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Good morning, and thank you for joining us to discuss UGE International's Second Quarter of Fiscal 2023 financial results for the period ending June 30, 2023. On the call today, we have UGE's CEO, Nick Blitterswyk; and UGE's CFO, Stephanie Bird. My name is Cece Carey-Snow and I'm UGE's Senior Manager of Marketing and Communications. [Operator Instructions]
Next slide, please. Before management discusses the results, I'd 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 quarter ended June 30, 2023, which can be found on our company profile at SEDAR+ and on the company's website. I will pass the call now over to UGE's CFO, Stephanie Bird. Stephanie?
Thanks, Cece. Good morning, and welcome to everyone on the call. I'm Stephanie Bird, CFO of UGE International, and I'm joined today by our CEO, Nicolas Blitterswyk. For today's webinar, covering Q2 2023 results, Nick will begin by summarizing key business highlights for the quarter. Next, I'll run through some of our Q2 2023 financial results. From there, Nick will provide some concluding remarks with a look towards the future 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 understanding 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 from the second quarter. Nick?
Great. Thanks, Stephanie and Cece. I will start today by giving my perspective on the quarter as a whole and in doing so, comparing it to our first quarter as well as calendar year 2022. First, while Q1 was all about growth and milestones, highlighted by 10 megawatts of NTPs, Q2 was largely about digesting everything from Q1. While we made additional progress in the quarter, it was a reminder of the sizable jump we have made in Q1 and that growth takes a lot of hard work.
To highlight a few of the areas we worked on in the quarter, we had added key individuals in Q1, and it took a few months for their integration to be complete. I'm really proud of the folks we added to the team this year. But in the case of our COO, they did take a second try to get it right. Brandon McNeil joined us as our COO early in Q3 and has wasted no time in making a positive impression.
We're also very busy on project financing. Right at the end of Q1, we had closed financing for a portfolio in Maine and then spent the majority of Q2 working on closing facilities for projects in New York and Maryland, among others. While the New York portfolio has successfully closed, the Maryland portfolio leverages a USDA guarantee program. It's the first time we've used the program, and it has taken somewhat longer than we used to with other lenders, although we're looking forward to that being wrapped up here soon. While the team is a very busy financing in the next NTPs, we have also been working on becoming more efficient in our processes, so we can close these facilities quicker in the future. I should mention that we have been quite pleased with the rates we've been able to secure despite the high rate environment we are currently in, with our 2 recent portfolio closes at approximately 5.7% and 5.8%, respectively. All told, we hit NTP on 2.7 megawatts in Q1. While this is less than 8 megawatts we had initially set out to achieve, it is still a larger number than our total 2022 NTPs reminding us of just how far we've come. The slippage was highlighted by the 3.5-megawatt Oregon project, which is now very close to NTP and was also a victim of the longer time frame from the USDA program. On the construction side, we had one 1 megawatt project finished construction right at the end of Q2, but the utility could provide sign off in time for COD before June 30. After the close of the quarter, we requested that we swapped one piece of equipment. With that almost in hand, we are aiming to reach commercial operation right around the end of Q3. Meanwhile, multiple other projects will begin reaching COD throughout the fall. Lastly, on my higher level comments and noting Stephanie will get into our financials in more detail shortly, our recurring revenue, which is our primary focus, more than doubled year-over-year and will continue to scale as more projects reach commercial operation. Next, I will touch on our development pipeline. The table shown on this slide shows our pipeline backlog and operating portfolio as of the end of the second quarter. As part of our Q2 business update, we disclosed that our backlog exiting the second quarter had reached 356 megawatts versus 313 megawatts at the end of the first quarter and almost double the 186 megawatts at this time last year. As of today, backlog has retreated very slightly due to unfavorable interconnection results on a couple of projects, but we fully expect to return to growth in backlog within this quarter. Even then, our backlog currently represents total project value in excess of USD 1 billion. We remain very excited by the success we are having in developing our growing portfolio and for a greater number of projects to now be reaching the later stages of our backlog where they enter construction and then become operating projects, as highlighted on the next slides.
This chart here shows Stages 3.1 through Stage 6, with dark green being the second quarter of this year and light green being the second quarter of last year. The first takeaway is a remarkable growth in Stage 3.1, which grew 87% year-over-year. Not shown on this graph are Stage 3.0 project, which is the first stage at which we have a signed contract that we refer to as site control. On June 30, we had over 600 megawatts of additional projects in this stage, which represents growth of 251% over the same period of last year. This next chart simply hides Stage 3.1, so we can get a better look at the later stages. In total, across the stages shown in this chart, there are over 28 megawatts of operational in construction and late-stage development projects versus less than 12 megawatts at the second quarter of last year for growth of over 146%. These 28 megawatts also represent total project value that is almost USD 77 million, and we expect to see significant further growth in maturation throughout the balance of this year. Lastly, as many of you will know, 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 and is updated as per the date of our release, which gives us an opportunity to provide further updates on our progress so far this quarter. This graph shows the number of megawatts we are forecasting to hit NTP in each quarter as well as a number of megawatts we're forecasting to hit COD in each quarter. The dark green line shows the cumulative megawatts forecasted at each date and is as of this quarter's release. Whereas the light gray line is of last quarter's release. The biggest change to mention relates to the shift of the light to the dark gray line, which is truly humbling. I will touch on regulatory time lines in interconnection near the end of this presentation, which accounts for much of this change. But I will stress that we are so confident in reaching the 100-megawatt goal within 2025. In the shorter term, we are actively working to pull back in time lines on 2 of our projects after our supplier had delivery issues on 2 other projects, while we'll be finished -- while we will be finished with our work on time, utility upgrades that are necessary to connect our projects were pushed back by the utility, which led to the later commercial operation date. One more item I will add is a reminder that this is a forecast of our backlog projects only. It doesn't include any assumptions for other projects we have in development in our pipeline or that we will secure in the future. We will continue to win new business and expect to add to these figures. I'll also 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 future quarters as well. And with that, I will now turn it over to Stephanie to summarize our Q2 2023 financial results, and then I'll return to discuss other business matters before taking your questions.
Thank you, Nick. I'm now going to review a few key items from our Q2 2023 financial results. . Looking at this slide, energy generation rose 117% to 961,000 kilowatt hours in 3 months versus 347,000 kilowatt hours in the year ago quarter as our operating portfolio begins to scale. The energy generation increases resulted from the growth in UGE's energy generating assets. With this increase in energy generation, UGE's energy generation revenue increased 126% to $184,000 in the 3 months ended June 30, 2023, as compared to the same period of 2022, as the installed capacity increased from 1,623 kilowatt DC at the end of Q2 2022 to 3,758 kilowatt DC by the end of the reported quarter. This growth was the result of 2 additional operating facilities compared to the same time last year. Additionally, there was growth from the full quarter of the 727-kilowatt DC that was installed during the course of Q2 2022. The UGE grows towards our initial goal of 100 megawatts of installed capacity, energy generated in a given period will be predominantly impacted by installed capacity with seasonality and other factors also having an effect. Our legacy engineering procurement and construction, or EPC revenue decreased 83% to $66,000 in the 3-month comparative period and 70% to 174,000 in the 6-month comparative period as the company closes out our remaining contracts. EPC gross margin during the quarter was 108% versus 40% in the second quarter of 2022. The 108% anomaly is due to our subsequent event. After the end of Q2 2023 in an effort to force collection of final milestone payments on one of our last EPC projects, UGE filed for arbitration. This led to associated revenue and cost of goods sold to be allocated to other income expense further suppressing revenue results, but also bolstering the gross margin. The engineering services business recorded a revenue decrease of 55% to $48,000 for the 3 months with an 18% gross margin versus a 36% margin in Q2 2022. As we lessen our third-party engineering work in favor of work on our own portfolio. The year-to-date comparisons, our revenue growth of 43% to $354,000 with comparative margins of 26% and 33%, respectively. Total operating costs and expenses were $3.4 million during the quarter, an 86% increase over the $1.8 million reported in Q2 2022. The main driver of the increase was general and administrative costs related to salaries and benefits, which were $1.8 million in Q2 2023 versus $1 million in Q2 2022. This was a 79% increase arising from the company moving from 56 to 77 employees and contractors between June 30, 2022 and June 30, 2023. The net loss and adjusted net loss for the quarter was $4 million, compared with $1.4 million for the same quarter of 2022 as a result of continued investment in developing and building out UGEs operational portfolio. The 6-month figures were $6.8 million and $3 million, respectively. The change was primarily driven by increased head count as the company continues to build out its team to accommodate growth, along with as expected increases in financing expenses. That said, we are confident that the investments we are making will be rewarded with strong cash flows from our projects once deployed. As a reminder, we are in the process of transitioning from a one-time revenue model to a recurring revenue model and losses are expected until the company's self-finance portfolio reaches a larger scale of project deployment and operational projects. While this transition occurs, building out projects create positive cash flows through the retention of what we refer to as a developer fee. This can be seen by analyzing the difference in cash flows from financing activities and cash used in investing activities and is starting to become more noticeable as our deployments scale up. Moving to the next slide, let's look at our financial position. As of June 30, 2023, UGE had $3 million of cash, a working capital deficit of $3 million, and our cash used in operations was $5.5 million. Sources of capital to capitalize the company continues to be robust. During the quarter, we closed the second tranche of brokerage green bond private placement announced March 30, 2023, and total gross proceeds of had $290,000 or USD 220,000. And post quarter end, on July 31, we announced the best efforts overnight market a green bond offering of up to $5 million that has since been upsized to $5.75 million and closed yesterday. We have also closed multiple project financing, both debt and tax equity so far this year. Our balance sheet continues to grow as checks progress through our backlog. Of note for this quarter is the increase in construction and progress in solar facilities in use, together with their associated project and tax equity debt. We had $7.6 million of long-term prepaid expenses at June 30, 2023 and $1.4 million in 2022 as a result of equipment deposits to support our construction later this year. Additionally, there was an increase in capitalized project development costs, which is an indication of the progression of our projects through the backlog towards construction. The increase in the ROU assets and their associated lease liabilities as well as accrued liabilities for the related commissions saw continue to increase site securement with the net total of 16 leases being signed thus far this year. The increase in ROU assets is not commensurate with the increase in lease liabilities as a result of the accrued commissions that are booked to the ROU assets being adjusted for the forfeiture of commissions upon the departure of an originator. The increase in operating debt relates to short-term working capital facilities used.
That concludes my prepared remarks, and I'll now turn it back to Nick.
Thanks, Stephanie. One item I'll add is that for the last couple of years, as we've been forecasting our future results, 2023 has always looked like the low point in the evolution of our income statement. The reason for that is that our legacy EPC and engineering services businesses are tailing off as we focus on our own portfolio, but the recurring revenue from that portfolio is just beginning to scale. Meanwhile, we are employing a team that is focused on developing 100 megawatts of projects per year. That said, you can see the high margins we are expecting from our recurring revenue, which has consistently been in the 90% range and how recurring revenue will scale significantly further as these late-stage projects reach commercial operations. We remain really excited for the cash flow-generating engine, we believe are building as we scale. Before we wrap up, there were a couple more areas of the business we'd like to highlight. On the regulatory side, there are items at the state level and the federal level to discuss. At the state level, there are at least 3 local markets that we are watching very closely. New Jersey's Community Solar Program has been approved and we expect it will open to new projects later this year, at which time we'll be able to start locking in time lines for our backlog in that state. In California, a new community solar program is currently in the works. We are expecting more information and progress in the coming months. Lastly, in Pennsylvania, we have been hopeful of a program being passed before the 2022 midterms, but of course, that did not happen. We are again seeing favorable progress towards a program and are hopeful state legislature will pass such a program this fall. In all cases, we feel well prepared to enter those markets once they are open and look forward to greater clarity on time lines in the coming months. At the federal level, guidance flowing from the Inflation Reduction Act is still coming out 1 year after its passage, believe it or not. Approximately 2 weeks ago, the guidance around the low-income adder, which can add up to 20% on your ITC came out. We were quite happy with how it was tailored towards projects like community solar and expect to be able to leverage it in the future, which would add further upside for our current valuations. We expect to begin applying for the adder on some of our projects by the end of the year. Regarding interconnection, it continues to be an area of frustration across the industry. We continue to strive to work hard to better anticipate and forecast time lines and are hopeful that industry time lines will become more dependable. After all, it's really critical to the energy transition to play out at the pace necessary. On supply chain, I'll just briefly mention that we have seen continued progress in terms of both cost and availability and are seeing all-in budgets coming close to 10% below expectations in some markets for projects that we're currently building. In closing, I just want to stress that we remain confident in reaching our 100-megawatt milestone in 2025 despite the shifting time lines, which are in most cases outside of our control. The team continues to get stronger and stronger in making our full life cycle approach as efficient as possible. And while interconnection remains the bottleneck for this industry, I believe we are getting better at navigating it and forecasting more accurately and also believe that the industry itself will become more efficient and dependable in the coming years. 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 and contains all of our financial filings and other updates. You can also find our financial filings on SEDAR+. You can also visit Sophic Capital's website for additional information and follow us on Twitter to get linked to announcements in other media. Thanks again for tuning in today. Cece, back to you.
Thank you, Nick and Stephanie. We've collected the questions investors have submitted since issuing the financial results this morning, and we've also collected the questions submitted through the webinar Q&A half. We would like to thank participants for your questions. Moving on to the first question. Could you speak to cash equity and why there was only $1.2 million of proceeds received during the first half, compared with the $7.1 million expected on the main portfolio alone?
Sure thing, Cecelia, I'll take that one. Cash equity comes in, in 4 installments. And the initial close is actually a very minimal one of those at only 1% of the value that they're coming in for. The big investments that they make are at the milestones of substantial completion and mechanical completion, which are later in the construction process, and we had not hit those milestones yet. The substantial completion is usually around 20% and the mechanical completion is more like 70% or 74%.
Next question. Revenues from EPC and engineering services have dropped significantly this quarter. Does the company have a time line of moving away from these 2 segments?
Yes. I can touch on that. In EPC, we've been really moved away from it for quite some time. There's been a legacy portfolio in New York City that has been ramping up that we are really tying up last loose ends on. It's a minimal contribution there. And then there was 1 community solar project in New Jersey, where we were, in essence, co-developing it with a real estate owner and it ended up turning into, in essence, an EPC deal from our perspective. But that is not the normal course. And I think even that experience has just further taught us that, that's not the business that we want to be in. But the engineering side of things, we -- it's higher margin revenue, and so we continue to do that work for third parties for a bit longer than EPC business, but just how much the company is scaling up right now and how many more projects we're working through these later stages. The team has really been -- we kind of retrenched and focused on our own projects. And so I expect that the sort of lowest 5-figure engineering revenue side of things that you saw in Q2 will become the norm in the short term, and we look forward to a day not that many quarters from now, where the recurring revenue just significantly dwarfs both EPC and engineering services revenue.
Thank you, Nick. What are your equity requirements for reaching 100 megawatts of operating assets?
So the great thing about our business and being a full life cycle developer of these distributed renewable energy projects is that net-net, our equity requirements are negative. We actually take out this developer fee. So as this portfolio is scaling, we're actually starting to see those more meaningful cash flows I think it was -- Stephanie touched on this in her prepared remarks, that if you look in our MD&A at the proceeds from financing activities and then compare that to our investing activities, that's really -- it's not apples-to-apples, but that's really where the developer fee is coming through, because the debt from the projects plus, in particular, the tax credit from these projects allows us to pay ourselves back that developer fee, which doesn't hit our income statement, but it very much hit our cash flow statement. So I think as you're seeing the level of deployments ramp up, you're going to be seeing the cash flow position of the company become that much stronger over time.
Great. Next question, have you considered selling projects?
Well, the question has come up in the past and continues to, in part, as I've said before, we get regularly contacted by fund and so on and like to buy projects in our space. There's a very large demand for that. And even in the last few months here, we've received indicative quotes on some of our projects that we're frankly quite a bit higher than values we had been carrying ourselves in the information that we disclose. So you need to consider it, but at the same time, we're also focused very much on the growing portfolio here and reaching sufficient scale of the operating portfolio. So have we considered it -- we certainly consider it, especially when numbers are really high on indicative bids, but it will be something that we make sure we make the right decision for UGE in the long term at each step of the way there.
Can we expect any meaningful change in the delays you're suffering from utilities? I understand they're completely outside of your control, but the 100-megawatt operating market seems to be continually shifting away.
Yes. No, I think what I think we tried to get real with that in the prepared remarks as well. I think that the -- in that medium term, we still are, as I stated, very confident in getting through that 100-megawatt mark in the next couple of years here. So we still feel very confident in our projects and their approximate time lines, while at the same time being humbled by some of the shifts that are happening in the shorter term. Each time we're adding a new project or updating the time line for a project, I really believe that we're getting more accurate, more confident, more conservative in that time lines that we don't see this continued shifting down the line. So the -- yes, so I think that maybe I'll leave it there. I'm happy to take any additional questions on that as they come up. But I think we're trying to make sure -- Stephanie and I are constantly saying to our team, hey, make sure we're being really conservative with our updated forecast. And it's a real focus on things within the company to make sure that going forward, we're exceeding expectations and not seeing a shifting out in the future.
What is your view on the interest rate outlook and how it would impact UGE's cost of debt?
So I'll answer both halves of that question, although I'll spend a bit more time on the second one about our cost of debt. I think in terms of interest rate outlook, that obviously gets a little bit outside of my area of expertise. But at the same time, I think we're probably part of the consensus here in that we're hoping rates peak, and we're starting to -- and start to see long-term rates start declining in , if not months, the quarters to come here. . On -- at the same time, in terms of the rates we're seeing, I think we've really proven it in 2023 so far that we have projects that banks want to lend to that they're comfortable lending to and that we can get good cost of capital in those projects. And so the last 2 portfolio closes we had were in 5.7% and 5.8% for construction to term on those projects, which we think is really quite strong in this environment. So as the economy continues to evolve here, and the interest rate environment continues to evolve as well, we'll continue to watch that quite closely. One thing I will say is kind of inflation and interest rates going somewhat hand in hand. We were actually -- we have been seeing quite significantly higher revenue from our community solar projects than initially expected, even though interest rates haven't moved all that much. So there is, a, natural hedge there, but, b, we actually think we ended up in a better position with everything the economy has done here in the last year or 2 rather than the opposite.
How do you balance growth in debt burden in the context of potential interconnection delays and higher borrowing costs?
Yes, I can take that, Stephanie, feel free to let me know if you want to add anything in there. But I think as we're building out the projects, I think it's important for us to get to scale, build up the portfolio as quickly as we can and get also the lowest cost of capital that we can at each stage along the way as well. So I think from that perspective, it maybe comes down to -- I'll say this, that when we get to a point where we're starting to actually construct, which is where the most of the CapEx, most of the debt burden, if you will, comes into play. At that point in time, we have a really strong sense about what the final time line will be on that project. And so from that perspective, I think we're in good stead. And then also, I'll say also on the green bond side of things. We also -- most of those have been a 4-year term, callable after 3 years. And from that perspective, we think it really matches quite well with some conservatism at the time line for our projects as well.
Would the prevailing interconnection rate limited step potentially assess the paints and moving projects from the pipeline into the backlog?
I'm reading the question that you just read out there, Stephanie -- not Stephanie, Cece, sorry. But -- so I think if I understand that question correctly, the we're trying to take all that into account in the forecast that we provide. The -- yes, so I think like from that perspective, there's there is variability in these time lines, but it's -- we're not -- we're trying to be conservative enough going forward that we don't have significant changes based on anything interconnection related.
We had over 10 megawatts of NTP end of Q1 and saw the non-historic construction yet in Q2, why? And is that a trend for future quarters?
Alright, so the megawatts we had NTP in Q1. What I can say sitting here today is that I do know a lot of those projects are being built out. So it might have been a little bit of a matter of how -- what bucket we had them in on June 30, but there definitely has been a lot of building out of projects, et cetera. When you do have NTP, that will mean that we've, in essence, secured financing, secured permits, et cetera. We still need to order equipment and that can take a few months to get stuff to site and before we actually start building. But yes, we are making good progress there.
And why are your backlog projects being pushed back every quarter?
I think I touched on this earlier, right? I think that -- like I said, we are humbled by the shifting time lines. At the same time, I think I understand the reason for the way that question is asked, but I don't think they're being pushed back every quarter. I do think and not been completely out of the norm that we've had projects pulled forward, and that's, of course, name of ours, too. But yes, I think that the overall industry here is struggling with the rate of growth that the industry is experiencing. Maybe -- actually, if I talk about Maine, for example, I talked about it before, but that's a state that just went from 0 to 60 in a very short period of time, and utilities, there's a good faith aspect to this. There's also a non good faith aspect to it, but the utilities just were very overwhelmed in terms of the speed of that.
And for example, there's a couple of projects we haven't hit NTP on, we had signed interconnection agreements with utilities in 2021 and then the utilities decided to pull that back and do some more studies and we're still months away from NTP on those projects. Things that don't happen in a mature market like or don't typically happen in a mature market like New York or Massachusetts or what have you, but it's one of the things we've seen in the kind of leading-edge market there.
Thanks, Nick. We have a few interconnection-related questions that I'll just ask all at once. Are you experiencing more problems with interconnection approvals than other developers? Will these ease over time? Any way to speed up the process? Are there practical steps that management can take to address bottlenecks? And can you give some color on the unfavorable interconnection decisions? And lastly, have you made raising debt more challenging?
Yes. There's a lot of -- multiple questions in there. I'll try my best. I would say it hasn't had an impact on raising -- on debt being more challenging. In fact, when we're lining up debt for our projects, it typically is at a point where we have the interconnection agreement in hand, and we have a time line, and we're ready to start procuring equipment and building it. In terms of industry-wide, again, I do think that the main underlying reason here for interconnection delays is just how fast this industry is growing, right? Like solar in 2022 is more than 50% of all new energy capacity built out in the U.S. and energy storage as a sort of that in there, too. There was more energy storage built out in 2022 than all new fossil fuel capacity. So it's new type of energy, like it's not on demand, obviously. It's different in terms of real energy projects more generally. And utilities have been a little bit overwhelmed with that. But at the same time, utilities are kind of known to be formed monopolies that are heavily regulated and not necessarily the quickest companies to work with. We are -- like we are seeing efforts FERC, the Federal Energy Regulatory Commission, about maybe, I'm going to say, 6 to 8 weeks ago, it came out with one rule about standardizing how studies are done across utilities, things like that are really necessary and happening in our industry, so that we can have more dependable time lines and be able to develop projects at pace and consistently with dependable time lines as we go. So I think the right things are happening, like I'm really confident in that medium to long term about how projects are going to be able to be connected, be developed and so on, but we're just going through that kind of messy middle right now of the high growth that this industry is experiencing.
A question, I think I'll pass to Stephanie. Why is UGE recognizing energy generation revenue on its income statement? Is this to credit of the tax equity investors?
So great observation for whoever made this question. We, as a result of controlling the special purpose vehicle that is the asset, to which the tax equity investor has invested, need to consolidate those special purpose vehicles into our financial statements. And as a result of that consolidation, we do recognize that energy generation revenue. The offset to that is actually increasing the debt that is associated with the tax equity line. So it does not go to our accumulated earnings or deficit. They build into that tax equity line until such time as we exercise our option to buy out that tax equity investors. So we're recognizing it as a result of the accounting rules, but we're not recognizing it to our account.
Another one I'll pass to you. Gross margin on energy generation fluctuates a lot, why? What costs are involved? And how are you managing in terms of O&M?
Sure thing. It's fluctuating a lot right now because a little means a lot when you're dealing with such low volumes. The other piece of it is that whether or not we use our own internal resources or [indiscernible] we need to actually, as the industry calls it, roll the truck. And so in some instances, we are able to go out and for the New York, this is actually quite true because we've got quite a number of people based in New York which is where a lot of our operating assets are. That doesn't go into our cost of sales, because we're able to deal with it ourselves.
Whereas for the O&M, we have to actually roll a truck like our Texas facility and that will impact and go into our gross margin. This should level out as we get a more diversified portfolio. But in the meantime, it does fluctuate quite a bit. I hope I answered all the aspects of that question, Cece. Is there anything that I didn't?
I think you, covered it. Back to you, Nick. Do we expect G&A Q2 2023 levels during the next several quarters?
Yes. I think that, that is leveling off somewhat. We did -- we have been scaling up the organization here. But as of right now, there's very limited additions that we're looking to make and those additions aren't at overly senior levels. So I think from that perspective, not expecting too much change there.
Great. The backlog has been fluctuating August '24, 348, June, 356, et cetera, et cetera, whereas last year, below 200. Are you plateauing?
Definitely do not think that we're plateauing. Year-over-year, the growth was close to 100%. So from that perspective, it speaks to that consistent growth in backlog that we've had. The number of projects that we have in our backlog now from a month-to-month basis, we're developing those projects, learning new information, moving things around a little bit. I think in July, it must have been, we did a little bit of cleanup. And there's a couple of projects that we moved out of backlog, but are actually still in Stage 3.0 that we're -- that we push back the time lines on and it felt like it would prudent to take those out of backlog for the time being. We do have over 600 megawatts of projects in Stage 3.0, which is close to double what our backlog is right now. Those are projects where we have contracts and we're developing those projects. So I think that there's a lot of activity out there, and we're looking forward to further growth in the backlog.
One for you, Stephanie. What is the total amount of tax equity dollars we expect to collect in the second half of 2023?
So this is one where I can't be exact. And we'll -- as I mentioned a little bit earlier, the dollars are associated with the milestones. So it will be entirely dependent on the timing of those milestones. Mechanical completion is very much associated with the utility. And as you've heard on the call, some of those utility interconnects have been stretched out. So the tax equity investors are bound into the deal. The timing of it, though, is not something that I can answer at this time.
Thanks Stephanie, and another one for you. What were the proceeds from the Philippines sales?
These were really tiny projects. It's not going to move the dial at all. I think the only comment that I'm going to make on this is these ones are quite immaterial to our books and records.
Back over to you, Nick. Can you provide updated thoughts on your expectations of cash retained per megawatt? Recent cash flows per megawatt appear more robust versus what you have communicated in the past.
Yes. It -- well, it does vary by market. I know in our investor presentation, we give sort of an indicative example of $1.30 per watt or that would be $1.3 million per megawatt as the kind of like what we call embedded value or the difference between the fair market value and the CapEx. In terms of how much do we pull out of that as a developer fee, how much do we leave in terms of further cash flows within the project over time is something that we determine on a portfolio-by-portfolio basis. But I think that those types of numbers are still relevant to what we're seeing right now.
I think you've touched on this in some other questions, but can you provide more color on the NTP delays?
Yes. The -- I think I have touched a fair bit on this. Like most of the slippage from Q2 to Q3 was related to -- there's 3.5 megawatt project in Oregon, which we're really excited about, but we're just in the late, very late stages of closing that project financing for that project. As mentioned, there's a U.S. Department of Agriculture, loan guarantee program, which helps keep that costs low and to using that program for the first time on a few projects that one included. And it just took a little bit longer to get to that point. So we'll be ready to build that project out here really soon. Aside from that, I think we -- anyone who received my investor newsletter this morning or if you saw in there, there's a bolded text that has building the flywheel. But I think really the mantra that the company has adopted here is like getting all of our process is really, really tight so that we can have any loose ends cleared up before a closing checklist comes from a bank that we're working through. So there's been some aspects of that, too, we're just wrapping up.
There's I think I made a comment 1 or 2 calls ago that when we closed the late March facility. It was like a 100 signatures that I had to provide on that portfolio. These processes that we go through to close project financing of these projects are very, very robust. And so there's a lot in there. And sometimes, our team is just chasing down loose items for several weeks to get there. And that's been an aspect of why some of those projects weren't quite NTP as well.
We have a few value related questions. What do you -- what are you seeing on third-party valuation? Is a potential sale source of funding for you, which I know you spoke to earlier? Is there any means of monetizing portions of backlog to buy back shares?
Yes. So on third-party valuations, I'm going to speak in very general terms, but I think that right now, we're seeing those values be let's say, anywhere from maybe $2.80 a watt to $3.80 a watt in that type of a range based on market you're in and project type, et cetera. But we're pretty consistently seeing numbers that are well over $3, which is great. And we would have not expected that a couple of years ago, but speaks to the value that's within these projects. . Is the potential sale of a source of funding for you? Absolutely. There's definitely a market for that. And so should we decide that is a good source of funding or if there's an opportunity we want to tackle or what have you, that's a possibility. And then is there any means to monetizing portion of that backlog to buy back shares? Quite possibly. I said before that we do believe that our market cap is pretty significantly below the book value of our backlog right now. And so from that perspective, whether it's through a project sale or whether it's through generating cash from the business as this portfolio grows, should buying back shares be the best source of best use of capital, which right now, one could definitely argue that it could be the we have to consider that.
What dollar per megawatt are developers see projects currently transacting at?
So -- okay, so a couple of things there. development-stage projects really starts from the end of origination when we have like a contract in hand all the way up to NTP. Like that's what I would refer to as development. So the values are going to also vary based on where you're at within that time frame. On the NTP side of things, I made the remark before, but once you get a project NTP, the developer is really able to capture virtually all of the value they've created from these projects. And it's going to vary by market, but it's not uncommon to see those values be north of $1 per watt. That's simply for the project, not building it. If you go back like -- we've seen transactions in the market for very early-stage projects, which are site control, but there's maybe 1, 2, 3 years of work to be done before that project reaches commercial operation. And those projects will trade at a fraction of that. But yes, hopefully, that provides some level of color there.
What is the targeted date for the 100-megawatt initial goal?
Yes. So summer 2025 is the time frame that we're targeting for that, hitting that mark right now.
Great. Is the team seeing opportunities to work with large property owners to complete projects with similar engineering work?
Not 100% sure I understand that. We do see opportunities with large property owners and there's one in particular in New York that we've referenced a number of times in Wildflower that we've done a number of projects with. They got a good type of opportunity for us where we can do multiple projects over multiple years. The engineering work doesn't really come into play or we're focused on developing and owning those projects, but yes.
You've touched on this topic quite a bit, but I'll ask the question just in case there's anything else you wanted to add. What is UGE's relationship with utilities like? Is there something specific to UGE that is causing the delays?
Definitely not anything specific to UGE, I think on the one hand, utilities are a little bit monolithic. And so there's -- aside from working the direct relationship that you have in any given project. If not, it's kind of like dancing with an elephant in a sense. On the other hand, I'll say, like our core values of a company are be green, be great, have fun. An aspect of that is like really fostering good relationships with the utilities we work with, the vendors we work with, the subcontracts we work with, et cetera. And I think that, that ethos is part of the company. So as we're scaling, as we're doing more projects in these markets, I do see us developing good relationships with the folks that we work with. But yes, it's definitely not something specific to UGE that's slowing things down there.
What resources can investors look to in order to understand more about community solar?
That's a really good question. If you -- what I might suggest is actually e-mailing us, and I know that my e-mail address is up on the page right now. Just feel free to e-mail us directly. And if we take a couple of days to get back to you, we apologize, but there is good information out there from -- there's various articles out there. the Department of Energy, I think, has a website dedicated to community solar, Sophic Capital that we work closely with, this put out pieces on community solar in the past. So yes, just through this e-mail, we can help find some links there.
Nick, convince us you don't need to raise [ pubco ] equity with your business strategy and developer fees.
So I'm not sure if that -- I think it's a statement, not a question, but what I will say is we haven't raised equity in over 2.5 years. We don't have a plan to. We're just headed down here on building out the portfolio, and we're more excited about the prospect of generating meaningful cash flow and earlier question about what do we do with it.
What is the book value of the backlog?
So there's definitely subjectivity to that. There's no -- our auditor doesn't look at our backlog and provide a book value to it. So from that perspective, I'll let the talented analysts that cover us and so on, provide an estimate of that, but we definitely believe it's a multiple of where our market cap is today.
Our final question. Are you still receiving interest from potential acquirers of UGE?
Yes. Short answer, yes. We're continuing to be focused here on building the company and attracting as much value as we can for our shareholders. But yes, it continues to be a really active space. And we still receive reach outs from that -- from those types of folks.
Thanks, Nick and Stephanie. That is it for our questions. So I will now pass the call back to Nick for closing remarks.
Yes. Thank you so much, Cece, and thank you, everybody, for dialing in today. We actually -- I'm not 100% sure, but I think that we actually had a record turnout today, which I think really says something for it being late August. So we appreciate everybody listening in and being excited about the work that we're doing here. We're with you in terms of wanting it to happen as fast as we can.
I know in the newsletter, we talked about having about 4.5x growth, actually, this was 5.5x growth in terms of these late-stage projects now versus 1 year ago. We are seeing it ramp up. We'll continue to see it ramp up, and we'll continue to tighten our processes, work on our systems, so we can be an industry-leading developer in terms of consistently bringing these projects through to commercial operations. So thanks again. Talk to us at any time, and we look forward to the next one.
This concludes the UGE International's Q2 2023 Conference Call. Thank you for joining us, and enjoy the rest of your day.