Polaris Renewable Energy Inc.

Good day, ladies and gentlemen, and welcome to the Polaris Infrastructure, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ant Angelic, CFO. Sir, the floor is yours.

Thanks, Kate. Good morning, everyone, and welcome to the 2021 Third Quarter Earnings Call for Polaris Infrastructure, Inc. In addition to the press releases issued earlier today, you can find our financial statements and MD&A on both CDAR and on our corporate 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 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 as always by Marsh Murnaghan, Chief Executive Officer of Polaris. At this time, I'll walk through our financial highlights. Power generation. Consolidated power generation for the nine months ending September 30, 2021 and 2020 were 480,980 megawatt-hours and 490,143 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 120,838 in the third quarter of 2021 versus 118,857 in the same period last year. In Peru, total megawatt hours in the third quarter of 2021 was 28,482 versus 23,337 in the same three-month period last year. Revenue was $14.8 million during the three months ended September 30th, compared to $17.1 million in the same period last year, lower due to the amended PPA price at San Jacinto, partly offset by higher production from 8 de Agosto and El Carmen. Revenue was $44.6 million during the nine months ended September 30th, 2021, compared to $56.2 million in the same period last year. Net earnings. Earnings attributable to owners was $1.4 million for the nine months ended September 30th, 2021, compared to $4.7 million earnings for the same period last year. This decrease was attributed mainly to low revenue and higher direct costs and G&A expenses. The decrease was partly offset by other gains resulting from the sale of certain investments, insurance proceeds, and the mark-to-market accounting adjustments of certain liabilities. Adjusted EBITDA. Adjusted EBITDA, a non-GAAP measure used by the company, was $32.7 million for the nine months ended September 30, 2021, compared to $38.7 million for the same period in 2020, principally as a net result of lower revenue, higher direct costs and expenses. Cash generation. Net cash from operating activities for the nine months ended September 30th of $33.9 million increased by $3.8 million from the same period in 2020, mainly due to a favorable change in non-cash working capital due to the improved accounts receivable collection during the period and lower interest paid, partly offside by lower revenue and higher costs compared to the same period last year. Net cash used in investing activities for the nine months ended September 30th, 2021 was 8.6 million compared to 2.2 million in the same period last year, largely due to the increase in restricted cash and advances related to the construction of the binary unit in San Jacinto. Net cash from financing activities for the nine months ended September 30th, 2021 of 14.5 million compared to 1.9 million net cash used in financing activities reported in the same period in 2020. This increase was driven by higher net proceeds relating to the common share offering during the nine months ending September 30th this year, compared to lower net proceeds of debt issuance in the company and comparative period in higher dividends. Dividend. Finally, I'd like to highlight that we do intend on paying our 23rd consecutive quarterly dividend on November 26th of 15 cents per share to shareholders of record on November 15th. 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 with respect to just a couple comments on the statements and the quarter results before I move on to other items. So Q3 as expected is the dry season in Peru. So it's always the lowest quarter of the year for the results coming out of Peru. And to give you some numbers, we did 28,000 megawatt hours in Q3 in Peru. It's not entirely comparable to the year before, given that El Carmen didn't come back into service, so it wasn't operational for the full quarter last year. Ocho de Augusta was, and of note, it was up, call it 20-25% this year over last year, so the hydrology was better this year, again, even though it was the dry season, but so somewhat better hydrology at Ocho de Agosto, which was up and running for the whole quarter both years. So make note of that. But to give you a sense, 28,000 megawatt hours relative to, so Q4, our budget is between 45,000 to 50,000 megawatt hours for the three plants consolidated. And so just that difference alone would be about a million dollars change from this quarter to next quarter with the costs effectively running the same. So from Q3 to Q4, at least for Peru, you should see sort of somewhere around a million dollar bump in revenues and hence EBITDA if things progress as we expect coming out of Peru. And Anton didn't mention, you know, cash came down somewhat principally because of the real, what I would call, capex for the binary unit in the quarter was $4.1 million. So payments have already been made in several areas there. There's also some cash that got moved over to restricted cash for an LC, but That should be able to come down over time next year as we get through the progress on the binary unit. And so on that, everything is moving as expected. We're still in the early days, but there's been no issues whatsoever. So we are at this point on schedule for a... call it a Q4 2022 commissioning date with, call it the revenues and cash flows really starting Q1 2023. So nothing has changed on that. So budget and timing on the binary unit stay the same. Other really sort of three other areas, the debt refi, It's moving as expected. We had, I think it was probably 90 days ago, engaged an agent that's both called an arranger but also a principal. And so they were well on the way in that process. There was a plant visit about six weeks ago. with participants in the loan. And to remind people what we're doing is not, don't have the aim of increasing the total amount of debt at San Jacinto, rather just terming it longer to match the fact that we have an 18-year contract. And so we're just trying to match the debts. with the new contract, which would free up a reasonable amount of free cash flow to have in our hands over the next three or four years, principally. So that's moving well, and it would be a mix, actually, of some existing lenders just rolling over into the new facility with two or three new ones that have quite an interest in participating in the loan. So we are now in, call it the legal dock phase, part of the process, the technical advisors for the lenders and the ESG advisors for the lenders have submitted all their final reports and everything's looking good. And so now it's down to sort of legal documentation. We would expect that, call it mid-December, December 15th, let's say, is the target close date where we sit today. So that would be a big... event for us with effectively the new term starting Jan 1. On the acquisition side, we've been quite vocal about the fact that we're targeting acquisitions. We raised money in February with the intent of that. I remain highly confident that we will be putting that extra capital that we raised to work in the very short term. profile of what we're looking at is a combination of current production plus some expansion on site plus the potential to grow more with other development projects. I would Where we are at is on two separate opportunities. We are in between the LOI phase and the call it shareholder purchase agreement phase. So we're not at the point of announcement, but we are moving much closer to that. And the thinking is that based on where we sit today, that is both would likely happen this quarter. So we continue to push that forward, which is really the key sort of initiatives we're working on. And that would set us up very nicely for 2022, because if we did close, as I said, the profiles would have even some instant, call it financial impact for 2022. And then the last thing I'll mention before turning it over is on the carbon front. It's still unclear exactly what may come out of the Glasgow meetings this week. We are getting some positive signals, and it may take a little bit of time to decipher or even see where the agreements end up, but it's looking that... It should be a net positive based on what we're hearing, which would reinforce, I guess, the strategy that we've had of ensuring that the current plants we have are on track for being verified and ready to potentially sell credits. We did announce a credit sale earlier this year, and we've done a little bit more that we haven't announced yet. but I think we'll see in the next month here that there should be some agreement that what we would hope for would increase the number of parties that could satisfy their carbon reduction goals through buying voluntary credits, which are the UN credit mechanism that we're part of, which is a voluntary market, but to the extent that either companies or countries can reduce their emissions or hit emission reduction goals by buying voluntary credits, we would fall under that. So that is something that we continue to ensure that we're ready for, and it seems to be moving in the right direction. With that, I will open it up for questions.