Polaris Renewable Energy Inc. (PIF) Earnings Call Transcript & Summary

Good day, everyone. Welcome to the Polaris Renewable Energy Incorporated Second Quarter 2026 Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, CFO, Alba Seisdedos. The floor is yours.

Thank you, Kelly. Good morning, everyone, and thank you for joining us for our 2026 second quarter earnings call for Polaris Renewable Energy Inc. Before we begin, we would like to remind you that 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. We 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 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, 2025. On today's call, I will start with an overview of our second quarter and year-to-date operating and financial performance, then Marc discuss recent business developments and our growth initiatives before we open the line for questions. Beginning with production. Overall, this was a quarter that generally developed as we expected from an operations perspective. During the quarter, consolidated generation was 7.7% lower than the exceptional second quarter of 2025, a result that was consistent with management's expectations. The quarter-to-quarter comparison primarily reflects continued curtailment in the Dominican Republic, lower geothermal production in line with the natural decline of the steam field in Nicaragua and the return to more typical hydrological conditions in Peru and Ecuador after the unusually favorable water availability experienced last year. As we have noted previously, the second quarter of 2025 benefited from record hydroelectric production that was not expected to be repeated. The decrease in production was partially offset by stronger solar production in Panama. On a year-to-date basis, generation was 6.4% below the first half of 2025, reflecting the similar underlying factors. Looking at the portfolio in more detail, Nicaragua performed broadly as expected. The spin units continue to operate well with levels of decline in line with expectations. During the 6 months ended June 30, 2026, production decreased compared to the same period in 2025, primarily due to the impact of the Q1 2026 planned the annual major maintenance of Unit 3, while no maintenance was performed in 2025, as well as due to lower performance of the binary plant resulting from higher-than-anticipated sediment levels on the reinjection wells after the major maintenance. Peru delivered another solid quarter, although production was below last year's record levels, generation remained above our internal expectations to speed the return to more hydrological conditions -- to more normal, sorry, hydrological conditions. The Dominican Republic continued to experience curtailment. We experienced 29% for the quarter and 35% curtailment average year-to-date, although curtailment improved during the quarter as compared to Q1 2026, where we saw the curtailment at 42% level. We continue working alongside the authorities and other renewable energy producers to support long-term solutions. The remainder of the portfolio performed generally as expected. Puerto Rico reflected lower wind resource during the quarter, while Panama continued to benefit from solid operating performance and favorable solar resource. Overall, production was lower than last year's exceptionally strong comparable period, but the portfolio performed broadly in line with our expectations, demonstrating the benefit of having a diversified mix of technologies and geographies. So turning to the financial results. The lower production translated into lower revenue, 8% decrease quarter-to-quarter and 5% year-over-year and adjusted EBITDA down 11%, both quarter-to-quarter and year-over-year. However, the financial impact was partially offset by stronger pricing in Peru, driven by the annual CPI adjustment under our PPAs and favorable market conditions earlier in the year, together with improved pricing in Panama. Adjusted EBITDA for the 6-month period was also impacted by higher credit costs, mainly related to the integration of our Punta Lima wind farm in Puerto Rico and the continued expansion of our development pipeline in Mexico and Puerto Rico. While these initiatives increased expense in the current period, they represent strategic investments intended to drive future earnings growth. From a balance sheet perspective, we remain in a very strong position. We ended the quarter with nearly $100 million of cash, providing ample flexibility to continue investing in growth while maintaining our disciplined capital allocation strategy. Finally, we remain committed to returning capital to shareholders. We have already announced that we will be paying a quarterly dividend on August 21 of $0.15 per share to shareholders of record on August 10. With that, I'll turn the call over to Marc.

Thank you, Alba. I'll start with a few additional operational comments. With respect to San Jacinto, as we had mentioned I think last quarter, we have been running the binary unit about 0.75 megawatts lower than what we think we can just due to some sediments in the injects 2 -- of the key injection wells that arose after the major maintenance in Q1 and sort of getting a handle now in terms of what that -- basically what the right level is to be running it. We will need to run it at the current levels of really what we saw in Q2 for the rest of the year. But I do think we will be able to gain that back early next year through a certification program, which we have done before to clean up those sediments. We've done it several times, it's worked and the only issue is getting the -- somewhat specialized equipment. So we will likely have to wait until Q1 to execute that. But I do think we can gain back some of those are about 0.75 megawatts on sometime early next year. And in terms of the curtailment, it was -- it cost us about 5,000 megawatt hours, which was a little bit lower than what we were budgeting. I would say, overall, we're still targeting 40,000 to 44,000 -- 40,000 to 42,000 actually megawatts for the year, and we're running in line with that. And we are seeing initiatives on the ground from the government that will address the situation. I think it's going to take 18 to 24 months to fully address that situation through basically contracting large-scale, grid scale storage as transmission assets. So they are definitely doing that. And so, I think it's, call it, 18, 24 months of curtailment. I think it should be a little bit less next year with just demand growth, but a more fulsome solution to that problem, call it, a couple of years from now. In terms of the hydros, I did, I think, mentioned the most salient points. We definitely have heard comments or questions about El Nino. I would say that although we're not running at levels compared to last year, which was a high year, we are running more in line with levels from '22, '23, '24, at least up until now. So I think that we're, call it, reasonably in line with the long-term average on the hydros at least year-to-date. And that price increase as one is a big one, which is on average, it was about 8% for the 3 plants in Peru. So that's good. And then overall, in Q1, we gave a range of 760 to 770 gigawatt hours for the year. I still think about 760 is doable for the year based on where we're at year-to-date. In terms of the growth, on the first one, the ASAP battery project in Puerto Rico, we did sign a contract with PREPA on June 12, and we're now finalizing the equipment process. We're hoping to have that finalized within the next 30 days. And we're targeting a mid-2027 COD date. And we very much look forward to the fact that we're moving from approval process into execution and construction phases, and we will make sure to be providing updates as we move forward with this over the next 12 months. So that's a big growth initiative for us. The next one that I'm going to talk about is Mexico, which we did announce. We had 2 announcements on that. Mexico is becoming a key growth market for us. So we announced the -- in fact that we were selected for 250 megawatt DC of solar plus the plus 30% BESS coverage approximately. We signed the JV agreement on July 3, which sets out the key structure and governance for what they call the mix projects. And we are now in moving to finishing all of the contracting and development milestones. We do have commercial operation date estimates in the presentation that's on our website now And I would highlight that big highlights of the contracts is that, it's going to be in U.S. dollars with CPI -- U.S. CPI inflators and a reasonable tolling percentage, and there'll be approximately 25-year contracts. So -- and we do try to highlight this in the presentation. But with the ASAP, which is a full -- it's a 100% tolling/capacity contract, no resource risk. And it's a 20-year contract with the Mexico a 25-year contracts, again, all USD, and there's a tolling -- reasonable tolling percentage there. So the actual -- extending the overall tenure of our contracts, but also, I would say, the quality of the contract and the revenue profile is improving as well as is the credit -- the average, call it, credit rating of the jurisdictions. We are also pursuing several other paths and projects in Mexico, and we would expect clarity in, call it, Q4 of this year at the latest, where we will know if those projects have been selected to move forward or not. So that's coming relatively quickly. And as we have mentioned before, we are also participating in several, call it, RFP -- more traditional RFP processes in several of our other markets, including Dominican Republic and Puerto Rico. And those, I would say, have similar timelines in terms of clarity on whether you're moving forward, whether you've been selected or not, all within, I would say, the next 3 months. So in the next 3 months, we should have line of sight on a significant amount of, call it, further growth for us. So that's coming, we think, relatively quickly. I would also mention that lastly that we do outline these, call it, processes we're involved, which are linked to specific projects. But I would also highlight that we do quite frequently get approaches by local, I would say, developers that will not -- that do not have the capacity to build a project, raise the capital for the project, and they're in all these markets. And so, we do have what we think are options in addition to what is, call it, in our own pipeline. I would say that the strategy is, let's push forward with our own. But I think it's worth mentioning that if we are not able to secure those, I think our positioning in the market is such that we will -- that does not mean we won't have other options in those key markets. So I think that there's, call it, some insurance there that we will be able to significantly grow the pipeline. So as you can see, with these recent announcements, plus these other process we're in, there's been a significant uptick in the total opportunities we're looking at as well as the pacing of bringing them online, which has been a real focus for the company over the last 18 months. So that's it for the formal comments. So we can open it up for questions now.

[Operator Instructions] Your first question is coming from Nick Boychuk with ATB Cormark Capital Markets.

In Mexico, I appreciate the color that you gave on the quality of the contracts, tenure, CPI inflators. As you're going through that, though, and starting to do all the other parts about CapEx and working with them on interconnection and whatnot, are you getting a sense of what the actual power price might look like and how that would compare to other markets that you're operating in? I'm just trying to contextualize what the 250 megawatts of solar could potentially generate in incremental cash flow, EBITDA pickup, et cetera.

Yes. So I think the -- I've seen some estimates in the sort of 25 to 30 EBITDA for those 3. Now that's the total -- that includes the energy and the tolling, right? So that's a combined EBITDA number, which is very reasonable right now. I think both the CapEx and the EBITDA will go up somewhat from there once the final numbers are done. We already have some numbers that we've assumed, but I have a feeling that it's probably going to go up. However, so will the revenue and EBITDA. But so I think for now, it's good to use that sort of 25 to 30 because -- and that's -- you can sort of backwards imply what the returns are, and that kind of gives you exactly what the returns are that are being targeted and agreed upon.

Okay. Interesting. When you say it's going to go up, is that a function of the CapEx and then them responding and giving you a commensurate price because they recognize they have to do this in order to get all their auction filled?

Well, I just think it's that the grid upgrade estimates were true just that, and they tend to have tended to -- once you actually cost them out and they're going to be a bit higher. I would tell you though that, that component of the contract is a pure tolling fee though. So, in many ways, it makes the overall picture better.

Makes sense.

So the CapEx for the battery is a tolling fee, which is great. And the CapEx for any grid upgrades are also tolling fees. So to the extent that's higher than what we have right now, our actual percentage of revenue represented by tolling will go up.