Polaris Infrastructure Inc
TSX:PIF
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
American Express Co
NYSE:AXP
|
Financial Services
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Target Corp
NYSE:TGT
|
Retail
|
|
US |
Walt Disney Co
NYSE:DIS
|
Media
|
|
US |
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
|
US |
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
11.18
13.8
|
Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Estee Lauder Companies Inc
NYSE:EL
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Church & Dwight Co Inc
NYSE:CHD
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
American Express Co
NYSE:AXP
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Target Corp
NYSE:TGT
|
US | |
Walt Disney Co
NYSE:DIS
|
US | |
Mueller Industries Inc
NYSE:MLI
|
US | |
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Good morning. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris Infrastructure 2019 Third Quarter Earnings Results Conference Call. [Operator Instructions] Mr. Jelic, you may begin your conference.
Thanks, Christina. Good morning, ladies and gentlemen, and welcome to our call.In addition to the press releases issued earlier today, you can find our financial statements and MD&A on both SEDAR and shortly on our website at polarisinfrastructure.com. Unless noted otherwise, all dollar amounts referred to are denominated in U.S. dollars.I'm joined this morning, as always, by Marc Murnaghan, Chief Executive Officer of Polaris Infrastructure.At this time, I will walk through our Q2 -- Q3 2019 financial results and comment on our recently announced quarterly dividend, after which, I will turn the call over to Marc for additional commentary and then questions.Our San Jacinto project in Nicaragua generated 400,805 megawatt hours averaged 61.2 megawatts net and 400,012 megawatt hours averaged 61.1 megawatt net for the 9 months ended September 30, 2019 and '18, respectively. These production figures are all net of plant downtime, both planned and unplanned. Net power generation for the third quarter of 2019 was an average of 60.2 megawatts, down from the average 65.4 megawatts in Q3 of 2018.Regarding the Canchayllo projects in Peru, production for the 3 and 9 months ended September 30, 2019, was 9,410 megawatt hours, average of 4.3 megawatts net and 25,369 megawatt hours, average of 5.8 megawatt net, respectively. Given the commitment under the PPA of 25,000 megawatt hours for the year, the facility is progressing well towards meeting target operating results. Furthermore, it should be noted the facility has averaged 29,308 megawatt hours per year since it started operations in 2015.For the 9 months ended September 30, 2019 and '18, we generated consolidated revenue of $53.5 million (sic) [ $52.3 million ] and $50.5 million, respectively. We reported revenue of $17.6 million during the 3 months period ending September 30, 2019, compared to $18.2 million for the same period in 2018. Revenue was $0.6 million lower in the third quarter of 2019, mainly due to the decrease in net power generation to 60.2 megawatts in the 2019 period from 65.4 megawatts in 2018 period. Marc will provide further color in his commentary around the San Jacinto steam generation performance for the quarter and year-to-date.We recognized net earnings of $2.6 million for the 3 months ended September 30, 2019, compared to net earnings of $4 million for the same period in 2018. The $1.4 million decrease in earnings was driven primarily by the decrease in contributions from San Jacinto, modest increases in direct project costs and general and administrative expenses and increased finance costs related to debentures and debt acquired for Canchayllo. Year-over-year net loss and earnings were $2.6 million versus $8.5 million, respectively.For the 3 months ended September 30, 2019, adjusted EBITDA totaled $14.3 million compared to $15.5 million for the same period in 2018. The $1.2 million decrease was a result of a decrease in contributions from San Jacinto and modest increases in direct project costs and G&A expenses, ignoring share-based compensation and acquisition costs.For the 9 months ended September 30, 2019, adjusted EBITDA totaled $44.6 million compared to $43 million in the same period in 2018. The increase was a result of increased contributions from San Jacinto for the fiscal year-to-date as well as contributions from Canchayllo, offset by modest increases in direct costs and G&A expenses, again, ignoring share-based compensation and acquisition costs.Finally, I would just like to emphasize that the company has declared a 15th consecutive quarterly dividend, which was confirmed by the Board of Directors on November 6, and will be paid on November 29 to shareholders of record on November 18. The $0.15 per share dividend reflects a 35% payout ratio based on our Q3 2019 results and continues the Board and management's commitment to regular positive distributions to shareholders of Polaris.With that, I will turn the call over to Marc, who will elaborate on current business specifics around our completion and development projects in Peru and 8 de Agosto and El Carmen. We'll be happy to take questions once Marc has completed his comments. Thank you.
Okay. Thanks, Anton. So first thing I would start, I just want to highlight in the press release what I think is probably the most important line is that we generated operating cash flow of $31.7 million for the 9 months. We repaid $10.8 million of debt. We paid $7.1 million of dividends, including the quarter, with the remainder being invested in the hydro projects in Peru. And I highlight that because I think we are paying down debt, which is the -- which is important, we are paying out cash flow to shareholders, and we're reinvesting for growth. So doing all 3 at the same time. And I think that's probably the big highlight.And I'll get into it, but I think the highlight of the debt going down is important because at San Jacinto, our total debt now is $148 million, which -- that debt to EBITDA is getting down to a level, and I think that in the next few years, we will be able to look at other ways to refinance that debt because based on what we're seeing in terms of the interest in, call it, renewables in general, infrastructure assets, infrastructure lending groups, that world is short on products. And it was always a plan that we would be able to optimize the assets operationally, but that there would be some financial optimization down the road. And so I think we are actually getting closer to that point, and that can provide future improvements, call it, in free cash flow for shareholders and the ability to either grow more or increase dividends, we do both.In terms of San Jacinto, I think that we're -- we mentioned in the MD&A that we've done a -- it's been about a 6- to 9-month process with our technical advisers, Jacobs, which is this numerical model, which we've received sort of initial runs, and we're quite happy with where it's at. We think that the field -- from when we put 12-5 online, which would have been March or April of last year, it does take about 12 to 18 months for the field to kind of settle. We think we've settled into a number. I think that the number this quarter is a good, call it, point to move forward from for everybody in terms of their numbers. So we have settled in a little bit lower than where we were, call it, in Q1. However, if that's the baseline and what the model is showing is, call it, very, very modest declines from here on out with effectively a 0 capital reinvestment, other than typical maintenance expenditures that you're looking at a very high free cash flow scenario. Although we do see opportunities to grow the steam production or even, call it, at sort of 0% decline rates with some, what I call, very small CapEx. So we are still looking at doing 6-3, which is a perforation project, which would target an area that we know is a high-steam area, that's quite shallow, and that's about a $200,000 or $300,000 project in 2020. That is -- that we will likely do during our major maintenance next year, and we think that, that if successful can be anywhere from 1 to 5 megawatts.And what we also are doing right now, which is, we think has somewhat of a short-term impact negatively is changing our injection system to promote basically a higher steam to brine ratio in the medium and long term, where you could actually have declines in overall mass flow but no declines in steam flow or even growth in steam flow and that's a 0 capital cost exercise. I would say that, that's not a -- sometimes, we need to try different configurations out, and it could have negative consequences, and we think that, that's really why we had some extra cycling in the current quarter, but we are committed to continue to try and because we think it is the right thing for the medium and the long-term of the resource, and it is also something that we will be able to run scenarios on with the model in terms of -- we now have that data. We'll be running these scenarios in the next few months, and we'll have that, call it, finalized end of this quarter, which will provide sort of the road map in terms of how we're going to, call it, manage the resource going forward. But I would characterize it as in the short term, we'll not see any drilling campaigns or large investments in the resource, and we would be in, call it, high free cash flow, low reinvestment mode, at least for the short to medium-term in Nicaragua.In terms of Nicaragua, there's really no update, politically speaking. Operations have been the same, payments have effectively been the same in the last 2 quarters. So really, there's no news and no update to be provided there that I can think of. So that's, call it, the operational Nicaragua update.In terms of Peru, we are now -- the El Carmen project, which is the 8-megawatt project. It is now -- we are delivering power to the grid, which means we're earning revenue. I would think that El Carmen would be, call it, 4 to 6 weeks of power delivery in Q4. And it's hard to know because we're still switching from the dry season to the rainy season, but it's an 8-megawatt project. Hopefully, as the rainy season kicks off very shortly here, which it usually does, in which case you can have, let's say, 6 to 8 megawatts for 4 to 6 weeks of revenue earned in the quarter. We would -- even though it's an 8-megawatt project and you start -- I would foresee the first sort of 45 days or 60 days that we are going to still have some teething issues just to make sure things are running smoothly before you're at, call it, 100% capacity. But we would see for sure some reasonable revenue contribution coming from El Carmen in this quarter.With respect to 8 de Agosto, during the commissioning process, they encountered some issues with, call it, some excess water, not when it's running, but actually when it's not running. So the turbines seem to be running fine, but when it's in stop mode, there are some issues. So rather than take the risk, we decided to just make sure that, that is fixed. It's being fixed as we speak. And this is something that we hope to have resolved, call it, in 2 to 3 weeks, and then we would restart, call it, the synchronization test, and those can take about 1 to 2 weeks. So call it, a month to 6 weeks, which is why we put December. It's hard to really think about a date, but I'd say it's somewhat disappointing, but it's not a big sort of bump in the road, just a small bump, and we would expect that -- I look at it as, call it, starting again, go into next year Q1, where hopefully Agosto is up, running and sort of at its capacity. And so we'd have both projects up full operation in Q1 of 2020.So once we get there, we will be, call it, going from 2 operating projects to 4, which I think is a huge milestone for us. And much more of our free cash flow coming out of Peru. Our free cash flow will be significantly enhanced principally starting in Q2 because the projects in Peru are earning the, call it, revenue and the cash flow, but there's a -- in your first 6 -- first, call it, operating -- 8 months of operations till May 1, we won't be getting all of that cash flow, but we make it all back after that. So in terms of the actual free cash flow, it really starts to pick up in, call it, May of next year, and then we'll decide exactly what we want to do with it. I think it will be a recipe that's a little bit of the same of everything, which is, obviously, we'll be continuing to pay down debt. We will continue to pay dividends, potentially increase dividends, but also look to grow the business, and we continue to see opportunities similar to the ones in Peru that can take advantage of our free cash flow now from both countries to invest that excess free cash flow. And the point I made earlier is that we are -- whether it's through refinancing or other opportunities, there is a lot of interest in what we're doing. There is a lot of capital, call it, that's looking for infrastructure assets. And so between our excess free cash flow and potentially other partners or direct project lenders or investors, I think there's a lot of ways to continue to pay the dividend, potentially increase it, but also grow the business without diluting the equity of shareholders.So that's it for the formal commentary. We can open it up to questions.
[Operator Instructions] Your first question comes from David Quezada from Raymond James.
My first question here, just on I guess the potential to refinance at San Jacinto. Appreciate that, that's maybe a year or 2 down the road. But I'm just wondering if you have any broad parameters that you would kind of wrap around that? Like, are you -- would you consider extending the amortization? Or is it just a refinancing at a better rate?
It's -- well, it could be -- I'm hoping to get both in because the issue that we do have with our current debt is it's a weird profile, where it kind of picks up over the next few years until 2024, and then it really plummets, which is fine, but it would be likely nicer to have more flatline in terms of the actual total debt service. And then I think where you get some savings, too is that it's not a big portion because our sub-debt, I think, is only around 25 of it, but that is an expensive piece of paper. So if we could just even match the senior rate, but for the whole thing, we'll get some rate savings as well.
Okay. Great. And then just switching to Peru here, the extension from the ministry on the in-service dates for the PPAs, and I guess now you've gotten formal agreement from the technical side of that entity, is the formal agreement kind of -- are you feeling fairly comfortable with that?
Yes. It's -- we actually had our lawyers from Lima draft up that language. So they're very comfortable with the language we've put forward. They're very comfortable we're going to get it. This is not unusual in Peru, this happens. The ministry has just moved slowly. Basically, they moved slower than what we do. So we fully expect that to be forthcoming. We would -- if they had issues, we would have -- they would have been brought to our attention, for sure, by now. The other thing, and this is more of a technicality, but we still have the one -- the $3 million of bonds posted. Technically speaking, they could actually execute on those bonds, which they have not done, which means our contract is technically still valid.So we're very confident it's going to happen. It's hard to know whether it's going to be 2 weeks, 4 weeks, et cetera, but it's probably a month's time frame ballpark, a month to 6 weeks. They're hard to predict. I think it doesn't -- from a pure cash flow perspective, it doesn't matter because there's that -- until May 1, we're really just [ going ] to take the spot price, and then the true-up starts to happen May 1 of next year. So it doesn't really matter from a cash flow perspective. And then I would say, I really don't think it's going this way, but in a total disaster scenario if we don't get it, it doesn't mean we can't generate and sell power. We would likely have to go find other buyers, which there are other buyers of power that are willing to sign long-term contracts, they're sort of large industrial consumers, et cetera. But those do exist out there, in fact, we have -- there's been groups that have approached us on our Canchayllo facility to buy excess power that wasn't committed to a PPA. So that's -- I guess that's not ideal, but I think it's important to note that in the very unlikely event that we don't get this extension, that doesn't mean that we're selling it or we can't sell power. So...
Okay. No, that's help...
And there would also be nothing at our lenders because it was a restructuring. There's -- they're having to take whatever situation that it is. So it's not as if there would be sort of a default because there's no contract.
Okay. Great. That's good to know. And then just one last one for me. I'm wondering if you can quantify at all, just with respect to generation at San Jacinto, what -- any commentary you could provide on how much of the generation in the quarter -- how much of a reduction was due to cycling, if you can ballpark that versus, say, the settling out at 12-5?
I do think it's about half, and that's about half scientific, half -- it's probably -- if you think of, call it, 65 to 70 megawatts of production, David, and you take a 3% decline, you're down 2 megawatts, which -- and these things don't happen equally per quarter, right? It's kind of -- it's not -- never going to happen straight line. So I think it's -- and then half of that would be just the typical decline and the other half is cycling. And I'd mentioned that we did reconfigure the injection system to try to improve the steam ratio, basically, and that's when we saw sort of more cycling. So we're committed to kind of keep trying that because we do think when we have conversations, we -- you can easily see a 5 to 10-megawatt improvement, and we're probably losing in the short run here, but we think it's worth the benefit. So call it, half and half.
[Operator Instructions] Your next question comes from Mac Whale from Cormark.
When you look at the model that you've got now or that's shaping up as a tool to manage the asset, is the plan really to use that simply to reduce declines to 0? Or is it actually to add megawatts?
It's to make appropriate decisions from a capital investment perspective because you can -- the base case that they provided to us, Mac, had a very good prediction of how the field has behaved up to date, which is key. So call it, the historical prediction has been very good. And so if we do nothing kind of in the base case, call it, a 1.5% decline, it's very good. And then -- so it's up to you though. So if you say, okay, we're going to go and drill a few wells, and you will increase the production in the short run. And what the model will show you is, is it going to revert back to where we are today, like in 12 months, in which case, we would not have justified the investment. Will it be a step-up forever or is it somewhere in between that? And then you have to decide on your own if you think it's an investment worth making.
Okay. That makes sense.
And then the other thing that we'll do is -- the first thing we're going to do, though, is to continue on this injection because I've had 3 different experts that have seen fields do this, which is that for basically no capital investment, you're getting [indiscernible] to coil or boil, you can improve your steam output. You can even be having small declines, but increase your steam output, right? And so that's really what everybody is trying to work towards, which is a 0 investment. So you do that one first. That's really the one we're going to focus on in the next, call it, 6 to 12 months, is that how do we change the injection scheme to potentially improve that, and we can try that because we've done so many years of tracer tests, where we know the connections between our injection wells and the production wells. So we can actually run all those scenarios now. So we do that first, which is a 0 CapEx question, and then you have some drilling scenarios, and it, for sure, will show up on processing production. The question is how fast does it revert to the mean?And then we'll also even run a binary scenario because that is something, at least in the medium-term that we know that it's an interest to our offtaker. It's very easy to add a binary in that where you are putting back fluid at somewhat cooler temperatures. And that's a very good thing to do.
Okay. That makes sense.
You have a baseline and then you can easily run numbers based on the different investment scenario.
Okay. And so in the meantime, you were topping up the major maintenance reserve. Tell us, like, is there -- or remind us whether there's requirements to spend a certain amount of that? Or is it more of that you have to just keep it topped out?
Technically, there is not. There is an original -- when we did this in 2015, there is an original corporal plan with certain commitments of $1.33 million a quarter, but there was also commitment to do a $25 million drilling campaign. And that was it. We've gone far beyond that because the first drilling campaign we drilled an extra well, not just 2, we drilled 3, so we spent more than that. And then we did another campaign, right, which was not part of the original plan. So what's interesting is we've effectively -- with the second drilling campaign, we have effectively done all of the original plan, but there is a plan to do one instead of $25 million, and then spread the rest out over the next, call it, 14 years of the contract, we effectively front-end loaded all of that.So really, the only requirement from now or to do the annual maintenance, which is about $2 million a year, so it's -- we have to have $2.6 million in our major maintenance reserve account, which we have. And from there, technically, we don't have to put anything in, but we do need to spend about $200,000 -- sorry, $2 million a year in just typical maintenance. So at this point in time, we could literally just go to that until 2029 if we wanted to.
I see. Okay. And then is there any plan to -- I guess, it's too early to say, but depending on what the model tells you about what the next set of investments are, do you start to accrue like more, will you keep funds back to do that? Like do you plan ahead? Or do you just I guess wait until you make those decisions and use your free cash flow? I guess, you don't have to like set it aside a little bit every year if you need more.
Yes. You don't have to -- it's a good question. I think if you really thought that we were going to do something, we probably would go back to doing your own a little bit.
Okay. Yes, I guess it does -- you need to have a plan first. You just have -- you have the tool, right?
And I would again, we don't know the results, but I really would be surprised if there is a big drilling campaign in the short-term anyway.
Yes. That makes sense.
There is a lot of different ways to improve this, we think or even, let's just say it's -- let's go to 0% declines through different low-cost mechanisms, I think given the other opportunities we're seeing, we're going to be high pressed without some type of refinancing to want to do any great capital spends there.
Okay. Well, and then that leads to the other projects or jurisdictions. I mean you've got I guess a pipeline of projects that you acquired. Is that -- are those top priority? Or are you looking in another jurisdiction? Or can you just take us through your thoughts like whether they've changed over the course of this year or whether there's stuff in the market, like market conditions on finance or just acquisition costs? Like just take us through your thoughts on where to go now.
Yes. I would say -- I don't think much has changed. I think we're closer. These things always do take -- I think the Union Group deal took us about 1.5 years to basically finalize because it was a refinancing and restructuring and a re-extension. I don't think we're into that long of a time line. We're kind of in the middle of some things that are probably half that long, but sort of in the middle of that. I think another jurisdiction, call it, an add-on in Peru was very high up the list just given that we now -- some of the G&A that we're now -- we've built up some G&A, so we're paying for staff in Peru. And so we can do more there. So I think that's high up the list, and they -- you get U.S. dollars, so we like that jurisdiction.We now have relationships with contractors, et cetera, that we think we can do even better if we did do other things there. So that's up the list. But I'd also say that just adding, call it, the third jurisdiction that would be perceived as, again, a much lower risk from a historical perspective. I think Nicaragua is very high up the list for us because I think that we can manage it, but I think the ability to have other, call it, 1, 2, 3 more operating assets in another jurisdiction, getting U.S. dollars, I think it's -- definitely gets a few extra marks for us because I think it's important from a perception perspective. We see a lot of opportunities still there, for sure, and we're in the middle of all of that.
There are no further questions at this time. I'd turn the call back over to the presenters.
Okay. I guess thank you very much everyone for joining the call today. And have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.