Polaris Infrastructure Announces 2018 Second Quarter Results

TORONTO, Aug. 7, 2018 /CNW/ - Polaris Infrastructure Inc. (TSX: PIF) ("Polaris Infrastructure" or the "Company"), a Toronto-based company engaged in the operation, acquisition and development of renewable energy projects in Latin America, is pleased to report its financial and operating results for the quarter ended June 30, 2018. This earnings release should be read in conjunction with Polaris Infrastructure's financial statements and management's discussion and analysis, which are available on the Company's website at www.polarisinfrastructure.com and have been posted on SEDAR at www.sedar.com. The dollar figures below are denominated in US Dollars unless noted otherwise.

HIGHLIGHTS

San Jacinto-Tizate Project Highlights

• Record-level power generation approaching capacity: The San Jacinto-Tizate Power Plant (the "San Jacinto project") generated 139 GWh (net) (an average of 63.7 MW (net)), resulting in revenue of $17.7 million for the three months ended June 30, 2018, versus revenue of $15.9 million on generation of 129 GWh (net) (an average of 59.2 MW (net)) in the prior year period. The 11% revenue increase was due to higher average production in the second quarter of 2018 as well as the impact of the 3% annual tariff increase.
• Strong cash flow generation: The Company generated Adjusted EBITDA (a non-GAAP measure) of $15.1 million in the three months ended June 30, 2018, an 11.5% increase from the prior year period, reflecting revenue growth with ongoing control of costs. This quarterly result is evidence of the fundamentally strong cash generating ability of the San Jacinto project, with Adjusted EBITDA margins improving slightly to 85.7%. See Use of Non-GAAP Measures section below for reconciliation of Adjusted EBITDA to Total income (loss) and comprehensive income (loss).

• Positive net earnings expected to continue going forward: The Company generated Total Earnings of $3.9 million for the three months ended June 30, 2018, primarily because of increased power generation. We expect positive quarterly earnings to continue such that 2018 will be the second consecutive fiscal year of profitability for the Company.
• Connection of new wells following 2017/2018 Drilling Program: The Company's wholly-owned operating subsidiary, Polaris Energy Nicaragua S.A. ("PENSA"), which owns and operates the San Jacinto project, successfully connected both recently drilled wells, SJ 12-4 and SJ 12-5. Commissioning of a new separator station on pad 12, HPS3, along with connection of accompanying piping and infrastructure, was concluded on April 30, 2018. The commissioning of HPS3 serves to substantially increase separation capacity for the pad 12 wells and has allowed for the connection of all recently drilled wells. Initial steam production from SJ 12-4 and SJ 12-5, combined with other production wells has brought the San Jacinto plant close to its 77 MW (gross) nameplate capacity. At this time the plant is operating in the 70-74 MW (gross) range and we will continue to implement operational adjustments with the objective of producing as close to capacity limit as possible.

Comment on the political situation in Nicaragua

Along with the PENSA management team, we have been monitoring the situation in Nicaragua closely, since April 2018, and remain hopeful for a peaceful and expedient resolution.  The Company is pleased to confirm that both San Jacinto operations and our regional head office, located in central Managua, have been unaffected by the political unrest.  In fact, the San Jacinto plant achieved availability in excess of 99% in the second quarter of 2018, helping drive record level power generation.  The PENSA team has also been working to implement various optimizing activities, as we seek to maximize average generation. 

Marc Murnaghan, Chief Executive Officer of Polaris Infrastructure, commented, "While mindful of the recent social and political unrest in Nicaragua, we have not experienced any impact on our operations.  We are optimistic with respect to improved stability within Nicaragua and look forward to continuing our robust social and environmental programs with local communities."

FINANCIAL OVERVIEW

The financial results of Polaris Infrastructure for the three and six months ended June 30, 2018 and 2017 are summarized below:

For the three months ended June 30, 2018, the Company reported revenue of $17.7 million and Adjusted EBITDA of $15.1 million, compared to revenue of $15.9 million and Adjusted EBITDA of $13.6 million, for the same period in 2017. The increase in revenue resulted from an 8% increase in power generation at the San Jacinto project, combined with the 3% annual tariff increase under the power purchase agreement. The improvement in Adjusted EBITDA reflects increased contribution from the San Jacinto plant combined with ongoing control of costs. See Use of Non-GAAP Measures section below for reconciliation of Adjusted EBITDA to Total loss and comprehensive loss.

For the six months ended June 30, 2018, the Company reported revenue of $32.4 million and Adjusted EBITDA of $27.5 million, compared to revenue of $29.3 million and Adjusted EBITDA of $24.5 million, for the same period in 2017. The increase in revenue was again driven by the increase in power generation at the San Jacinto project stemming from connection of new geothermal wells, combined with the 3% annual tariff increase. The improvement in Adjusted EBITDA reflects increased contribution from the San Jacinto plant combined with ongoing control of costs. See Use of Non-GAAP Measures section below for reconciliation of Adjusted EBITDA to Total loss and comprehensive loss.

For the six months ended June 30, 2018, the Company had net operating cash inflows of $17.8 million and net financing cash outflows of $11.3 million.  Net investing cash outflows of $9.2 million included $7.2 million of capital expenditure related to the substantial conclusion of the 2017/2018 drilling and infrastructure program, as well as $0.7 million with respect to turbine maintenance activities.  At June 30, 2018, the Company had cash of $34.5 million, of which $12.4 million was held in a debt service reserve account for the San Jacinto project. 

"Reflecting back to the position of the Company at the time of the 2015 recapitalization transaction, it is very satisfying to see the San Jacinto project operating so close to its nameplate capacity," said Mr. Murnaghan. "This achievement reflects considerable time and effort on the part of the entire Polaris Energy Nicaragua team, along with the guidance and consultation of our Board.  Having largely achieved our objectives with respect to optimizing operations at San Jacinto, we are well positioned to realize upon substantial cash flow generation and seek to drive shareholder returns in other ways."

About Polaris Infrastructure

Polaris Infrastructure is a Toronto-based company engaged in the operation, acquisition and development of renewable energy projects in Latin America. Currently, the Company operates a geothermal project located in Nicaragua.

USE OF NON-GAAP MEASURES

Certain measures in this document do not have any standardized meaning as prescribed by International Financial Reporting Standards ("IFRS") and, therefore, are not considered generally accepted accounting principles ("GAAP") measures.  Where non-GAAP measures or terms are used, definitions are provided. In this document and in the Company's consolidated financial statements, unless otherwise noted, all financial data is prepared in accordance with IFRS.

EBITDA is a non-GAAP metric used by many investors to compare companies on the basis of ability to generate cash from operations.  The Company uses Adjusted EBITDA to assess its operating performance without the effects of (as applicable): current and deferred tax expense, finance costs, interest income, other gains and losses, impairment loss, depreciation and amortization of plant assets, share-based compensation and other non-recurring items. The Company adjusts for these factors as they may be non-cash, unusual in nature and are not factors used by management for evaluating the performance of the Company.  The Company believes the presentation of this measure will enhance an investor's understanding of its operating performance.  Adjusted EBITDA is not intended to be representative of cash provided by operating activities or results of operations determined in accordance with GAAP.  The table below reconciles between Adjusted EBITDA and Net income (loss) and comprehensive Income (loss), calculated in accordance with IFRS. 

Cautionary Statements 

This news release contains certain "forward-looking information" which may include, but is not limited to, statements with respect to future events or future performance, management's expectations regarding the Company's growth, results of operations, estimated future revenue, requirements for additional capital, revenue and production costs, future demand for and prices of electricity, business prospects and opportunities. In addition, statements relating to estimates of recoverable geothermal energy "reserves" or "resources" or energy generation are forward-looking information, as they involve implied assessment, based on certain estimates and assumptions, that the geothermal resources and reserves described can be profitably produced in the future. Such forward-looking information reflects management's current beliefs and is based on information currently available to management. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "predicts", "intends", "targets", "aims", "anticipates" or "believes" or variations (including negative variations) of such words and phrases or may be identified by statements to the effect that certain actions "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved.  A number of known and unknown risks, uncertainties and other factors may cause the actual results or performance to materially differ from any future results or performance expressed or implied by the forward-looking information. Such factors include, among others, general business, economic, competitive, political and social uncertainties; the actual results of current geothermal energy production, development and/or exploration activities and the accuracy of probability simulations prepared to predict prospective geothermal resources; changes in project parameters as plans continue to be refined; possible variations of production rates; failure of plant, equipment or processes to operate as anticipated; accidents, labor disputes and other risks of the geothermal industry; political instability or insurrection or war; labor force availability and turnover; delays in obtaining governmental approvals or in the completion of development or construction activities, or in the commencement of operations; the ability of the Company to continue as a going concern and general economic conditions, as well as those factors discussed in the section entitled "Risk Factors" in the Company's Annual Information Form.  These factors should be considered carefully and readers of this news release should not place undue reliance on forward-looking information.

Although the forward-looking information contained in this news release is based upon what management believes to be reasonable assumptions, there can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. The information in this news release, including such forward-looking information, is made as of the date of this news release and, other than as required by applicable securities laws, Polaris Infrastructure assumes no obligation to update or revise such information to reflect new events or circumstances.

SOURCE Polaris Infrastructure Inc.

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