Polaris Infrastructure Inc

TSX:PIF

Q3-2025 Earnings Call

[Operator]

Greetings. Welcome to the Polaris Renewable Energy Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Alba Ballesteros, CFO at Polaris Renewable Energy. You may begin.

[Alba Ballesteros, executive]

Thanks, Hallie. Good morning, everyone, and welcome to the 2025 Third Quarter Earnings Call for Polaris Renewable Energy, Inc. In addition to our press releases issued earlier today, you can find our financial statements and MD&A on both SEDAR+ and our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars.

I would 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 Inc. and its subsidiaries. These statements are current expectations and as such, are subject to a number 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.

At this time, I will walk through our financial highlights. Overall, Q3 2025 was a steady quarter for Polaris. Results reflected solid operational execution, disciplined cost management and the second full quarter of contribution from our Puerto Rican wind operations. Together, these factors supported both year-over-year and year-to-date growth in generation, revenue and also adjusted EBITDA, despite production generally being lower in the third quarter of the year, which coincides with the dry season in those countries where the company has hydroelectric plants, and therefore, there is less resource available for energy generation, as is the case of Peru and Ecuador, as well as the rainy or hurricane season, and therefore, we have less radiation or wind in those countries where the company operates solar plants as it is the case of Dominican Republic and Panama and our wind farm in Puerto Rico.

So starting with operations. Third quarter consolidated energy production totaled 181,235 megawatts hour versus 168,639 megawatts hour for the same period last year. Consolidated energy production for the 9 months ended September 30 totaled 613,524 megawatts hour, representing an 8% increase as compared to the same period last year. The strongest performance this quarter was achieved by our hydroelectric project in Peru, where favorable hydrology during what is typically the dry season and an excellent plant availability led to a 44% increase, both in Q3 2025 and year-to-date in hydro output for the Peruvian projects.

Our hydroelectric facility in Ecuador also had an exceptional quarter, producing 24% more energy in the 3 months ended September 30 versus the 2024 comparative period, thanks to strong rainfall and an excellent technical performance.

In Puerto Rico, the Punta Lima wind farm acquired in March added incremental production that did not exist in 2024, and is now fully integrated in our portfolio. In Panama, solar generation in the quarter was 2% higher than in the 2024 comparative period. These increases offset lower output from Nicaragua, where short-term well instability and natural steam field decline earlier in the quarter reduced generation by about 5% for the 9 months ended September 30 versus same comparative period in 2024.

Production at our Dominican Republic Canoa 1 Solar Facility decreased 1% in the quarter when compared to the same period in 2024. While year-to-date, the production increased 5% versus the 2024 comparative period, reflecting efficiency gains from the new panels installed in 2024, which allow offsetting grid-wide curtailments.

Overall, our diversified portfolio spanning geothermal, hydro, solar and wind across 6 jurisdictions continues to provide balance and resilience in the face of localized resource variability.

So turning to the financial results, starting with revenue. Revenue was $19 million during the 3 months ended September 30, which represents an increase of 8% versus Q3 in 2024. Revenue year-to-date was $60.9 million versus $56.9 million in the 2024 comparative period, reflecting higher generation in Peru and Ecuador, as we have mentioned, and the addition of our project in Puerto Rico, the Punta Lima wind farm.

Adjusted EBITDA, adjusted EBITDA of $12.8 million for the quarter compared to $12.4 million for the same period last year. And furthermore, for the 9 months ended September 30, the company realized $43.2 million in adjusted EBITDA compared to $41.4 million in the same period last year, reflecting a 4% increase.

Operating margins remained strong despite inflationary pressures and the integration of new assets, supported by disciplined cost control and lower insurance expenses following our debt repayment.

Cash generation, net cash from operating activities remained robust, with $29.2 million for the 9 months ended September 30, exceeding the same period in 2024 by $3.3 million. The increase mainly reflects the collection in Q3 2025 of the strong Puerto Rican revenues from Q2, which follow a 47-day collection cycle, and the shift from quarterly interest payments from regional loans in 2024 to semiannual bond interest payments in 2025.

Net cash used in investing activities for the 9 months 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 for the 9 months mainly reflects the early debt repayment of 4 credit facilities totaling $120.6 million.

Dividend. Finally, we remain committed to delivering shareholder returns. I would like to highlight that we have already announced that we will be paying a quarterly dividend on November 21 of $0.15 per share to shareholders of record on November 10.

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

[Marc Murnaghan, executive]

Thanks, Alba. I'll just take a few, call it, operational comments about where we see sort of the rest of the year looking forward. As Alba mentioned, the hydros were stronger than normal in Q3, which is the dry season in those jurisdictions. But we -- and we do see that, at least October to date, continuing. So hydros, we think, will be somewhat stronger than usual in Q4 here as the rainy season has started somewhat earlier than normal. I would say, what's going to offset that a little bit is that those call it, rainier conditions do seem to be also in the solar jurisdictions, DR and Panama. So they're looking maybe a little bit softer. But I would say, the net effect of those 2 things should still be positive in this current quarter.

I see San Jacinto, as I mentioned the last quarter, in the 49 to 51 range, which it did. And then I would just -- I'm saying 50 megawatts current quarter, plus or minus a little bit similar. So that -- when I run our numbers, that would bring the quarter in around 195 to 200 gigawatt hours, it would be the current range that we're looking at right now. And just a reminder that -- and that is because we have moved the major maintenance at San Jacinto into January of next year instead of December of this year, just based on some availability of Fuji staff. So that will land in Q1 next year.

In terms of really the growth and the developments, the big focus remains ASAP. The update on that is that the contract was submitted by ourselves in LUMA to PREB, which is the Energy Board, a while ago. It was approved by them, and then it went to PREPA. And just to explain -- I'll give a little bit more detail. There's 3 entities that need to approve it there, which is PREB, which is the Energy Bureau, then PREPA, which is the contracting agent. And then after that, FOMB, which is the Oversight Management Board.

Basically, we had received PREB. We have PREB approval as of this past Monday, and I would highlight that on September 22, the governor issued an executive order, which was really focused on the energy, call it, emergency situation. It's an acute need for more energy on the island. And in that order, it was really, I would say, directing government entities, whether it's PREB, PREPA or even Ministry of Environment, to expedite approval processes and permitting processes, such that new generation and including storage can get brought on the system quicker than what has traditionally happened in the past. So we are -- while it did take a bit longer than we expected to get this PREB approval, we are expecting things to move reasonably quickly from here on out.

What does that mean, though, in terms of -- we would look at likely a Q4 in-service date next year for that. And in terms of the sizing, it has landed on 71.4 megawatts, which was approved as opposed to 80, and that's really just a technical limitation at the interconnect point. So those metrics, based on what we're seeing from the procurement, and we are, I would say, reasonably far along in the procurement process, it would be gross CapEx of about $70 million. But we do still anticipate being able to achieve an ITC on that, and which would bring the CapEx down to a net CapEx of about $50 million. And at that size of 71.4, you'd be looking at EBITDA around the $13 million to $14 million on net CapEx of $50 million, which is about a 3.5 to 4x sort of CapEx divided by EBITDA build multiple. So still very excited about those numbers and hoping to launch the program in this quarter and the next month.

We're also hopeful that this won't be the only storage project in Puerto Rico that we do. We've already been asked by LUMA to formally give our intention to move forward with something called SO2, so we're looking at that. And I would also say, given what I mentioned with the executive order, we are talking to several developers on the island -- or with projects on the island for more traditional solar plus storage projects that have contracts or have been awarded approvals for contracts, but they're looking for sort of larger financial partners or operational companies, and this has really come on the radar screen just in the last, I would say, 2 to 3 months.

We like these because of what we're looking at on the island as well as they're reasonably chunky. I would say the small ones are $5 million of EBITDA, but we're seeing things in the $10 million to $20 million range. So but with very good, I would say, capital ratios, probably not quite as good as the ASAP program I mentioned, but in the, call it, 5x, which we're still looking at 20-year USD contract. So that's very good return profiles. So that really is, call it, the brownfield focus right now. And I would say that is the focus for the company.

I would mention the DR, which we have continued to push on more in the background. It looks like that will get pushed into next year in terms of potential contracting as the government is now saying that they want to look at doing a tender situation instead of bilateral. We would obviously have the ability to participate in that. And I think we'd be in a good shape for that, but we do need to wait likely 'till next year. So what that means is really pushing the Puerto Rico projects in front of that.

Balance sheet is strong with $99 million of cash. We did repurchase another 27,000 shares in the quarter in Q3 and continue to in Q4 here. So I guess the -- it is somewhat slower coming with the ASAP project, but we're very confident it is coming. And with these other projects that we're looking at, I do see a situation quite quickly here where we will be using up that spare capacity on the balance sheet that we have and hopefully then some.

So really, I would say, over the next 12, 15 months here, the story would be steady as she goes from an operating perspective, but a big and expected big pickup in what I call development and construction activities and news flow. And I would say, as we as we move forward on ASAP and as we move forward with hopefully 1 or 2 other projects next year, and we will, for sure, I would say, be giving more market updates and press releases as we move forward with these projects. So it will be more sort of -- call it, newsy on the development and construction activities next year. And I think it's important because those will be very material for the company. And then, call it, financial results on the back of those coming in 2027 and 2028.

So with that, we can open up for questions.

[Operator]

[Operator Instructions] Your first question for today is from Baltej Sidhu with National Bank of Canada.

[Baltej Sidhu, analyst]

Could you -- it's great to see the progress with SO1, but could you just remind us of, one, the comparability of SO1 and SO2 as it pertains to the attractiveness for Polaris that you -- with the infrastructure you may have to leverage with the implication of SO1 that would be in place?

[Marc Murnaghan, executive]

So the technical difference on the island is just SO1 was only for people that have a current operating interconnect agreement in place. And in other words, you had to have some generation facility with an interconnect. SO2 is really open to either the same group, which is some people that have an interconnect or anybody that just has a new development. So you have a new project without an interconnect, you could then participate. So it's really the same terms for us. The only difference is we need to up our transformer capacity, but on a, call it a $60 million, $70 million project, that's only a $2 million or $3 million CapEx item for us. So it's essentially the same type of economics.

[Baltej Sidhu, analyst]

And the transmission capacity would be there that you would have, right?

[Marc Murnaghan, executive]

Yes, the transmission capacity on the sort of downstream on the line is about 130, 140 megawatts, and we're sort of -- the first ones really 35.7x2, that's a 71. So we have a fair amount of -- we could probably triple it from here.

[Baltej Sidhu, analyst]

Great. Great. And then might be too early, but is there any impact to pricing that we could see you relative on SO2 versus SO1? For PPA, sorry.

[Marc Murnaghan, executive]

Well I think pricing might be higher because the way that they do things on the island, typically for a traditional solar, let's say, is that any interconnect costs and system upgrades that are needed for new project rather than the transmission company or the distribution company paying for that and charging it to the rate base, the developer actually has to finance that. And so it comes into the cost of the PPA, let's say.

So for SO2, though, the assumption is that there will be participants that don't have an interconnect yet. So they will have to finance and build that. And so compared to SO1 with existing interconnects. So if anything, the price should be somewhat higher. I don't think it would be -- well, it could be instead of 16,000 megawatt per month, [ 18 to 20 ]. We don't know that yet. I don't think they've landed on it, but I think if anything, it would have to be somewhat higher. And the good news there is the backdrop of still, I'd say, very competitive activities in the actual -- the lithium battery cost curve, that's probably going to continue, right? So still to be determined, I would say, the worst case scenario is it would be the same type of economics.

[Baltej Sidhu, analyst]

Very interesting. And then looking forward to hearing those organic updates over the course of next year. And just switching over to, as you noted, the capacity that you have on the balance sheet and the ability to leverage that for organic development. How are you thinking about the inorganic growth and the M&A side? Could you point towards any color that you see on the M&A pipeline and/or valuations in the regions in which you operate?

[Marc Murnaghan, executive]

Yes. And then just to be clear, when I said we're talking to the local developers with brownfield, I wouldn't put that in the M&A bucket, even though it's kind of in between. I would put that still more in the brownfield development side.

But in terms of M&A, which I would also just suggest is probably a little bit comes on the back of us actually, I think, putting some runs on the board in terms of ASAP and probably some other development projects, I would say. But multiples, I would say, came down more like 6, 12 months ago to, I think, a reasonably attractive level. I think they've kind of leveled off there.

So if I had to put super high-level numbers on things, I would just say if you -- let's say, you take ASAP at 4. Let's say, you take 4x, I'm talking -- this is a build multiple. Probably these other development projects we're looking at are [ 5, 5.5 ], same as the DR. I've seen sort of more actual operational with contracts, running assets in the M&A side in the jurisdictions we're in, anywhere from 6.5x to 8x.

[Operator]

Your next question is from Nick Boychuk with Cormark Securities.

[Nicholas Boychuk, analyst]

In Puerto Rico, can you comment a little bit on the competitive dynamics? So you mentioned that there's these local developers with brownfield opportunities. How many other players in the space could potentially be having these conversations to develop these? And I guess, once you have that conversation, how fast do we then move through permitting, construction and getting these things operational?

[Marc Murnaghan, executive]

Yes. I don't know, obviously, with 100% certainty, who else is out there, but it definitely seems like there's the dynamic of you have a few big players on the island with operating assets that wouldn't be interested in the stuff we're looking at. And you have a lot of, I would say, call it, local developers that don't have the financial capacity. For people in the middle that are looking at, I would say, again, projects that once they're up and running have from $5 million to $20 million of EBITDA. We do know of one player that was definitely there and in the game, but they are not anymore. So it does seem like it's really opened up for us from that perspective.

[Nicholas Boychuk, analyst]

Okay. Understood. And would it be a similar dynamic in the Dominican? I appreciate that it's been pushed back a little bit by a year, but could you theoretically also have similar activity in that country?

[Marc Murnaghan, executive]

Yes. I would say, I think interestingly, the DR might be a little bit more competitive for us in the midrange than Puerto Rico. So the flip of that is that Puerto Rico does seem to be quite open right now. And I think it's a weird -- the Dominican, you actually -- a bunch of, call it, credit is available because it's a "developing country." So you have a whole bunch of lenders that would maybe fund a smaller developer to get a project off the ground. That doesn't exist in Puerto Rico because it's part of the United States.

So that -- it's almost more of a capital issue in Puerto Rico as opposed to how many competitors are there, if you understand what I'm trying to get to, like Puerto Rico, it's just -- there's a big issue with getting capital for these small developers to get a $50 million, $100 million project off the ground, whereas there's a little bit more availability in the DR for that, even though I would say it's not as if there's a bunch of other competitors that are a similar size to us in that market. It's just that the option of them to maybe get it further along to get construction going. There's a little bit of a better chance in the Dominican, which is a little counterintuitive, but that's what we see.

[Nicholas Boychuk, analyst]

Okay. Got it. And then I appreciate that the return profiles on the M&A. You said it was 6.5x to 8x versus the [ 5 to 5.5 ] for something that you'd be building brownfield. So better returns if you do brownfield. But just cognizant of your internal resources, your own abilities internally to develop these things simultaneously in given time. Is there a point where you recognize you could leverage more of your balance sheet and acquire something now, add incremental EBITDA and have a meaningful impact on shareholder value in the near term versus trying to maximize the return profile? How are you thinking about the difference between time to getting these built and maximizing the near-term shareholder value?

[Marc Murnaghan, executive]

Good question. I would say, believe it or not, the -- call it, the senior management time to do, let's just say, real due diligence on operating assets, legal side of things, operational side of things on the front end, maybe not the back end. Once the operations are there, I would say, streamlining them into yours isn't a huge deal. There's always issue, but it's not a huge deal for us. I would say, at the front end.

So to your point, where there's going to be a bottleneck would be more that we are doing, call it, the late-stage development on ASAP ourselves, right? If we partner with some developers, we're going to be doing -- we're going to be heavily involved in that late-stage development/construction and procurement, which I think is very similar to the M&A side of things.

So it might seem it's easier. But I'd say, it's at the front end where there's a potential bottleneck. And we could -- but we can, for sure, do 2. It might get a little bit harder at 3, but believe it or not, like I think we could do all -- like we can for sure do 3, like we could do ASAP, we could do a development, a new development in Puerto Rico now also because we're there. It's not as if it's a new jurisdiction for us. So we -- our conversations with the authorities on some of these other projects that are right after we've talked to with ASAP. So I do think we can handle that. It would be different if it is a new jurisdiction. And some of the M&A stuff, I think at the front end, we could do it as well. So I don't think it's necessarily an either/or.

[Nicholas Boychuk, analyst]

Okay. So just to confirm my understanding, you could do ASAP one, develop something else in Puerto Rico and then one or the other of a DR or M&A type project? So theoretically, 3 different things on the go at the same time, call it, $10 million to $15 million in EBITDA for each and all of that could potentially be wrapped up by 2028?

[Marc Murnaghan, executive]

Yes. I think that the -- in our presentation, we sort of show a 5 year, but it's just safe to 2029, that EBITDA by [ $100 million, $100 million plus ]. What we're looking at right now is I think we could, let's just say we're flat for the next 12 months operationally, but we will be doing things since that '28 number, I think, can get very close to that. It's a big step up. So the '28 number is looking very close to the '29 number that we have in the presentation.

[Operator]

Your next question for today is from Theo Genzebu with Raymond James.

[Theophilos Genzebu, analyst]

Just a couple of quick questions. So just on the curtailments at Canoa 1 and the expected curtailment now at Canoa 1, the delay of the interconnection for Canoa 2. I guess, is there like -- how are you engaging like with the government to address the -- to address these? Is there anything that can be done on, I guess, by talking to the government there?

[Marc Murnaghan, executive]

Yes. I think I'd say a fair amount of conversation where it just always goes to is that, yes, we're going to -- we need storage. So they very much acknowledge that. And so this is my comment about they're likely -- as opposed to doing a bilateral negotiations, which we were looking to do, which was going to be put panels, but also put a reasonable storage capacity there such that you're switching, call it, a problem challenge into at least an opportunity or at least you hedge yourself off with the storage. And so they see that, but they don't -- they acknowledge it. They're just -- they want to get the regulation set and they're likely to do a tender next year, and that's really how they're planning on dealing with it.

[Theophilos Genzebu, analyst]

Got you. And then I guess it's safe to say that it doesn't really impact like, I guess, how you guys think about future development in the Dominican?

[Marc Murnaghan, executive]

Well, I think what it does do is it -- I've probably bumped up the percentage of storage coverage that I think we need, from maybe 25% to 40%. But I think that -- yes, I think it's a "problem" now, but I think it will end up morphing into an opportunity when they're ready, and I think that will be next year at some point.

[Theophilos Genzebu, analyst]

Okay. Great. And then I guess just one more for me. And just on the regulatory time line of Puerto Rico for this ASAP storage program. I understand, you expect the approvals within the next 60 days. Just in your opinion, is there any possibility of further delays to that? Or it's pretty much we expect?

[Marc Murnaghan, executive]

Yes. Well, I can't say no to that. I mean, I think that the -- this island is known to have very good projects, but we need to play the patience game, so I think it's possible. But I would say with this September 22 executive order by the governor, the entities do seem to be very responsive right now. So it's probably as good as we can expect in terms of that time line for Puerto Rico.

[Operator]

We have reached the end of the question-and-answer session and conference call. You may disconnect your lines at this time. Thank you for your participation.

[Marc Murnaghan, executive]

Thank you.

[Alba Ballesteros, executive]

Thank you, everyone.