Polaris Renewable Energy Inc.

Greetings. Welcome to the Polaris Renewable Energy fourth quarter and year-end earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this call is being recorded. I will now turn the conference call over to your host, Anton Jellick, CFO at Polaris Renewable Energy. Sir, you may begin.

Thanks, Holly. Good morning, everyone, and welcome to the 2022 Q4 and year-end earnings call for Polaris Renewable Energy. In addition to the press release issued earlier today, you can find our financial statements, MD&A, annual information form, and annual sustainability report on both CDAR and our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd like to remind everyone 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 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 form for the year ended December 31st, 2022. I'm joined this morning as always by Mark Bernahan, our CEO. At this time, I'll walk you through our financial highlights. Power generation. Consolidated power generation for the 12 months ending December 31st, 2022 and 2021 were 649,756 megawatt hours. and 643,523 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 113,189 in the fourth quarter of 2022 versus 113,395 same period last year. In Peru, total megawatt hours in the fourth quarter of this year was 39,923 versus 49,147 in the same three months period last year. As well, in our newest acquisitions in the Dominican Republic and Ecuador, we realized fourth quarter production of 14,139 and 6,946 megawatt hours respectively. Revenue. Revenue was $16.9 million during the three months ended December 31st compared to $14.9 million same period last year. This increase was the combined result of higher effective PPA prices applied to our Peruvian facilities and the additional revenue from the facilities in Dominican Republic and Ecuador acquired in the year. Partly offset by lower production in Santa Cita, Nicaragua. In addition, the company sold 0.9 million more in carbon credits in 2022 compared to 2021. Revenue was 62.6 billion for the full year compared to 59.5 million in the same period last year. Net earnings. Earnings attributed to owners was 2.5 million for the 12 months into December 31st compared to 0.5 million earnings for the same period in 2021. This increase was the combined result of higher operating margin and the deferred tax benefit driven by the foreign currency impact in our Peruvian assets, partly offset by higher finance costs and lower gains compared to year 2021. Adjusted EBITDA. Adjusted EBITDA was 44.9 million for the 12 months ended December 31st, compared to 43.8 million for the same period last year, principally as a result of higher operating margin discussed above. Cash generation. Net cash from operating activities for the 12 months end of December 31st of $33.5 million, lower than the $41.1 million for the 12-month period in 2021, mainly due to an unfavorable change in non-cash working capital due to a larger accounts payable balances settled during the period and accounts receivable collection returning to normal levels compared to the same period in 2021. Net cash used in that investing activities for the 12 months ended December 31st was 66 million compared to 10.1 million the same period last year. Due to 32.4 million spent in the acquisitions closed in the year, coupled with 29.1 million spent in the construction of the binary unit in Nicaragua and the Vista Hermosa solar park in Panama. Net cash used in financing activities for the 12 months ended December 31st of $30.1 million, compared to $6.9 million net cash from financing reported in the same period last year. In 2022, the company refinanced Pensa's senior debt and made higher dividend payments, whereas in 2021, we received $39.4 million in proceeds from share issuance. And finally, dividend. I'd like to highlight that we've already announced we'll be paying a quarterly dividend on February 24th of 15 cents per share to shareholders of record of February 13th. With that, I'll turn the call over to Mark who will elaborate on current business matters as well as on our year-end results. Thank you.

Thanks, Anton. So, first, I'll just start with some color on the Q4 numbers. San Jacinto was in line with our expectations. actually flat with Q4 of 2021. Peru and Ecuador was, call it the negative impact of hydrology. The rainy season just started later. Usually it gets going in sort of November and really starts going in December. It really didn't start till early January this year. So that impacted The numbers in Q4 on a revenue side, I'd say it's around $650,000 impact there for both Peru and Ecuador. Plus we did have a little bit higher costs, I would say more of a timing issue that landed in Q4 in Peru. So you get up to around about a 750, 800K, call it a variance for Peru and Ecuador there. which would get that call in adjusted EBITDA closer to 12 and a half, which would have been what we were looking at. The Dominican Republic was essentially in line, snick lower, but essentially in line and an EBITDA of exactly what we were looking at there. So very happy with that. So that's sort of the Q4 commentary. But given the acquisitions in the binary unit, I think we're set up for a very good 2023 relative to 2022. On the binary unit, as we did already announce, it was really started production December 30th, fully operational December 31. Ending cost in terms of total capital was 26 million versus the 25. So a snick above. due to some logistics issues, smaller parts and supply chain and transportation continues to be an issue. But we're very happy with that result, given the overall economics and the environment. So that is online, which is great. In terms of Peru, as I mentioned, hydrology was on Q4, but has been strong so far this year. So we're We're actually running at or a little bit ahead there this year or year-to-date. So that's good to see. We also expect on May 1 another price increase because the contracts in Peru are full, call it U.S. CPI indexation. We're already – so that – It goes from May 1 to April 30th, and that industry is already at 4.6%, and you need it to be 5%. So only 0.4% is needed in the next few months. So it's essentially guaranteed. So we think that we'll get another price bump of 5% to 6%, probably closer to 6% starting May 1. And we do think we also should see some minor cost efficiencies or cost reductions this year in Peru. So call it good margin expansion in Peru this year. Moving to Panama, we have called it vista hermosa solar. So just in terms of the nomenclature, we anticipate mid-March ready, literally two components necessary for the interconnection on our side of the fence, so to speak. have caused the delay that the plants are basically done, installed, ready, and we just need this interconnection equipment. So that's looking like mid-March. Budget essentially remains the same, though. We haven't had any cost overruns there. So budget the same a little bit later. And what I would note, though, is that the pricing in Panama has been quite strong. It remains stronger than what we would budget. So we're hoping to make up some of that lost time in terms of the numbers for this year once we put it online next month. In terms of other projects, we... have a small battery project. It's only a $500,000 battery project, but that's in Peru, which we will be starting in the second half of this year, which is an interesting project, but we think that's about a three and a half year payback there, which we'll be funding from cashflow from operations. At the site in Ecuador, San Jose de Minas, we're initiating works next month on the expansion There is a brownfield expansion. It's again, not a huge project. It's only about $3M, three to three and a half million dollars, but that should increase our revenues and cash flow by about 800,000 a year. So, again, call it a brownfield existing site, but high return on capital project that we'll be starting next month. And in terms of the Dominican, we, we, we did receive the definitive concession for the expansion at our solar plant there. So we call it to know it too is what we're, we're, we're really keen to get going on. We signed that in December. There's been back and forth in the PPA. We, we think we're in at the eleventh hour of that negotiation and that that the PPA should be signed imminently. And even some very small sort of site prep, we've already started that. But so the minute we sign the PPA, we could get going on construction and we would expect sort of a 12 to 14 month time to complete that. And so that would be sort of a, that's about a 25, $30 million project. Again, where our view would be that we would fund the equity out of cashflow for that expansion. And then the last call it to project I'll mention here would be, we have been working with technical consultants for the San Jacinto project, the geothermal project, and they've identified a few wells that produce production wells that they think we can do some asset jobs on to improve permeability. And we think these are really good shots on that because there's about five, six, $700,000 per well. So, and again, not big drilling capex, but we think we would do two this year. And we think that the outcome there is something in the two to five megawatt range. Obviously zero is possible, but the two to five megawatt range is what we're targeting. And we know of other sort of, projects that have done the same thing and achieved the same results. So that would be almost a two to $5 million pickup on that type of CapEx. So a high impact. We wouldn't be able to start that though realistically until July, probably just because of the lead time and getting these types of assets to site, but we're quite excited about that. So all of what I'm mentioning there is within our cashflow, within our budget, call it, that we don't need to raise capital for that. And I think one thing that's important to note is that these are, you know, Kanoa too is an expansion and a new project, but these are all what I would call high, sort of low hanging fruit, high return projects at current sites, current operations. And we think in this environment where rates have risen dramatically, which has had an impact on the industry, that we first and foremost, we need to focus on call it current projects, current operational projects where there are very good high return and much lower risk expansion projects. So those are, call it all on the docket for this year. We do have other projects like the Chuspa hydro project in Panama. We have other projects in Panama on the solar side that we are quite interested in. And we're moving those, I would say in parallel with capital alternatives, because to do those, we would look to raise some capital. There's also lots of other projects and acquisitions that are in the hopper. I think for those, we're really trying to marry up the fact that rates have risen and making sure that you can get that out on the other end on the equity. And it is a bit of a... It's a balancing act right now because off-takers aren't sure if rates are going to stay high forever, and neither are developers. So in my mind, it's a question of marrying. We just need to make sure that if the borrowing costs are going to be higher, that we're getting that much out on the other end. And I definitely think that's possible. I think one of the, I mean, we've already gotten term sheets on Kanoa too, for instance, and those are quite frankly better than we expected. So that looks good. And for us, given that as a company, you know, we have a very long, contract life and we're 100% contracted except for the Panama which is coming on which is only about 2% of our global revenues. So highly contracted with a long contract life and yet we only have call it three times that to EBITDA. So we are going to explore some other opportunities to be able to go after more of these projects like the ones I mentioned in Panama and or other opportunities which we the these rising rates definitely are impacting other developers so we actually see the the um the opportunism the opportunity set going even higher for us it's just there's probably been a bit of a lull here given in the last three to six months in terms of a little bit of a pause but we actually think that that there's going to be a bit of a shakeout and so we think we're going to be able to take advantage of a, call it, relatively under-levered balance sheet to go after some more of these opportunities. And even if it might be the back half of this year where that all shakes out, but we absolutely see that in the hopper, and we really hope that we can take advantage of that. So that sort of concludes my remarks, so we can open it up for questions now.