or is the constraint. But maybe next quarter, depending on how deployment goes over the current one, we can probably give you a little more color on how we see that playing out and whether or not leverage starts to come into the story or how we go about it. But we've got lots of options.

[Operator]

[Operator Instructions] Our next question comes from Nick Boychuk from Cormark Securities.

[Nicholas Boychuk, analyst]

Brian, just coming back to a comment you made earlier. I wondering if you can give us a little bit of extra color around how you were introduced or at least connected to Hodson and Bluestar? Trying to kind of get a sense of the source and the depth of your deal pipeline and how these new relationships performing.

[Brian Dalton, executive]

I think it's probably better for Frank.

[Frank Getman, executive]

Yes. I think he heard -- Gill, the CEO, heard me speak on I think it was maybe the Level 10 podcast or webinar and he reached out and said, wow, that sounds way better than -- they had an existing structure, which is one of these other developer debt type deals. And they were feeling constrained, and they reached out. And we explored it and it was probably 6-plus months ago now, so it takes some time. But he didn't even know we -- our type of financing was available. So there was basically from that webinar and the like, they reached out and moved forward and continued the discussions and they saw the benefits of it. And part of our capital was used to recapitalize and take out the other structure they had in place, so that there's nothing ahead of us.

[Nicholas Boychuk, analyst]

And so to clarify, if it wasn't for you guys, you would still have a traditional debt package, which is restricted in developing that portfolio. And so the only option for him otherwise was you guys. Are you still not seeing any change in competition, no alternatives to otherwise undercut what you're doing?

[Frank Getman, executive]

Yes, the developer debt -- and there's several folks doing that kind of the developer debt with equity warrants type structures. He could have done pure equity too. But I think it would have been expensive. And I think he was looking for something that was less dilutive. And so, yes, we haven't seen another royalty financing. We haven't come up against one. I've seen a few. I think I mentioned in the past, I've seen some decks and things about people raising money to do it. But I think maybe what they're finding is the devils in the details, I don't know. But we haven't seen it yet.

[Nicholas Boychuk, analyst]

And then just going back to John's question there about capital. I'm wondering if you can clarify the schedule of commitments and obligations to the partners that you bought over the next kind of 5 years as you show it. Are these all contractually obligated to be spent? Or do you guys kind of have time lines based on the maiden milestone? So using Hodson as an example, do they have to hit certain milestones where you release those additional funds? Or should we assume that those will be sent out on that time line?

[Frank Getman, executive]

No, they have to hit milestones. So if there's, delays in them hitting the milestones, then there's delays in the timing. Or it could be sooner, they accelerate and hit the milestone sooner than we would probably obligated to make those commitments if they hit and achieve the milestones.

[Brian Dalton, executive]

Now there is an element of like in case of the Hodson deal, there is an optional $20 million. So you don't -- you want to differentiate between why we're contracted to provide in the case of hitting actual milestones and optional amounts that might exist at the tail.

[Flora Wood, executive]

Just, I guess, for Ben, for the accounting, do we re-estimate that on a periodic basis? Like is it every year you re-estimate?

[Benjamin Lewis, executive]

Yes, it's in our note in the financials. But we figured we put it in a table just to make it clear, so we could do the math. If we had to fund everything, we still have ample cash. That's the bottom line to do more deals.

[Operator]

We have no further questions in queue. I'd like to turn the call back over to Flora Wood for closing remarks.

[Flora Wood, executive]

Thanks, Julianne, and thanks, everybody, for joining the call and the questions and we'll look forward to speaking to you again in November for Q3.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.