Polaris Renewable Energy Inc.

Good day, ladies and gentlemen. My name is Tasha, and I'll be your operator today. At this time, I would like to welcome everyone to the Polaris Infrastructure, Inc. Third Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At that time, in order to ask a question, you can press star and the number one on your telephone keypad. To withdraw your question, press the pound key. Thank you. I'd now like to turn the call over to your host, Mr. Anton Jelic, CFO. Please go ahead.

Thanks, Tasha. Good morning, everyone, and welcome. In addition to the press releases issued earlier today, you can find our financial statements and MD&A on both CDAR and shortly on our website at polarisinfrastructure.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Infrastructure Inc. and its subsidiaries. These statements are current expectation and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information reform for the year end of December 31, 2019. I'm joined this morning, as always, by Mark Moynihan, Chief Executive Officer of Polaris. Before I begin my discussion, I would just like to share Polaris' continuing hope that all of you are managing through these unique circumstances and trust you and your families are staying well during these challenging times. At this time, I'll walk through our 2020 third quarter financial highlights and comment on our just announced quarterly dividend. Power generation. Consolidated power generation for the three months ended September 30th, 2020 and 2019 were 142,194 megawatt hours and 142,435 megawatt hours respectively. Consolidated power generation for the nine months ending September 30th, 2020 and 2019 were 490,143 megawatt hours and 426,174 megawatt hours, again, respectively. These production figures are net of all plant downtime, both planned and unplanned. With respect specifically to Nicaragua, we saw the total megawatt hours of 118,857 in the third quarter of 2020. versus $133,025 in the same period last year. In Peru, total megawatt hours for three months ending September 30, 2020 were $23,337 versus $9,410 in the same three-month period in 2019. Our facility at El Carmen restarted operations on August 4. Revenue. Revenue. We reported revenue of $17.1 million for the three months ending September 30th, 2020, compared to $17.6 million in the same period last year. Revenue quarter over quarter in 2020 is down slightly by $1.8 million, driven mostly by lack of production in Del Carmen for much of the quarter, lower than anticipated hydrology generally in Peru this year, and downtime associated with our annual maintenance at San Jacinto, Nicaragua. On a year-over-year consolidated basis, we realized 2.7 million additional revenue driven by an additional 12.2 megawatt net production in Peru. Net earnings. We recognize net earnings attributable to us of 1.3 million for the three months ended September 30th, 2020, compared to net earnings of 2.8 million for the same period last year. For the nine months ending September 30th, 2020, we realized net earnings of 4.7 million compared to a $0.8 million loss in the same period in 2019. Adjusted EBITDA. On a quarter-over-quarter basis, adjusted EBITDA decreased to $13 million from $14.3 million, principally as a result of a decrease. On a year-over-year basis, the company has realized $45.1 million to September 30, 2020, compared to $44.6 million recognized for the same nine months in 2019. cash generation. Net cash from operating activities for the nine months ended September 30th, 2020 of 30.1 million decreased by 1.5 million from the same period last year, mainly due to a 1.1 million increase in our accounts receivable, coupled with a $2 million increase in prepaid expenses, partly offset by a 1.5 million decrease in our accounts payable balance compared to 2019. Net cash used for investing activities decreased for the nine months ending September 2020 by $26.9 million to $2.2 million from $29.2 million in the same period last year, principally due to the decrease in spending related to the construction of the Generación Andina facilities, El Carmen and Ocho de Agosto, for which construction was completed in late December 2019. Net cash used in financing activities for the nine months ending September 2020 of 1.9 million increased by 1.6 million compared to 0.3 million net cash used in financing activities last year. As a result of 6.5 million more repayment of debt during the nine months ending September 2020, partly offset by 4.9 million higher proceeds from debt issuance compared to the proceeds received from the debenture's in the same period last year. Dividend. Finally, I'd like to highlight that we do intend on paying our 19th consecutive quarterly dividend on November 30th of 15 cents per share to shareholders record on November 20th. This continues the board and management's commitment to regular positive distributions to shareholders coupled with an ongoing emphasis on attractively valued accretive acquisitions. With that, I'll turn the call over to Mark, who will elaborate on current business matters as well as on our quarter-end results. Thank you.

Thanks, Anton. So I'll make some comments here. Obviously, the maintenance in Nicaragua for Q3, which was planned, but that would have a negative impact or did on the quarter. What I would suggest, though, just a general comment about the overall production levels At San Jacinto, probably a better metric is quarter to date. We're at around 59.3 versus we reported 59.9 in Q4 of 2019. So that is a small drop, but still quite stable and well within the range of declines that we would expect to see. And very importantly, it's quite close to the numerical model that we do have posted on CDAR, which was done by Jacobs, where they do several scenarios, one of which is just a no more capital reinvestment in the plant. What do the declines look like? And theirs is actually quite low. The good thing is at these levels, we're tracking quite closely to that. So I think that's very important to note. I think the other thing is that with Q3, we had two things. We did expect that it is the dry season in Peru, so we knew the production was going to be low, but we also got El Carmen back into operation on August 4th, so it was not basically producing for July and a few days in August, so it was out of that. But important to note is that this quarter, so all three facilities are in operation. We are coming into the rainy season. So I think that we are coming into a few quarters here where in Peru we have the plants running. We should be in better sort of hydrology conditions and no plant maintenance or downtime at San Jacinto and Nicaragua as well. In terms of the EBITDA, what I'll comment is for the quarter, the major maintenance has an impact of about $1.5 to $1.6 million negative. When you combine that with what we had to do for the El Carmen repair costs is that we expensed about $430,000 of repair costs. So that's actually an expense item, although we have actually already recuperated some of that from insurance proceeds, and we do expect to recover the remaining part. So the full reimbursement on those, but when we do receive the remaining payments, which we think that there's about $600,000 remaining, that would not come in to call it the revenue or above the EBITDA line. And then the other is just that it's hard to give an exact number, but I would say the range of the reduction in call it EBITDA because of the dry season is sort of 1.2 to 1.7 negative. So those are all the call it the negatives, call it the drags on EBITDA for Q3. And then the other items on the positive, which I'd say is on the cash and cash flow position. As you can see, our cash position is quite strong. We had, again, because of the LIBOR, it was very low. Q3 this year versus Q3 last year, it was about a $600,000 interest rate savings. A very small portion of that is just because there's a lower principal balance on the senior loans in Nicaragua, but the bulk of that is because of pure rate savings. So that's a very good savings on the interest rate there, the interest cost. The other thing is that we We had Fuji technicians monitoring the maintenance remotely this year, so that is not a huge savings, but it was around $250,000 to $300,000. Again, that's a CapEx line, so that rather than come into our operating cost, it's below the line, but it is a bump to our cash flow of about $300,000 for the quarter. And as well as the accounts receivable days have come down or came down a bit in the quarter. So that helped the cash position as well. So that's in the quarter, cash improvements. And then looking forward, just want to note that, as I said, I did say before, we do expect to get the insurance proceeds of around $600,000 in the current quarter. And then a longer term, but it's in other assets, but it's basically a value-added tax recoverable, and that asset's around $5 million that we basically generated while we put the plants into operation, but you don't get it back. You only get it back through your invoices. So we expect to get that back over three years, but that's a number that won't come into the EBITDA line, but it will be a material cash... addition call it to the to the cash flow uh in Peru in the next that's likely to last over three years so about a million and a half per year so um those are what I call sort of the operational financial um comments I would make um the uh the Panama the situation is we continue to get ready to mobilize at this point in time, given the COVID situation and given just the risks, we realistically think that Q2 2021 is a more realistic time to start the project. So that is effectively a one quarter delay from what we were expecting three, six months ago. It's not material, but we do think it's prudent to to aim for that as opposed to trying to mobilize and launch in January, just given the risks of a potential shutdown in the construction sector again, which has happened. So I would say that there's a small delay there, but what we do, we are hoping to start that in Q2 of next year. Well, I would say at a very high level, you know, Panama is something we are very much looking forward to, to, to getting going. I would, if I can see as a baseball analogy, it's, it's a, it's a single, it's a, it's a good diversification strategy continuation, but we do we do want to do more. We are looking at more and given the cash position that we have and, and the, the fact that we continue to pay down debt, um, you know, we do have a low overall net debt position, uh, or low net debt to EBITDA as a company. So I think the next three to six months is going to be looking at, uh, adding some of these other opportunities that, um, that we are looking at that would be either more things similar to Panama, but also hopefully some things that are larger than that, um, to, uh, to accelerate the diversification. We do know that, or we do want to diversify. We think the public market wants to see more of that. And there is a lot of interest in the sector. It continues to grow. We think that, you know, what's likely keeping us back a little bit is just the fact that we do need to diversify more. The good news is with that balance sheet and what we do think are refinancing opportunities combined with some of the other opportunities in our pipeline. We very much think we're going to be able to execute on that. Realistically, first thing, Q1 of next year, I think that a lot of the opportunities that we've been looking at have had an ability to put things on pause due to COVID. But I think that that's going to stop in Q1 of next year. And people will We'll come back to the table, and I think we're going to be able to get some other things done other than Panama in Q1 of next year. So with that, I'll open up the questions.