Earnings call transcript: Polaris Renewable Q2 2025 reports mixed results

Polaris Renewable is targeting a mid-2026 commercial operation date for its ASAP battery project in Puerto Rico. The company is also exploring potential SO2 battery storage projects, with a focus on achieving a 15-20% internal rate of return (IRR) for brownfield developments and 12-17% IRR for acquisitions. These initiatives align with the growing interest in renewable energy and battery storage markets. InvestingPro subscribers can access detailed financial health metrics and 7 additional ProTips that provide crucial insights into the company’s growth potential and financial stability, which currently rates as GOOD on InvestingPro’s comprehensive scoring system. InvestingPro subscribers can access detailed financial health metrics and 7 additional ProTips that provide crucial insights into the company’s growth potential and financial stability, which currently rates as GOOD on InvestingPro’s comprehensive scoring system.

Key Takeaways

• Polaris Renewable’s Q2 2025 revenue exceeded forecasts by 0.79%.
• EPS fell short of expectations, with a significant negative surprise of 34.04%.
• The stock price rose by 1.89%, indicating positive market sentiment.
• Strategic acquisitions and expansions into battery storage are key growth drivers.
• The company’s diversified portfolio includes significant hydroelectric and solar assets.

Company Performance

In Q2 2025, Polaris Renewable Energy demonstrated solid revenue growth, increasing from $18.7 million in the same quarter last year to $21.64 million. The company’s strategic acquisitions, including the Punta Lima Wind Farm in Puerto Rico, and its expansion into battery storage projects, are pivotal to its growth strategy. Despite challenges in meeting EPS expectations, the company’s diversified renewable energy portfolio continues to position it favorably in the market.

Financial Highlights

• Revenue: $21.64 million, up from $18.7 million in Q2 2024.
• Adjusted EBITDA: $15.4 million, an increase from $13.3 million in 2024.
• Net Earnings: $2.2 million, up from $985,000 in 2024.
• Consolidated Cash: $90-91 million.
• Quarterly Dividend: $0.15 per share.

Earnings vs. Forecast

Polaris Renewable’s Q2 2025 EPS of $0.10 fell short of the forecasted $0.1516, missing expectations by 34.04%. In contrast, the company slightly exceeded revenue forecasts, reporting $21.64 million compared to the expected $21.47 million, a positive surprise of 0.79%. This mixed performance reflects operational challenges but strong sales execution.

Market Reaction

Polaris Renewable is targeting a mid-2026 commercial operation date for its ASAP battery project in Puerto Rico. The company is also exploring potential SO2 battery storage projects, with a focus on achieving a 15-20% internal rate of return (IRR) for brownfield developments and 12-17% IRR for acquisitions. These initiatives align with the growing interest in renewable energy and battery storage markets. InvestingPro subscribers can access detailed financial health metrics and 7 additional ProTips that provide crucial insights into the company’s growth potential and financial stability, which currently rates as GOOD on InvestingPro’s comprehensive scoring system.

Outlook & Guidance

Polaris Renewable is targeting a mid-2026 commercial operation date for its ASAP battery project in Puerto Rico. The company is also exploring potential SO2 battery storage projects, with a focus on achieving a 15-20% internal rate of return (IRR) for brownfield developments and 12-17% IRR for acquisitions. These initiatives align with the growing interest in renewable energy and battery storage markets.

Executive Commentary

CEO Mark emphasized confidence in the company’s strategic direction, stating, "We are confident that the contract will be submitted for approval from the authorities on Friday of this week or first thing next week." He also addressed investor concerns, noting, "The share price is highly related to the risk perception of the asset base, principally Nicaragua."

Risks and Challenges

• The EPS miss raises concerns about profitability and operational efficiency.
• Potential risks in Nicaragua assets could impact investor perception and share value.
• Declining acquisition multiples in the renewable sector may affect future growth opportunities.
• Market saturation and competition in renewable energy could limit expansion.
• Macroeconomic pressures and regulatory changes may pose additional challenges.

Q&A

During the earnings call, analysts inquired about the decline rates of assets in Nicaragua and the company’s capital allocation strategy. The timeline and potential of the ASAP battery project were also discussed, addressing investor concerns about the company’s stock performance and strategic direction.

Full transcript - Polaris Renewable Energy Inc (PIF) Q2 2025:

Kelly, Call Moderator: Good day, everyone. Welcome to the Polaris Renewable Energy, Inc. Second Quarter twenty twenty five Conference Call. 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.

Anton Jelic, CFO, Polaris Renewable Energy: 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 and A on both SEDAR 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 form for the year ended 12/31/2024. 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 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 30, total power production from the company’s three hydroelectric facilities in Peru was 54,778 megawatt hours versus 42,374 megawatt hours during the same period last year. At our Dominican Republic solar facility, we produced 15,647 megawatt hours in the three months ended June 30 compared to 14,613 last year.

And 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 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 megawatt hours was marginally lower than the same period in 2024. Revenue. Revenue was $21,600,000 during the three months ended June 30 compared to 18,700,000.0 in the same period in 2024.

Adjusted EBITDA. Adjusted EBITDA of $15,400,000 for the quarter compared to 13,300,000.0 last year. Furthermore, for the six months ending June 30, the company realized $30,400,000 in adjusted EBITDA compared to $29,100,000 in the same period last year. Net earnings for the quarter was $2,200,000 compared to $985,000 for Q2 twenty twenty four. Cash generation.

Net cash from operating activities for the six months ended June 30 was broadly in line with the same period last year. Net cash used in investing activities for the six months mainly reflects the initial $15,000,000 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 120,000,000.6. Dividend. Finally, I’d like to highlight that we have already announced we will be paying a quarterly dividend on August 22 of $0.15 per share to shareholders of record on August 11.

With that, I’ll turn the call over to Mark, who will elaborate on Polaris’ second quarter results as well as on current business matters. Thanks.

Mark, CEO, Polaris Renewable Energy: Thanks, Anton. Yeah, so high level comment with the quarter, would say it showed the benefits of diversification as we had a full quarter of Punta Lima in there. So and we had better hydrology in Peru and Ecuador. And the Punta Lima, the wind resource was stronger than what we budgeted. 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 June. So for the last ten or eleven days, it was lower than normal. Had to do with the repairing on an interruptible power supply, which had downtime associated with it.

And then that did cause some increased cycling in well six two 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 op costs and G and 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 q three is the dry season. So 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. So that so that’s gonna be bumped out. So so it should be running. There’ll be no maintenance at San Jacinto, no planned maintenance for the rest of this year.

We do 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 the quarter and call it rest of the year for the current plans 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 thirty day to, I’d say worst case ninety day approval process, that can still put us or 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 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 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 and E, the Environment Ministry, TED to it.

So we are are 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 should we could have a green light on the Canoa 1 expansion. And 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 or our track record has been more acquisitive or buying 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, 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 and 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 that the bars, you know, we continue we’re, 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 90,000,000, 91,000,000 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 could be quite similar to that, at least in the near term unless things change dramatically. So not a huge use of capital, but we 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 that’s it.

If we can open up questions now.

Kelly, Call Moderator: 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.

Nicholas Boychuk, Analyst, Cormark Securities: Thanks. Good morning, Mark. The ASAP battery program, can you quickly run through what the the timeline looks like? So if the ASAP contract comes out this Friday 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.

Mark, CEO, Polaris Renewable Energy: Yes. 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 forty five 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 forty five 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.

Nicholas Boychuk, Analyst, Cormark Securities: Okay. And can you just remind us a little bit the quantum of the opportunity here both with s o one, the ASAP program, and then s o two?

Mark, CEO, Polaris Renewable Energy: So Yeah.

Nicholas Boychuk, Analyst, Cormark Securities: Yeah. How many projects could you guys potentially get out of this?

Mark, CEO, Polaris Renewable Energy: Well, it’s a first thing, you know, when we do make a release here, what we’re we have been talking about 40 megawatts times two, so eighty eighty megawatts, four hours, so 320 megawatt hours. We will say in the press release instead of 40, it’s 35.7 times two, so 70, you know, 1.4, but we are still gonna, in the approval process, try to get that up to 40 times two. 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 is 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 s o one.

But what we’re hearing is that there will still be room for them and demand for them to do more. So the I’d say the big difference for us there is is we have transformer capacity at 40 megawatts, which we would essentially use up on s o one. 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 and given that really that it would be coming like, let’s say that that is more of a contracting event next year.

There there’d be no bottlenecks in getting transformers of that size, my understanding. And and we’ve had some conversations, but I think that some of the bother, the 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, I mean, we we still we haven’t, you know, signed s o one, but it does appear from what we’re saying that there’s for sure interest on their side and doing more.

And given the interconnect we have, I think we’re positioned quite well.

Nicholas Boychuk, Analyst, Cormark Securities: Okay. That’s good. If you’re ranking out these projects, you mentioned, obviously, the return profile on this makes M and A the bar a little bit higher. Can you comment at all on how the return profile looks like for M and A spend versus the brownfield in the Dominican? Like, if we’re thinking out to how you’re going to be deploying Yeah, this right.

Mark, CEO, Polaris Renewable Energy: At a super high level, if I was to say our brownfield Dominican is anywhere from, let’s say, 15% to 20% IRR ballpark. I would put M and A if what we’re seeing, 12% to 17%.

Akshay Thola, Private Investor: Okay.

Nicholas Boychuk, Analyst, Cormark Securities: And if you were to go through

Mark, CEO, Polaris Renewable Energy: say that that’s for more sort of in the ground operating projects, which and so that range is definitely come up from what it would have been two, three, four years ago for sure. I would you know, it would come at least two and a half points lower than that, at least.

Nicholas Boychuk, Analyst, Cormark Securities: And so just conceptually, if you had the 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?

Mark, CEO, Polaris Renewable Energy: Yeah. You do start to get into real what are the contractual differences, how is it fifteen versus twenty years. And this is also not hydro, right, in terms of construction. So, you know, believe it or not, for me, like, to do a solar or just storage, yeah, there’s a bit of time there, but I I don’t I I wouldn’t put the risk as much more than two and a half percent difference between those two options. In other words, if it was three or 4% different, I’d probably lean on the building our own, you know, and doing our own brownfield.

Does that make sense?

Nicholas Boychuk, Analyst, Cormark Securities: And then last yeah. Absolutely. That’s that’s really good color. Thank you. If you were to go through all these three programs, you’ve mentioned you got roughly $90,000,000 cash on hand.

Between that, I think there’s, you know, the additional add on that you could do with the bond. How are you feeling about capital? Do have everything you need?

Mark, CEO, Polaris Renewable Energy: Yeah. I would say we would only start to we could likely do, for instance, with what we have available in the bond facility, we could do SO1, we could do Doctor, we could even do then either s o two or an acquisition. It it just really comes down to sizing at that point, but it it would be tough to do all four of those.

Nicholas Boychuk, Analyst, Cormark Securities: Understood. Right. Okay. Awesome.

Mark, CEO, Polaris Renewable Energy: But but we could for sure do three of them with with the bond and the cash on hand.

Akshay Thola, Private Investor: K. Thanks, Mike.

Nicholas Boychuk, Analyst, Cormark Securities: In terms

Mark, CEO, Polaris Renewable Energy: of if I had if I ordered them, it was for sure the s o one, I would say. And and then and then the Doctor because, again, it’s it it may be it’s it’s a lower return profile for sure than s o one, but it’s still expansion of a current project and and under a great contract. So I put that I put that next, then, you know, maybe it’s debatable. It’s really on an on a new acquisition or s o two. You know, at this point, I would say I’m it’d probably be equal.

It really would come down to a little bit more information on both. Right? I I would tell you that you’re probably still gonna have a higher return profile if s o two one moves ahead.

Nicholas Boychuk, Analyst, Cormark Securities: K. Makes sense. Thanks.

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

Akshay Thola, Private Investor: Hello, team. My question is on the Nicaragua asset. So 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 twenty twenty three to Q2 twenty twenty five, the decline rate’s about 7%. And I think even, you know, if you go before the binary unit came online, it’s it’s much higher too.

So I just wanted to understand maybe what should be considered as the, let’s say, like, a analyzed, normalized Yeah. Decline rate.

Mark, CEO, Polaris Renewable Energy: 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 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, Whereas but we had a 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 4% is still a good number.

Akshay Thola, Private Investor: Okay. And overall, like, not just Nicaragua, like, for the total assets, what what would you say is, like, a normalized annual maintenance tax for the company?

Mark, CEO, Polaris Renewable Energy: That’s you know, I think it’s 4 to $400,000, maybe up to 500 at the most.

Akshay Thola, Private Investor: Okay. And and and that’s for the that’s annualized for all the assets?

Mark, CEO, Polaris Renewable Energy: No. Sorry. That’s I thought you’re talking Nicaragua.

Akshay Thola, Private Investor: K. No. I was just talking for the for all of the assets. Yeah.

Mark, CEO, Polaris Renewable Energy: The whole portfolio? Yeah. It it it’s it’s gonna be around a million, just shy of a million.

Akshay Thola, Private Investor: Okay. And then, I guess, I have my my last question is around if I just take a a bigger picture in terms of, like, looking at how the stock has performed over the years. Like, if just look at, like, a ten year return, the stock hasn’t moved at all. Like, most of the returns have come from the dividends. So over the last ten 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 You guys have diversified into other areas of business geographically, but the market isn’t valuing those.

So maybe is there gonna be a change in the capital allocation strategy to to help give better returns to equity holders?

Mark, CEO, Polaris Renewable Energy: Yeah. I don’t think capital allocation necessarily gives better returns to shareholders. What I would say, though, 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, and so we 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 trade at 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, you know, we can 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 for the the medium term.

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

Mark, CEO, Polaris Renewable Energy: I 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. 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.

Akshay Thola, Private Investor: Got it. No, thank you so much. And I appreciate you guys allowing the retail investors to ask questions. I truly appreciate that. Thank you.

Mark, CEO, Polaris Renewable Energy: Yeah, no problem. Thank you for your time.

Kelly, Call Moderator: 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.

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