Polaris Renewable Energy Inc.

Good day, everyone, and welcome to the Polaris Renewable Energy, Inc. Fourth Quarter 2024 Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Anton Jellick, Chief Financial Officer. Sir, the floor is yours.

Thanks, Matthew. Welcome, everyone, to the 2024 Year-End 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 our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd also like to remind you 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 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, 2024. I'm joined, as always, this morning by Mark Murnaghan, CEO, and Yume Fernandez, our Director of Finance. At this time, I'll walk you through our financial highlights. Power generation. Consolidated power production for the year was 764,756 megawatt hours versus 800,951 hours in 2023. While in Q4, we saw 195,000 797 megawatt hours generated compared to 192,820 megawatt hours last year. For Nicaragua in the fourth quarter of 2024, production was 116,400 megawatt hours lower compared to the same period last year at 112,195 megawatt hours. Sorry, higher, my apologies, higher. Consolidated power production in Peru for the three months ended December 31st was in line with the comparative period in 2024. At our Dominican Republic Canoa One solar facility, we produced 14,315 megawatt hours in the three months ended December 31st. This is a 12% increase versus the fourth quarter in 2023, despite lower irradiation, going to increase productivity of the new solar panels. For Ecuador, in the fourth quarter of 2024, average production of 6,395 megawatt hours was lower than the comparative period in 23. And in Panama, Vista Jaramillo Solar Park production of 4,389 megawatt hours is marginally lower than the same period last year. Revenue. Revenue was 18.8 million during the three months ended December 31st, compared to 18.7 million in the same period last year. and $75.8 million for the full year compared to $78.5 million in 2023. Net earnings. Net earnings for the year was $3 million compared to earnings of $11.7 million for the full year 2023. Adjusted EBITDA. Adjusted EBITDA, $55 million for the year compared to $57.7 million for the same period last year. Cash generation. Net cash from operating activities for the 12 months ended December 31st was 35.1 million lower than the 44 million for the same period in 23. Net cash used in investing activities for the 12 months ended December 31st was 3.3 million compared to 11.4 million in the same period in 2023. And then net cash from finance activities for the 12 months ended December 31st $27.7 million was largely impacted by the issuance of green bonds for $175 million in December 2024. Normalizing for the effect of the green bonds, the cash used in finance activities in 2024 would have been comparable to $27.7 million net cash outflow from financing activities in 2023. And then finally, dividends. I would like to highlight that we have already announced we will be paying a quarterly dividend on February 28th of 15 cents per share. With that, I'll turn the call over to Mark who will elaborate on Polaris' annual results as well as on future business matters. Thank you.

Thanks, Anton. Okay, so in terms of the results, I would highlight that in Q4, year over year, so Nicaragua was actually up year over year. which is quite important. The way we've been running the field is that the binary is not at full capacity. It's at about eight megawatts instead of 10, which we implemented earlier last year. And with that, I would say the field is showing very good stabilization. It was actually the steam in Q4 was up year over year. And so we're quite happy with how that stabilized. And we may get back to looking at moving that up later this year, just depending on how the wells perform in the first half of the year. So we're quite happy with that. Peru, Q4 was quite strong, which is nice to see because Q3, which is the dry season in Peru, was actually a very dry season. But the rains came and the The production was very good in Q4 for Peru, and that has continued on this year so far. So it does seem that the rainy season is back and in full force, which is great. As well in Dominican, that was up given the panel replacement. And we do expect to have sort of a full year of the benefits of the panel replacement this year. So hopefully we can get a little bit closer Closer or to the the budget that we had when we did that but we are seeing the benefits of that And it's I would say it's generally tracking in terms of the efficiencies That we were looking for irradiation in the quarter was lower year-over-year But the actual sort of conversion efficiency was very close to what we predicted when we did the replacement program and lastly in terms of the actual historical results, I would say that if you look at 24 versus 23, that when you add our off costs and our G&A costs, they're actually down year over year. So again, in an inflationary environment, I would say we're keeping our eyes on the cost control and doing a very good job at that. In terms of what we're looking for for the current year, with the operating assets in place. Let's call it flattish in terms of production. We do think Nicaragua will be running at a level very similar to where it was at in Q4. I think our numbers for the year, including major maintenance, which this year we're doing major maintenance in November. So we're budgeting between 460 to 470,000 megawatt hours for the year, which would be similar to last year and running call it flat to Q4. Very similar for the other assets, although we would look to Peru being somewhat higher this year, back to more normal levels. And then you take that and then what will be additive is that we did receive approval from the local regulators in Puerto Rico which we needed for our acquisition of Puntalima Wind Farm. We needed the approval for the change of control, which we've received. And so we're now moving to closing, which we would expect will happen before the end of this quarter. So you should see, call it three quarters, pardon me, of contribution from that acquisition this year. In terms of call it growth beyond that. Really, I'll start with the organic. And on the backs of closing the Punta Lima, we hope to be undertaking something that we think is very interesting, which is grid connected storage programs that they're looking to implement on the island. And that would likely be our first project there would be brownfield as it would be on the site. And so I would say that as I sit here now, we would be shifting call it in terms of brownfield opportunities, shifting a little bit from the Dominican to Puerto Rico as soon as we close. So, and we should be able to be giving more color on what that opportunity looks like in terms of the capital outlay in the timing, but it should be coming actually quite quickly. So pay attention to those updates shortly. In the DR, the DR is still there. It's just happening a little bit slower. And we still think that solar plus storage, and storage is the key here, is going to remain an important organic, a part of our organic growth. Going forward we're really they're just trying to work out the regulations as to how it all gets paid for in terms of energy versus capacity But it is coming and it's needed They really need it. And so we're we're ready to go. We're just positioning ourselves with that. It's just likely a little bit slower and That's on call it organic growth of existing properties and in terms of M&A pipeline is robust, as it always has been. What I would say, though, is now I think the multiple gap, call it, between what we trade at and what an operating asset, a good operating asset with a reasonable contract life on it, there's always been a multiple gap. I would say that that multiple gap is lower than it's ever been for numerous reasons. So there still is a gap, but it's much smaller. So that's encouraging. And given that we completed the bond offering in Q4 last year, we actually have some dry powder in terms of capital from that to put it to work. And so I think that combination bodes well for us call it, to something in the back half of the year on the M&A side to complement what we're looking at on the organic side. And in terms of what is the capital we have, I think it's just, at December 31, we showed I think $217 million of consolidated cash, but that's prior to paying out the three loans that we paid out. After paying that out, the way to look at it, the pro forma cash on the balance sheet is about $100 million. And if you earmark 20 for the Punta Lima transaction, that would leave us with about $80 million of cash, consolidated cash on the balance sheet after closing Punta Lima and after repaying all the debt, which for us is a very healthy level. And I think we can do a fair amount of damage with that. And then that's really what we're going to be focused on in the next three to six months here. So with that, I'll open it up for questions.

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Nick Wojciech from Cormark Securities. Your line is live.

Thanks. Morning, Mark. On that organic opportunity in Puerto Rico that you just mentioned, can you expand a little bit more maybe on potential magnitude, how much you could add to this site, like how much the interconnect can afford for you to add in batteries, and the pace at which you think you could maybe get that developed?

Yeah. So one of the nice things about the project is that there's somewhat of an overbuilt interconnect relative to the project. And then the transmission line is over about 130 megawatts relative to a 26 megawatt wind farm. But the substation, so if we were to stage it a little bit, the substation is about 40 megawatts. So just on that alone, If we were to call it optimize, if the first phase was trying to optimize the 40 megawatt substation, based on what we're looking at in terms of, and just to add a bit, it's really a grid stabilization program and call it energy shifting program that they're looking at doing. And so it's not, you're not really even connecting into the renewable plant. It's literally just a battery connected to the grid that they dispatch as they want to. So it's technically simpler. But so the first phase, we would be limited to the 40 megawatts substation unless until such time as we call it added capacity to that. If we, all we did was use that theoretical, call it, not theoretical, but the 40 megawatt, if that's the first phase, and based on capacity prices that are being sort of discussed, we would be anywhere from, if we could max that out, sort of 15 to 20 of EBITDA for us, which would be material. So we still, I probably need 60 days to really put the, know to dot the i's and cross the t's on that but that's what we're looking at so i would say that's material they're nice long-term contracts obviously it's in us dollars so um and that's i think it's about a 12-month build cycle again so it's not an operating asset but in terms of i would put that as even lower than uh constructing a solar plant right so in terms of risk so 12 months so reasonably quickly uh reasonably low risk um And we could do that with the cash on our balance sheet right now, for sure. And then I think to the extent that, and the numbers we're seeing is that they, on a consolidated basis there, would like to probably do more of it. So we would need to increase the capacity of the substation, which that would be more of a 12, or sorry, I'd say an 18-month to 24-month. timeline, but we would, you could look to potentially double it there, double those numbers.

And in terms of when you would have clarity on that, it would probably be within 12 months.

I would say there's also a smaller, it's not as big of an opportunity. So when you, if you were to double the EBITDA numbers, obviously those for us are very material and the call it the, I would put an opportunity in terms of timing in there that would be actually adding some solar and backing the solar up with storage so that you can be delivering energy, call it between 6 and 12 p.m., which is when they really want it, not in the middle of the day. you know, we've had conversations and they're very amenable to discussing that probably in six to 12 months. So that wouldn't be big, but I think that's an additional brownfield organic opportunity we're going to look at there.

Okay. And obviously 15 to 20 million, that is a meaningful heap to pick up. And given that it's more of an infrastructure, it sounds like asset, should we be thinking that this comes at a lower return on invested capital? Like is the incremental CapEx going to be high for this or is this going to be a very attractive growth opportunity for you.

Yeah. You know, I don't have any numbers in the deck. I would say at least as we're looking at it, it would be the best sort of return on capital we have in our call it pipeline and, you know, both organic and acquisitions. At this point in time.

And then on that M&A front, I know the pipeline is still active, like you said. Given geopolitical issues that are happening, obviously, U.S., but also now with Ecuador, are you thinking differently about where you would want to expand and what that fuel type or technology would have to be? Are you shifting maybe more towards now certain markets versus others? I know it's obviously going to be USD-denominated, but any color there would be interesting to hear.

I don't know if we... really shifted where um yeah i would say ecuador is not on our list right now that's for sure um you know we are looking at some things in panama uh that are contracted and that's what you really we would want to see there um we are looking at dr we're even starting to see some other opportunities in puerto rico those would be the three that we're looking at of the current portfolio. But we do, there's a few other markets that we are looking at, all in USD, all in the region. And I would say that there is a bit of a domino effect to what's happening in the US, but in a good way for us, in the sense that, you know, one, we're looking at an asset that has some ownership by a US company and, you know, they're for sure, doing some consolidating at home, shall we say. So I think that that is actually, you know, I don't see that many negative impacts to what's happening in the US, and now we're starting to see some potential color positives for us on the acquisition side. Because capital, a lot of, whether it was through the loan programs or the the grants or the tax equity, that's what fuels the U.S. assets. So if people have commitments that they've made or projects they've made, and if that's at all in jeopardy, you're starting to retrench a little. They're going to have to take care of that first. So I think that's going to open up opportunities where we are, and we're seeing literally one just as yesterday that's quite interesting. So I think it's a net positive for us.

Okay, that's good to hear. And then last for me, obviously, you've got this cash balance. You've renewed the NTIB. Should we be thinking at all about the dividends or are these growth opportunities just so attractive that it isn't worth allocating capital to a divvy?

Yeah, I would say they're so attractive. So that takes precedence. I think we can do both. Grow quickly. and potentially call it increase the call it returns to shareholders. So obviously we got a 60 cent U.S. annual dividend. We are buying back a very small amount of stock. My preference still would be to increase the dividend. And I think we could do that. And I think that's what we will look at. I think the only It's not even a gating item. It's just if the growth comes at us really quickly, it's more back end on the dividend increases. But if it's slower, we probably get to the dividend increases sooner. So we're just trying to balance those two things. But I really think we can do both.

Okay. That's awesome. Thanks, Mark.

Thank you. Your next question is coming from Rupert Merrer from National Bank. Your line is live.

Hi, good morning, everyone. You talked a little about the stability that you're seeing in Nicaragua, but you are going to do some major maintenance and contemplate some future enhancements. I'm wondering, can you talk to us about the maintenance program? What does that look like? What's the length of time and the cost? And what could your future enhancements look like?

Well, yeah, we actually call it major maintenance, but we do that every 18 months, Rupert. So there's two turbines. And so every 18 months, we take one of the two turbines down for a period of two to three weeks. So the actual hard cash cost of that is around $500,000 in terms of outlay of cash. The bigger cost is your downtime, which is about... Typically I'd say it's seven to 8,000 megawatt hours as to what you lose. So that was in the number. So of note, so last 2024 had major maintenance in it, but 2023 didn't. Okay. Just because of the 18 month cycle. So we will be doing it again in November. So the numbers I gave you though, include a major maintenance in it in terms of production for the year. In other words, that is net downtime for major maintenance. Right. Got it.

What kind of enhancements could you look at in the future? Are you still considering the addition of the solar panels in Nicaragua?

Well, in terms of solar panels, we have the ability to do it, but based on we just put that on hold because of Puerto Rico. And there is an openness to discuss that in terms of, um, you know, the PPA price there is much higher. It's higher there than it is in Nicaragua. So if we can do something there, which I will know, I'd say in the next six to 12 months, it's just, you know, the difference is so big that it's worth waiting. So we're, we're, so we're waiting to see if we can do something in Puerto Rico. If not, we can do something in Nicaragua. Um, So that, you know, if we did Nicaragua, that would be an enhancement. In terms of really what we can do in Nicaragua, aside from drilling wells, I would say there's no big enhancements either. I think we're, you know, potentially we can move the binary up a little bit later this year. Potentially we can, you know, we've got one of our wells that's closed, 9-3. We've really just been running pretty much most of last year with that well closed. So, you know, potentially we can open it a little bit more, potentially we can move the binary up, and those are all non-capital outlay type sort of enhancements. But I would say really the biggest enhancements we can make are drilling, and I wouldn't say that that's in our near-term future.

Okay, great. Secondly, you're considering some larger M&A deals you – as you say, pro forma, have a fair amount of liquidity available. When you're looking at acquisitions, do you contemplate working with partners? A lot of your peers will have partial ownership of projects or do asset sell-downs. Are you in discussion with potential partners on maybe getting into some larger deals?

Historically, we're 100%. I would say we We, I don't have a problem with, let's just say, being partnered with somebody 50-50 on something. We wouldn't wanna be a, we can't be a 40%, call it financial partner though, that's definitely not us. But we are looking at some things on a 50-50 basis right now with other actual strategic players. So yeah, we are looking at it and we would look at it And I would even say we're looking at some things with more, call it, they're strategic in the sense that they're more local. So there are benefits at times to partnering with some strong local groups. So that is also something that's of interest to us, and we have two or three things of those that we're looking at right now.

All right, very good. I'll leave it there.

Thank you. Thanks.

Thank you. Your next question is coming from Aaron Toon from Keystone Financial. Your line is live.

Oh, hi there. Thanks for taking my call. Just wondering, can you walk us through what you would expect maybe the CapEx to be for 2025, roughly, just relative to what it was last year?

It's really going to come down to, I would say, Well, first, let me divide between maintenance, sustaining CapEx and growth CapEx. So in terms of maintenance CapEx, we're going to be in the, I would say, 1.5, 1.75 range for just sustaining CapEx. And that includes the maintenance program. And then in terms of growth, until we close the Puerto Rico, that's going to likely be, so I can't comment on acquisition. So There's nothing I can give you there. And in terms of the organic, I would say that the actual CapEx, 30 to 40.

30 to 40 million. Yeah.

And with hopefully, I would say a lot more sort of specificity on that within 60 days.

Okay. And most of our, primarily that growth is, sorry, it's coming from the, from Puerto Rico expansion there, potentially? That's what we're anticipating, yes. Right, okay. And then looking at the Dominican Republic, the storage, so that's going to be delayed. As of your last presentation, it was, the COD was delayed. Q3 2025. Do you have any sense for, like, what type of delay you'd be looking at there? Are you looking at 2026 or even potentially later?

Yeah, I would say I would guide to construction, a CapEx outlay of 26, 12-month, call it, execution, so 2027 revenue. 2027, okay, thank you.

And then just in terms of M&A, so with the valuation spread being more narrow, does that open up larger opportunities for you? Is that changing the way that you're approaching acquisitions or is it just kind of, you know, opening up more of the same opportunities?

I wouldn't say, I would say we're looking at larger anyways because we have to as a company. So we already would have moved the size range up and we already were doing that. I would say sort of 5 million EBITDA at the low end up to 25. And we had done some smaller ones before. We won't do that again. So that already was part of the plan in terms of upsizing. And I would say that we are now seeing

Even the larger ones come in in terms of multiples, which is great. Okay. That's all I have. Thank you. Thank you.

Thank you. Your next question is coming from Sean Kravitz from Esplanade Capital. Your line is live.

Thank you. My questions have been answered. Thank you.

Thank you. Your next question is coming from Kirk Wilson from Beacon Securities. Your line is live.

Good morning, gentlemen. Same, same. Most of my questions have been answered, but I do have one more here. So just looking at Panama and the solar parks there, I see the firm rights for 2025 weren't awarded. Can you give us some color on pricing that we should be looking at for the Vista Hermosa parks?

yeah so 60 to 70 for this year it's tough it's going to become very gas price dependent now i would also say that we are going to look to potentially there's some commercial contracts that we could look to do instead um but those are those would be in that range as well so and i think that that is an indication, obviously, as to where those people think the market's going to be this year. I would say if NatGas goes back to $2 an MCF, you're probably in the $50 to $60. And then you could almost add about $10 a megawatt hour for every dollar per MCF, more than that range. So you sort of have to sensitize it to the gas price. which, you know, I'm not an expert in that, but, um, 60 to 70 is probably realistic.

Excellent. Thanks, Mark.

Thank you. Your next question is coming from Steve Gammemeier from Clara Securities. Your line is live.

Thanks. Uh, good morning guys. Um, uh, most of my questions have been answered here, but, uh, Just on the acquisition front, you say you have the $80 million there from the green bond, looking at taking some bigger swings possibly. You're getting to a bigger size here. What size do you think, production-wise, do you need to get to before one of the bigger players maybe comes in and takes a look at you just based on where you're trading versus their multiples?

I don't, I mean, that's a tough one for me to answer, Steve, but I would say, you know, I think part of the reason we've always been turning people to the 80 to 100 million EBITDA number is I think that is at the low end, you're getting into people's range, but also that it's just a much more diversified portfolio. I think diversification is, it's not just a size thing. I think we do need to get our portfolio more diversified such that it's not just the public markets that want to see a diversified portfolio, it's the strategics, and by that I mean both strategics as well as financial infrastructure funds. So, in that range, I would say we're diversified enough for a much broader audience to take an interest.

Okay. um no that's great and with the green bond uh you paid it down a bunch of the debt i think you paid down the brookfield as well um would would there be an appetite for them to partner on something larger with you now that you have the cash and perhaps maybe they want to put in some debt as well have you had those conversations or we're way too early for that um i i'd say they would

they would be interested in lending money as long as it's bigger than, you know, we did that 25 was very small for them. So it would have to be, you know, three, four times that probably on the lending side in terms of partnering, I wouldn't expect it. okay no that's great just given you know that's a bridge that's probably too big you know that's a gap that's too big in terms of right actually i was thinking more on the debt side to partner yeah yeah so so for sure i think that they're um it was a good relationship i think they're happy with how we performed um and so yeah i think i think it's just it would have to be part of a bigger transaction and And they could provide a nice sort of sliver of capital on a bigger transaction, for sure.

Okay, good. Thanks. That's all I had.

Thank you.

Thank you. That completes our Q&A session. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.