Polaris Renewable Energy Inc.

Good day, everyone. Welcome to the Polaris Renewable Energy, Inc., second quarter 2025 conference call. At this time, all participants have been on the listen-only mode, and after management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Anton Jelic. The floor is yours.

Thanks, Kelly. Good morning, everyone, and welcome to the second quarter earnings call for Polaris. 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 denominated in U.S. dollars. I'd also 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 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 our company's annual information forum for the year ended December 31st, 2024. At this time, I'll walk you through our financial highlights. Power generation. Consolidated power production for the quarter was 215,797 megawatt hours versus 186,886 megawatt hours for the same period in 2024. In Nicaragua, in the second quarter of 2025, our production was 110,895 megawatt hours, marginally lower compared to the same period last year at 114,046 megawatt hours. For the three months ended June 30th, total power production from the company's three hydroelectric facilities in Peru was 54,778 megawatt hours, versus 42,374 MWh during the same period last year. At our Dominican Republic Kanoa One solar facility, we produced 15,647 MWh in the three months ended June 30th compared to 14,613 last year. In our Punta Lima wind project in Puerto Rico produced 17,814 MWh exceeding management's expectations with no comparable production last year as Polaris had not yet acquired the facilities. For our hydro in Ecuador in the second quarter of 2025, average production of 12,687 MW eclipsed the same period last year with a total of 11,253. And finally, in Panama, Vista Hermosa Solar Park production of 3,976 MWh was marginally lower than the same period in 2024. Revenue. Revenue was 21.6 million during the three months ended June 30th, compared to 18.7 in the same period in 2024. Adjusted EBITDA. Adjusted EBITDA, $15.4 million for the quarter compared to $13.3 last year. Furthermore, for the six months ending June 30th, the company realized $30.4 million in adjusted EBITDA compared to $29.1 million in the same period last year. Net earnings. Net earnings for the quarter was $2.2 million compared to $985,000 for Q2-24. Cash generation, net cash from operating activities for the six months ended June 30th was broadly in line with the same period last year. Net cash used in investing activities for the six months mainly reflects the initial $15 million payment for the acquisition of Punta Lima Wind Farm while there was no comparative transaction in 2024. Net cash used in financing activities also for the six months was higher than the comparative period in 2024, reflecting the early debt repayment of four credit facilities, totaling $120.6 million. Dividend. Finally, I'd like to highlight that we have already announced we will be paying a quarterly dividend on August 22nd of $0.15 per share to shareholders of record on August 11th. With that, I'll turn the call over to Mark, the library and employers' second quarter results, as well as on current business matters. Thanks.

Thanks, Anton. Yeah, so high-level comment with the quarter, I'd say it showed the benefits of diversification. We had a full quarter of Punta Lima in there, and we had better hydrology in Peru and Ecuador, and the Punta Lima quarter the wind resource was stronger than what we budgeted. So those were both above budget, which was great. I'd say both solars were in line. Irradiation was a little bit lower than expected, but definitely within budget parameters. And then San Jacinto did come in below due to some unplanned maintenance at the end of June. So for the last 10 or 11 days, it was lower than normal. had to do with repairing uninterruptible power supply, which had downtime associated with it. And then that did cause some increased cycling in, well, 6-2 for several weeks, which has since recovered back to normal conditions. But it did have an impact of about – 2,200 megawatt hours in the quarter. But net, on average, I would say we were up marginally from budget on a consolidated basis given the outperformance in the hydros and the wind. I would also comment that the costs continue to be contained and below inflation due to efficiency gains that we're seeing. This quarter did have a full quarter of Punta Lima, so the costs on a consolidated basis did go up. But if you look at Q2 of last year, our actual off costs and G&A for the rest of the company is down year over year. So I think that's great. With regards to sort of rest of year, what we expect, it is worth reminding people that Q3 is the dry season. It's always the dry season. So the Peru hydros and Ecuador hydros are always the lowest this quarter. We also have moved the major maintenance in San Jacinto to actually January of next year. So that's going to be bumped out. So it should be running. There'll be no maintenance at San Jacinto, no planned maintenance for the rest of this year. And I would say that we should be in the net, call it 49 to 51 megawatts, at San Jacinto for the rest of the year. We would expect the solar assets to continue to run at similar levels to the recent quarter, a little bit higher. So that's with respect to the quarter and call it rest of the year for the current plants. With respect to the growth and the development, the big focus remains Right now, the most near term is the ASAP program in Puerto Rico, which is the Battery Project. We are confident that the contract will be submitted for approval from the authorities on Friday of this week or first thing next week. But we will likely be doing a press release to highlight that. It does not mean that it's... approved but we do think it's a very big step for us and we'll start the clock ticking on the approval process I think if you assume anywhere from a 30 day to I'd say worst case 90 day approval process that can still put us that would allow I would say a target of mid year next year for COD as possible so we're still going to be gunning for that and And I would also say that from what we've seen, capital costs, at least on the battery side, continue to be very attractive, if anything, getting a little bit better. So look for that press release, and we're very excited about that. We're also hopeful that this will not be our only storage project in Puerto Rico. We are in conversations with other developers that have abilities to do storage projects. There is also something called SO2, which that's more of a, we think, a next year event, but there is definitely interest on the side of the parties and the government to do more after the current round. So, you know, we definitely think there's interest there as well. So one way or the other, I think there will be more storage after the first SO1 contract. And then I think I should also mention in terms of other, call it brownfield development in the Dominican, as people know, we have been delayed on that. However, things are moving. We have several key approvals and green lights for ministries such as C&E, the environment ministry, attend to it. So we are... We are getting over some key hurdles here, and we are looking to finalize the terms of the contract. It is for sure going slower, but I do think by the end of this year, we could have a green light on the Kanoa 1 expansion. And I would note that if we're able to move both of these projects forward, They will be the first brownfield development projects for the company. Our track record has been more acquisitive. We're buying even shovel-ready projects, but not doing our own development. So we are doing our own development for these two because they're brownfield. That is new for the company, and it is a strategic initiative. And I think if we can move these forward, I think it's a great sign that that initiative is working. And in the end, it should, we believe, create more shareholder value in the long run as we're keeping, call it that, development margin. However, we will plan to supplement that with M&A. We are involved in several processes as we speak, as we always are. I think the only thing I would say is we're trying to be quite opportunistic on that. And I would say multiples have come down there. However, the opportunity on the storage side from our perspective, has gotten better given where the capital costs are going and we're seeing more opportunities that I would just say that the bar is, if anything, moving the bar up a little bit in terms of what we need to see on the acquisition side. But we have a good balance sheet to do both. Had $91 million in consolidated cash. This year to date, I'll just mention we've purchased 53,000 shares for cancellation through the NCIB. And we did about half of that in the quarter, Q2. And I would expect that the amounts going forward to be quite similar to that, at least in the near term unless things change dramatically. So not a huge use of capital, but we do – We like being in the market. We like the shares. We think there's value there, so we will continue to be in the market buying small amounts as we move forward. So that's it. We can open up for questions now.

Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a few moments while we poll for any questions. Your first question is coming from Nicholas Boychuk with Cormark Securities. Please pose your question. Your line is live.

Thanks. Good morning, Mark. On the ASAP battery program, can you quickly run through what the – the timeline looks like. So if the ASAP contract comes out this Friday or early next week, does that give you the visibility to start the procurement process? Just walk us through a little bit of that timeline.

Yes. So we would launch procurement right away. We've already identified the names of the suppliers that we want to work with. That's a, call it a 45-day process. If we do that in parallel with the approval process, I think we'll get Let's just say that it's a 45-day approval process, so that would put us to call it September, really, choosing the manufacturer. I do think nine months is actually achievable based on what we're hearing. Maybe it slips to mid-Q3, but I think that that's very achievable.

Okay. And can you just remind us a little bit the quantum of the opportunity here, both with SO1, the ASAP program, and then SO2? Yeah. How many projects could you guys potentially get out of this?

Well, so first, when we do make a release here, we have been talking about 40 megawatts times two, so 80 megawatts, four hours, so 320 megawatt hours. We will say in the press release that instead of 40, it's 35.7 times two, so 70 megawatts. you know, 1.4, but we are still going to, in the approval process, try to get that up to 40 times 2. So worst case is it's more like 90% of what we said, but we will provide more detail on that. And so then what we have been told, though, is that there's interest on their side in doing what they're calling SO2, which is further procurement. I do think that that is somewhat dependent on how much uptake they get on SO1. But what we're hearing is that there will still be room for them and demand for them to do more. So I'd say the big difference for us there is we have Transformer. at 40 megawatts, which we would essentially use up on SO1. So we would need a new transformer. But there is line, there is capacity on the transmission line, which is great. And the CapEx for, call it a transformer, are not really a big number at all of that size. And given that really that it would be coming, let's say that that is more of a contracting event next year. There'd be no bottlenecks in getting transformers of that size, my understanding. And we've had some conversations, but I think that some of the bother, the long lead items on the transformer tend to be the bigger ones. So I think we'd be fine. And it's not a big CapEx item. So that's the only difference for us. But I think that would be anywhere from, you know, I think we would target a very similar size, quite frankly, like another 40 times two. So, yeah, I mean, we still – we haven't, you know, signed SO1, but it does appear from what we're seeing that there's for sure interest on their side in doing more. And given the interconnect we have, I think we're positioned quite well.

Okay. That's good. If you're ranking out these projects, you mentioned, obviously, the return profile on this makes M&A, the bar, a little bit higher. Can you comment at all on how the return profile looks like for M&A spend versus the brownfield in the Dominican? Like, if we're thinking out to how you're going to be deploying this capital.

At a super high level, if I was to say our brownfield Dominican is anywhere from, let's say, 15% to 20% higher ballpark, I would put M&A at what we're seeing 12 to 17. Okay. But if you were to go through... I would say that that's for more in-the-ground operating projects. And so that range has definitely come up from what it would have been two, three, four years ago, for sure. It would have been at least two and a half points lower than that, at least.

And so just conceptually, if you had a 12 to 17 versus the 15 to 20, I'm assuming that the risk profile is much better for an operating asset already, and there would be preference to that over the brownfield. Is that fair to say?

Yeah. You do start to get into real, you know, what are the contractual differences? How is it, you know, 15 versus 20 years? And this is also not hydro, right, in terms of construction. So, Believe it or not, for me, to do a solar or just storage, there's a bit of time there, but I wouldn't put the risk as much more than 2.5% difference between those two options. In other words, if it was 3% or 4% different, I'd probably lean on building our own and doing our own brownfield.

Does that make sense? And then last. Yeah, absolutely. That's really good, Tyler. Thank you. If you were to go through all these three programs, you've mentioned you've got roughly $90 million cash on hand. Between that, I think there's the additional add-on that you could do with the bond. How are you feeling about capital? Do you have anything you need?

Yeah, I would say we would only start to, like, we could likely do, for instance, with what we have available in the bond facility, we could do SO1, we could do DR, we could even do then either SO2 or an acquisition, even It just really comes down to sizing at that point, but it would be tough to do all four of those. Understood. Okay. Awesome. But we could for sure do three of them with the bond and the cash on hand. Okay. Thanks, buddy. In terms of if I ordered them, it would for sure be SO1, I would say. And then the DR, because, again, maybe it's a lower return profile for sure than SO1, but it's still expansion of a current project and under a great contract. So I'd put that next, and then maybe it's debatable. It's really on a new acquisition or SO2. At this point, I would say it would probably be equal. It really would come down to a little bit more information on both, right? I would tell you that you're probably still going to have a higher return profile if SO21 moves ahead.

Okay. Makes sense. Thanks.

We have a question coming from private investor, Akshay Thola. Please pose your question. Your line is live.

Hello, team. My question is on the Nicaragua asset. In the past, the team has mentioned about a decline rate of 3% to 4%. When I was just checking over longer periods of time, like if I consider from Q2 2023 to Q2 2025, the decline rate is about 7%. And I think even if you go before the binary unit came online, it's much higher, too. So I just wanted to understand maybe what should be considered as the, let's say, like an analyzed kind of

Yeah, no, I would say we've seen nothing that would change that. You can have certain operating conditions that make the results, you know, in a quarter appear higher. But the big thing from when, you know, the seven from last year is that we did make the decision to run the binary unit lower. Okay. More like seven to seven and a half megawatts instead of 10, which, so on a, What was behind that, though, is that the actual steam, which is the asset that has the declining tendency, it actually, in that quarter or that period, it barely declined at all, the steam. But we had the total consolidated results were down much more because of the binary. So when we look through the binary and if we take that out of the numbers, yeah, I think 3%, 4% is still a good number.

Okay. And overall, not just Nicaragua, for the total assets, what would you say is a normalized annual maintenance for the company?

I think it's $400,000, maybe up to $500,000 at the most.

Okay. And that's annualized for all the assets?

No, sorry, I thought you were talking Nicaragua.

Yeah, no, I was just talking for the assets.

For the whole portfolio? Yeah, it's going to be around a million, just shy of a million. Okay.

And then I guess my last question is around if I just take a bigger picture in terms of like looking at how the stock is performed over the years, if I just look at like a 10-year return, the stock hasn't moved at all. Like most of the returns have come from the dividends. So over the last 10 years, the annualized return for an equity holder is about 5.94 with dividends reinvested. You know, and looking at it like equity holders have earned less than debt holders, let's say a green bond holder or even a debt holder. So I wanted to check with the team on maybe is there any avenue to change capital allocation to give better returns to equity holders in terms of doing special dividends? And if that's not the case, why not? The market, like the assets of the company have changed since 2015. You guys have diversified into other areas of business geographically. but the market isn't valuing those. So maybe is there going to be a change in the capital allocation strategy to help give better returns to equity holders?

Yeah, I don't think capital allocation necessarily gives better returns to shareholders. What I would say, though, is the decision that we have made and that we're going to stick to is that – The share price is highly related to the risk perception of the asset base, principally Nicaragua. And so because we have been paying dividends and paying down debt, our ability to reduce the percentage weight of Nicaragua has been limited. And it's still high enough that we traded a discounted multiple. And so... The decision is we need to use our extra capital to continue to grow, which is what we're doing, which is why these battery projects are so important. Because with, for instance, one of them, we can get Nicaragua below the 50% number, which we think is a very important number from a business perspective, not just from a market perspective, but we do think it's very important from a market perspective. to do that. So if we start using all of our capital to prevent that and to buy shares, and then we can't do these projects, we won't get to a point where we can get what I would say is an appropriate multiple placed on the equity. So that's what we've decided to do. And I would suggest that we will continue to do that for the medium term.

And so once it goes below, let's say, once Nicaragua is less than 50%, then would the allocation, like the capital allocation strategy, would that change to, let's say, more buying back shares or special dividends or increasing dividends?

I think it really depends on where the equity is trading at at that time. I think if the equity is super low, we would more consider, I would say, buying back more stocks. And we are in the market buying stock. We would consider to buy more. We will have more cash flow, right? And so I would also say, though, just a regular dividend increase would be considered before we start considering special dividend increases. So I would put regular dividend increase, buying back more stock. Those two would be the ones on the radar, not necessarily a special dividend.

Thank you so much, and I appreciate you guys allowing retail investors to ask questions. I clearly appreciate that. Thank you. No problem. Thank you for your time.

There appear to be no further questions in queue, and this call is now concluded. Thank you for joining today's call. You may disconnect your phone lines at this time, and have a wonderful day.