Polaris Infrastructure Inc

TSX:PIF

Good morning, everyone, and welcome to the Polaris Renewable Energy, Inc. First Quarter 2025 Conference Call. Please note, this conference is being recorded.



I will now turn the conference over to your host, Anton and Marc. The floor is yours.

Thank you. Good morning, everyone, and welcome to our first quarter earnings call for Polaris Renewable Energy. In addition to our press releases issued earlier today, you can find our financial statements, MD&A on both SEDAR+ 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 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 31, 2024.



I'm joined this morning, as always, by Marc. At this time, I will walk through our financial highlights. Power Generation, Consolidated power production for the quarter was 216,344 megawatt hours versus 213,434 megawatt hours for the same period in 2024. For Nicaragua in the first quarter of 2025, production was 114,424 megawatt hours, marginally lower compared to the same period last year. Consolidated production in Peru for the 3 months ended March 31 was in line with the comparative period in '24.



At our Dominican Republic Canoa I solar facility, we produced 16,083 megawatt hours in the 3 months ended March 31, compared to 14,530 megawatt hours in the same period last year. For Ecuador, in the first quarter of 2025, average production of 11,999 megawatt hours eclipsed the same period last year, which totaled 10,223 megawatt hours.



In Panama, Vista Hermosa solar park production of 5,433 megawatt hours was marginally lower than the same period last year at 6,130 megawatt hours. And finally, production for Punta Lima since March 3, 2025, the acquisition date was 3,558 megawatt hours.



Revenue. Revenue for the quarter was $20.3 million during the 3 months ending March 31, compared to $20.6 million last year. Net earnings. There was a net loss for the quarter, $10.4 million, owing principally to onetime finance costs incurred around the paydown of 4 loans compared to net earnings of $4.4 million for Q1 '24.



Adjusted EBITDA. Adjusted EBITDA of $15 million for the quarter compared to $5.7 million for the same period last year.



Cash generation. Net cash from operating activities for the quarter was $11.8 million, higher than the $8.7 million for the same period last year. Net cash used in investing activities for the 3 months ending March 31, was $14.7 million compared to $1.3 million in the same period in 2024. Principal use of funds was around the acquisition of Punta Lima wind farm in Puerto Rico.



And finally, net cash used in finance activities for the quarter ended March 31, is higher than the comparative period last year, reflecting the early debt payments of the 4 credit facilities totaling $120.6 million, including $114 million of principal and $6.4 million of accrued interest and prepayment penalties.



And finally, dividends. I'd like to highlight that we have already announced that we will be paying a quarterly dividend on May 23, of $0.15 a share to shareholders of record on May 12.



With that, I'll turn the call over to Marc, who will elaborate on Polaris' first quarter results as well as on current business matters.

Okay. So I'll just comment first, starting on Nicaragua from an operations perspective. In terms of the steam units, they were flat to actually slightly up quarter-over-quarter. Whereas the binary unit was down, I would say that there was some unplanned downtime, which resulted in approximately 1,200 megawatt to 1,500 megawatt hours less. So the change from Q4 to Q1 was 100% related to binary unit downtime, not a resource issue. So those issues resolved, and we do not expect them to continue for the remainder of the year.



For Peru, similar issues, I would say, again, the resource in Peru has been very strong. We're in the rainy season. It continues and resource was very good. But we did have some unplanned downtime at 8 de Agosto to fix some bearings. And just given the resource was actually stronger than normal, it just came with a lot of sediment or more than sentiment in the intake, and that was about 4,000 megawatt hours effect on 8 de Agosto. But again, resource quite strong. I would say the rest of the production for the group was in line. Some was up, some was down. The DR was up given the panel replacement program. Ecuador was a little bit higher. Panama was a little bit lower. That's all purely resource driven.



And then the comments on Punta Lima would just be that it was only 28 days of consolidation in the numbers. So there's really not much to read into that. I would say that the actual production of the facility in Q1 was 16,150 megawatt hours, which would have been slightly above budget for the quarter. Obviously, we didn't consolidate it. But Q1 was tracking actually a little bit higher than what budget is based on what we're targeting for that facility, which is great.



In terms of the balance sheet, there was a lot of noise in the quarter just because of the repayment. We raised the bond in Q4, but we repaid all of the debt in Q1. But I'd just say the most important thing is, we've ended up now with debt of about $225 million is the important number and cash on hand of $91 million. So we are well cashed up to grow the business, so very strong balance sheet.



And really where we focused, I would say, right now, the #1 focus is the ASAP battery program in Puerto Rico. It's by far and away at the top of the list for us in terms of our return profile and in terms of quality of contract profile. So I had mentioned on the last call and that we would have an update and we continue to progress. I would say that the targeted signing on their end that they put down is mid-June. So I'll say, 60 to 75 days because they always take a little bit longer than we want. But we're doing weekly calls with them. We are back and forth on contract draft.



So my hope is that by sort of our Q2, we have signed the contract and can report and give, I would say, a few more specifics on the actual, call it, CapEx and return. But the high-level sketch is what we're aiming for right now is an 80-megawatt battery times 4 hours. The way that the payment stream works is, its $16,000 per megawatt of capacity per month. And now that is assuming you get an ITC credit, which we do believe we will still get that. And that would take your -- so the gross CapEx, the way it works is we're estimating right now about $70 million, but that's before any ITC grants, which are likely going to be in the $15 million to $20 million range. So that is, call it, a net CapEx of $50 million. So we definitely have cash on hand to fund that.



If we did sign in June, end of second quarter, we could still see realistically a 12-month time frame to COD. So that's the timing we're looking at. And when you run through the math, you'll see that in terms of, it's also worth mentioning that several of the key cost items for that are actually paid for by the offtaker, the biggest one being insurance. So the revenue line is going to be very close to the EBITDA line given that we already have an operating facility there, we do think that the EBITDA margin should be very high, especially when your insurance cost is a pass-through to the offtaker.



So really, I would say, in terms of our capital right now, the plan would be to earmark it for that, and we'll know in the next 2 months. Again, when you do sort of the numbers, net CapEx of $50 million, if we're looking at -- that's assuming ITC should be about $15 million of EBITDA on that. It's a 20-year contract and its pure capacity payment. So we definitely like that a lot.



And we do, as always, have a pipeline of acquisitions. I would say that the return profile on those has improved in these markets. However, I would still say the gap between -- what we think we're looking at with the ASAP program and what we think we can get on these operating acquisitions is still big enough that it dictates that we're going to prioritize the ASAP. However, we can definitely switch gears if for whatever reason those ratios get tighter. And I would also say that we do think with the bond that we could tap into more capital for an acquisition of, call it, operating assets, which pretty much everything we're looking at on that side are operating assets on the acquisition side.



So I think in terms of increasing the size of the bond as long as it's for operating assets, I think that would be a good use of proceeds, and I think we could look to that. So I do see a combination of those 2 things as being very feasible in the next 6 to 9 months. And that's really going to be the focus on growth in the next 6 to 12 months. And then lastly, I'll mention that in the quarter, we purchased 26,000 shares on the NCIB. Year-to-date, we're at 38,000. I think we've done sort of 90,000 since we started. Small numbers, but we're going to continue to chip away at these prices, targeting, I would say, anywhere from $1.5 million to $2 million a year would be really where what we're looking for. And now if the shares, I would say, if they went down, we would increase that number in terms of putting more capital to work. But I don't think we're going to go too much given, I would say, the opportunities that we have facing us. We want to make sure that we have enough capital to execute on those opportunities.



With that, we can open it up for questions.

Your first question is coming from Rupert Merer of National Bank.

If I can start with Puerto Rico. So given that a lot of the cash you have on the balance sheet has come from debt, so we do understand then that, that net CapEx of $50 million, you wouldn't look to put any more debt on that asset at this time?

Correct. Not at this time, no.

And can you walk us through how tariffs or any trade restrictions are going to impact investment in Puerto Rico or how it might create some uncertainty for that project?

Yes. So if it was today, for sure and likely there's going to be some tariffs, I would say, if you were to split the CapEx, when we look at it about 70%, plus or minus 5%, is the containers with the batteries. So the bulk of your CapEx, but not all of it, but take 70%. That would be tariff now. It's going to have a tariff or likely to. And so $70 million, so let's take $50 million of the $70 million would call it, is at risk for the most part.



Even some of the $20 million is, but we don't think that -- we think we can maneuver on the $20 million in terms of the balance of plant and find local suppliers. But on the $50 million, you really are looking at China, I would say. And so the conversations we're having though is about including essentially a pass-through clause on the, let's call it, 70% of the past -- of the CapEx. So I would suggest that the signals and the conversations are very good in terms of their need for this product. 2 weeks ago, there was a massive blackout there. They are having issues with their old generating units. And so all signs are saying that they want -- need the product. And so they're willing to essentially take on the tariff risk to get this going. So we don't have that sort of signed in the contract yet, but it's for sure being added.



So from a return profile, we don't see any changes. The only issue then becomes what's the capital requirement to get to the finish line. So that's where we're at. I would hope and expect that by the time we're getting to sort of putting anything on a boat that there is a little bit more clarity as to exactly what we're looking at.

Are there any tariff scenarios where the project would not go forward, say, tariffs over 100%? I know it's a fairly dynamic situation, but does this go ahead in any case?

In any case, I would say no, but I'll give you some numbers. So the $16,000 per megawatt per month, right? -- let's just call that a 0 tariff world, although there was already some tariffs in that number, but just to keep it simple, call that the 0 tariff world and again, assuming 70%.



If there was 100% tariff, right, that would -- that $16,000 would go basically to about $25,000, $26,000. I can tell you that 12, 18 months ago, they approved several battery projects with that price with a $26,000 price. And the reason is when they did their math, battery prices were just that much higher. In other words, they've come down that much. So we don't have sort of what a price yet as to what's their top but they were willing to accept $26,000, 12 to 18 months ago. And so I do think that 100% tariff, we're still in the market.

And just a follow-up then on battery costs. So battery costs have come down. You have some markets like the Dominican that wouldn't have tariffs. How is your Canoa II plan shaping up? Is the economics on that must look pretty good. And I know you had some curtailments there recently. Does that project still go forward? Is that still a priority?

Well, I would tell you, we are absolutely reinforcing to them that we offered them a proposal 6 weeks ago in terms of what we would do in terms of a price for the energy, the extra energy that we would be willing to only supply between 6 and 12 p.m. at night. And then as of 2 weeks ago, we have reiterated to them that we're more than likely going to be able to do better than that based on the tariff situation, everything that's happening.



So we do think that we can sharpen that, and we're trying to get the economic response on that. So that's what we're waiting for. Everything for sure points to batteries and exactly what we're doing. I think they just want to make sure that they don't set any precedence with us that they're not going to apply to the whole market.

Your next question is coming from Nick Boychuk of Cormark Securities.

In Puerto Rico, I know obviously, Marc, you're taking advantage of the existing interconnect. But with returns so robust on these battery energy storage projects, are you finding opportunities or looking at ways to add more than just this one project?

Yes. I would say, we have quite a list of interested parties. it runs the spectrum of a developer that's got a site that is ideal for another battery project to some battery projects, believe or not that are already approved, but they're looking for the capital as well as a couple of operating projects with great PPAs that are looking. So I would say that it's all of the above there, for sure.

And if we're thinking of the development of that like the existing asset, these others and to Rupert's question about the incremental debt, what would be the upper range of the leverage profile you'd be comfortable going toward?

I think now the nice thing in Puerto Rico is with all of those contracts, given us the capacity payment, i.e., there's no resource risk on our side, just pure operations. I would say, if we're layering in that, you could probably get me from 4x debt to EBITDA to maybe 4.5x. If it wasn't those type of contracts, I would say, we'd be looking at sort of 4x is the right number. But I think with that contract profile, you could probably push that up to 4.5x.

And given that robust return profile and the fact that it is no technology risk, capacity payment, is there an opportunity or a reason to look at technologies other than traditional lithium battery energy storage solutions? Could you start to look at other things like compressed air, concentrate solar or anything else?

Yes. And I would say, the black that they had there 2 weeks ago, the compressed air would have been actually a very welcome technology because of the sort of spinning reserve that they provide the grid. It would have helped them out. I would still say, we're on the cusp of bankability for some of these things, but we're not there yet.



But in the medium term, for sure. And I would say, I don't think it's going to be 100% lithium. But in the next 12 months, I think it will be 100% lithium.

Your next question is coming from Daniel Magder of Raymond James.

Marc, you mentioned the drop in Q1 being related to the binary unit. Just wondering, when we can expect the binary unit to be back up to full capacity?

No, it is. And so it's -- we performed some maintenance back when we did major maintenance on the turbines, the steam turbines last year, but we had to do more, which was not planned, but it's done, and we took the downtime and that was the big cause for the discrepancy between Q4 numbers and Q1 numbers, but that's done.

You mentioned in the past that as far as returns to shareholders are concerned, it seemed like the dividend was your preferred method. I guess given the activity on the NCIB this quarter, has your thinking shifted? Or are there plans to use both tools?

So I would say, it really isn't that it's shifted as much as the better way to enunciate it is that returning capital to shareholders is the ways in which we do, I would say, is share price dependent. So we didn't think that after closing, but more importantly getting the bond done that our shares would be where they are. So what we think are depressed values to us, it makes more sense to pick up some stock, great investment, whereas increasing your dividend, it just doesn't seem like you're going to get paid for it. So yes, it's price dependent, I would say. So here, I would say, assuming we're in anywhere near this band, then it's more NCIB and not dividend increases.

Our next question is coming from Patrick O'Donnell, who's a private investor.

In terms of operational risk, how do you guys go about diligencing or developing the ops team for potential acquisitions?

Well, we operate all of our plants. So from an operations perspective, we have over 100 employees that are dedicated to operations. So they are always involved in the diligence just as an aside for Punta Lima, though, it is a little different in that Vestas, which is the turbine manufacturer, they do have the operations there for the turbines themselves between the turbines and call it, the interconnect, i.e., balance of plant, that is us.



But so that plant is, I would say, much less in terms of our own operational sort of staffing and resourcing that we need to do. But so it's that operational team that is, I would say, involved in the daily operations diligence, whereas in terms of, I would say, resource, that tends to be outsourced engineering firms that we get to help us with that. And then legal, it's obviously local legal counsel.

Yes, I'm referring more to kind of the operations and maintenance team on the ground once the plant is operational. So it sounds like PR is really Vestas contract maintenance in terms of other potential acquisitions, I mean, do you plan to sort of acquire the staff? Or do you typically bring in new people to -- that would run the plant?

It's going to be a combination. But our model is to the extent we can, operational staff for employees of the company in the wind projects do tend to have more of an outsource at least for the turbines. But for the other generation types of solar, hydro, geo, we're going to want to have our own employees running that. And whether we assume all the current employees or whether we put some of our own in or mix, that it all depends. It depends on how we think the quality of the staff is clearly.

Does Vestas have any sort of performance alignment in their agreement?

Yes. They have bonuses that are based on actual delivered production, and there's penalties based on if the availability is lower than certain thresholds.

And I guess with an expanding portfolio, new jurisdictions that you're acquiring and looking at, what's the biggest challenge for you to managing multiple assets abroad? And how do you go about it?

Yes. I would say, it's not -- it's probably not what you'd expect. I would say the operational side of it is not the hardest part of it because we find that we have a lot of experience, and we don't have issues finding qualified people in these markets. And it's a relatively good paying job. I would say, believe it or not, this on the accounting and payable side, which is a little bit more of a head office burden, but that's not complicated, I would say. That's just how much staffing you need. And probably the more complicated thing is just that every single country we operate in, the regulatory framework is different, and that's the harder part.

So yes, a matter of figuring out what that is and navigating that and once you get...

And this is when I mentioned local legal counsel, there's always several firms that have relationship with the government entities. They focus on the energy sector. And so you need them because they understand all of the rules and how different they are. So that's really critical. But it's all doable, I would say.

Final question on the NCIB daily buyback volumes. Any reason, why they're so low like buying 200 shares or even 500 or 1,000. I mean it just -- it almost seems cost prohibitive to buy at such a low volume. Anything you can say about that?

Well, I wouldn't say, its cost prohibitive, it's pretty easy to pick up stock, whether it's $500 or $1,000. I just think we're targeting, as I said, just a couple of million dollars, which is about 1,000 shares a day, maybe a little bit higher. But with -- for a small company like ours and with a project like the battery at Punta Lima. So that's $70 million. The ITC comes on the back of that. You don't get that upfront. And if there's terms, you could have an extra $10 million, $20 million, $30 million. So -- and that's well in excess of 20% IRR, unlevered. So we can't -- you start going crazy on the NCIB, then we need to come back and raise capital. But to me, that just doesn't make sense, not in these markets.

I guess my question to clarify was you know the price per share is at a point where you want to buy back. Why wouldn't you buy more shares at a time per day, knowing like, yes, you're going to buy 20,000 shares at this price? Daily volume limits.

Yes, I would just suggest that every time somebody is worried they can't pick up an amount of stock, they always can. And so we would rather be in the market every day, than literally do it in 2 days or 3 days and be done with it. So I think us having -- even if it's small, but having something in the market every day is a better way to go. I mean, we could debate this, but that's just what we're going to do.

Well, we appear to have reached the end of our question-and-answer session. I'll now hand back over to Anton and Marc for any closing comments.

Just thanks, everyone, for joining today. Have a great day.

Thank you very much. That does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.