Polaris Renewable Energy Inc.

Good day. Thank you for standing by, and welcome to the Perales Infrastructure, Inc. First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, press star 0. I would now like to hand the call over to your host, Anton Jelic. Please go ahead.

Thanks, Felita. Good morning, everyone, and welcome to the 2021 First Quarter Earnings Call for Polaris Infrastructuring. 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. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd like to remind you, as always, that comments made during the call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris. These statements are current expectations 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 forum for the year ended December 31st, 2020. I'm joined this morning by Mark Murnaghan, Chief Executive Officer, now into the quarterly highlights. Power generation. Consolidated power generation for the three months ending March 31st, 2021 and 2020 were 180,984 megawatt hours and 183,332 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 119,854 in the first quarter of 2021 versus 135,344 a year ago. In Peru, total megawatt hours for three months ending March 31st, 2021 were 61,130 versus $47,988 in the same three months last year. Revenue. The company generated $15.7 million in revenue from energy sales for the three months ending March 31st, lower compared to the same period in 2020. This quarter was the first full quarter under the amended power purchase agreement price in respect of San Jacinto and Nicaragua, which was the largest contributor to our decline in revenue. The lower PPA price was part of the broader negotiation with the government, which included an extension of the concession period and inclusion of a binary unit. Lower production at Santa Cinta was offset by higher production from our hydroelectric facilities in Peru. Net earnings. The net loss attributable to owners was 0.9 million for the three months ending March 31st, compared to 4.4 million in earnings for the same period in 2020. The decrease was attributed mainly to lower revenue and higher general and administrative costs and other non-cash losses resulting from the market-to-market accounting adjustment on certain liabilities from our 21% share price increase during the three months ending March 31st. Adjusted EBITDA. Adjusted EBITDA was $11.9 million for the period ended March 31st compared to 17 million for the same period in 2020. Cash generation. Net cash from operating activities for the three months ending March 31st of 17.1 million increased by 8.2 million from the same period in 2020, mainly due to a favorable change in non-cash working capital due to the accounts receivable collection during the period and lower interest paid, partly offset by lower revenue and higher costs compared to the same period in 2020. Net cash used in investing activities decreased to $0.6 million from $2 million in the same period in 2020, largely due to the decrease in spending related to the construction of the Generacion and DINA facilities at El Carmen and Ocho de Agosto. Net cash from financing activities for the period ended March 31st of net $31.4 million, increased compared to $6.7 million in financing reported in the same period in 2020. The increase, of course, was driven predominantly by net proceeds of $38.2 million given the private offering that closed during the quarter. Dividend. Finally, I would also like to highlight that we do intend on paying our 21st consecutive quarterly dividend on May 28th of $0.15 per share to shareholders of record on May 17th. This continues the Board and Management's commitment to regular positive distributions to shareholders, coupled with a continuing 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 corporate quarter end results. Thank you.

Thanks, Anton. So a few comments before we turn it over to questions. First one I want to make is just it's not clear in the numbers, but we had just wanted to discuss the pricing in Peru. It was a good quarter in terms of production, but less of a contribution to EBITDA than It otherwise would have been just because of the way that the PPAs work there, which is that if you're running below your committed energy, there is a price penalty, which we had in Q1. Without that, EBITDA and revenue for Peru would have contributed an extra $700,000 to $800,000. And this is not something... that is permanent in the sense that for El Carmen, that was due to the outage incident last year, which we are being covered for from an insurance perspective. But that's not something that you can run through the P&L. And Ocho de Augusto is something that we did expect, given that when we purchased the company and the contracts, the committed energy under that contract we knew was high. and we are able to reduce that committed energy by up to 15%, which we will do, but you can't apply for the reduction until two years after COD, which would be December of this year. We will apply for it, and it is a contractual right, so we will get it and expect that the higher price gets applied starting in 2023. which will have a positive impact for Peru. So I wanted to mention that. The second thing I'll mention is that the strong cash position, we did raise equity, which is a big contributor to that, obviously. But the other thing is that the accounts receivable in Nicaragua came down nicely. So we received, and this was part of the, call it, the extension of the contract, terminating the old, having a new one. And so any receivables left on the old were paid in the quarter. So that really helped their cash position as well. There was a small asset sale, a small number. And then there's even a few more of those on the books that we are still looking at doing. They're not huge numbers, but let's call it latent asset value that we are – you know, looking to monetize and then put even more cash on the balance sheet. And we did, it took a long time, but we recently finalized the insurance settlement on El Carmen, which should bring in about another million onto the balance sheet this quarter. So point is, is that we are very well cashed up to execute on all the key initiatives that we have on the go. Um, the first one being the binary unit, which, um, we sent tender letters out, uh, mid April, um, to all of the equipment manufacturers. When we started the year, we were looking at call it a seven to 10 megawatt binary unit, but we had to run a bunch of, uh, chemical tests on the brine, which we did. Um, and, um, to assess as to how much, how big you can go on the binary unit. And so the good news is that those were as good as could be expected. So we went out with a 10 megawatt binary unit package. So that's going to be the number we're looking at. And that does make a big difference on the numbers going forward. So we're very happy with that. the schedule on this is that we are expecting to have firm proposals from the equipment manufacturing by the end of this month. And then within, call it four to six weeks, so end of June or first thing in July, we will sort of sign a contract, choose the equipment supplier, and lock in the prices and the budget. So that's, and we'll make sure that that is communicated to the market. But once we get to that, you know, it is call it an 18 month construction process, but, but the numbers we think will be very firm. And if it's 10 megawatts, we know we're going to be looking at call it eight and a half to 9 million in call it cashflow and revenue generation off of the binary unit. So that's, That's the number one initiative that we have sort of on the docket. The second is Chuspa, and that is Peru. We had slight delays because of COVID, but things are looking very good there now in terms of the case count. And the construction's been open now for quite some time, and we expect it to stay that way. So we're... we're aiming for within four to six weeks having signed the SPA and mobilizing and launching construction on that project. And that'll get us, that'll get us, call it the third jurisdiction, and using some of the equity capital for that project. So those are moving ahead and very much in the short term here. And now that still leaves us with a reasonable amount of excess cash sitting on the balance sheet. And so on the M&A front, which we are working on, we have more irons in the fire than we've ever had. So we are working on that. There's a lot of opportunities in existing jurisdictions that we're in, primarily Peru. But also Panama, we're really hoping to add something so that we're doing more than just the Chuspa project. And so we have a lot of opportunities in Panama that we're looking at and a few other jurisdictions. And we're in the process now of trying to have something, call it this time next quarter. So when we report, the aim would be to have something by then on that front. The other big initiative that we're working on, which would make a real big difference for the company in terms of the cashflow generation is the refinance front. So, and we have a lot of different options that we're looking at. There's call it five or six interesting options ways to do the refinancing at Santa Cinto, given that we are in a period of, we have an 18-year contract, but we're amortizing over eight years. And in fact, the next four years are the heaviest part. So there's a huge benefit to us to doing a refinancing, given the ESG, call it momentum. There's a lot of different groups looking at doing something on both a call it project specific basis, but we also have groups that are talking about doing a more global hold co refinancing. And that is one of the biggest initiatives we have that we're working on as a company. The global refinance would take a bit more time. I think it's that sort of a three to six month timeframe, but everything is pointing to us having at least a few good options on that front within that timeframe. So that is, call it the fourth big initiative. And the last one, which is worth mentioning, is just that we had mentioned that we were looking to do a sale of some carbon credits. We were just finalizing the process at San Jacinto. We already have carbon credit sales at Canchao in Peru, but we're also starting, or not starting, we should have the other two facilities accredited within the year. So we are making sure that all of our facilities could generate some form of carbon credit revenue. And in the last, call it two months, we see a lot of inbound interest in those. We do have some vintage credits, which will not garner, call it, top dollar in the market, but there is latent value. And this is something that just keeps, we just keep seeing sort of some inbounds and extra interest in that. So we're more confident than ever that we can at least do something on that front. And even if the dollar numbers at the start of it are, call it in the 100, 200, 300,000 dollar range, which is not material, it would be for a very small percentage of our credits. So we think the bigger picture could be material for the company if the world continues to move in that direction. So with that, where we're aiming as a company is when you include the binary in an intrusive executing with the capital we have on hand, we're looking at call it 40 to 45 million of operating cashflow as a company US, which is, and that does not include an acquisition. And I think we can obviously improve that to even higher numbers if we were able to put the excess cash to work in an acquisition. And so I think those are very good numbers as to where we're heading. And to the extent we are able to execute the refi, that could help that a little bit, but also free up even more cashflow. And I think at that point in time, we've maintained the dividend where it is for a while now. And I would suggest that I don't think a dividend growth strategy is going to be the main focus given the diversification, but I do think we would like to get back to some dividend increases and it would likely be on the backs of a refi because that has a really big impact on the free cash flow generation. So that's where we're aiming. And with that, I'll pass it over for questions.