UGE International Ltd
XTSX:UGE
Earnings Call Analysis
Q3-2023 Analysis
UGE International Ltd
UGE has maintained robust margins on energy generation revenue, around 90%. With the company's goal of hitting 100 megawatts of installed capacity, revenue is predominately influenced by installed capacity, though affected by seasonality and other variables. As UGE transitions from engineering, procurement, and construction (EPC) towards solely focusing on being an independent power producer (IPP), EPC gross margins saw a significant shift from 26% to 86%. The wind-down of EPC revenue aligns with the company's strategy to progress as an IPP.
Operating costs and expenses rose 60% to $2.95 million, mainly due to administrative costs like salaries, as the headcount grew to support expansion. Notably, the company's net loss widened to $3.3 million, compared to $1.5 million the previous year, which was expected as they invest in developing their operating portfolio during the transition to a recurring revenue model. Further, the company stressed the importance of achieving a larger scale in project deployments, anticipating that developer surplus cash flows will become more visible on cash flow statements as project deployments increase.
UGE ended the quarter with $3.5 million in cash and working capital of $1.4 million. The operational cash burn for the first nine months was $12.3 million. Despite the cash burn, UGE raised funds through green bond offerings, securing $5.8 million during the quarter and an additional $1.3 million post-quarter. This capital will support upcoming project constructions and investments throughout 2023 and into 2024.
The balance sheet showed growth in construction, solar facilities in use, their associated liabilities, accounts payable, and lease liabilities. These results were aligned with the company's plans due to the expected increase in volume of projects progressing to construction.
UGE has been capitalizing on favorable regulatory conditions, particularly from the Inflation Reduction Act of 2022. The company also experiences benefits from statewide programs supporting clean energy transitions, suggesting an optimistic outlook for the opportunity landscape. On the financial side, UGE benefits from higher energy prices and IRA incentives, which help offset higher interest rates. They continue to find access to capital from tax equity to project-level debts, although they remain observant of the tightening capital environment.
Without specific supplemental disclosure, the company did not provide precise guidance. However, based on projects with Notice to Proceed (NTP), UGE projects a tenfold portfolio growth from early 2023 to the end of 2024, potentially reaching over 20 megawatts of cumulative Commission Operative Dates (CODs).
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Good morning, and thank you for joining us to discuss UGE International's Third Quarter Fiscal 2023 financial results for the period ending September 30, 2023. On the call today, we have UGE's CEO, Nick Blitterswyk; new UGE's CFO, Stephanie Bird; and UGE's COO, Brenda McNeil. [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 September 30, 2023, which can be found on our company profile at SEDAR+ and on the company's website. I will now pass the call over to UGG's CFO, Stephanie Bird. Stephanie?
Thanks, Marcel. Good morning, and welcome, everyone, to the call. For today's webinar covering Q3 2023 results, we will do things just a little differently than usual. As Nick and I are pleased to have our COO, Brandon, on the call with us to talk about some of the initiatives he and the company have underway. The second half of 2023 has seen our team focused on streamlining our systems and processes to efficiently scale the organization, and we look forward to sharing more with you. Before we get there though, Nick will begin by summarizing some of our key business highlights for the quarter and the year thus far. I will then run through our financial highlights before handing things over to Brandon. From there, Nick will touch on the industry at large and any other business highlights 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. 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 as well, unless stated otherwise. With that, let's start by talking about our key business results from the third quarter. Nick?
Thanks, Stephanie. We're looking on this webinar to touch base with you all on the progress of late. As we'll run through here today, the company is growing at a really impressive speed, but with that growth comes the reality of needing to tighten our structure, the people, processes and technology to reach the success we are after. I will first touch on the project data, such as our backlog, NTPs and CODs. This table will look familiar to most as it is our full development pipeline as of September 30. There is a lot to dig into here, and almost all of it is positive, but 1 item to address off the top is a 3% decline in total backlog. Let me run through the origins of that on the next page. As we show here, we actually had growth in every category except for Stage 3.1. The industry continues to be robust, though, which saw our early stage pipeline grow, and our later-stage projects continue to mature as well as projects -- as well as projects receive interconnection approval, hit NTP, enter construction and enter our operating portfolio. However, we have been working through an intensive remapping of every single one of our projects in our backlog to fully delineate the roughly 750 steps each project goes through to reach operational status. And as we do that, a small number of projects were moved back to Stage 3.0 until further steps were completed. You can actually see that shift here from Stage 3.1 back to Stage 3.0. At the same time, we are revamping our investment community process, led by Sabrina, to take into account this updated mapping as well as other lessons learned. That meant that new projects weren't being added to the backlog during that time. As that process has since been rolled out, we have already started to see new projects entering backlog here in Q4, and expect backlog to return to growth here very shortly. I should also mention that with this remapping exercise still underway, we are not planning on publishing our full supplemental disclosure this quarter as dates are still being adjusted and firmed up. We look forward to once again sharing our supplemental disclosure starting next quarter once that work is complete. Even more so, we look forward to seeing these updates lead to better forecasting accuracy and tighter time lines going forward. This exercise is already leading to greater confidence in our 2024 COD projections, which Brandon will speak to a little bit later. I mentioned how we've seen our later-stage projects mature, so let's dig into that just a little bit more. One of the headlines here for 2023 has been our growth in Project NTPs, which is a milestone when project development is complete and a project is financed and cleared for construction. 2023 is the year where our self-developed portfolio has started to emerge as seen by this jump in NTPs to 19x our prior level. In Q3, this was highlighted by a 1.4-megawatt rooftop project in New York City, which is a high profile project, sorry, that we look forward to discussing further once it is complete. We've been frequently seeing our third-party project valuations exceed USD 3 per watt, which also speaks to the value of projects we are now building out. Of course, with over 340 megawatts of project backlog, we expect that this year's NTPs are just the beginning. Lastly, our operational portfolio has started to scale, but will become quite a bit more material in 2024 as this year's NTPs are completed. Although it occurred in early Q4, recent CODs have been highlighted by our community solar project in Norway, Maine, on top of a capped landfill. We are in the final stages of reaching commercial operation on a handful of other projects in Maine and New York as well. So at a high level, we are glad that the hard work we've been putting in to build and scale our full life cycle development platform is taking shape. I will now turn it over to Stephanie to walk through our financial statements.
Thank you, Nick. I'm going to review a few key items from our Q3 2023 financial results. Looking at this slide, I'll start with our energy generation revenue, as I expect a couple of questions in this area. As the operational portfolio grows, energy generation rose 158% to 1,362,000 kilowatt hours in the 3 months versus 528,000 kilowatt hours in the year ago quarter as our operating portfolio grew from 2.4 megawatts DC to 3.6 megawatts DC. However, UGE's energy generation revenue decreased 22% to 111,000 for the 3 months ended September 30, 2023, compared to 142,000 in the same period of 2022. There are 2 main reasons for this. One relates to asset management, while the other relates to the different energy offtake rates of different projects. As our operational portfolio starts to grow, some outages will occur. And unfortunately, 1 of our systems was offline for about half of Q3. It is one of our higher revenue-generating projects located in New York's community solar market, and was off-line based on a product defect within 1 of the electrical components. These components are being replaced by the manufacturer. And at this time, we expect the project to be back online with approximately -- within approximately 2 to 3 weeks. Meanwhile, the growth in the operational portfolio since the comparable quarter came from our first project in Texas. The energy offtake rate on that project is the lowest in our portfolio, whereas the project that went off-line is one of the highest. That is how we can have kilowatt-hour production increasing, but revenue decreasing in the quarter. The second contributing factor is related to billing and accruals on one of our other New York community solar projects. It has been an industry-wide issue that Con Edison in particular, has been slow to commence billing reconciliations for community solar projects in their service territory. Fortunately, that has sped up considerably in recent months. But as that occurred, it was identified that we had over-accrued for 1 project to the tune of about $20,000, which was reversed in Q3. In the next section, Brandon will touch on how our asset management function is scaling to ensure that outages are minimized, both in terms of recurrence and length going forward. I'd be remiss not to mention that in the first 9 months of 2023, energy generation grew almost threefold, including a 50% growth in energy generation revenue as our portfolio scales. With Norway coming online in October and other projects reaching operational status soon, we look forward to further near-term growth in this area. Margins on energy generation revenue have continued to be strong in the neighborhood of 90%. Lastly on this subject, as UGE grows towards its 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. As expected, energy -- engineering, procurement and construction, or EPC revenue decreased from $1.5 million to $105,000 as the company closes out it's remaining contracts. EPC gross margin during the quarter was 86% versus 26% in the third quarter of 2022. We have every intention of completely winding down EPC revenue in the very near future, which should allow for clear tracking of our progress as an IPP as well. The Engineering Services business also recorded revenue declines to $32,000 from $199,000 with 18% and 54% gross margins, respectively. There is now very much an internal focus on engineering for the company's own projects as opposed to external clients. Total operating costs and expenses were $2.95 million during the quarter, a 60% increase over the $1.85 million reported in Q3 2022, but a decrease from the prior quarter as growth in overhead has leveled off. The main driver of the increase was general and administrative costs related to salaries and benefits, which were $2.1 million in Q3 2023 versus $1.1 million in Q3 2022. This was a 91% increase arising from the company moving from 64 to 73 employees and contractors, maxing out at 77 between September 30, 2022, and September 30, 2023. The net loss and adjusted net loss for the quarter was $3.3 million compared with $1.5 million for the same quarter of 2022 as a result of continued investment in developing and building out UGE's operating portfolio. The change was primarily driven by increased headcount 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 by 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 deployments and operational projects. Once this transition occurs, building out projects creates positive cash flows through the retention of what we refer to as developer surplus. This is starting to become more noticeable on our cash flow statement as our deployment scale up and will become even more noticeable as deployments ramp further and more projects reach commercial operation. Moving to the next slide, let's look at our financial position. As of September 30, 2023, UGE had $3.5 million of cash, working capital of $1.4 million, and our cash used in operations for the first 9 months of 2023 was $12.3 million. We continue to believe that sources of capital to fund the business are robust. During the quarter, we closed 5.8 million overnight marketed green bonds led by Canaccord Genuity. And post quarter end, we closed another green bond offering this time for $1.3 million. Our balance sheet continued to -- next slide, as our balance sheet continue to grow, as projects progress into and through our backlog, of note for this quarter is the increase for construction and progress and solar facilities in use, together with their associated project and tax equity liabilities. On the next slide, as of September 30, 2023, there was also a significant increase in capitalized assets to support construction after this year-end later this year and into 2024. We had $6.4 million of long-term prepaid expenses versus $1.4 million at December 31, 2022. Adding to this are the other assets of $8.6 million in 2023 versus $1.0 million in 2022, and the deferred development costs of $7.9 million and $4.9 million, respectively. Overall, these 3 line items, there is a $15.5 million net increase, 72% of which is directly related to progress towards mobilization. The remainder is largely associated with the capitalization of deferred development costs such as lease amortization and depreciation, which demonstrates the progression of our projects through the backlog towards construction. On the next slide, the increase in right-of-use assets and their associated lease liabilities saw us continue to increase site securement. We have accumulated a total net new leases for the year of '19. And on the next slide, you can also see that there is an increase in accounts payable as management closely aligns the payment of invoices to the receipt of associated funding. With a greater volume of projects progressing through and towards construction, this increase was expected. That concludes my prepared remarks, and I will now turn the call over to Brandon.
Thank you, Stephanie. I'm excited to join the webinar today and speak to the key initiatives we have underway to ensure that we are built to scale with our portfolio in the coming months and years. I joined UGE just this past July after spending close to 20 years in other leadership roles in the distributed energy and EV industries. I'm really enjoying being part of this journey and have been impressed with the team and projects we have here at UGE. Through my experience scaling other high-performance companies, I found it to be effective to think of the business as a flywheel, which orients our team around the main components we need to perfect in order to have sustained long-term success. I'm sure that everyone knows what a flywheel is, but the idea is that if we all work together, making improvements and forward progress every day, that over time, we will build more and more momentum in becoming the large and successful company we aim to be. With this in mind, we've identified 6 key areas that we need to intensely focus on in order for the UGE flywheel to accelerate and ultimately reach our significant goals in the coming years. I'll spend a minute or 2 on each of these 6 components. Ensuring that we have the right people on the bus and in the right seats is our first key area of focus. Since I joined the company a little over 4 months ago, I've been consistently impressed by the quality of the people that we have on the team. However, we aren't yet perfect. So we continue to look at ourselves critically and will further refine or add where needed. We're also working to ensure that everyone clearly understands which pieces of the flywheel they're responsible for, and know how to smoothly transition deliverables to the next owner to keep gaining momentum. One example of this is asset management. As Stephanie just mentioned, our portfolio is rapidly scaling and having dedicated resources to manage our assets has become key as more projects come online. This has led us to shift the resource from engineering to be dedicated to asset management, and we plan to hire additional resources as the portfolio scales. In doing so, we are aiming to identify and remediate any issues that do occur as soon as possible and ensure maximum uptime. Establishing the systems to support repeatable and scalable operations is our second key area of focus. A major recent lift for the company has been the selection and implementation of a cloud-based project management system that we now use to track and assign each of the hundreds of tasks that make up each project from origination to asset management. We will also leverage this tool to more accurately track and forecast key project milestones, which I'll touch on more in a moment. In addition, we have been migrating our project modeling tools to the cloud, and are working to integrate multiple subsystems with our ERP to eliminate manual entry and automate reporting. As Nick mentioned earlier, we're committed to improving our forecasting of key milestones, both for internal planning purposes and external communication to shareholders. As a starting point, we've been remapping our entire backlog using the project management system I mentioned earlier, and accounting for market-specific knowledge that we've gained to drive expected interconnection, permitting and construction time lines. Even with these adjustments, we are forecasting our portfolio at the end of 2024 to be at least 10x the size that it was at the start of 2023, significant growth for a company at our stage. As new projects enter the backlog, they will go through an updated cross-functional planning process to ensure that we are forecasting reasonable dates from the start and incorporating lessons learned along the way, including identifying areas where time can be compressed and bottlenecks alleviated. This detailed planning is a critical first step, but it must be followed by meticulous and timely execution as well, with a commitment to deliver on time and on budget. As I mentioned earlier, I believe we have a strong team who are experienced and eager to play a key role in the proliferation of renewable energy. As the leadership group, we're focused on directing this excitement towards creating a culture of ownership and accountability for developing projects as quickly and cost effectively as possible. To enable this, we are leveraging the project management system to track tasks, identify critical paths, escalate bottlenecks and create mechanisms for further cross-functional input and collaboration. As the flywheel continues to accelerate, defining, measuring and monitoring key performance indicators will be critical to ensure that we are all pushing in the right direction and driving further acceleration. This will also require forging a culture that is data-driven rather than opinion-driven, and committed to achieving constant improvement through postmortems and root cause analysis. As they say, in God we trust, all others must bring data. The last key area of focus is funding, which includes efficiently securing stable and cost-effective sources of capital for all stages of the project life cycle while maintaining a tight focus on creating value through developing projects that feed our economic engine and continue to accelerate the flywheel. Some of you will have met Sabrina, who recently joined us from Blackstone. Sabrina is buying a key role here alongside Nick and Stephanie to work with numerous sources of capital that are looking to join us in tackling the clean energy transition. This concludes my presentation. Thank you again for the opportunity to join the call today. I'll turn the call back to Nick for closing remarks.
Thanks so much, Brandon. It has been really filling to work alongside yourself and the rest of the team and to see how much progress you are all making. Before we wrap up, there are a few more areas of the business we'd like to highlight. On the regulatory side, we are in the prime years of support for global energy. Of course, the inflation Reduction Act of August 2022 is the headline, which continues to drive opportunity in our space. We still feel the market greatly underestimates the benefit of this bill and expect the results to become obvious in the quarters and years to come. The stage level continues to be favorable as well. In recent weeks, we have spent time submitting projects for New Jersey's community solar program as well as the 20% low-income adder that was part of the IRA. We still expect California's program to be coming down the pike relatively soon, and are well placed, sorry, when Pennsylvania and [indiscernible] community solar program as well. We just saw Michigan passed a 100% clean energy mandate, which we believe will drive community solar policy in the short term as well. We could go on. It seems just about everywhere we look, there are emerging opportunities for the projects that we focus on. On the supply chain, since last quarter's webinar, where I mentioned improving cost and availability, we have seen continued progress in our favor. Prices for the polysilicon raw material have just hit all-time lows and worldwide module prices have been falling. Domestically, we are closely tracking the ability to meet thresholds to qualify for the domestic content adder, which adds another 10% to your ITC, and believe it could be available in some scenarios as early as 2024, and with it becoming more widespread in 2025. And there was actually an article in the New York Times within the past week, which talked about the IRA being so successful in its push for domestic manufacturing that there could be oversupply, which is great news for developers like UGE. Lastly, on financing. Of course, we are all aware of the higher interest rate environment that we are in. As I have mentioned on past calls, net-net, we have been really actually quite happy with how our net economics are working out on projects as we have benefited from higher energy prices as well as incentives from the IRA as a boost to counter what we've seen as marginally higher interest rates. I mentioned that California just in the last week had another 13% increase in retail rates for the year going forward. We continue to see ample sources of capital for the main sources we rely on, such as tax equity and the construction of term debt that sits within our project portfolios and even see new entrants entering the space. That said, we wouldn't be doing our jobs if we weren't watching this closely as there are signs that capital is somewhat more limited now than, say, 1 year ago. As a result, we've been very pragmatic with items such as new project acquisitions, enhancing our focus on our own development instead. In closing, we want to thank everyone for joining us here today and for joining us on this journey. As I mentioned on a recent interview, we are going through the less sexy parts of scaling to meet our goals, but I am really confident that we have the team and business strategy in place to experience sustained long-term success. We look forward to diving deeper into your questions in the Q&A. 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 visit Soffa 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. Marcel, back to you.
Thank you, Nick, Stephanie and Brandon. We've collected the questions that investors have submitted since issuing the financial results, and we've also collected the questions submitted through the webinar's Q&A tab. We'd like to thank all participants for your questions. Moving on to our first question from Sameer Joshi at H.C. Wainright. What is the commercial operating target at the end of 2023 and 2024?
So because the -- I can take that. So because we didn't put out the supplemental disclosure, which includes the specific dates, of when projects are going to hit. We are, therefore, not providing like specific guidance around that. Brandon did speak to -- if you just look at the projects you've already had NTP on, you're looking at a built-in 10x portfolio growth from the beginning of '23 to the end of '24, which puts that cumulative CODs at that point at 20-something megawatt. And as additional projects hit NTP in the coming, let's say, months, there's a good opportunity for that to increase as well.
As the process of the refining time lines for projects and backlog being completed, what would have been the backlog as of June 30, 2023, based on the revamped process?
So yes, that process has not yet been completed. We're working through it. As we mentioned in the prepared remarks, there's, give or take, 750 steps each project goes through, and so we've mapped all this out in more granular detail than we had before using updated systems that we're now using, et cetera. And so we've really been going through a process that, in essence, starts from the closest NTPs all the way through. So that's a process that we're still going through. We want to make sure we get it right, and we want to make sure that we're sensitive to -- this is an industry where time line shifts quite a bit. We really, really want to have industry-leading forecasting, especially given that we're a bit unique in being a public full life cycle developer in this space. So we're going through that. In terms of the second half of the question about what would the backlog have been at June 30, I spoke somewhat explicitly to that in the prepared remarks talking about how there was really a 15-megawatt, give or take, shift from 3.1 back to 3.0. So I think that, that actually kind of answered that question to -- in that regard.
We understand that backlog building can be lumpy. But how does the current pipeline look especially in light of headwinds reported by some of the larger solar providers?
Yes. So the pipeline looks exceptionally strong. I think Michigan was 1 example that I threw out there in the last bit of the prepared remarks. There's more community solar opportunities than ever before. There's new states having energy storage programs. We're also looking at -- like it's not just community solar. There's project structures similar to community solar or PPAs or similar to PPAs, et cetera, where we can actually continue to expand the opportunity in the space. And we think that the mid-scale space is, in many ways, the best placed. I think the headwinds, if someone follows the overall solar sector in the public markets, you will be very well aware that the sector has been under pressure this year. I think that something like the problems in residential solar have been fairly unique to residential solar, and that's where a lot of those headwinds have been things like California's net energy billing program changing for the negative for that space. Well, in the mid-scale space, we're actually right now waiting for updated community solar programs there that are going to be a really big positive. So I think that kind of speaks to the headwinds versus tailwinds part of that discussion. So out there, it's a very robust market. There's a lot of opportunity. I do fully expect that you're going to see backlog return to growth here quite shortly. And we're excited to see that continue to grow.
Nick, is there a plan to disclose the supplemental information at some point in the future?
Yes, the year-end, which -- when our year-ends come out, we are calendar year. So when those come out in the new year, that's when we're expecting to have an updated supplemental disclosure. And in the meantime, we'll continue to think about -- we know we're a bit of a complex story for folks to follow. And so we'll keep thinking about how we can better display and share information as part of that update as well.
And Nick, what is the targeted date to achieve the 100 megawatts in operating assets? Has it changed from the previously targeted summer of 2025?
So yes, I'll give an answer similar to Samir's first question there in that because we are going through this remapping exercise, it wouldn't be appropriate for us to put a deadline when we're still firming up the mapping for each of those projects. That said, given the size of the backlog, the progress that we're making, we still expect that to be a medium-term goal that's -- that we feel we can reach out and touch in that regard. So we're looking forward to that happening in the not-too-distant future. I would be remiss not to kind of link a couple of points and say, we have been more pragmatic, for example, with acquisition opportunities that we maybe otherwise would have been because we want to make sure that we're being prudent around the funding environment and things like that. So maybe, all else considered equal, 1.5 years or 2 years ago, maybe at that point in time, we would have looked to acquire some assets to get to that number a bit quicker. But right now, we're just really focused almost exclusively on bringing our own projects through. And of course, when we're developing those projects ourselves on a net-net basis, that's -- those are the highest margins for us as well.
Our next question comes from Devin Schilling from PI. How much backlog can be converted into operating assets, given the current balance sheet? What is your funding strategy?
Well, yes, so a couple of things on that. In terms of projects, as we've talked about before, really when we get a project to NTP, and we work with typically bank lenders who are doing construction and term debt, we work with our tax equity providers who we use to monetize the ITC. Our focus there is for virtually every one of our projects to have a positive developer surplus. And so we look to that NTP milestone as being a point where projects convert to being cash flow positive. And so from that perspective, we actually think a little bit less about balance sheet in that sense and more about continuing to work with and strengthen those relationships to have plenty of options in the stable to work with there. So from that perspective, we're really looking to build out all of our backlog as it reaches those milestones here in the coming years. Obviously, like there is variability. I'd be remiss not to say that. A certain project can shrink or grow. And I want to emphasize both sides of that, but sometimes you might have, let's say, some wet lands on the edge of a property, a creek or something like that. And so maybe you need to shave off a little bit of space. But also like as the years go on, solar panels continue to be more efficient, maybe you can pack things in a little bit more? And then also, I mentioned earlier about, it's not just community solar. It's not just your typical behind-the-meter PPAs. And so there are some other opportunities that we're looking at that actually allow us to increase some sizes of projects, too. So -- Yes. So hopefully, that answers that question.
Next question comes from Nicholas Boychuk from Cormark. Nick, can you please expand on the company's comfort with its current cash balance relative to CapEx that needs to be spent over the remainder of this year?
The -- so a couple of things in there. Number one is we mentioned -- when CapEx is mentioned, of course, projects -- as kind of similar to my last answer there, projects are funded out of cash flows from financing activities for projects. So it's actually a little bit less about CapEx that is concerning in any way given that's how those flow of funds work. I think our -- I would need to check, but I think probably our cash balance at the end of Q3 was probably one of our larger cash balances that we've had over the last, maybe even a couple of years. I would need to check or speaking for memory. So we continue to see multiple different options or many different sources of capital out there. And so we're just going to continue to execute on the business, bring these projects through, continue to develop those relationships, both new and existing, and heads down on executing on the backlog here.
Nick, give us an update on private market valuations the team is seeing. Where does the company sit on potentially monetizing projects to highlight value?
The -- so 2 things. One is, in terms of valuations, I'll say that specifically from our third-party valuations that we go through. We've talked about this before, but every project that we're self-financing get to third-party valuation in order to execute on the tax equity transaction. And so from that perspective, anecdotally, we haven't seen really any material change, to be completely honest, from the most recent ones to say a year or 2 ago. If anything, actually, we probably saw things increase since over a couple of years ago as energy rates went up, et cetera. I think in the market the -- in the market overall, I think like -- I think that there perhaps the number of projects on the market has increased somewhat. This is, again, an anecdotal answer, but I feel like maybe that supply/demand balance is shifting a little bit. So just based on ECON 101, I expect that maybe that means that there's somewhat more attractive deals out there to acquire projects right now. But I think that there's still a tremendous amount of capital looking for these types of projects, both to own them and to invest in them. And so I think, all in all, I think we continue to be in a very robust market for that. The second part of the question, I think like -- I think we were asked this question on the last webinar. I think that, that's probably where that question comes from. And we've spoken before that we -- based on the valuations we see, chatter we hear within the industry, et cetera, yes, like we think that we have a tremendous amount of value in the backlog in our operating portfolio as well. And so from that perspective, we think there's a disconnect between how much platforms and projects trade for in the private market. And so that question around monetizing for that reason. Obviously, for the company, we want to make sure that we are building the flywheel, building the long-term success of this company. But at the same time, we also have to be mindful about what makes the most sense for the company to fund the business, to reward shareholders, et cetera. And so I'll just say that like, I think we're quite pragmatic, strategic, I think, quite on the ball as well in terms of addressing where the market's at and acting accordingly. So no announcement today in terms of any specific near-term catalyst in that regard. But it's something that we continue to watch really, really closely, and run through the market accordingly.
And a question for Brandon. Brandon, please expand on the specific results you're hoping to drive from this process of backlog improvement? What can be scaled or leveraged from this learning?
Yes. Happy to speak to that. Thank you for the question. As I mentioned in the prepared remarks, the key aspect that we're looking for here is both to improve our internal forecast, so we can better plan internally and more accurately communicate externally, but then also to drive more detailed and focused execution internally and really develop the processes, systems and kind of internal culture needed to develop these projects at scale and in volume.
Okay. And a follow-up call -- or a follow-up question from Devin Schilling at PI. What dollar per watt could you monetize a secured Stage 3.1 projects at?
I think that's probably a question for me, Marcel. I think -- so what -- well, probably the first thing I would say on that is Stage 3.1, and I actually remember this being a topic maybe a couple of years ago that came up a bit more often. Stage 3.1 is the high pole in the tent. And if you look at the GANT chart, you'll see this like a long process for Stage 3.1 where a lot is happening and then 3.2, really the Stage 5, happen comparatively in close succession. And so I mentioned that because just saying 3.1, there's different angles within 3.1 which answer that -- could change that question quite dramatically. Like for example, you could have a project in 3.1, where you have line of sight to the interconnection, and everything else you're sort of like getting really strong on in the meantime, things like permitting and financing and offtake and so on. And so you can have a project in 3.1, which you could actually line up and get more or less a full NTP valuation. And NTP, for a developer, is really where all the development work is complete, and you're capturing really the whole developer upside or developer surplus at that point in time for doing that. On the flip side, when a project first enters -- when a project first enter Stage 3.1, it's -- depending on the market, there's going to be some more uncertainty there. So you could be in a, so to say, a New York rooftop market or a market where interconnection is more a matter of when and there's less variability around cost and so on. And you could probably still aim to get close to an NTP valuation, but there's other cases where you might have a multiyear interconnection time line and selling projects at that stage, you'd be really getting sense on the dollar. So it can vary. So hopefully, that answer helps somewhat there.
Moving on to our next set of questions from Alistair Dsouza. Nick, do your comments mean UGE's operating assets will only be 20 megawatts at the end of 2024?
The -- what we mentioned -- so I think what we said is, at least 10x, and so that would mean 20-something. I don't have the numbers specifically in front of me, but I think it's more like mid-20s. And then I think that the way to probably start out in a base case scenario would be to say, the current operating portfolio plus any project that hit an NTP. Time lines to build out projects are at least 6 to, say, 12 months. And so given forecasting out the time line to the end of 2024, that's going to be largely based on, let's say, projects we hit NTP on between now and Q1. There are projects we're working on towards hitting NTP between now and Q1. But I think, actually, anybody who was on the webinar last quarter can relate that in the Q&A. There was a lot of questions around push time lines and things like that. And we get it. We -- the last thing we want is to let people down. And so we're making sure that everything that we can control and then some is being mapped out and factored into guidelines there.
Okay. An earlier question given the low number of NTPs recently, what science can investors look at to see that the company is pushing along projects effectively?
Well, NTPs and CODs still are the most important milestones to watch from that perspective. And I do think the -- I do think that, that's something to watch. We mentioned, okay, so Norway hit COD in October. I think it was last month. I think it was Stephanie mentioned in her prepared remarks. There's, I think, 3 other projects that are in their final month or so towards getting to COD themselves, and then there's other projects for moving towards NTP as well. So I think that, that is still the most important aspect there. There are other industry catalysts like the New Jersey community solar program, like the low-income adder that I mentioned as well, like additional community solar programs like California, et cetera, that will be coming down the pike. So those are all important as well. So I'll answer that from a slightly different perspective, too, just briefly, and that say like, I think like internally, I think the level of excitement and confidence around the progress that we're making right now probably has never been higher. I understand that, that hasn't translated in recent months as much as we would have liked to those NTP and COD milestones. But at the same time, we're really making sure that we take that step back so that we don't disappoint going forward, so that we do hit these milestones and these goals going forward. And that's all we're focused on here.
Our next questions come from [indiscernible]. The solar facility affected by lightning was down for a few days. What would be the most impactful way to reduce downtime for similar outages in the future?
Yes. And Marcel, I'll take that. And Brandon, feel free to chime in here as well. I think the couple of aspects are -- and we -- thinking about how small the portfolio has been, our engineering group provided asset management until recently. And then as Brandon talked about actually carved that out. We're starting to build that up from a people and a systems perspective and also from a software perspective. So like the monitoring we have on our site in order to identify issues quicker, get people to site quicker, remediate those issues quicker, et cetera. So those are the types of things Brandon spoke to and that we're working on there. Obviously, you can't stop lightning. So from that perspective, I mean that's a fairly unique occurrence, and we don't expect that to be too common. That happened, and as soon as it did, we worked with a local subcontractor in Texas to get that remediated. I will mention that like the New York rooftop that we talked about here, Stephanie mentioned that it was an electrical component. This was an electrical component from a pretty well-known electrical manufacturer in this space, a public company in our space that's fairly well known. And this 1 system had a cross-talk issue that became known, I think, in part based on the experience we had. And so they've been, I'd say, pretty good in jumping in and being able to get that remediated, but it has taken some time. I think, in retrospect, based on both manpower and monitoring software, we would have liked to be able to identify that a bit quicker and move to remediate that a bit quicker. And those are the types of things that Brandon and his team are focused on here. Brandon, do you have anything you want to add on that?
No, that's great. Thanks, Nick.
Sorry about that. I was on mute. So the next question is, are the solar assets maintenance costs you're seeing matching your expectations?
Yes, yes, they are. Yes, they are. I think that again, folks who have followed this story for a little while will know that our gross margins have actually been coming in higher than we've guided, the entire time that we've had this recurring revenue. And so -- so yes, I think we're still seeing that. It's a -- big picture, it's a fairly small slice actually at your operating cost of these solar projects just part of the benefit of solar. So yes, they have been.
Okay. We have time for 1 more question. This is from Brock Adler. How is the -- can you break down the interconnection backlog by region, if possible?
That's a -- yes, that's a fairly detailed question that I don't think we're going to be able to fully break down by region on this call. I think what -- I'll talk a little bit high level to like the distributed level projects that we do, these mid-level projects that we do. Typically, we're not needing to deal with transmission, for example. We're really looking at down to like the substation level, feeder lines to that substation, things like that. And so from that perspective, that helps. And then it comes down to like are we next in line for the substation, or is there just some other projects ahead of us that we need to wait for? And then there is often cluster studies that look a little more holistically at the area of grid that we're on. So it's a fairly vague answer, but I almost want to rattle off like a state-by-state answer to that as opposed to, for example, saying PJM. I don't think it's quite on that level. So 1 other thing I'll mention is like we have focused a bit more on markets like Texas because there are some areas that move a bit quicker than others in terms of their approach to interconnection as well. And by the way, Brock, feel free to reach out offline if you'd like to set up a call and discuss that in more detail.
Okay. That's all the time we have for questions. So I'll now pass the call back to management for closing remarks.
Thank you so much, Marcel, and thank you, everyone, for dialing in today and for following along with us on our journey here, remaining really excited about the opportunities in front of us, the company that we're building, the level of quality we have in our team and the level of focus to get to where we're going here. So I know it's -- I know delays have unfortunately been fairly common with UGE and I'd say even more so within our industry. And that's something that we're tackling head on to make sure that we're both operating as good as anybody possibly can, keeping that long-term focus on just a really profitable powerful machine that we're fully believing that we're building here and look forward to continuing to touch these with you all to talk about that further going forward. So thanks again, everyone, and reach out any time.
This concludes UGE International's Q3 2023 Conference Call. Thank you for joining us and enjoy the rest of your day.