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 SEDAR+ and on our corporate website at polarisrei.com. Unless noted otherwise all amounts referred to are denominated in US 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 form 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 MWh versus 186,886 MWh for the same period in 2024. In Nicaragua in the second quarter of 2025 our production was 110,895 MWh marginally lower compared to the same period last year at 114,046 MWh. For the three months ended June 30th total power production from the company's three hydroelectric facilities in Peru was 54,778 MWh versus 42,374 MWh during the same period last year. At our Dominican Republic Canoa 1 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 we 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 MWh eclipsed the same period last year with a total of 11,253 MWh. 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 million in the same period in 2024. Adjusted EBITDA. Adjusted EBITDA of $15.4 million for the quarter compared to $13.3 million 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 for the quarter were $2.2 million compared to $985,000 for Q2 2024. 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 Marc who will elaborate on Polaris 's second quarter results as well as on current business matters. Thanks.
Thanks Anton. Yeah high-level comment about the quarter I'd say it showed the benefits of diversification as we had a full quarter of Punta Lima in there. We had better hydrology in Peru and Ecuador and the Punta Lima wind resource was stronger than what we budgeted. Those were both above budget which was great. I'd say both solars were in line. The radiation was a little bit lower than expected but definitely within budget parameters. San Jacinto did come in below due to some unplanned maintenance at the end of June. For the last 10 or 11 days it was lower than normal. It had to do with repairing on interruptible power supply which had downtime associated with it. That did cause some increased cycling in well 6-2 for several weeks which has since recovered back to normal conditions.
It did have an impact of about 2,200 MWh in the quarter. Net -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 cost continued 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. If you look at Q2 of last year our actual op costs and G&A for the rest of the company is down year -over- year. I think that's great. With regards to rest of year what we expect it is worth reminding people that Q3 is the dry season. It's always the dry season. The Peru hydros and Ecuador hydros are always the lowest this quarter.
We also have moved the major maintenance at San Jacinto to actually January of next year. That's going to be bumped out. It should be running. There will be no maintenance at San Jacinto no planned maintenance for the rest of this year. I would say that we should be in the net call it 49 - 51 MW 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. That's with respect to the quarter and rest of the year for the current plans. With respect to the growth and the development the big focus remains right now the most near term is the ASAP battery storage project 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. 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. We're still going to be gunning for that. 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. 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. We definitely think there's interest there as well. One way or the other I think there will be more storage after the first SO1 contract. 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 from ministries such as C&E environment ministry attend to it.
We keep sort of 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 Canoa 1 expansion. I would note that if we were 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. 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. I think if we can move these forward I think it's a great sign that that initiative is working.
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. The only thing I would say is we're trying to be quite opportunistic on that. 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. I would just say that the bar is we continue if anything moving the bar up a little bit in terms of what we need to see on the acquisition side. 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 program. We did about half of that in the quarter Q2. I would expect that the amounts going forward could be quite similar to that at least in the near term unless things change dramatically. 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. We will continue to be in the market buying small amounts as we move forward. That's it. If we can open it up for questions now.
Certainly. The floor is now open for questions. If you have any questions or comments please press star one 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 Marc. On the ASAP battery program can you quickly run through what the timeline looks like? 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 sort of timeline.
Yes. 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. 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. Can you just remind us a little bit of the quantum of the opportunity here both with SO1 the ASAP program and then SO2? How many projects could you guys potentially get at this?
First when we do make a release here we have been talking about 40 MW 2x so 80 MW four hours so 320 MWh. We will say in the press release instead of 40 MW it's 35.7 MW 2x so 71.4 MW . We are still going to in the approval process try to get that up to 40 MW 2x . Worst case is it's more like 90% of what we said but we will provide more detail on that. What we have been told though is that there is interest on their side in doing what they're calling SO2 which is further procurement. I do think that is somewhat dependent on how much uptake they get on SO1. What we're hearing is that there will still be room for them and demand for them to do more.
The big difference for us there is we have capacity at 40 MW which we would essentially use up on SO1. We would need a new transformer but there is capacity on the transmission line which is great. The CapEx for call it a transformer is not really a big number at all of that size. Given that it would be coming like let's say 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 some of the long lead items on the transformer tend to be the bigger ones. I think we'd be fine and it's not a big CapEx item. That's the only difference for us. I think that would be anywhere from you know we would target a very similar size quite frankly like another 40 MW 2x .
We still haven't signed SO1 but it does appear from what we're saying that there's for sure interest on their side in doing more. 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 discounting capital.
Yeah I mean at a super high level if I was to say our brownfield Dominican is anywhere from I'd say 15% - 20% IRR ballpark. I would put M&A at the what we're seeing 12% - 17%.
Okay if you were to go through.
I would say that that's for a more I'd say in-the-ground operating projects which and so that range has definitely come up from what it would have been two three four years ago for sure. I would you know it would have been at least 2.5 points lower than that at least.
Just conceptually if you had the 12% - 17% versus the 15 %- 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? This is also not hydro right in terms of construction. Believe it or not for me to do a solar or just storage yeah 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 you know and doing our own brownfield. Does that make sense?
Last yeah absolutely. That's really good to talk. Thank you. If you were to go through all these three programs you 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 the capital? Do you have everything 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 D R we could even do then either SO2 or an acquisition. It just really comes down to sizing at that point but it would be tough to do all four of those.
Understood. Right. Okay. Awesome.
We could for sure do three of them with the bond and the cash on hand.
Okay. Thanks Marc.
In terms of if I ordered them it would for sure be SO1 I would say. 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. I'd put that next. Maybe it's debatable if it's really on a new acquisition or SO2. At this point I would say it'd 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 SO2 1 moves ahead.
Okay makes sense. Thanks.
We have a question coming from private investor Akshay Tola. 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 declining rate of 3%- 4%. When I was just checking over longer periods of time like if I consider from Q2 2023 to Q2 2025 the decline rate's about 7%. I think even you know if you go before the buyer unit came online it's much higher too. I just wanted to understand maybe what should be considered as the let's say like an annualized kind of normalized declining rate.
Yeah. Yeah. No I would say we've seen nothing that would change that. You can have certain operating conditions that make the results in a quarter appear higher. The big thing from when you know the 7 MW from last year is that we did make the decision to run the binary unit lower okay? More like 7 MW - 7.5 MW instead of 10 MW . 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. Whereas what we had the total consolidated results were down much more because of the binary. 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. Overall not just Nicaragua for the total assets what would you say is a normalized annual maintenance expense for the company?
I think it's for the $400,000 maybe up to $500,000 at the most.
Okay. That's annualized for all the assets?
No sorry that's for I thought you were talking Nicaragua.
Yeah. No I was just talking for all of the assets.
For the whole portfolio yeah it's going to be around $1 million just shy of $1 million.
Okay. I guess my last question is around if I just take a bigger picture in terms of looking at how the stock has performed over the year. If I just look at a 10-year return the stock hasn't moved at all. Most of the returns have come from the dividends. Over the last 10 years the annualized return for an equity holder is about 5.94% with dividends reinvested. You know looking at it equity holders have earned less than debt holders let's say a green bond holder or even a debt holder. 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? If that's not the case why not? The market the assets of the company have changed since 2015.
You guys have diversified into other areas of business geographically. The market isn't valuing those. 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 that 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. Because we have been paying dividends and paying down debt our ability to reduce the percentage weight of Nicaragua has been limited. It's still high enough that we trade at a discounted multiple. 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.
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. 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. That's what we've decided to do. I would suggest that we will continue to do that for the medium term.
Once it goes below let's say once Nicaragua is less than 50% would the allocation like the capital allocation strategy 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 stock. We are in the market buying stock. We would consider to buy more. We will have more cash flow right? I would also say though just a regular dividend increase would be considered before we start considering special dividend increases. I would put regular dividend increase buying back more stock. Those two would be the ones on the radar not necessarily a special dividend.
Okay. Got it. No thank you so much. I appreciate you guys allowing retail investors to ask questions. I truly appreciate that. Thank you.
Yeah 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.