Polaris Renewable Energy Inc.

Ladies and gentlemen, thank you for standing by and welcome to Polaris Infrastructure Inc's fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Anton Jelic, CFO, Thank you. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to the 2020 fourth quarter earnings call for Polaris Infrastructure, Inc. In addition to the press releases issued earlier this morning, you can find our financial statements, our 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 everyone that the 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 expectations and as such are subject to a variety of risks and uncertainties that could cause results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31st, 2020. I'm joined this morning as always by Mark Murnaghan, Chief Executive Officer of Polaris. At this time, I'll walk through our 2020 fourth quarter financial highlights. Starting off with power generation, consolidated power generation for the three months ending December 31st, 2020 and 2019 were 171,000 933 megawatt hours and 144,761 megawatt hours, respectively. Consolidated power generation for the 12 months ending December 31st, 2020 and 2019 were 662,893 megawatt hours compared to 570,934 megawatt hours, respectively. These production figures are net of all plant downtime, both planned and unplanned. With respect to Nicaragua, we saw total megawatt hours of 127,823 in the fourth quarter of 2020 versus 132,182 in the same period last year. In Peru, total megawatt hours for three months ending December 31st, 2020 were 44,110 versus 12,579 in the same three-month period in 2019. Moving on to revenue, we reported revenue of 18.5 million for three months ending December 31st, 2020, compared to 17.8 million in the same period last year. Revenue quarter-over-quarter in 2020 is up by 4% due to higher production in Peru, partly offset by some lower production at San Jacinto and Nicaragua. On a year-over-year consolidated basis, we realized 5% more revenue to the tune of to 74.7 million compared to 71.3 million in the same period in 2019. Net earnings. We recognize net earnings attributable to us of 24.2 million for the three months ending December 31st, 2020, compared to net earnings of 13.6 million for the same period in 2019. This $10.6 million increase was the net result of a $24.5 million impairment reversal at San Jacinto, offset by an increase in other direct costs and general and administrative expenses in the three months ending December 31st, 2020. For the 12 months ending December 31st, 2020, we realized net earnings of $28.8 million compared to 14.5 loss in the same period in 2019. The $14.3 million increase in earnings was driven primarily by the impairment reversal in the current period compared to an impairment recorded in 2019, coupled with the increase in revenue, and partly offset by the increase in direct costs, G&A, and other losses and gains are recognized in the period. Adjusted EBITDA. On a quarter-over-quarter basis, adjusted EBITDA decreased to 13.6 million from 14.1, principally as a result of higher direct costs and expenses partly offset by higher revenue reported in 2020. On a year over year basis, the company has realized 58.7 million to December 31st, 2020 versus the same 58.7 million recognized over the comparative 12 months in 2019. Moving on to cash generation. Net cash from operating activities for the 12 months ended December 31st, 2020 at 40.3 million decreased by 6.8 million from the same period in 2019, mainly due to a $4 million increase in net change in non-cash working capital and higher costs, partly offset by lower interest paid and higher revenue compared to the same period last year. Net cash used in investing activities decreased for the period ending December 2020 by $42.3 million to $2.9 million from $45.2 million in the same period of 2019, largely due to the decrease in spending related to construction in Peru, the construction of which was completed in late December 2019, of course. Net cash used in financing activities for the period ended December 31, 2020, of $10 million, increased by $2.9 million compared to $7.1 million net cash used in finance activities reported in the same period last year. The increase was driven by an $8.8 million higher repayment of debt during the 12 months ending 2020, partly offset by 5.8 million higher proceeds from debt issuance compared to the proceeds received from the debentures in the same period in 2019. ESG. The company is very pleased also to announce it has issued its inaugural 2020 annual ESG report. which details Polaris' ongoing emphasis on environmental, social, and governance priorities as part of its core business principles. It's now available on our corporate website for review. Finally, dividend. I would like to highlight that we did pay our 20th consecutive quarterly dividend of February 26 to $15 per share to shareholders of record on February 19. 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 and year end results. Thank you.

Yeah, thanks, Anton. And I'll jump probably more into subsequent events and sort of looking forward, and then we'll open up to questions. Obviously, everybody knows that we did raise some equity capital. We closed the financing a few weeks ago, 51 Canadian, just shy of 40 US. One other thing that's quite important to note is that since year end, and even it would have started maybe a little bit in December, but the receivables in Nicaragua have come down to a nice low level, so we've generated some extra cash there, somewhere sort of in the $5 to $10 million. I mean, those two items and with the strong cash balance that we had going, ending the year, you know, we're now sitting with a cash balance over $100 million U.S., which sets us up quite nicely for all of the initiatives that we want to work on. First being the Binary Unit, which we have communicated, and that was a key part of the renegotiated contract last year, which was the inclusion of the Binary Unit. And just to remind people, we spent a lot of time in 2017 with the design and actually ran a tender process. We decided not to go ahead with it for contracting reasons. That has changed, so we are dusting off the designs. They're being finalized by our owner's engineer that we have already contracted. We will be finalizing those designs very shortly and then moving to the full tender process with the expectation that we will award the contract to the equipment supplier middle of the year, so we call it July would be the target for that. And from there, it's call it a 12 to 16 month construction project from that point in time. So we're moving ahead with that. And I think we'll be able to give final sort of configurations in terms of exact sizing. We think seven megawatts at the low end is doable and upwards of call it 10 megawatts net is what we're targeting. We can get final configurations. visibility on that. And I think once we contract and give that visibility, I think that that's unlike a drilling campaign, that's a number that is very bankable. So we are full steam ahead on that. CUSPA, which is the hydro project in Panama. We had been delayed because of the COVID situation there last year, but it is much better as we speak in terms of the cases. but also the construction sector has been open for quite some time now. So everything's pointing in the right direction there. There was a site visit a week and a half ago with our owner's engineer. There are some small design changes that we want to make. They're not major whatsoever. So once we finalize that, we can move to finalizing the terms with the contractors, and we're aiming – for a June start and mobilization on that project. So those two projects, the Binary Inn and Chuspa, were well in hand from a capital perspective. Before we did the financing, we would not have done the financing if we didn't think that there were other opportunities to grow the business and diversify the business. We think that's the case. had done a lot of work, call it pre-COVID on certain opportunities, but COVID put a lot of things on the shelf. But we have seen that that has changed and things are back in play in earnest as of the beginning of this year. So we felt it prudent to put some more capital on the table to be able to take advantage of those opportunities. And we are working on several. There's no guarantee that we can close those, but we are optimistic that we, given the amount of things we're looking at, that we should be able to do something. And now, so we have the capital to do the binary unit, to do CHUSPA, to do either one, call it two sort of smallish acquisitions or one bigger acquisition that would be material for us. So we have the balance sheet to do that. And As I said, with the improvement in payables in Nicaragua, that even adds a little bit more there. So we've got the cash to do it. And one thing we haven't done yet is deal with the debt in Nicaragua, which is another big focus for this year for us. And that is we are in the middle of talks with our current lenders about restructuring the debt given the extra term on the loan. And that would provide really just the reprofiling, I would say, which is that we are paying down a very high percentage of the loan balance this year, next year, the following year, given the fact that the prior contract was expiring. So our principal payments this year are around 18 or 19, 20 next year. But that was based on the old contract, which had a 2029 expiry. So now that we have a 2039 expiry, we think at a minimum, we can flatten that out, reduce the principal payments and try to match it more. And then from there, we have started conversations with other groups about doing a much broader refinancing. And so those conversations are happening. It is a key focus for us this year. I would suggest that it's called restructuring first, and then we would look to do something potentially bigger, given, again, that the debt to EBITDA at even the revised price is still quite low. And depending on how the – call it the acquisition – situation looks in the next three to six months, that would tell us whether we're going to the market with just a revised Nicaragua-San Jacinto refinancing, which there is interest in, or are we looking at doing something potentially broader that includes, let's say, Chuspa and maybe one other project or two other projects that we've acquired. That's what we're debating. We definitely think that that opportunity exists. So, but first it's restructure and then I think we'll look to do a refi later. One other thing worth noting is the carbon credits. That is a focus for us to execute something there this year. We do already sell carbon credits at the small five megawatt facility in Peru, but we had to last year revalidate the bigger plant in Nicaragua, which is done, and we are now in the process of finalizing the verification and call it listing process. That will take, call it four to six months to finalize all that because we're actually going back and verifying credits even from 2012 up to present day. But we think we'll be ready to have a sale of those, call it Q4 this year, which we think would be an interesting milestone for the company because that's a reasonable amount of credits there. And at the same time, the group that verified and and validated the five megawatt plant in Peru for carbon credits is also, we started mid to late last year, the process of doing the Ultra de Agosto and El Carmen facilities in Panama, or sorry, in Peru, which would be under the exact same system, under the United Nations carbon credit system. So they wouldn't be ready until likely the end of this year, but we think that they could be ready for sale next year. So we are pushing forward to, one, get smarter, do what we would think would be a reasonable volume sale in the fourth quarter of this year on the carbon side, and also enter next year with two other facilities that would be able to sell carbon credits. So, you know, we think that's – a unique asset for us and it's something that we want to absolutely move forward with this year and get visibility on what the opportunities are there and what kind of potential upside there is longer term on that. So that's a big focus for us as well. And then my only other comment just in terms of backward looking, but the dividend payout for last year, if you look at sort of the cash flow from operations, Before principal, it was 20% last year. And I bring that number up just because that's the easiest way to compare us with any of the other public comps because it's hard to get the principal repayments on the debt. But if you look at us on a post-principal, it would have been just over 40%, and that includes sort of all principal payments. and interest on the convert. And I would just suggest that those principal payments in our mind are now high given the tenor of the contract in Nicaragua. So with that, that concludes my remarks. So we can open it up for questions.