Polaris Renewable Energy Inc.

Good morning and welcome to the Polaris Renewable Energy Incorporated third quarter 2024 conference call. At this time, all participants are in a listen only mode and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Anton Jelic, CFO of Polaris Renewable Energy. The floor is yours.

Thanks, Jenny. Good morning, everyone, and welcome to the 2024 third quarter earnings call for Polaris Renewable Energy. In addition to our press releases issued earlier today, you can find our financial statements and MD&A on both CDAR Plus and on our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are in denominating 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 Renewable Energy 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, 2023. I'm joined this morning, as always, by Mark Moynihan, CEO of Polaris. At this time, I will walk you through our financial highlights. Power generation. During the three months ended September 30th, power production was 168,639 megawatt hours compared to 178,753 megawatt hours in the three months ended September 30th, 2023. For Nicaragua in the third quarter of 2024, production was 120,565 megawatt hours lower compared to the same period last year which was 129,475 megawatt hours. Consolidated production in Peru for the three months ended September 30th was also lower at 20,616 megawatt hours than the comparative period last year, which totaled 23,078 megawatt hours. At our Dominican Republic Canoa One solar facility, we produced 16,476 megawatt hours in the three months ended September 30th. This is higher than the third quarter last year, reflecting enhanced productivity from the newly installed panels. For Ecuador, in the third quarter of 2024, average production of 6,535 megawatt hours was in line with production in the comparative period last year. And finally, in Panama, Vista Hermosa Solar Park production of $4,447 was also in line with management expectations for the quarter. Revenue. Revenue was $17.7 million during the three months ended September 30th, compared to $18.8 million in the same period in 2023. Net earnings. Net earnings attributed to owners was $480,000 for the quarter compared to $1 million in net earnings for the same period last year. Adjusted EBITDA. Adjusted EBITDA was $12.4 million for the three months ended September 30th compared to $13.7 million for the same period last year. Cash generation. Net cash from operating activities for the three months ended September 30th was lower than the compared periods in 23, mainly due to lower cash received from Nicaragua, as expected, due to decline in production scheduled downtime for major maintenance of the facility during Q2, as well as recognition of unearned revenue in Peru. Net cash used in investing activities for the three and nine months ended September 30th was lower when compared to the same periods in 2023. While the cash usage in the current year relates to the Kanoa One Optimization Project with a budget of $5 million and the major maintenance of the geothermal facility in Nicaragua, cash usage in investing activities in the same period last year related to disbursements linked to projects such as the construction of the binary unit in Nicaragua and the Vista Hermosa Solar Park in Panama. Net cash used in financing activities for the three and nine months end of September 30th, 2024 and 2023 are comparable. And finally, dividends. I would like to highlight that we have announced that we will be paying a quarterly dividend again on November 22nd of $15 per share to shareholders of record on November 11th. With that, I'll turn the call over to Mark, who will elaborate on quarterly results as well as current business matters. Thank you.

Thanks, Anton. So I'll just dive into the different assets first. So San Jacinto was in line with our expectations. For the quarter, it was 54.6. I'll give you the actual monthly numbers. So for July, it was 54.9 megawatts net. 54.6 in August and 54.2 in September, so you can see that very good stability in the wells, so we're quite happy with that. That was down from Q3 of last year, but it's actually the best quarter in the last four quarters, although given that maintenance was done in the second quarter, you'd have to take that one out. this quarter this year was higher than the first quarter this year and it's higher than the fourth quarter last year so and that is is due to call it the how we're running the the injection system and the well so yeah I would say the the actions we've taken to to promote stability worked very well in the quarter so we're happy we're quite happy with that in Peru the the numbers were We're lower. It is always the third quarter in Peru is always the lowest quarter. It is the dry season. It was just drier than normal and there's not much we can do about that. So the numbers were, I think our budget for the quarter was around twenty-three, twenty-four thousand megawatt hours for the quarter for the three hydro plants in Peru, and it came in around twenty. So that's not a huge impact, but it was lower given El Nino. We did see lower hydrology. Now I would say in October obviously it's only one month but the rains have started again and we're close to what we were budgeting in October already and even the last week we've noticed a big pickup. So it's early in the quarter but it looks to be close to on track for what we were budgeting in terms of hydrology. So that's good. I would say Ecuador is a similar story, but just much less pronounced than Peru. DR was Dominican. The solar plant Kanoa was above the same period last year, which was expected given the replacement program that we did there. It was finished first week of August, so we did not get the benefits of the whole quarter. We will see a full quarter the current quarter. When we adjust for that, I would say that we're getting about 80 to 90% of the estimated benefit. But we would expect to, for Q1 of next year, to be getting 100% of the benefit that we expected. So that's good. And Panama production in line in terms of the total megawatt hours. Pricing was around $81 a megawatt hour. and we, subsequent to the quarter end, have signed a contract for that plant, for 100% of the production of the Vista Hermosa plant, starting Jan 1 of 2025. It is still subject to the local regulator approving it, which we expect to happen first week in December. We don't foresee that to be a problem, the pricing on that starts at $80 a megawatt hour in 2025 and goes up to $82 a megawatt hour in the fifth year. So just a small indexation there, but we're quite happy about that. We do think that This is a good period to have that plant contracted because the entrance of the gas plant, which has happened in this quarter, so we think that will negatively impact the spot market prices. So I think we've timed it well in terms of having the first, call it, year and a half at spot, which was strong, and then the next five years fully contracted. I would also mention that that takes us up to, that was the only plant that we didn't, that we weren't fully contracted. So with that, we will be at 100% fully contracted. So that's, those are the operational plants. I will now talk a little bit more about the Kunta Lima acquisition that we announced a few days ago. So it's, as we mentioned in the press release, it's for 20 million. That is an enterprise value. It is unlevered. It's an unlevered project at this point in time. Given our cash balance, which sits at 45, we have the cash on hand to close that. It is conditional upon, the key condition really in there is that the offtaker, which is called PREPA, short form. They do need to approve the essentially a change of control. So we don't foresee that to be a problem. They already know about the transaction, obviously. And given that we're a power producer as opposed to a bank, we don't see that as an issue whatsoever. In terms of timing, that part is hard to predict, but I would say it could be anywhere from 60, 90, 120 days, I would say that's the range. So Q1 next year, and hopefully earlier in the quarter than later, but I would guide people to Q1 in terms of getting approved by PREPA and then closed. It's a 26 megawatt wind farm. The history and what we think is the production should be between 50 and 60,000 megawatt hours a year. It has a 20-year contract which started on March of this year, March 2024, goes to March of 2044. It is a bit of a sculpted PPA but it's $149 next year and it sorry 2025 escalates at 1.3 percent until 2034 and then it drops sort of after 10 years to around 129 escalates again up to 141 so it is sculpted but it's a very good price and I'll get into you know it should be promoting energy storage going forward as well I would say, given the jurisdiction you have, we also, either Vestas Turbines, I should mention. So there is a contract, part of the O&M is done with Vestas. And given, I would say, insurance costs and even land costs in Puerto Rico are quite high. So the costs are higher, call it relative to revenues than other projects that we have. We think they'd run around $4 million. I wouldn't say that once we get in there, I think we can reduce those or at least keep them flat as opposed to escalating with the PPA price because I think there's some synergies. Also, there's just opportunities I think we're going to have to reduce that over time. It is a tax equity structure, which is... A little complicated, but the way that it works is that for the first really for us, if we assume we close Q1 next year, it would be the first four years. We will get 94% of the distributions. With our tax equity partners, they're getting the 6% and then after that period is up, which is around five years actually from. the first commercial operation date of March of this year, that we will have a $1.5 million buyout option, which we would exercise to take us to 100%. So it's essentially for us, we'll look like 94% for the first four years and then 100% after that. As part of the PPA, there is a requirement to implement a battery energy storage system, which is scoped out at actually 13 megawatt hours, one megawatt times 13 hours. And the requirement will be to get that implemented within two years of closing, so we don't see that as a problem. And in fact, what we hope to do, given the power pricing, given that actually They've already announced that likely next year there's going to be a standing offer for battery energy storage systems, kind of like feed-in tariff. It should look like a dollar per kilowatt per month. They haven't published that number, but they have said that they will. So there should be a small revenue opportunity there. And we do hope that we could, given the demands for more renewables on the island, the interest for more renewables, we will attempt to see if we can increase that and increase production on the site or nearby. So we think this is a very financially attractive acquisition of an operating asset and we also hope that it legs into more growth in that market. Financially, we are well positioned to do it, given our cash position, so we don't need to raise equity for that. And also, we think that this, given that it's unlevered, it's part of the story. We have discussed the potential to do a green bond before. We think now is good timing on the back of this. So we are looking to focus on this very quickly in the quarter here, Q4 now. Also, the ability to actually repay our San Jacinto loan, which is our most expensive loan, is Q1 of next year. So that's very close. We think that's close enough. I think the market is strong for fixed income. So I think you can expect to see us look to do something very quickly here. on the backs of the quarter and the acquisition news. And I think this is really important for us if we can execute on this. We can significantly increase our cash flow per share without the need to raise equity and at the same time position ourselves to take advantage of both, I would say, development, organic development, as well as acquisitions that we have in the funnel right now, which I would suggest that our acquisition pipeline is, and by that I mean over and above Punta Lima, but it's stronger than it has ever been. And that includes some operational acquisitions, some ready to build interesting projects, as well as even Some more late stage development, call it brownfield opportunities that we're looking at. So all of all of the different stages. And so we have a very robust. Call it acquisition pipeline. I would suggest that the ready to build or late or mid stage development or I would really more characterize those as development. So if we do that, I would just. it reiterates that our development slash acquisition pipeline is as robust as ever. But given how sort of lowly levered we are, like we have been deleveraging for the last couple of years, and given that we're 100% contracted, I think we really should be funding a good portion of that growth with debt as opposed to equity. So I think we can really change and grow the EBITDA profile of this company in the next 12 to 24 months without having to raise any equity. So that's really the plan. And with that, I'll open it up to questions.