Polaris Infrastructure Inc

TSX:PIF

Earnings Call Transcript 2021-Q1

[Operator]

Good day. Thank you for standing by, and welcome to the Polaris Infrastructure Inc. First Quarter 2021 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the call over to your host, Anton Jelic. Please go ahead.

[Anthony Jelic, Chief Financial Officer]

Thanks, Lina. Good morning, everyone, and welcome to the 2021 First Quarter Earnings Call for Polaris Infrastructure Inc. In addition to the press releases issued earlier today, you can find our financial statements and MD&A on our both SEDAR and shortly on our website. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I'd like to remind you, as always, that comments made during the call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris. 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, 2020. I'm joined this morning by Marc Murnaghan, Chief Executive Officer. And now into the quarterly highlights. Power generation. Consolidated power generation for the 3 months ending March 31, 2021 and 2020 were 180,984 megawatt hours and 183,332 megawatt hours, respectively. These production figures are net of all plant downtime, both planned and unplanned. With respect to Nicaragua, we saw total megawatt hours of 119,854 in the first quarter of 2021 versus 135,344 a year ago. In total, improve -- sorry, total megawatt hours for 3 months ending March 31, 2021 were 61,130 versus 47,988 in the same 3 months last year. Revenue. The company generated $15.7 million in revenue from energy sales for the 3 months ending March 31, lower compared to the same period in 2020. This quarter was the first full quarter under the amended power purchase agreement price in respect of San Jacinto in Nicaragua, which was the largest contributor to our decline in revenue. The lower PPA price was part of the broader negotiation with the government, which included an extension of the concession period and inclusion of the binary unit. Lower production at San Jacinto was offset by higher production from our hydroelectric facilities in Peru. Net earnings. The net loss attributable to owners was $0.9 million for the 3 months ending March 31 compared to $4.4 million in earnings for the same period in 2020. The decrease was attributed mainly to lower revenue and higher general and administrative costs and other noncash losses resulting from the mark-to-market accounting adjustment on certain liabilities from our 21% share price increase during the 3 months ending March 31. Adjusted EBITDA. Adjusted EBITDA was $11.9 million for the period ended March 31 compared to the $17 million for the same period in 2020. Cash generation. Net cash from operating activities for the 3 months ending March 31 of $17.1 million increased by $8.2 million from the same period in 2020, mainly due to a favorable change in noncash working capital due to the accounts receivable collection during the period and lower interest paid, partly offset by lower revenue and higher costs compared to the same period in 2020. Net cash used in investing activities decreased to $0.6 million from $2 million in the same period in 2020, largely due to the decrease in spending related to the construction of the Generación Andina facilities at El Carmen and 8 de Agosto. Net cash from financing activities for the period ended March 31 of net $31.4 million increased compared to $6.7 million in financing reported in the same period in 2020. The increase, of course, was driven predominantly by net proceeds of $38.2 million, given the private offering that closed during the quarter. Dividend. Finally, I would also like to highlight that we do intend on paying our 21st consecutive quarterly dividend on May 28 of $0.15 per share to shareholders of record on May 17. This continues the Board and management's commitment to regular positive distributions to shareholders, coupled with a continuing emphasis on attractively-valued accretive acquisitions. With that, I will turn the call over to Marc, who will elaborate on current business matters as well as on our quarter end results. Thank you.

[Marc Murnaghan, CEO & Director]

Thanks, Anton. So a few comments before we turn it over to questions. First one I want to make is just, it's not clear in the numbers, but we had -- I just wanted to discuss the pricing in Peru. It was a good quarter in terms of production but less of a contribution to EBITDA than it otherwise would have been just because of the way that the PPAs work there, which is that if you're running below your committed energy, there is a price penalty, which we had in Q1. Without that, EBITDA and revenue for Peru would have contributed an extra $700,000 to $800,000. So -- and this is not something that is permanent in the sense that for El Carmen, we -- that was due to the outage incident last year, which we are being covered for from an insurance perspective, but that's not something that you can run through the P&L. And also the Agosto is something that we did expect given that when we purchased the company and the contracts, the committed energy under that contract, we knew was high and we are able to reduce that committed energy by up to 15%, which we will do. But you can't apply for the reduction until 2 years after COD, which would be December of this year. We will apply for it, and it is a contractual, right? So we will get it and expect that that gets -- the higher price gets applied starting in 2023, which will have a positive impact for Peru. So wanted to mention that. The second thing I'll mention is that the strong cash position, we did raise equity, which is a big contributor to that, obviously. But the other thing is that the accounts receivable in Nicaragua came down nicely. So we received -- and this is part of this, call it, the extension of the contract, terminating the old, having a new one. And so the -- any receivables up on the old were paid in the quarter. So that really helped our cash position as well. There was a small asset sale, a small number. But so -- and there's even a few more of those on the books that we are still looking at doing, they're not huge numbers, but let's call it latent asset value that we are looking to monetize and put even more cash on the balance sheet. And we did -- it took a long time, but we recently finalized the insurance settlement on El Carmen, which should bring in about another $1 million onto the balance sheet this quarter. So the point is, is that we are very well cashed up to execute on all of the key initiatives that we have on the go. The first one being the binary unit, which we sent tendering letters out mid-April to all the equipment manufacturers. When we started the year, we were looking at, call it, a 7- to 10-megawatt binary unit. But we had to run a bunch of chemical tests on the brine, which we did and to assess as to how much -- how big we can go on the binary unit. And so the good news is that those were as good as could be expected. So we went out with a 10-megawatt binary unit package. So that's going to be the number we're looking at, and that does make a big difference on the numbers going forward. So we're very happy with that. The schedule on this is that we are expecting to have firm proposals from the equipment manufacturing by the end of this month. And then within, call it, 4 to 6 weeks, so end of June or first thing in July, we will sort of sign a contract, choose the equipment supplier and lock in the prices and the budget. So that's -- and we'll make sure that that is communicated to the market. But once we get to that, it is, call it, an 18-month construction process. But the numbers, we think, will be very firm. And if it's 10 megawatts, we're going to be looking at, call it, $8.5 million to $9 million in, call it, cash flow and revenue generation off of the binary unit. So that's the #1 initiative that we have sort of on the docket. The second is Chuspa, and that is Peru. We've had slight delays because of COVID, but things are looking very good there now in terms of the case count. And the construction has been open now for quite some time, and we expect it to stay that way. So we're aiming for -- within 4 to 6 weeks having signed the SPA and mobilizing it and launching construction on that project, and that will get us, call it, the third jurisdiction and using some of the equity capital for that project. So those are moving ahead and very much in the short term here. And now that still leaves us with a reasonable amount of excess cash sitting on the balance sheet. And so on the M&A front, which we are working on, we have, call it, more irons in the fire than we've ever had. So we are working on that. There's a lot of opportunities in, call it, the existing jurisdictions that we're in, primarily Peru, but also Panama. We're really hoping to add something so that we're doing more than just the Chuspa project, and so we have a lot of opportunities in Panama that we're looking at and a few other jurisdictions. So -- and we're in the process now of trying to have something, call it, this time next quarter. So when we report, the aim would be to have something by then on that front. The other big initiative that we're working on, which would make a real big difference for the company in terms of the cash flow generation is the refinance front. So -- and we have a lot of different options that we're looking at. There's, call it, 5 or 6 interesting ways to do the refinancing at San Jacinto given that we are in a period of -- we have an 18-year contract, but we're amortizing over 8 years. And in fact, the next 4 years are the heaviest part. So there's a huge benefit to us to doing a refinancing given the ESG, call it, momentum. There's a lot of different groups looking at doing something on both a, call it, project-specific basis, but we also have groups that are talking about doing a more global holdco refinancing. And that is one of the biggest initiatives we have that we're working on as a company. The global refinance would take a bit more time. I think that that's sort of a 3- to 6-month time frame, but everything is pointing to us having at least a few good options on that front within that time frame. So that is, call it, the fourth big initiative. And the last one, which is worth mentioning, is just that the -- we had mentioned that we are looking to do a sale of some carbon credits. We're just finalizing the process at San Jacinto. We already have carbon credit sales at Canchayllo in Peru, but we're also starting -- or not starting, we should have the other 2 facilities accredited within the year. So we are making sure that all of our facilities could generate some form of carbon credit revenue. And in the last, call it, 2 months, we see a lot of inbound interest in those. We do have some vintage credits, which will not garner, call it, top dollar in the market, but there is latent value. And this is something that just keeps -- we just keep seeing sort of some inbounds and extra interest in that. So we're more confident than ever that we can at least do something on that front. And even if the dollar numbers in -- at the start of it are, call it, in the $100,000, $200,000, $300,000 range, which is not material, it would be for a very small percentage of our credits. So we think the bigger picture could be material for the company if the world continues to move in that direction. So with that, where we're aiming as a company is when you include the binary unit in Chuspa executing with the capital we have on hand, we're looking at, call it, $40 million to $45 million of operating cash flow as a company, U.S., which is -- and that does not include an acquisition. And I think we can obviously improve that to even higher numbers if we were able to put the excess cash to work in an acquisition, and so I think those are very good numbers as to where we're heading. And to the extent we are able to execute the refi, that could help that a little bit but also free up even more cash flow. And I think at that point in time, we haven't -- we've maintained the dividend where it is for a while now. And I would suggest that I don't think the dividend growth strategy is going to be the main focus given the diversification, but I do think we would like to get back to some dividend increases, and it would likely be on the backs of a refi because that has a really big impact on the free cash flow generation. So that's where we're aiming. And with that, I'll pass it over to questions.

[Operator]

[Operator Instructions] And there is a question from the line of David Quezada with Raymond James.

[David Quezada, Equity Analyst]

Just maybe a quick question just on the Peruvian currency. I know that it's weakened quite a bit recently. I'm just wondering if you have any exposure there on the operating side. I know that your contracts are in USD. Is there any change to the operating expenses there because of the move in the currency?

[Marc Murnaghan, CEO & Director]

Yes. No, because we effectively are a U.S. dollar contract and U.S. dollar expenses locally, so we don't really see any impact on that.

[David Quezada, Equity Analyst]

Okay. Fair enough. And then, Marc, I'm just wondering if you can comment on -- there's some commentary in the MD&A just around changes you made to the injection strategy in 2018 and the, I guess, like a little bit of a greater decline in the output in the near term, but it's better for the long term. And just any color you can provide maybe on the quantum there? And I certainly appreciate this wouldn't be a near-term thing, but when could you look at resuming drilling there, like in terms of the time frame?

[Marc Murnaghan, CEO & Director]

Yes. So we had a well, let's call it, 11-2, and we have about 1,500 tons an hour of brine, and we drilled 11-2 in 2018. And it takes about 1,000 tons an hour of the brine, and it's a well that is in the north of the field. And we run these chemical tracers to see if what goes in the injection wells comes back up through your production wells, and that well has effectively no connection with the field. So -- and then we get advice from 2 different technical advisers, one from New Zealand principally and one from Iceland, and the advice was you should use as much outfield injection because what that does is it limits any temperature decreases in the core part of the field and that it's better to -- in the long run, to maintain high -- we call them [indiscernible] high temperature in the field. And what you can lose in that is that there's less -- you're producing less from your recycled water as opposed to just the natural recharge. So now there can be times when you do that and you actually get what they call boiling and so you can improve the production. That hasn't happened, but the advice is to keep with this kind of a strategy. Because even if you end up with, call it, less of your produced water being produced, so hence, you have somewhat higher declines in the short term, in the long run, it will be much better because the declines will go down. We just updated the numerical model based on this with Jacobs, and I do think we'll end up putting a version of that online. And so to give you an example like we used to, we would do declines of 3% a year, but sort 3% a year every year with the life of the contract. So with the new numbers that we're getting, we're sort of 4% this year based on where we ended last year, okay? So -- but 4% this year, 3% next year, 2.4% to 1.5%, and going down is like around 1% a year. So if you actually look further ahead, that's -- you're in a much better spot 6, 7 years from now, even though, call it, end of last year, and now we are slightly lower than what we were hoping. But in the long run, it's going to be better. That's the advice, and that's sort of -- that's the plan.

[David Quezada, Equity Analyst]

Awesome. That's great color. And then maybe just one other one. I believe you maybe touched on this in your comments, just the potential for other noncore asset sales. Like do you think that you could ever see or would you consider selling Casita? And I believe in the past, we've talked about, I believe, some equipment that you had in the U.S. that you're not using. Is there any potential to sell that or make use of it somehow?

[Marc Murnaghan, CEO & Director]

So the answer would be, yes, we would. We would, for sure, do something like that. We would -- up until last year, there wasn't a lot of interest in that turbine, but we actually are seeing more interest in geothermal globally. And that's a geothermal-specific turbine, not to dive too deeply to that, but it's -- there -- I think there were more contracts in the U.S. awards we do from the last year than there has been in like a decade. So we just need people to be doing projects, and then I think that's going to get interesting. So yes, we still own that, and there's a chance we would sell it. I would say nothing is active on it right now. Things like Casita and I would say even our Western section may not be a sale, but there could be partnership opportunities, whereby there are companies that are looking to do geothermal projects in the region. Potentially, it'd be where somebody comes in and puts up some more of the risk capital, right? So less -- I would see they're less of a selling for cash, although that's still -- there's a possibility, but maybe taking back a carried interest in having other people with bigger balance sheets do some of the heavy lifting on the drilling, and that would be a different way to sort of extract some value.

[Operator]

Your next question comes from the line of Ahmad Shaath with Beacon Securities.

[Ahmad Shaath, Research Analyst]

A couple of questions from me. First, maybe if you have any more color on the M&A discussions and how has that progressed since our last call. Were there any changes in certain jurisdictions or any changes in the types of assets you're looking at?

[Marc Murnaghan, CEO & Director]

I would say not in the type of assets we're looking at in terms of jurisdictions. We probably are casting the net a little bit wider in terms of jurisdictions, although I would -- what we are doing for sure is, call it, the perceived political risk threshold would still have to be lower than Nicaragua. But we are looking at more jurisdictions that fall within that to just casting that wider because -- and there are transactions we could literally sign up tomorrow. We still think the return profile is a little bit low for us for than what we can get, and so we're just -- we don't want to jump at the first transaction. And then there's a few, as I said, that we could do right now. But that with more opportunities and more jurisdictions, we'll get something that really fits strategically, which we have, we think, but that also fits the return profile. So -- and that's really where we're at. We actually continue to see them, the new ones, filling in the pipeline. And as I said, I think we have a goal of, call it, 3 months here in mind, and we'll see where we get to.

[Ahmad Shaath, Research Analyst]

That's good. It's very helpful. And maybe you guys are working on a bunch of initiatives, at least on the corporate side in terms of acquisitions, refinancing and development of Panama. In the back of your mind, you have like a priority list in terms of execution, which ones you would like to get going before the others. Would you have a preference that you want to get the refinancing first and that will make it a better position to execute on other M&A transactions? Or how do you think about that?

[Marc Murnaghan, CEO & Director]

Yes. It's a good question. I think we can't thread the needle on everything. I would suggest that what we have right now, even with Chuspa in there and given that we have through sort of more of a global refinancing, is interesting to people. And would it be more interesting if we had another acquisition, let's say, more Panama or in Peru? For sure, it would be. But I think what we're not going to do is wait for that because I do think what we have and the interest is enough that we can move forward with the global refi and then to -- because that's a long process, anyway. That is a 3- to 6-month process, which we started. But -- and to the extent something hits on the M&A front, it can only help that process. In other words, I don't think that it would slow it down. It would -- I think it would only help it, and you could fit it into that process along the way.

[Ahmad Shaath, Research Analyst]

That's great. And maybe last one, housekeeping item here. I think if I heard you correctly, is it safe to assume the decline rates for the new numerical model, at least for the short term, around 4% this year of last year and 3% for the next year on San Jacinto?

[Marc Murnaghan, CEO & Director]

Yes. That's right. We literally got this on Monday. So in some form, we will have to update what's out there, and we will be doing that. And that is a no reinvestment scenario. And I think one of the things that's important to realize is that sometimes it's hard to kind of go down, call it, the decline curve, but I can tell you that your actual free cash flow generation is obviously higher in that scenario. So we are generating significant free cash flow even with these declines. And we, as a company, are making a decision that it's better to take that and use it for the diversification than to increase, call it. Because we could probably drill another well or 2, we think it's better to wait probably more like 4 or 5 years to do that. We could drill a well or 2, and we would get a bump in short-term capacity, but we just think that the better way to go is to be harvesting that and using that for diversification.

[Operator]

Your next question comes from the line of Mac Whale with Cormark Securities.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Marc, you suggested the dividend, the increased strategy is around doing the refi. Would you -- if you just did the re-amortization, would you look to -- was it sufficient enough to allow for increase under that scenario?

[Marc Murnaghan, CEO & Director]

Yes, it could be. Yes, yes. Although I think the reason why I'm suggesting the refinancing is that call it -- I would call it, more reprofiling, but within the existing term of the loan that we have right now with 8 years. But you are -- which is definitely on the table. You're more sort of playing around the edges. If you're not really changing the 8 years to something more like 12 to 15, there's just less to work with. That's all. So I wouldn't say it's out of the question. But when you look at the numbers on doing a 15-year amortization compared to an 8, you are effectively doubling or having what your principal payments are. And so you just -- you would just have much more to work with. That's all.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. And is there -- my guess you went down the route of reprofiling, would you push out? Like would you let that lie for a couple of years since you kind of went to the border of it before you would do a refi? Like does one kind of push out the other?

[Marc Murnaghan, CEO & Director]

So we initially, we sort of thought that, but I would just say no now. I would say it's not -- we're not going to -- we're going to try to do the refi now, yes, and do it into parallel path for sure.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Yes. Okay. On the carbon credit, you talked about seeing some revenues this year, and that's based on like a dollar because it's the -- get the backdated one, the inventory, is that right?

[Marc Murnaghan, CEO & Director]

Yes. And so we have step 1 for 2012, 2013, and I would say that we've had interest in those at price levels higher than that now. So just in last month -- before, we were talking $0.50 to $0.80. Let's call it, maybe double that already. And just the level of inbound sort of suggests that, I think, more people in the voluntary market -- again, we're in the voluntary market, right? We're not in the compliance market. But just -- you're just sort of seeing these signals that if that's -- that number has already doubled in the last month, something's going on.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Yes. Does the accreditation process allowed them -- allowed the credit? Is it the same process for them to be valid for compliance market? Or was that a whole other thing?

[Marc Murnaghan, CEO & Director]

No.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Like is that something you do? Or is it something...

[Marc Murnaghan, CEO & Director]

Yes, it's all on us. So interestingly, I would suggest that it's the -- any of the -- for instance, any of the acquisitions that we look at, not -- I haven't seen a single one of them that has actually -- and they all could have, okay? They all could have because they would have fit into the UMs, this mechanism that we have. But it takes a reasonable amount of money, a lot of time. So the validation and verification process is a real -- it's probably 1.5 years minimum to do it. We're actually supposed to do it before you hit COD. There's ways to do it after, but it gets harder and harder. So I would just suggest that on the one hand, it is a bit of a headache for the companies like us to do it, but I also think it limits supply. And on the one -- so for instance, if we were, again, looking at buying an asset that has an operating plant, it would be very hard retroactively to get any on those. But a lot of the things we are looking at have some expansion, whether it was doing some solar and some -- on the hydro in Panama. It's -- we could apply there. So I think we'll continue to make that part of the strategy. And the more that we do this, I think, the better we'll get at that validation and verification process and would be -- whereas the single project owners just won't be able to do that. So -- and I'm hoping this -- but I do think with all of these companies that are going -- that have the carbon-neutral pledges, they're likely going to be doing it more through the voluntary markets than they would be through that -- everybody talks about the European that's the compliance ones, which is basically the leaders trading credits, right? People -- and they call it the companies doing their own, I think they're going to have to do more of it in voluntary markets.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. That makes sense because you're trying to make that market more restrictive in Europe, right, so that the pricing actually is just something realistic. So there's actual -- so you have to make a decision between investing in an asset versus just buying credits, right? And that's been notoriously badly done in Europe. So it makes sense that they tighten it that they would then -- the next game plan would be, well, let's just buy some voluntary ones, right?

[Marc Murnaghan, CEO & Director]

Yes. So I'm hoping that, that has upward pressure on price. And then -- but it does -- this is where the process itself needs to be, in a way, very hard to do so that those buyers feel comfortable that they're true credits, right?

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Yes, yes. It's part of what they're buying, right, that it's valid. Okay. Just last question. Just remind us of the difference between pricing, like, say, post-2023 in Peru. Like once you change the commitment level, just remind us what the difference -- what the differential is in the pricing.

[Marc Murnaghan, CEO & Director]

So now -- so there's -- 8 de Agosto will go back to the 53.90. Now that assumes there's no -- there is an inflator, either way, in that one. So it works, so it has to go up every 5% CPI, which it might actually have done that by then. But assuming no, we will go to 53.90. And on El Carmen, we'll go to 55.90. And in the quarter, we were only receiving it, I believe, it was 39.30 on 8 de Agosto and something like 43 for El Carmen. So yes, it was a big pricing hit because it was good volumes in the quarter for the plants. But...

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

And just remind me...

[Marc Murnaghan, CEO & Director]

That is not -- that is a right of ours. That is not something we apply for and hope to get it. That is a right we have. They just make you wait 2 years.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. And what was the genesis of that underproduction? Like was it a resource issue? Or was it a technical issue on the plant?

[Marc Murnaghan, CEO & Director]

So I'll split them. So El Carmen was the technical issue because we had the outage, and it was out for -- that should have been about 2 months. But because of COVID, it was 4. So that -- and so on that plant, and it's -- we don't know for sure, but we don't think that, that one is something that we will apply for. In other words, we think that its committed energy is doable based on what we see. 8 de Agosto is a different story in that it's 140,000 a year. We think that the long-term production -- and we always did think that it was going to be between 115,000 and 125,000 okay? So no matter that they're both the resource and just assuming very high availability that we would be applying and we would likely do the full 15%, which would get that 140,000 down to 119,000 megawatt hours. Okay? Last year, I think where we see the resource right now is that, that is -- that actually is doable based on Q1. And we have, call it, 5% to 10% more small improvements. The only thing that would prevent us from getting there, and I would suggest that rather than doing the 119,000, it might be 110,000 to 115,000. It is just because at times when the resource is so strong, it comes with branches from trees, and there's all these different systems of filtering that path out and getting rid of it so we maintain high availability. And so we're making a few tweaks here and there. But -- and that's what was partly the issue last year as well. Most of which has been dealt with.

[Operator]

Your next question comes from the line of Naji Baydoun with iA Capital Markets.

[Naji Baydoun, Equity Research Analyst]

Just wanted to start off by a follow-up on David's question on additional noncore asset sales. Are you considering maybe any of the development prospects that you have in Peru? Are those on the chopping block? Or you still prefer to keep those in-house and maybe develop them over time?

[Marc Murnaghan, CEO & Director]

Yes. I would suggest that those are keepers for us in the sense that, long term, we see good market in Peru. We also -- the development costs to get a project to a PPA and bankable is much less than a geothermal project. One of the reasons why we would consider partnering on some of the geothermal is to get yourself to bankability. It could take $30 million to $50 million, which is a bit big for our size of the company so -- whereas the Peru, it's not that. So our preference would be to keep the Peru hydro in-house. I was also referring to -- for instance, we did make a small investment in a -- actually a Canadian developer with some biomass projects, which we still think is quite interesting, but that's something that would be on the order of $500,000 that we might look to sell that. So little bits and pieces. Again, nothing hugely material, but we -- a few things and all of that to say that it does help our cash position, which should help us execute on the M&A strategy. And I would even say, sorry, I would even say that I will -- calling carbon a noncore asset is probably not the right thing to do, but to the extent that you can put a little bit of cash on your balance sheet by selling a small amount is something new for us, and I think it does somewhat fall in that category.

[Naji Baydoun, Equity Research Analyst]

Okay. Got it. Appreciate that. And just going back to the binary unit. So I understand, I guess you've locked down the size. In terms of the tenders that are out there, have you locked down sort of the costs? Like can you provide any more details on that front? Is it in line with your previous expectations? Or have the numbers moved around?

[Marc Murnaghan, CEO & Director]

We really won't know until the end of this month when we get the letters. We have been assuming some cost increases. And at this point in time, all we can say is given with the increase in size, we think it's going to be closer to the 22 to 25. That's what we have right now. But until we get those firm proposals, there's really nothing else. We can't do anything else until then, so that's really when we're going to have more certainty.

[Naji Baydoun, Equity Research Analyst]

Okay. Got it. And just one last follow-up question from me. I noticed that corporate costs have been trending a little bit higher the last couple of quarters. Just wondering if you can talk about -- is that sort of the run rate we should expect going forward?

[Marc Murnaghan, CEO & Director]

So there was some onetime legal cost in the G&A. But I think in the quarter that we're not going to have, then we're also -- we do have, I would call, some increases on the insurance side, which will be permanent. So -- and those actually weren't in the quarter. So net-net, I think it is better just to assume these costs now going forward. We've had very minor -- to execute on this strategy, we have probably the neck of 2 bodies at the corporate level, which is a very small sort of add. But between that and the insurance, I think we are going to be running around this level, and we'll do what we can to reduce it, but I think it's better to run it as is in this quarter.

[Operator]

[Operator Instructions] There are no other questions.

[Marc Murnaghan, CEO & Director]

Okay. Thank you.

[Operator]

I'll turn the call back over to the host.

[Anthony Jelic, Chief Financial Officer]

Thank you, everyone, for joining us today, and have a good day.

[Marc Murnaghan, CEO & Director]

Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.