Earnings Transcript for UGEIF - Q4 Fiscal Year 2022

Cecelia Carey-Snow: All right. Good morning and thank you for joining us to discuss UGE International's Fiscal 2022 Financial Results for the quarter and year ended December 31, 2022. On the call today, we have UGE's CEO, Nick Blitterswyk and UGE's CFO, Stephanie Bird. My name is Cece Carey-Snow, I am UGE's Senior Manager for Marketing and Communications. During the call all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. We've collected investor questions via email, but you can also submit your questions through the Q&A tab in the web portal at any time and management will answer them following their prepared remarks. Next slide, please. Before management discusses the results, I would like to remind everyone that certain statements in this call may be forward-looking in 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, 2022, which can be found on our company profile at sedar.com and on our website. I will now pass the call over to UGE's CFO, Stephanie Bird. Stephanie?

Stephanie Bird: Thanks, Cece. Good morning, everyone, and welcome to the call. I'm Stephanie Bird CFO of UGE International, and I'm joined today by our CEO, Nick Blitterswyk. For today's webinar covering our 2022 annual and Q4 results, Nick will begin by summarizing key business highlights for our last quarter of 2022. Next, I will run through our Q4 and annual financial results for 2022. From there, Nick will touch on additional business and sector updates and provide concluding remarks before we take questions and then wrap up the webinar. As a reminder, you can submit a question through the portal on the left hand side of your screen, and we will run through them after our prepared remarks. As always, our goal is to be mindful of your time and keep this webinar concise and to the point. We will be speaking relatively high level and focusing on the areas that we feel are most important to understand our business and financial results. Our website address is listed here as well where you can download our full financials. We also want to remind our listeners that we report in U.S. dollars, so the results in this webinar are represented in U.S. dollars unless stated otherwise. So with that, let's start by talking about our key business results in the fourth quarter. Nick?

Stephanie Bird: Thanks, Stephanie. Thanks, Cece. As Stephanie mentioned, I will start by talking about our business updates and begin with our project development pipeline. We are looking forward to running through these updates with all of you today and are excited by the ramp up in our business of late and what this means for our future results. As we go through our updates, we'll pay particular attention to the size and timing of our portfolio growth, as well as how that will drive cash flow improvements for the business. One note off the top is that this pipeline, backlog and operational solar facilities table now only includes the U.S. In the past, it would have included the Philippines as well. In the second-half of 2022 based on the strength of the U.S. market, especially after the passage of the Inflation Reduction Act, we decided to fully pivot our resources to the U.S. market. In the Philippines, we have been selling our remaining assets and transitioning remaining employees to provide support roles to our U.S. business. As such, comparisons we make are based on a like-for-like comparison versus prior U.S. numbers. With a focus on the U.S. then, on this slide, you see the status of our project development pipeline as of December 31, 2022, which you can also find in our MD&A. As you can see, our backlog grew 31 megawatts in the fourth quarter, ending the year at over 260 megawatts, which exceeded our 250 megawatt goal and represented growth of over a 112 megawatts in 2022. Our backlog has continued to grow rapidly in early 2023, and as of March 31 had grown to over 310 megawatts, which represent record growth for us in one quarter. Our operating assets also grew last year from 0.9 megawatts to 2.3 megawatts. While that percentage growth may be high, it still represents a small number, but the operating portfolio will grow at a much more significant rate in 2023. I'd be remiss not to point out the significant growth in our early stage pipeline as well, which more than tripled last year and is a sign of things to come for future backlog growth. Each quarter, we published a supplemental disclosure file, which can be found on our website, investors section. The final list of projects in our backlog along with key financial metrics and forecasted milestone dates. It also includes this graphical representation of this data as we work towards and beyond our first 100 megawatts of operating assets. The chart shows the number of megawatts from our backlog that we are forecasting will hit notice to proceed, or NTP in each quarter, as well as the number of megawatts we are forecasting to hit commercial operation or COD in each quarter. The dark gray line shows the cumulative megawatts forecasted at each date and is as of this quarter's release, whereas the light gray line is as of last quarter's release. A reminder that this is a forecast of our backlog projects only. It does not include any assumptions for other projects we have in development in our pipeline or that we will secure in the future. Put another way, we will continue to win new business and expect to add to these figures. A few notes on what this graph shows. First, as many of you know, we achieved a record number of NTPs in Q1 at approximately 10 megawatts, which equates to approximately $30 million in project value. We also reached commercial operation on a 1.4 megawatt project. Looking at the columns, you could see that we are expecting to hit a similar number of NTPs in Q2 as our portfolio starts to rapidly scale. Together, the first-half of the year will likely represent $60 million of projects reaching NTP and COD. Second, I’d be remiss not to mention that your volume of projects as our backlog continues to scale. Backlog is now in excess of 300 megawatts as we continue to develop our diversified portfolio of projects. Third, as of right now, the timing of our first 100 megawatts shows Q1 2025, which is one quarter later than our goal. We will continue to add additional projects to backlog and look for ways to expedite development where possible, but we won't let the timing of the first 100 megawatts sacrifice our overarching objective of scaling a high quality portfolio with strong long-term returns. I'll also mention the new projects in the outer years. As we continue to develop and grow our backlog, we are finding -- some markets where good projects have extra-long interconnection timelines, which explains why those projects are so far out in the future. Of course, we'll look for ways to bring those projects in sooner as well. Lastly, one of our overarching goals is to get to a point where we are reaching commercial operation on 100 megawatts of projects per year. As our backlog scales, we are actually forecasting that point to occur as early as 2025. This makes sense when you think of it, given our additions of 100 megawatts to backlog in each of the last two years. We don't believe we are far from the point, where the overall machine here at UGE will turn out that volume of operational projects each year. Lastly, we'll mention that project development is inherently variable and one should expect dates to move around as projects mature, but we look forward to sharing our progress towards our goals with you in the future quarters as well. Before turning the call back over to Stephanie, we have just a couple of graphs to represent some of the data we just discussed. This first graph shows backlog over the past two years as it steadily grows. This graph doesn't yet show the record growth we've experienced so far in 2023. This graph does however. On this page, this graph shows the status of our later stage backlog in operational assets, which really drives home and how fast we are growing so far in 2023. As mentioned earlier, we are expecting Q2 to result in similar growth numbers as our backlog is now at a point where it will produce a consistent flow of projects to NTP. And with that, I will now turn it over to Stephanie to summarize our Q4 2022 and annual financial results, and then I will return for some other business and market updates before we take your questions.

Stephanie Bird: Thank you, Nick. I'm going to review a few key items from our Q4 2022 and annual financial results. Looking at slide eight, energy generation more than doubled quarter-over-quarter and rose 78% year-over-year. This is a direct result of the growth in UGE's energy generating assets, which at the end of 2022 was 165% of the size of the prior year. This generation translated into $84,000 of recurring revenue in the quarter and $351,000 of recurring revenue in the year attracting 99% and 93% margins respectively. As we've been demonstrating the recurring revenue from our operational solar facilities is strong and we look forward to scaling these numbers in 2023 and beyond. Revenue from client financed EPC agreements was $722,000 and $2.7 million in Q4 and for the year respectively. This marks a decrease from $979,000 in Q4 of 2021, but an increase on an annual basis from $2.3 million. This line of business is not a focus and the results mark the progress of opportunistic EPC projects being taken to completion. Consulting and engineering services revenue was $286,000 for the quarter and $732,000 for the year versus $151,000 and $247,000 in the prior comparable period. Gross margins for 2022 were steady at 42% showing improvement from 40% and 39% in prior year's Q4 and annual results. While we are happy with the continued growth of this business unit, it is becoming more focused on internal engineering needs to service our own backlog and reported results will level off and may decrease as a result. Operating expenses were $2.3 million and $7.6 million for the three and 12 months, a 56% and 41% increase quarter-over-quarter and year-over-year respectively. The increase was primarily due to increased employee and contractor headcount versus the comparative periods. The inflationary environment and tight labor market have meant upward pressure on salaries and benefits more so than pure headcount growth alone would indicate. In addition, with the lifting of COVID restriction, there has been an increase in travel and office costs. Our three months net loss, adjusted net loss and adjusted EBITDA increased $2 million, $1.7 million and $1.2 million respectively, while our annual net loss, adjusted net loss and adjusted EBITDA increased by $3.2 million, $2.6 million and $1.8 million. The predominant reasons for these differences are the investments we're making to scale our team and portfolio ahead of our operational project portfolio reaching scale. That said, we are confident that the investments we are making will be rewarded by strong cash flows from our project once in construction and operational. As a reminder, we're in the process of transitioning from a one-time revenue model to a recurring revenue model and losses are expected on our income statement until the company's self-financed portfolio reaches a larger scale of project deployments and operational projects. That said, it is important to consider our financial statements in full and not just the income statement. While the build out of our backlog occurs, building projects creates positive cash flows through the retention of a developer fee, which is the difference between the proceeds from financing our projects through project debt and tax equity and our costs to build the projects. This will become more noticeable as our deployments scale up this year. Moving to the next slide, let's look at our financial position. As of year-end 2022, UGE had $2.1 million of cash and working capital deficit of $1.9 million. Our cash used in operations for the year was $6.5 million, which included $2.2 million in in the quarter. This was partly due to company placing deposits on equipment in late 2022 to prepare for deployments that started in early 2023, which were ultimately recouped as project financing was closed on those projects in Q1. This shows up in other assets, which I'll touch on shortly. Supply of capital to fund the company was and remains robust. In 2022, we closed CAD13.4 million of Green Bonds in addition to various development, project and tax equity financings and this activity continues alongside recent and upcoming NTPs. Post year-end, we announced a Green Bond private placement for which there was a first close last week of CAD1.4 million. Our balance sheet has been growing as projects progress through our backlog. Of note is the increase up for solar facilities in use together with the associated project debt. Project debt was also impacted by the Green Bond raises and draws from development capital facility. Additionally, there was an increase in capitalized project development costs and other assets. While project development costs is an indication of the progression of our projects through the backlog towards construction, other assets gives insight into the deposit that we have -- that been made for equipment that will eventually form part of our solar assets. With the continued activity around backlog growth 27 leases were signed in the year. ROU assets and their associated lease liabilities increased as expected in relation to this site securement activity. Additionally, other liabilities, which contains the related commissions and other accrued liabilities for the sites, also increased as a result of this activity. Operating debt increased $454,000, primarily as a result of financial -- of final COVID-related advances in Q1. Overall, the deficit has increased $6.4 million, which is predominantly reflective of the net loss for the year. That concludes my prepared remarks, and I will now turn it back to Nick.

Nick Blitterswyk: Thanks Stephanie. Before we open things up for questions, there were a number of highlights that I wanted to run through. First, as many of you know, 2023 has already been a very busy year for us on the project employment side. In addition to the 1 megawatt project that was already in construction at the end of 2022, we have announced NTPs on 10 megawatts of additional projects in Maine, New York and Maryland, which are all expected to reach commercial operation this year. We also reached commercial operation on a 1.4 megawatt project in Texas, a project that we acquired from another developer. There are multiple reasons why these NTPs are important. For example, they are a very firm lead indicator of future CODs and the recurring revenue those operating projects will produce. But they are also important for cash flow reasons. That is because even as we are building out these projects, they begin to produce positive cash flows for UGE through what we refer to as EPC and development fees, and these can be significant. For example, we recently announced three projects in Maine. On those three, we expect to receive positive cash flows of $6 million to $7 million as they are built out this year. This illustrates how our cash flow statement should change for the better this year ahead of future year's improvement to the income statement as those projects produce our recurring revenue. From the supplemental disclosure graphic that we showed earlier, one can see that Q2 is expected to be just as busy a quarter for us to -- for project NTPs. After producing significant backlog growth the last two to three years, we're excited for our portfolio to be at this point where project construction is ramping up so quickly as we march towards our 100 megawatt initial goal. In addition, as projects reached this stage, they are appraised by an independent third-party as part of the project financing process. Through this process, we have been seeing valuations frequently in excess of $3 per watt, driving home the value we are generating by developing our project backlog. I said this earlier, but in the first-half of this year alone, we will be reaching NTP on roughly $60 million of projects. As I mentioned that, I'll touch on project financing as well. Of course, with higher interest rates as well as the recent crisis with Silicon Valley Bank, access to capital is on many people's minds. For us though, it has been business as usual, and we are satisfied with the access to and cost of capital that we are seeing. For example, two weeks ago, we closed customary construction to perm financing for a portfolio of our assets at a rate of 5.79%, which we are quite happy with. Next, it has been customary of late to touch on supply chains. To make a long story short, we have continued to see improvements in this area, both in terms of cost and availability. We will continue to monitor supply chains closely, but we are optimistic about improving costs and availability in the months and years to come, especially as domestic capacity ramps in the wake of the passage of the Inflation Reduction Act. Lastly, we continue to be pleased with demand for our project development Green Bond product. In 2022, we closed on just shy of CAD13.5 million in Green Bond financing and at the end of March did our first close on our fourth series for CAD1.4 million. As our portfolio continues to grow, the collateral that we have continues to grow as well, which opens up avenues such as our Green Bond product and the development capital facility as attractive, non-dilutive sources of capital. As you can see, we continue to make solid progress towards our goals. Our operating portfolio is starting to grow much more quickly a trend that will accelerate throughout 2023. Aside from backlog growth, much of our progress in the past two years has been frankly beneath the surface. 2023 though is different. Already, one can see a step change in the rate of growth of in construction and operational assets. This is important for multiple reasons, one of which, as we've talked about at length, relates to cash flow. As our projects reach NTP, the tide changes and we start to generate cash from our projects. This shift will become steadily more apparent throughout 2023 as more projects hit NTP and COD. With this growth, we are advancing towards our first 100 megawatts of operating assets. As we have said before, we see a 100 megawatts of operating assets as the tip of the iceberg for this business. In fact, we already see the piece is being largely in place to achieve a 100 megawatts of new operating capacity per year in the not too distant future. With that, we'll wrap up the prepared remarks by pointing you to where you could find more information. As mentioned earlier, our website is regularly updated and contains all of our financial filings and other updates. You can also find our financial filings on sedar.com. You can also visit Sophic Capital's website for additional information and follow us on Twitter to get links to announcements and other media. Thanks again for tuning in today. Cece, back to you.

A - Cecelia Carey-Snow: Thank you, Nick and Stephanie. We've collected the questions investors have submitted since issuing the financial results this morning. And are also collecting the questions submitted through the webinar's Q&A tab. We would like to thank participants for your questions. So moving on to the first question. Can you provide an update on any transactions around going private or cross listing in the U.S.?

Nick Blitterswyk: Yes. In reverse order, I'll mention cost listing in the U.S., you know, at this point in time, you know, we're largely an American company in the sense, so this is where our projects are developing. Although, of course, we have strong Canadian [routes] (ph). We don't have an immediate plan for cross listing to the U.S. So I don't think that it would be something for 2023, but that is in our medium term plans. On the go private, I'm guessing this question is largely a result of this coming up. I think on the last webinar, maybe even the last two webinars. And what I'll say at a high level is that, as I've said before, we do believe that there's been strong interest in that. We from sources of capital, but at the same time, we also feel like we're onto something really good here as a public company. And so at the present time, we're just heads down on executing on our strategic plan.

Cecelia Carey-Snow: Thank you, Nick. The next question regarding the recent NTPs in Maine, the revenue numbers came in lower in the press release than my model suggests. Can you touch on why this might be the case?

Nick Blitterswyk: Yes. Thanks, Nick from Cormark on that one. The -- on -- so it actually brings up a good point, and actually something that we realized after we had put those releases out. And there's a couple layers to it, and what I will say is that on our website, the press releases, we did add a little bit more detail in italics you'll see at the bottom of the press release. And I think that was yesterday as a result of thinking about this a bit further. So the -- if you think about a typical project, let's say that we have a 35 or a 40-year lifetime for that project. Well, the community solar programs are often only guaranteed for, say, 20-years. So in those 20-years, we're generating the higher revenue you get from a community solar project. And then in the tail years, what we assume is the most conservative assumption and that is, is that we would just sell that energy at merchant rates into the grid. And just to give, like, a frame of reference, the difference between those two numbers can be, say, you know, $0.20 versus $0.04. You know, it's a very, very big difference. And the reason they get that background is that when you think about an average of the 20-years versus 35-years, that average could be quite significantly different. In our supplemental disclosure, we actually list out the average annual revenue for both the program life and the facility life. But the two larger projects in Maine as examples, the numbers, like how that plays out is and I don't know to the dollar sitting in front of me, but I think in both cases, it was north of $800,000 in recurring revenue during the program life, which was not quite double, but close to double the revenue numbers that we had put out. So it actually is a pretty significant upside to the numbers that we had originally released. So we're going to make sure that we touch on that in future press releases, but you can also take a look at the supplemental disclosure and the updates to those press releases on our website to get more detail there.

Cecelia Carey-Snow: Great. Thank you. Can you please let us know your thoughts on the tax credit transferability that was announced as part of the IRA?

Nick Blitterswyk: Yes. And this question -- so this question -- so in Inflation Reduction Act, one aspect of it is that instead of doing a partnership flip to monetize the tax credits that you generate from developing these projects, you could actually do something called, like, transferability, which is in essence just to sell the tax credit. And in theory, that's a much more efficient means of monetizing those tax credits, so there's a good amount of excitement around the industry for that. What we're seeing on literally a weekly or monthly basis right now is an evolution about how best to unlock that in part, because there's been guidance from treasury that the industry has been waiting on, but also because in a partnership blip, you're always bringing in a third-party appraisal and not setting the basis for how much that tax credit's worth. Whereas if you're not doing that transaction, there's some questions around, well, are you only going to get the tax credit on the capital expenditure as opposed to the value of the project? And those two numbers can be fairly significantly different. So this is something that we're watching quite closely right now. For the projects we've been announcing hitting NTP on, we've actually just continue to do partnership flips in the traditional form, there's a tax equity partner that we have a really good relationship with and continue to work together with that firm. It does seem clear though that through the course of this year, we're going to see greater access to the transferability type of transactions as well. But it's not a 100% apparent yet that will be at least on the short-term a better approach. If you're a developer like UGE that has a lot of experience financing these projects and doing tax equity, at least in the short-term, it's quite possible that, that actually might end up being the preferred approach. Although, we will see how this plays out. We are watching that closely.

Cecelia Carey-Snow: Great, on to our next question. Can you elaborate on your acquisition strategy? What is the methodology to identify and assess these opportunities?

Nick Blitterswyk: Yes. So in Q1, we announced an acquisition and then subsequent commercial operation of a project in Texas. And then in the fall, we had announced an acquisition of a community solar project in Oregon that one is scheduled to reach NTP here in the next quarter. And so in both those cases, Oregon and Texas are markets that we want to be in. This was a good opportunity for us to access those markets. Those were both purchased from smaller developers, who didn't have the same capabilities that we have to, you know, bring those projects through development and deployment and financing and to operate and own those projects. And so both of those gave us a good toehold. They also provided us with strong returns. Those provided us on a -- on an unlevered basis returns that were at or above the hurdle rate that we were looking to achieve on those projects. So if I back up to a higher level, we're focused here on developing this big diversified portfolio of good returning assets and those fit within that very well. So you know, we are a developer, you know, like a developer/slash IPP first and foremost. And so we recognize that that, that most of our projects, at least in the short-term and both medium term too, are going to be the ones developed by ourselves. But we do think it's a nice additive or accretive aspect to our strategy.

Cecelia Carey-Snow: Great. Thank you. So we have a few BESS or Battery Energy Storage System [Technical Difficulty]

Stephanie Bird: I'm not sure if Cece is cut out or if that's me.

Nick Blitterswyk: Stephanie, I was going to ask the same question. I lost Cece there too.

Stephanie Bird: So we might have lost Cece and I will warn people on the call that there is cracker with thunderstorm and my Wi-Fi is flickering. So hopefully, I can fill in until she's back. We do have a couple of BESS questions, which is Battery Energy Storage System. On the backlog mostly is it the backlog mostly attached to solar or mostly standalone? And how do those projects differ for the development cycles and their IRRs?

Nick Blitterswyk: Yes. So in the first question about are they standalone or are they connected to solar? So the answer to that question is the majority right now is actually standalone. So we do have in the supplemental disclosure a certain number of projects that say solar plus storage. And that is something that actually is increasing. Like for example, California is a market that we're starting to develop projects in, that's a market where we expect the most, if not all of those projects to be solar plus storage. And Massachusetts is another market where if we're doing a solar project, we expect storage to be attached to it. But we also have a growing and robust business developing standalone storage projects as well. In terms of the project development lifecycles, it's materially similar, and that actually goes for the IRRs as well. They're materially similar. All you know, we always start out with, like, an unlevered IRR is the first way we look at the value of a project. And on an unlevered after tax basis. Either way, we're looking for IRRs that are north of 10% and finding it. So yes, we're excited and see the energy storage side, there's really being, kind of, the next frontier for distributed generation and for our sector. And excited to be playing a big part in that.

Cecelia Carey-Snow: Can you hear me, Nick?

Nick Blitterswyk: Yes. We can Cece. Welcome back.

Cecelia Carey-Snow: Right. Okay, sorry about that. Okay, on to the next question, how do you see operating costs ramping up through the next six to eight quarters?

Nick Blitterswyk: Yes. Good question. So in the last, I'll say, two years, we were in the process of, like, completing the platform in many ways. Putting ourselves in this position where we can put 100 megawatts or more of projects through all the way to operating status year after year after year. And at this point in time, we we're really close to that. Now we are, like or you could tell, like, how much we're expecting to ramp up in terms of project deployment and so on? So there will be some level of increases from there. But the actual, sort of, like, platform completion at this point is really complete. It's really just a matter of continuing to, you know, at this point, execute on the backlog and see these projects come through.

Cecelia Carey-Snow: Thank you. So we have a couple of questions around the shift of the NTP and CODs. Can you provide a little background on those changes?

Nick Blitterswyk: Yes, so in, I know I mentioned in the prepared remarks about the inherent variability around development. I think the biggest shift is so what often happens with these community solar markets is that the biggest returns are often generated by being in a market early. And so Pennsylvania, for example, is a market that starting -- I want to say close to two years ago, we started lining up projects for that. And so Pennsylvania, they didn't get their program passed before the midterm elections last year, and so that slowed down the timing of our expectation of when that program would be passed into kind of mid-ish of this year. And so based on that, we thought it was prudent, of course, to shift out those dates to our updated expectation. So that's an example of how that can play out sometimes. There's more, like, smaller variability will happen sometimes around in particular interconnection timelines as much as utilities, you know, we try to predict conservatively and accurately how long those timelines will take. You know, sometimes they can throw a wrench in into the timing, and that can shift around a little bit too. But yes, I think high level probably that shift in Pennsylvania was probably what that question was getting at.

Cecelia Carey-Snow: I have a question that I will direct towards Stephanie assuming she's still on with us. Can you please expand on the significance of NTP and specifically how much cash you can access at that time on average per watt? And then as a second part of that question, when will project earnings hit the financial statement?

Stephanie Bird: Okay. So I'll take the first part of that first. Nick mentioned previously in the prepared remarks that the developer fee -- the basically the evaluation was coming through in excess of about $3 a watt and for the projects that have gone through the financing. And our models are -- and our costs are the delta between that value and our cost base in that value is what we take out of the developer fee. So, on average, we're sort of sitting all in around that $2 and $2.25 per watt. And then they develop it depends on what the appraisal comes through at and that's coming through north of $3. And in terms of the cash that we can access, this can depend on our financing and you will be able to make sure that you're out all on the developer fee at COD for sure, and then depends on what the financing arrangements are as to whether or not you can take out more than that beforehand. But all throughout the construction period, we can take out our on average 10% EPC fees. And the tricky question on all of this is when those project earnings and I'm using the air quotes around project earnings hit the financial statements. Those project earnings, because we are an integrated power provider, we do everything from the EPC through to the COD. What happens is that those go to our balance sheet. So project earnings, I'll put in quotes, because those don't go to our P&L, because they hit our balance sheet instead. So we get the cash and we get the asset, but we don't recognize the income. And I'm going to turn it over to Nick, because a lot of times I explain that leaving some gaps and I’ll see whether or not he wants to fill any.

Nick Blitterswyk: No. It is a I think that's good, I think the two things I'll say on that. Number one, is I think at a high level Stephanie explained it there, it is fairly complicated. Outside of this, you know, we will try to use some of these recent project examples. Next week, we're doing a webinar held by Radius Research, and we'll try to go into as little bit more detail, use some of those recent examples and talk to that a little bit further than as well. But you know, and I also in the prepared remarks, we did talk about the three recent projects in Maine, and the size of the net cash flow that those projects will generate for us as those are built out in the next couple of quarters here. So I think exciting times for our business as we see a real title change in the cash flow for the business.

Cecelia Carey-Snow: Thank you both. With the Green Bonds, what is the runway for funding operations?

Nick Blitterswyk: Yes. I'll touch on that. You know, Stephanie mentioned in her prepared remarks, number one, is at the end of last year, we had started, sort of, strategically putting down some deposits on equipment for some of the projects that we're now building. And so that led to that other assets growing and the cash balance decreasing, but ultimately that was recouped out of project financing. For this year, I mean, actually just to be more explicit, you know, our modeling shows that cash flow for this year will be in the range of breakeven or better. And so on that basis right now it's largely a matter for us of managing things you know, appropriately as we scale up the portfolio here. So, you know, we are excited to have access to the Green Bond source of capital and think that that's a really a good way for us to fund development of these projects and also, you know, give, you know, provide a good yield to folks who are looking for that type of investment as well. But, yes, we're not in a position where we feel like we're going to need to raise a lot of capital or anything like that from equity say.

Cecelia Carey-Snow: Great. Zooming out a bit. With the Republicans winning the house, are there any risks to deploying the Inflation Reduction Act funds?

Nick Blitterswyk: Yes, so a very little, you know, we follow a lot of research on this. And I think that, you know, in essence, the Inflation Reduction Act, I mean, it was passed, it’s in law right now, and it is so for a minimum 10-years with built-in extensions that could easily take it beyond that. Hypothetically, if you had a Republican sweep, of the presidency, senate, and the house, then then would that be a possibility, hey, you can never rule it out. But at the same time, I feel like it's so ingrained. And also, you know, a lot of the benefits frankly are flowing to red states now as well. So you know, certainly for the coming years here, we're heads down on executing and excited about this tailwind at our back.

Cecelia Carey-Snow: Great. And the next question, how sensitive are project financing to increasing interest rates, excuse me [Multiple Speakers] see more project financing to increasing interest rates there we go.

Nick Blitterswyk: Yes, for sure. So there is some connection there, obviously. We have this this pretty big counterweight, and that counterweight says that as our portfolio is growing, that also allows us to tighten up those spreads between reference rates. And I think you saw that with the 5.79% we got in our last close even though, you know, treasuries and so on have increased so much. In the last, call it, nine months. So there is a sensitivity, but we have a bit of a counterweight there. I mentioned earlier that it's kind of business as usual for us, there's a number of projects we have coming up. So there's a lot of project financing activity that we have going on right now. And so we're pretty happy with how it's all come together.

Cecelia Carey-Snow: Can you talk about key focus markets for the targeted 100 megawatts of backlog additions in 2023?

Nick Blitterswyk: Yes. You know, we're -- I think for folks who follow the story, there's a number of states we're pretty active in that, that goes for, you know, New York and Maryland and so on. You know, we do expect further growth in markets like Texas and California, also Illinois and Virginia are newer community solar markets where we're having some good activity as well. I think, you know, as we in our MD&A, I'll say there is actually a pie chart that shows the states that we're active in. We are increasingly a national developer of community solar projects in the markets that make the most sense for us. So I expect that'll continue to expand over time.

Cecelia Carey-Snow: What is your target for operating capacity by year-end? And how do you envision getting there?

Nick Blitterswyk: So the projects that we're reaching commercial operate -- I mean, sorry, an NTP on, the ones that we reached it in Q1, and also for the most part in Q2 are all projects that we are expecting to reach commercial operation on by the end of the year. I'll also draw attention to the supplemental disclosure, which, you know, gives the current forecast for different dates as well. But the number comes in around the 20 megawatt mark of operational assets by the end of this year.

Cecelia Carey-Snow: Great. When should we expect an update on the Philippines asset sale? And are you anticipating any material cost savings once operations in that market or closed?

Nick Blitterswyk: So we'll keep everyone apprised of this on our quarterly webinars. We have already sold you know, we didn't have a large volume of assets over there, but we have already sold some of them as of today's date and are working towards selling the remaining assets there as well. So you know, our Q -- we don't have a published date yet that our Q1 webinar will be in, you know, less than two months. And so I think that'll be another good opportunity for us to provide a quick update there. In terms of level of savings and also the level of, you know, gains from sale. It is more on the modest side. Obviously, salaries are lower in the Philippines and so on. So on that basis, it's not something that'll significantly drive results.

Cecelia Carey-Snow: Is the poor balance sheet a reason for slower growth in the future?

Nick Blitterswyk: I don't, you know, poor balance sheet might not be the term I would use. I understand that we're not a utility yet. And so from that basis, we have a developer's balance sheet, frankly. But I feel like we're pretty innovative/resourceful in terms of how we manage that and manage dilution for shareholders and so on. Now does that, you know, maybe sub in the word, you know, working capital or cash for this question about is that an impediment to growth? Not significantly, frankly, I mean, we're heads down and growing. The -- you know, hey, any of us in our day-to-day, you give more cash and more fuel on the fire for anything. But at the same time, and we're pretty happy about how we're driving towards our goals here.

Stephanie Bird: And if I might as well, Nick, the -- where the balance sheet comes in for our business is whether or not lenders are comfortable and actually financing the projects that we bring them. And as Nick has mentioned previously, even in the last round was at 5.79%, which we feel is very comfortable, so our bottleneck to growth is getting the project financings to move those projects forward and it's not being -- it's not impeding growth on that front.

Cecelia Carey-Snow: Thank you, Stephanie. And I have a question for you following that. The EBITDA loss for the quarter was larger than anticipated on the back of higher expenses. Was there anything one-time or unusual about this quarter? Is this level of expenses? What we should expect going forward at this stage of ramp up?

Stephanie Bird: So Nick has actually hit on this a little bit in a previous question. And in terms of larger-than-expected, I guess it depends on whether or not you're holding the budget, because we were actually lower than where I thought that we were going to be at this time of year. Because of that ramp up that we're talking about, so as Nick indicated, we are setting ourselves and putting our structure in, so that we can accommodate the growth. So we're in line with where we want to be. And this level of expense, as you hinted at before, is what we should expect going forward with a little bit more scaling in order to accommodate that 100 megawatts?

Nick Blitterswyk: Maybe Cece and Stephanie, I'll just put one thing in context here too, right? Is, you know, we are -- you know, just very roughly speaking, we've already talked about $3 per watt as like appraised value for projects and talking about 100 megawatts per year. This is a company that's developing 300 megawatt -- $300 million give or take of projects per year, and we've talked about, sort of, the value added or value retained in these projects being like roughly in that dollar per watt type of range. So, you know, this is an overhead that was, I think, if not mistaken $7.6 million for or whatever that, you know, the number was sub-$10 million in 2022 for a business that we feel is adding a $100 million or so per year. So, you know, it's -- it you know, we feel we have a pretty high torque to the business right now.

Cecelia Carey-Snow: Great. And another question directed for Stephanie. How much EPC revenue is anticipated for Q1?

Stephanie Bird: And next to nil, so we don't anticipate anything for the EPC contract. There are -- there is a straggling bit from I know that Nick referred to that when I first came from some rise project which are the final things for the Hurricane Sandy. So there is going to be a little bit of that trickle, because they had some change orders in order for us to close out. And it's going to be minimal.

Cecelia Carey-Snow: Thank you. And a new topic, your ESG report provide some details about the 2022 to 2026 strategic plan for the company? Can you give us more details about this plan?

Nick Blitterswyk: Yes. And kudos to Cece and her team for creating that report, that's a -- that's actually a good question. So we have an internal 2022 to 2026 strategic plan. And leave it to us to provide an internal snapshot of what that plan is. But I don't think that I know, I think that those who follow the company will have a pretty good sense about where we look to go in that time frame. But, yes, we'll create and by that time of that, I think Q1 webinar in late May, we'll make sure that we've provided an external version of that to do plan.

Cecelia Carey-Snow: Thank you, Nick. So you are targeting greater than 25% of energy generation to serve a low and moderate income house sold by the end of 2026? Can you talk about what partnerships you are pursuing? For example, technology providers to achieve this goal? And can you discuss how financing these projects could be different from others, in particular, related to the IRA and tax credits?

Nick Blitterswyk: Yes. So number one is, no, there's a real dual reason for this part of our ESG report and our strategic plan related to serving low and moderate income communities. Number one is because we're a company looking to do good. And these types of communities are ones that, you know, most benefit from cheaper energy and cleaner energy in our communities, et cetera, so there's a win there. But then also the Inflationary Reduction Act provides really significant additional incentives for projects to fall in these areas. Like, one of the -- at least one of the main assets that we announced recently, we're expecting an investment tax credit on that of 50%. And a good reason for that being above the 30% base level is related to low and moderate income communities and thresholds. So in terms of financing it, you know, the additional investment tax credit certainly increases the wheels and make things easier to finance overall. But also, I'll say that when you're serving low and moderate income communities at the end of the day, you're still generating credits for utility. Now, I think there's an implicit question there about risk on payers and things like that. But what you're actually doing is you're serving a diversified block and hypothetically, if someone, you know, didn't pay a bill, then that would be just one out of a big basket of subscribers. And then next month, the credits would instead be sold to somebody else. So there is still is this kind of quasi utility backstop behind this. So we haven't frankly found any issue with the banks and so on that we work with in terms of lining up capital for whether it's LMI or otherwise.

Cecelia Carey-Snow: Great. Does UGE plan on reentering Canada? Can you comment on how incentives in Canada, compared to the U.S.?

Nick Blitterswyk: Yeah. So there is pretty big news in Canada with an Inflation Reduction Act like program that, that's been announced. So it is a market that we have an eye on, one of our originators is -- he's been focusing on the U.S. market, but actually based in Canada and in particular, he's been taking a look at this. So I don't want to, you know, say that there's anything imminent, that’s not the case, but it is something that we're keeping an eye on for sure.

Cecelia Carey-Snow: On an industry wide basis, what percent of projects that reach NTP will make it to COD?

Nick Blitterswyk: In the industry that we're in, a project that reaches NTP, it is shocking not to have that reach COD, frankly. You know, so it's probably north of 99%. You know, once the project reaches NTP that, sort of, seen as derisked and a project that's going to be completed.

Cecelia Carey-Snow: Great. You expect to be cash flow positive sometime in 2024 until then developer fees extracted on NTP dates plus Green Bond [proteins] (ph) will bridge the operational losses. Based on your latest Green Bond closing and expected NTP fees, and expected NTP's fees earned, how much of a shortfall exists if any until cash flow flips positive?

Nick Blitterswyk: So based on our modeling, the answer to that is none. So we're pretty excited about where those businesses get is kind of crossing the chasm there to a point where we start to generate cash flow as opposed to burning it.

Cecelia Carey-Snow: Great. And our final question for the session, additional question on transforming the transferring the ITC. What's the haircut you're expecting to see for ITC sales? Or is the market not yet suggesting a percentage yet?

Nick Blitterswyk: So I've seen numbers that ranged from, so if I'm going to answer that in terms of cents on the dollar, I've seen answers that ranged from as low as, like $0.83 on the dollar to as high as, like, $0.93 or $0.95, I forget what the high watermark is. But so, you know, that, that implies a haircut anywhere from, call it, 5% to 17%, which I think more than anything speaks to, you know, where that market's at. It's still evolving right now, so we're going to have to see. But I think the, you know, just to, you know, be clear on how this in theory works, right? It's like if you have a tax liability of a $100, you can go buy tax credits off of a project and use that to offset that $100. And so it's -- I always use, like, Home Depot gift cards as an example. It's like, you're going to buy a Home Depot gift card and then using it at Home Depot. My point being is, like, there shouldn't be that much of a of a spread as that market matures.

Cecelia Carey-Snow: Thank you, Nick. Thank you, Stephanie, and thank you everyone for your questions. There are no further questions, so I will now pass the call back to management for closing remarks.

Nick Blitterswyk: Thanks again, Cece and everyone on the call today for listening in and following the UGE story. We're looking forward to continuing to share progress with you in the quarters ahead and reach out anytime with any questions that you might have.

Cecelia Carey-Snow: This concludes UGE International's 2022 year-end results conference call. Please note that the financial statements and supplemental disclosure have already been added to our website. The recording of this webinar will be added in the next few hours. Thank you again for joining us and enjoy the rest of your day.