Earnings Transcript for UGEIF - Q1 Fiscal Year 2021

Unidentified Company Representative: Good morning and thank you for joining us to discuss UGE International's Fourth Quarter and Fiscal 2021 Year-End Results. On the call today we have UGE's CEO, Nick Blitterswyk, and the CFO, Marissa Lauder. During the call, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Before management discusses the results, I'd like to remind everyone that certain statements in this call may be forward-looking at nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. For caveats about forward looking-statements and risk factors, please see our MD&A for the year-ended December 31, 2020, which can be found on our company profile at sedar.com and on the company's website. I will now turn the call over to UGE's CEO, Nick Blitterswyk.

Nick Blitterswyk: Thanks, Marcel [ph]. First off, I'd like to welcome everyone to the call. Thank you for joining. My name is Nick Blitterswyk, CEO of UGE International, and I'm joined by our CFO, Marissa Lauder. For this webinar, first, I'm going to run through the agenda and let you know where you can find additional information. Next, Marissa will run through some of the key pieces of our 2020 audited financials and how they relate to the business. I will then provide an update on our project development backlog where we will touch on the subsequent events that occurred after the close of year-end. We will then take questions and wrap up the webinar. As a reminder, you can submit a question through the portal by submitting a question on the left-hand side of your screen. As always, our goal to be mindful of your time and keep this webinar concise and to the point. We'll be speaking relatively high level and focusing on the areas that we feel are most important to understanding our results and business. We also want to remind our listeners that we report in US dollars, so results in this webinar are represented in US dollars as well, unless addressed otherwise. Although we will keep things fairly on hand on our call, our website addresses [indiscernible] as well, where you can download our full financials. So with that, I'll turn it over to Marissa to start by discussing our 2020 financials.

Marissa Lauder: Thank you, Nick. I would like to start by saying that I'm pleased to report our Q4 and 2020 results this morning. While I would have preferred to release our 2020 audited financial statements on time, we're making every effort to improve our processes so we can provide more timely and relevant content as we move forward. A lot has changed in the business over the last year. The strategic pivot we've talked about is starting to show more clearly in our results and in our financial statements. And I think at this time, it is important to highlight how some of these strategic changes are transforming our financial results and our financial statements. But don't worry, I won't talk too much short but here are a few critical items. As you can see on this slide, we're seeing a drop in our traditional EPC revenue, which was $1.4 million in 2020, down from almost $5.1 million last year. Some of this is due to slowdown earlier in the year due to COVID, but more of this is from the shifting business model. Over time, our revenue will begin to shift to prominently revenue from energy production, which was 32,000 in 2020. As you can see at the bottom of the table, our remaining project value for the EPC business has declined to $3.5 million from the $13.4 million last year. And this is very much reflective of the change in business model. Until we reach scale in operating solar facilities, we will continue to see topline revenue pressure. This is why we are super focused on growing our backlog and moving projects efficiently to operating status, so we can reach scale and get to a solid base of recurring revenue from energy production. This transition will lead to certain period of accounting net losses, but projects do create positive cash flows through their development cycle, despite not showing up in the accounting revenue until operational. On the same page, you can see the significant growth year-over-year in our asset base. We now have just over 1 million in solar assets and construction in progress. This 1 million represents the accounting carrying value and not the economic value to UGE. The economic value is better represented in our backlog values which Nick will discuss next. Along with the asset growth is growth in project financing, which includes both traditional debt and tax equity financing and this totaled $1.89 million at the end of the year. These fundamental changes represent the shift from a services business to an asset manager, where the balance sheet and cash flows become more prominent for UGE. As we build our team and processes this year, we will see some upward pressure on expenses as we saw in Q4 over Q3 last year. G&A increased to $1.1 million from $0.8 million last quarter, mostly due to compensation, both cash and non-cash stock expense, but we are very cognizant of being prudent and disciplined in our cost management. Moving to the next slide, let's take a slightly deeper look at our financial position. We've made good strides in improving our financial position and with the funds raised in the December private placement, we ended the year with $1 million in cash. The additional $5 million in net funds raised in Q1 through the brokered private placement further improved that position. We've also settled operating debt and accounts payable at significant discounts as we wind down the Canadian EPC business, reducing accounts payable and operating debt by more than $2.2 million year-over-year. We further improved this position after year-end, with the further settlement of $680,000 in operating debt with cash, and converted $590,000 of debt to equity. This reduced our operating debt to about $940,000 from the $2.2 million at year-end. And of that $940,000, approximately $512,000 is a convertible debenture. Further, we also settled approximately $530,000 in trade payables and accrued liabilities and these combined items improved our working capital position from year-end. A fairly big new number on the balance sheet are the right-of-use assets and related lease liabilities, which have reached over $1.5 million. And to be clear, these are not cash outlays, but rather the recognition of the present value of rights and obligations under leases for property or land on which our solar facilities are built, or will be built. This number two will increase as our backlog grows. To wrap up my comments, I wanted to touch on our restatements for Q2 and Q3, 2020. The summary of these results are contained in the MD&A for 2020. Between the two quarters, we are estimating an overall increase in net losses of about $538,000 from what was originally reported year-to-date in Q3, 2020. Our audited 2020 financial results fully account for these restated amounts. We look forward to releasing the full restated quarterly financial statements and MD&A as soon as possible, and then soon after, our Q1 2020 financial results and business highlights. Thank you for joining us this morning and now I will turn it back to Nick.

Nick Blitterswyk: Thanks, Marissa. As Marissa mentioned, tracking the growth and maturation of our project backlog is an important part of our business. As many of you who have been following the UGE story already know, 2020 was a strong year for growth in our backlog. And we were excited for the opportunity to see continued momentum in that regard. In our latest results, we made some updates to how we present this backlog table, which I wanted to run through now. The first one is, you may notice that this table only includes our self-financed projects, which is the focus of our work going forward. Previously, we've included the corporate finance to consulting projects in our backlog table. Of course, moving those effects to gross total we feel it provides a better summary of our main line of business. Second, we have our first operational projects in category six. Our operating projects are now generating recurring revenues and, as you can see here, over a project lifetime of 25 years for the operational projects in the US. Third, we have added a new column labeled capital expenditures. This column is a current estimate for projects in development or incurred costs for operational projects, other costs of building solar facilities. We have added this column to provide further clarity on the structure of the projects and as a proxy to the cost base for asset measure, which will grow on our balance sheet as projects are deployed. One note that any grants received while that is cash in our pocket, to actually work to decrease the value of solar assets to that measure is listed here as well. There was also a relatively small amount of cleanup completed on our Uri [ph] backlog. For instance, the Philippines was hit very hard by COVID, and while no projects have technically been lost, there was some that have not matured to the stages as initially expected. As such, those opportunities have, for the time being, moved back to pipeline and will reenter the backlog at a later date. We feel reasonably comfortable that they are back on-track. Though this cleanup is mostly relevant to the Philippines, there was one project in US that we have de-prioritized. It remains in our pipeline but we felt we did not meet the threshold of being included in backlog at the present time. Lastly, just a reminder that we calculate the present value of solar facilities in our backlog that are still in development, using a discount of 8% to 10%. For operational projects, we use a discount rate of 8%. These are the same discount rates that we have used since we began to report self-financed backlog. But in future, we'll look to provide color of the sensitivity of these backlog numbers to changes in the discount rate. Lastly, we have been really busy since the beginning of this year. And our financial statements record several subsequent events, as Marissa also mentioned earlier, highlighted by further balance sheet improvement through the whitefield [ph] private placement we closed in February, as well as further cleanup of our balance sheet. With our Q1 just a few weeks away, we look forward to reporting again here soon, including the effects of our subsequent events. On the business overall, though, it is worth highlighting that what we were doing so far in 2021 to build long term successful business. As mentioned in our MD&A and in this morning's investor newsletter, we are building the business around the medium term 2024 goal of 100 megawatts of operating assets, as well as 100 megawatts of annual development throughput. And in the immediate future, we are looking to double our project backlog in 2021, in part by entering at least three new states. They're already well underway. We have added team members to the project development team, increasing our reach in the northeast US and adding valuable experience. We have already entered one of these new states in Meriden [ph] with the announcement of a community solar project in that state, by adding additional projects in our New York and main strongholds, as well. The early months of the year are often solely proposing new deals, but we see increasing momentum and look forward to sharing our success with you as the months and year progress. This, of course, holds true for the maturation of our current backlog, as well as new projects entering construction and become operational. Lastly, I'd be remiss not to mention that we are seeing positive support on the policy side, as well. Of course, back in late December, US investment tax credit was extended for two years. But there currently exists a proposal to extend it for 10 years, with the inclusion of a direct pay provision, which would significantly improve the usability of the tax credits for businesses like UGE. Further, we continue to see pleasant movement in new states, a lot of community or shared solar, which we see as an important driver of growth for our sector. With that, we'll wrap up the prepared remarks by pointing you to where you can find more information. As mentioned earlier, our website is regularly updated. It contains all of our financial filings and other updates. You can also visit Sapa capital's [ph] website for additional information. You can also follow us on Twitter to get links to announcements and other media. And thanks again for tuning in today. Marcel, back to you.

A - Unidentified Company Representative: Thank you, Nick. We've collected the questions investors have submitted since issuing our financial results this morning. We've also collected the questions submitted through the web portal's Q&A tab. We'd like to thank participants for sending us your questions, and you can continue submitting questions through the Q&A tab at the top left-hand side in the web portal. Moving on to our first question. Has something happened to the sales team to cause the fourth quarter backlog decline? Is this an indicator of going forward?

Nick Blitterswyk: No, not at all. I think that there's a couple aspects to it. So number one is that the backlog that we've already recorded before included client financed projects and our consulting projects. And so, there still are those types of projects, they know that we highlight the amount of those, but because they're a different type of projects, a different structure. So number one is that we took those off. Number two is, I know I just highlighted this when I was talking about the backlog, but we did a bit of cleanup. The Philippines at one point had, what I believe, was referred to as the world's longest quarantine due to COVID. So on that basis, some of the projects just didn't see the movement through the development cycles or the development stages that we would have otherwise expected. And so, we thought it was prudent to not consider those as backlog until we see those move again, if that was the main thing there. Again, going through few different points here; I don't think it helps kind of illustrate the overall progress that we - process that we go through here. And that is, in our US market, we like, for example, we closed several of the projects last year and into this year, and there was one project that just to be seen [ph] is having a slower development cycle right now. It's still in our pipeline. But there was one project out there that we felt was prudent not to include right now. So it's kind of a combination of those things. But when you factor in that the gross amount of backlog doesn't include the - that kind of finance projects, the actual change is quite minimal. The other thing I'll say is, probably a good opportunity, I mentioned about new hires and things like that, but all the overall sales team we'll mention is - number one is that in December, we promoted Tyler to Chief Revenue Officer. You've been doing a great job with that role, including building out the team further. So since he's taking over that role, there was a couple people in the sales team that we decided weren't hitting their numbers and decided to part ways with, but also, we've added several new people, as well. And already starting to see the progress there So I think, I'm sure I've talked before about the cycles or the time it takes for people to close their first deals. And so, people that started this year are kind of in the earlier stages of closing their first deals, but we definitely see really good momentum there. So we're pretty excited about hitting our targets this year, now we're very focused and working hard to do that.

Unidentified Company Representative: Are there particular states we should be keeping an eye on in regards to expected strength from community solar market in 2021? Or are there new markets on the horizon with potential legislative changes?

Nick Blitterswyk: I'll take that as a US question. In that regard, so - actually in the next version of our investor presentation we push out, we're going to update the map that we have in there that talks about the US community solar, as we refer to it, framework, because there is a lot of movement there, a lot of positive movement. So, in 2017, it was - what, three and a half years ago, I believe, that we announced our first community solar project in New York city. And that was a very new model at that time. Our belief is that that was the first development of a rooftop community solar project in New York City at that time. Since then, it's become really quite common across, certainly, the Northeast, but it's becoming increasingly common across the country, as well. So, we will update that map. But we've done a lot of analysis on our neighboring states, of what it takes that a good successful project in this way. Of course, we already have those two projects in Maryland [ph] and roughly based on the prepared remarks there so far, so we expect that we'll see additional states added in terms of projects this year, as well. So, I think, it probably would be in the interest of everybody's time to run through every state in the US right now. But I think, throughout the Northeast, not just New York City, but the rest of New York, received good momentum in Maryland, Pennsylvania, Virginia, etc. So, we're pretty excited about what that means for the growth of the sector and, of course, for UGE.

Unidentified Company Representative: Given your present cash position, how much runway does that give you until projects come online and generating high margin revenue, and what you need to raise capital?

Nick Blitterswyk: From a business perspective, Marissa might have more data from the accounting perspective. But the biggest thing I would say is, the number of subsequent events after the close of the year, including the - of course, the [indiscernible] placement among other things. But Q1s are coming out in the pretty near future here by the end of the month. And so, I think that's probably a good discussion to have maybe at that point in time, when everyone is going to be able to look at the accrued balance sheet and so on. But, we're very focused on growing in a very pragmatic manner. We see a lot of opportunity in the space, but we also want to make sure that we don't get over our skis as well, and drove into methodical manner.

Unidentified Company Representative: Do you have any financial targets or just megawatt targets?

Nick Blitterswyk: Well, Marissa, jump on any of these as well, but I'd say that the megawatts in our backlog is actually something that we are providing a little bit more light, highlighting it a little bit more than we used to. And part of the reason for that is because I would say there's probably some subjectivity in terms of how you calculate the present value, especially around the discount rate. And so, the megawatts are what the megawatts are, so we have the targets in terms of the size of the backlog and so, we look forward to see that growth. We, of course, have targets as well in the medium term, in terms of megawatts, I like to believe that the information provided in the today's release provides more color for our analysts that cover us and other investors to be able to better model out the growth in that backlog, and how that's going to trickle down to the income statement balance sheet and cash flow statement, as that happens. So we don't put out financial targets except what we're going to do in 2021, for example, but we are looking to, certainly, continue to improve the level of disclosure and information that we've put out, as we continue to grow here.

Unidentified Company Representative: You previously commented about being able to win 1/3 of the backlog. Is this still holding true?

Nick Blitterswyk: Yes, so that's a rule of thumb. But from our past results, that feels very reasonable. And that's quite a good chance today, as well to say our backlog - we talked about it as 60 megawatts of solar financial projects, but that is our comfortable pipeline over 140 megawatts of projects that we're working to secure, as well.

Unidentified Company Representative: Do you think your backlog can hit 120 megawatts this year? And if so, how do you get there?

Nick Blitterswyk: Yes, so in terms of doubling the backlog, that's the math/ I think that in - we have grown the size of our team, we're very reactive to developing a lot of new sites that are typically working their way through the pipeline as we speak, but in the various states with the Northeast, primarily. So, we've added some really key members of the team, people that, in some cases, come over from your competitors in the industry and they provide a lot of valuable experience there, too. So, it's a very right market for growth. So we're just heads down off of making sure we capture our fair share.

Unidentified Company Representative: The 2024 goal of 100 megawatts, is this built out an offering by 2024 or included in the backlog by 2024?

Nick Blitterswyk: Good question. So the 2024 goal is, by the end of 2024, to have a 100 megawatts of operating assets. The secondary aspect of that goal is to also have a throughput of 100 megawatts by then. So, the project that we're securing in between now and then, of course, is built over the different stages. So, right now, or at least as of our year-end, the operated backlog was just under a megawatt. It was our first megawatt of self-financed projects, of course, on top of over 400 megawatts of overall experience that we have. So, between now and then, that's the goal, to have a 100 megawatts of operating assets, providing, of course, the long-term recurring revenues and so on, that those projects will generate. But if you just think about our secondary goal, also having 100 megawatts of throughput by that stage, we're looking to be very much on a pretty aggressive ramp up in terms of how much we're developing. So expecting that 100 megawatts to become even more than that in a fairly rapid center in 2024.

Unidentified Company Representative: And a clarification question. Do you only plan to only plan to convert 1/3 of the backlog or 1/3 of the pipeline?

Nick Blitterswyk: That's the pipeline. So our backlog is, we go through a process where we decide that - yes, we believe that this this project is likely to happen. And that's how our project needs to get to the backlog. So the pipeline is, again, I want to say that's a soft measure. But that's an estimate for us in terms of how much of that three-backlog pipeline becomes backlog.

Unidentified Company Representative: Does this finally make you current, and when do you expect to start trading again?

Nick Blitterswyk: Yes, I think - as I would miss not to say that, it is - Marissa touched on this. Actually, if you read this off just to highlight a couple things. One is just that their preparedness - all the hard work that they did in preparing these results and in going through the updates with respect to self-financing of projects, and tax equity transactions, and all of those types of things. But at the same time, we do regret that we weren't able to file on time. We've made sure that we've kept the regulators up to speed, our lawyers [ph] are working on having the whole method so we could trade again at the earliest possible moment. And it's really the regulators of the TSX that both needed to sign off on that. So, we don't have a specific time in terms of when that will be. Our understanding is that it's a first half of this week maybe, whether that means today or as late as Wednesday, we can be short the stage and, of course, we'd rather be the conservatives than anything. But we very much support that training again, and of course, people behind us and learning from this and making sure that we'll time going forward.

Unidentified Company Representative: A question for Marissa. Given your professional background, you're likely had numerous employment opportunities. Why did you choose it UGE International?

Marissa Lauder: Good question. Thank you for that question. I come from the financial services sector. And I think I made significant comments in my prepared remarks about us becoming a service business to an asset manager, which plays well, to, I think, the background that I have in financial services, balance sheet management, in particular. So it is a natural, complementary skill set, so it was easy for me to see myself fitting in. And there's two other reasons. And so, other than that, I love the team, I met Nick and I met Robert and the rest of the executive team. And I was really compelled by the opportunity and what I can see as some very important inherent value that just needs to be released through good management of the company. And I'm also very interested in just green energy future for the world, more broadly. And so, when I can apply my skill sets in what I think is a socially conscious way, that's intriguing, as well.

Unidentified Company Representative: With a 2021 goal of three new states of operation, which ones other than Maryland are the most attractive? Can you talk about the potential market size?

Nick Blitterswyk: I think it was a question from [indiscernible]. The - yes, in terms of other opportunities, what I would say is, in no particular order necessarily, Maryland is definitely a state that we like. In New York, all of the work that we've done so far has been in the metro New York Region, as to New York City and the closest county in Westchester County. We do see a good amount of opportunity in the broader state, which, of course, from a geographic perspective is a lot larger than New York City. So, it's an interesting opportunity too. Massachusetts is another state in the northeast, which has a lot of activity that we're quite interested in, and New Jersey and Pennsylvania, as well. So I noted over three, as you can tell, and I think that speaks just to the large amount of opportunity that we're seeing right now.

Unidentified Company Representative: Who are your competitors and what are the barriers to entry?

Nick Blitterswyk: I think about it this way and that is that, on a local level, for the most part, these are private companies that virtually all the people on this call wouldn't have heard about before. So it's smaller private companies. And in the vast majority of cases, their business model is more specifically around the development of the project, as opposed to actually building the vote financing of triggered operating assets. On a day-to-day basis, that's the more common type of company that we would see could be up against when we're looking to develop a specific project. There are some larger players that - for example, JFK Airport had a public RFP, I want to say it was about 15 months ago, if I had my time right. That was a project that we had competed on, we had been named a finalist for that, it ended up being awarded to SunPower, which is just public information announced that they're doing that project. And so, SunPower, largest residential player, but a large opportunity like that, which would have been larger than any other opportunity we had before, you start seeing some of the bigger players like SunPower. NextEra also has a commercial division for larger opportunity, as well. So, I would characterize the overall market as being really quick, I don't know if it's still largely private companies. And also, we really do believe that the ability for us to develop build finance, own operate, and bring all that together under one roof, allows us an opportunity to be more efficient in terms of how to bring these projects through to have better client relationships with especially repeat real estate owners. And to capture a lot more value from the work that we're doing, as well.

Unidentified Company Representative: How will you deal with the risk and the rising cost of the supply chain?

Nick Blitterswyk: I think from that point, you'll see these things are evidence overtime, of course. And in that regard, I think even in the last five years, say, there was a time in early 2018 where there was new tariffs put on solar panels, they were referred to at the time as the Trump tariffs. And those tariffs materially increased the price of solar panels at that point in time. So you know, these things, if you look at a graph solar panel prices over time, the trend is very clear in terms of down into the right. But of course, it wobbles as we go. So in terms of like the market right now, solar panels are a technology, we see increasing efficiencies all the time, of course, improving economies of scale, as well. I'm fully expecting that, over the years to come we'll see that the price of solar panels continues to decrease as technologies improve on the inverter side of things, that's the case as well. In the short term, we manage the business accordingly, in terms of being able to be conservative in terms of our expectations of what things will cost to build up. People that fold a company also know that it can take a couple years for us to go from securing the site to actually having that project, the operational. And what I mean by that is, it does give us a good amount of time to ride the wave and understand where things are at and make our decisions accordingly with who are going to buy solar panels, knocking on who's or what have. So, you know, this is a very long-winded way of saying that, that is not a not a big concern of ours to be honest. I think it's a good robust solar sector right now, in our opinion. And so we look forward to continuing to see our supplier relationships grow and improve over time as well.

Unidentified Company Representative: One of the biggest challenges right now to move projects from backlog to operating assets for 2021 and 2022.

Nick Blitterswyk: Yes, good question. You know, I think a couple things, one thing I'll mention is, we did security's number of projects in May last year. And main is a fairly new company, solar market, really, the first time we started hearing about made in 3D solar was in 2020. And what that meant is we've secured a number of sites there that we're developing, but other developers had to. And so what that meant is that there's two utilities in Maine. And so you know, they have a lot more work on their plate than they used to in terms of approving interconnection applications. And so we've seen that move a bit slower than we had hoped for. It's right now manageable. But in terms of challenges for 2021 and just from a timing perspective, I think there'll be at hope to have a few of those projects into construction a little bit earlier than we expect that to happen. So there's that, I think that in addition to that the sort of the cloud was lifting a little bit from the COVID pandemic, not to downplay the challenges a lot of people are still, of course, going through with the pandemic, but I think that, I would say that, anecdotally, at least, we're seeing efficiency start to return. I had heard her mentioned on the sales team, that discussion of the sales team, that the Philippines was hit very hard as a country last year, but I would say that, like, across our various markets. I get the sense that we're reinvigorated and so like, for example, New York City rooftop projects, those move through the development cycles more quickly than a larger ground mount project would, especially with all of our experience we have in those types of projects now. And it feels like the sort of kind of fine-tuned machine aspect of us developing those projects is pretty apparent right now. And we're looking forward to many more New York City, we've got projects, if a construction is here, too. So again, a little bit long winded I apologize for that. But it's really a matter of getting interconnection approvals were clickable. Some of our clients specifically are doing either renovations or the new building right. Here in New York City if you're building a commercial or industrial building above a certain size, you need to include a measure which is most commonly solar. And so that means that a number of our clients are building new buildings that we're working with them to make sure that buildings complete, we could build our projects too. So it's really just a matter of moving all those things forward. But I feel really good about the team and our ability to do that.

Unidentified Company Representative: So couple on the backlog, where does it come from, so coming from the pipeline. How much will be new origination and could you exceed your target?

Nick Blitterswyk: So we're still if I don't, if it doesn't sound like I'm answering correctly, please let me know. But I'd say that you're most of the backlog started in pipeline, it does happen from time to time that something could come up very quickly. It's not really spend much time in pipeline before it's closed. But it's typically the way that it goes about is that we make a proposal and work through the process to get that into a signed contract. And then, of course, we start going through the interconnection and other aspects of the development cycle there. You feel a missing on the answer there, Marcel?

Unidentified Company Representative: I think that's good. I think we can arrange that clarification afterwards. But just move to the next question, what's the backlog NPV as of December 31, 2020?

Nick Blitterswyk: So if you didn't have the slides, of course, you're shared on my screen, I'll just go back to that. So here, this is, of course, only the cell finance backlog. The NPV as of December 31, 2020 was $105 million of those types of projects. And that was just over 60 megawatts.

Unidentified Company Representative: Do you have any tax equity capacity here?

Nick Blitterswyk: I'll answer that in terms of like the overall environment. You know, I think if I could speak to the industry as a whole, I would say in 2020, as the economy weighted through the COVID pandemic tech sector was less plentiful in 2020, than in prior years. In 2021, for example, right now there are a couple projects that we're currently in discussions on tax equity. And I would say from like, a personal perspective, we're very pleased with the response that we're getting on the availability of tax equity. So, generally speaking, it seems to be a market that's functioning right now. And we don't have any material concerns in that regard. I should mention too, and I mentioned this in the prepared remarks, but in the infrastructure bill, that was that's already been proposed. And presumably, we'll start seeing some progress in the in the months to come and see how that turns out. There is a proposal for the investment tax credit to be extended by 10 years. And for a, what's called a direct pay provision, or a cash grant provision to be included in that. And what that means is that these tax credits, you know, for companies like UGE, and certainly all the other developers that I know, they don't have the tax capacity themselves to properly manage and monetize those tax credits. And so the way the market works is that there's specific tax equity investors that come into the projects, and will, in essence, pay you for those tax credits. There are various methods to do it, partnership is the most common and I won't go into too much detail there. The point I'm getting at, though, is that it's very expensive capital raise, it's, of course a benefit that it's tax credit, it's free money would otherwise get, but it is fairly, pretty expensive and laborious to go through that. So if it does get passed with the direct pay provision, that would really simplify our process of closing, on essence, closing on a tax equity as we build out our projects. And so I think that that would be a real benefit to UGE [ph]. And also, I think it with the overall solar industry for a moment, if I think about residential bid scale, which huge he is, and utility scale, I really firmly believe that the mid-scale space that we're in is the part that has the outsized benefit of that provision. And the reason is just that, on the residential side, my understanding is the majority of residential projects he's done these days are either cash rich, in more cases, loads. And so what that means is that the homeowners themselves who of course, pay taxes, they can monetize that tax credit. And on the utility scale side, the projects are so large, that the efficiency of those transactions are now pretty seamless. Whereas the commercial space is kind of caught in between the project sizes aren't that big. Tax equity ends up being something that's more expensive for us to monetize. So, we know how to do it, you've done it before, but that direct pay provision would be a real benefit. And so we'll see and I would be remiss not to say that the generally speaking the investment tax credit, it's been extended by Republican Presidents before it was actually put in place by bush. It was renewed by President Trump in December. So it has happened bipartisan support in the past, including under Obama, there was a refundability clause for a couple of years after the financial crisis. So, you know, that's our overall sort of status update on that topic.

Unidentified Company Representative: Are there any risks that the current backlog does not converted into offering assets where such as interest rates?

Nick Blitterswyk: Well, I take that twofold. I mean, until it's operational, it's in backlog and there's no guarantee that everything will make it through. And but then, in terms of - what's the second half of that Marcel?

Unidentified Company Representative: Yes, it's about the risk that it doesn't get converted into operating assets? And would interest rates be a risk? It's a combination two questions.

Nick Blitterswyk: Got you. Yes. I mean, I think that that interest rate question is a good one to just think about that, generally speaking, I think that, the primary source of capital to build out these projects is debt project or portfolio level debt to fund those projects. It is very active market, we see a lot of opportunity for various debt lenders, we have some good relationships there that we've leveraged in the past, and no real concerns. I think that now you're increasing interest rate environment, of course, you need to take that into consideration. But at the same time UGE volume or throughput is increasing quite considerably now, as well. And so, on that basis, please save it for another time. But like, there's a lot of public metrics out there about the cost of debt of larger players and things like that. And the reason and what I'm saying is that like, as our volume grows, all else considered equal, we would expect our debt that the terms of the rates on our debt to be decreasing. And so that would certainly counterbalance at any sort of increasing rate environment.

Unidentified Company Representative: What is your current headcount? And how is that compared to using fiscal 2020? And what are your plans to expand in 2021?

Nick Blitterswyk: The number right now is about 41. If I'm not mistaken, I might be off by one or even two, but it's about that at 1231. It was a, I want to say that it was a little more in the range of 35. So those numbers are directionally corrected. Unfortunately, I can't guarantee that those are precisely correct. Our hiring plan, after we did the financing was closed in February, we did create an internal hiring plan, set the plan out our booth there. And as we've talked about, in our various documents release today, the goal for 2021 that we set for ourselves is, we feel there's a lot more that we can be doing in terms of developing more projects, we just see this as being a really good time for us to be building scale in that regard. And so we've made a bunch of hires, as you see by that differentiating the headcount there in the last few months to build out the development is what we call it, and within that they're sort of origination and acquisitions, project development. So we build that out. And until at this point in time, and in referencing that hiring plan that I mentioned, the bulk of those changes have already been made. So I'm sure there's a couple additional people that we want to add throughout the year, but it's not like we're expecting that 41 to be 50 by year end, it's really right now, a matter of heads down a little bit more projects, you know, through the pipeline and the development stages here.

Unidentified Company Representative: We have one more question. Are you still using a 10% discount rate when calculating your project NPVs? That seems overly conservative if you are?

Nick Blitterswyk: Yes, no, I think that's a good question. I think that's, with everything going on with the maturation of the business into year-end, of course, us feeling the time pressure as well. We decided to keep that as it was. So as of this table, that's, of course, still under screen here. The operating projects are using a 10% discount rate. And the operative projects, were using an 8% discount rate. So that what we have right now. I do think that, we're afraid really in the public markets, there's no perfect direct call to UGE in the sense that our business model is unique and, and so on. But if you can look to the real life BPs, you can look to the residential companies, you're looking and see what other discount rates are applied, and to a person I would say the 10% is a much higher number than I've seen in those other scenarios. So I know in my prepared remarks, I said it's something that we'll look down additional color on. You know, as we progress here, we have our key ones coming up and onward from there. And also, I invite people to course do their own analysis of what that means as well.

Unidentified Company Representative: Okay, this concludes today's question and answer session. I will now turn the call over to Nick and Marissa for their closing comments.

Nick Blitterswyk: Thanks, Marcel, and thanks again for Marissa in the finance team for all of hard work that's gone into this and I think that we're all quite proud of the maturation of the business in the past 15 months or so, and, of course, just completely focused on moving forward. I'd also want to echo what Marcel said that, we wish that the financials have been released on time. And I think it'd be we've grown a lot from this. We've learned a lot from this and we appreciate everybody's understanding with that but I really do believe it speaks to the quality and volume of the work that the team is doing to build a successful company going forward. So definitely appreciate all the support and we can be reached, you know at any time with any questions anybody has.

Unidentified Company Representative: This concludes UGE International's fourth quarter and fiscal year 2020 conference call. Thank you for joining.