VivoPower International PLC (VVPR) 2018 Q2 法說會逐字稿

Welcome to the VivoPower Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Carl Weatherley-White, CEO of VivoPower. Please go ahead, sir.

Thank you for joining the First Half 2018 Earnings conference call for VivoPower International. My name is Carl Weatherley-White, Chief Executive Officer of VivoPower. I will provide an overview of our results and then we'll be very happy to answer your questions.

On slide 2 I have some administrative matters to read.

During this call, we will be making forward-looking statements related to VivoPower International within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to estimates relating to our future energy development and investment activities. These forward-looking statements discuss future expectations, contain projections of future results of operations or financial condition or state other forward-looking information.

These forward-looking statements are based on our current assumptions, expectations and belief and involve substantial risks and uncertainties that may cause results, performance or achievement to materially differ from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to our ability to obtain financing for our projects, our customers or our general operations, our ability to build, sell or transfer projects, regulatory changes in the availability of economic incentives promoting use of solar energy, global economic, financial or commodity price conditions, our ability to develop technologically advanced products and processes and other risks discussed in filings we make with the Securities and Exchange Commission from time to time. Copies of these filings are available online from the SEC or on the SEC filing section of our Web Site at vivopower.com.

All forward-looking statements are based upon information currently available to us and we assume no obligation to update these forward-looking statements considering new information or future events. Today's presentation also includes reference to non-IFRS financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical, non-IFRS measures to the closest IFRS financial measure. Thank you.

So turning to slide 3, before walking through these slides, I would like to reiterate our perspective on exciting trends in the global solar power industry and to underscore the tremendous opportunities we see to capture rapid growth and profitability.

First, the cost of electricity generated by solar power continues to decline rapidly, such that solar will soon produce lowest cost of electricity in the world. Second, attracted by stable long-term returns capital availability for new solar generation is robust. Finally, spurred by the strategic and economic benefits of shifting to low-carbon activities and the acceleration of technological advances, corporate and industrial users of electricity are increasingly procuring and managing their power load directly.

Against this background, VivoPower provides investors with direct exposure to these global trends with a profitable high-growth business model. We have an extremely capable management team with deep experience across the entire value chain of the industry, including development, engineering, operations, acquisitions and financing. We have created a unique solar power platform with a global reach. Our team has a clear vision and a disciplined approach to the allocation of capital and we are committed to creating sustainable shareholder value.

Turning to slide 3 in the presentation, over the last three months, we initiated several important strategic priorities reflecting the clear opportunities we see in this rapidly evolving solar market. The most important decision was to shift more resources to the development of projects rather than the acquisition of projects from third-party developers.

Representing organic growth, this approach is a more sustainable value-added business model and one that reflects market conditions and the needs of our clients. Over this period, we achieved several significant milestones. In April, we completed the acquisition of a 50% joint venture ownership in a 1.8 gigawatt portfolio of development stage solar projects which puts VivoPower in the top five of solar development companies in the United States. We also executed an alliance agreement with ReNu Energy of Australia to monetize small projects that we develop. And in connection with this agreement we announced the sale of Amaroo, the largest school solar PV project in Australia.

In September, we announced my promotion to CEO which is an exciting responsibility and opportunity and we expect to announce the appointment of our new CFO shortly. We also recorded revenues of $16.2 million for the six months ended September 30th, 2017 and an EBITDA loss of $3.9 million. The revenues reflect strong growth in Aevitas, our project services business in Australia and the EBITDA result reflects our investment in building a team to address our development initiatives.

Additionally, we implemented a cost savings initiative that should result in 1 million of annualized savings and we are constantly looking for additional savings in our operations. Finally, we launched a formal process to secure co-development capital in support of our US solar portfolio joint venture. This initiative stems from significant unsolicited inquiries from institutional investors whose cost of capital is lower than ours and could result in a sale of one or more projects in addition to the co-development funding.

The next slide, slide 4, provides an overview of our financial results for the six months of our fiscal year 2018. We recorded project revenues of $1.7 million compared to $2.4 million for the same period last year. This reduction reflects fewer projects under construction. Aevitas generated $14.4 million in power services revenues compared to nil last year. As previously discussed, total revenues were $16.1 million and adjusted EBITDA was a negative $3.9 million. Adjusted EPS was negative $0.44 per share compared to $0.05 per share profit for the six months ended September 30th of 2016.

Turning to the balance sheet, we increased our project investments to $35.2 million related to our two projects in North Carolina and the investment in the U.S. development portfolio. Our non-current assets increased slightly and our cash reduced in line with our investment in the development portfolio and our trade receivables reduced as we generated cash from completing the development of one of our two North Carolina projects.

Our current liabilities increased slightly due to an increase in liabilities of the North Carolina projects and our long-term liabilities increased primarily to an unfunded commitment to the U.S. development portfolio. The net of our increased assets and liabilities resulted in a decrease in net assets to $60.2 million.

Page 5 summarizes our outlook for the balance of the fiscal year. We remain bullish on the market opportunity, and in particular, our strategy. While the trade case in the U.S. initiated by the bankrupt manufacturer Saniva has created a temporary price increase in solar PV panels, we do not believe that this will remain a long-term concern. We expect the market to adjust to any tariff within a short period of time and believe that the outlook for panel prices remains attractive for developers. We have a similar outlook for silica which should also see new capacity and a resulting cost decline.

Against some of these temporary headwinds, we see battery storage becoming commercially viable shortly. We are actively designing battery storage solutions for our projects and I expect that storage will become a standard feature of solar projects in the future. In line with our strategic initiatives, VivoPower will focus on maximizing profits from the development portfolio as measured on a net present value basis. This approach will require optimizing and managing each project in the development portfolio over time which we believe will result in value creation at each stage of the development life cycle.

We are also currently in an active process to evaluate co-development capital partners which may result in a sale of one or more projects. So we will hold off on forward-looking guidance until that process is concluded and we will not engage in any share repurchase activities.

Given our shift in strategy to focus on maximizing the value of projects under development, we have prepared an indicative sum of the parts valuation which we believe provides an appropriate way to value VivoPower.

Turning to the next slide, I'd like to provide a short strategic overview of VivoPower. We are a global solar power developer and producer listed on the Nasdaq stock market. We have a highly experienced team with extensive capabilities in all facets of development, engineering, construction, operations and financing for solar projects.

To pursue the strategy, we have several key competencies. We develop, own and operate solar projects. We actively seek partnerships with industry players including investors, suppliers and other developers. We drive a capital-efficient financial model by recycling our development investments when we monetize projects with long-term investors. Over time, we intend to build recurring revenues through asset management agreements and equity stakes in operating projects. Finally, we champion high standards of global citizenship and sustainability.

From a financial perspective, our strategy will have the following implications. We will focus on maximizing the net present value of our projects over the medium term, which means that profits and cash flow will stem from optimizing each project according to its development cycle. Long recurring revenues will be generated as we build a portfolio of operating projects with asset management fees. Our balance sheet will reflect project investments with the potential for increases in carrying costs as projects are developed.

Turning to slide 7, VivoPower has accomplished remarkable achievements in its relatively short life. Founded in late 2014 in Australia, the Company acquired the power services business that we now call Aevitas and began to pursue the development of solar projects in Australia. By late 2015, the Company had created a base of development capabilities, but still had very limited project assets and decided to expand internationally with teams in the U.S. and Europe.

Last year, VivoPower's development efforts gained traction and by the end of the fiscal year 2017, we owned 93 megawatts of operating and development projects. We completed the formation of our management team and achieved a listing on Nasdaq. This year we've built on that impressive base by expanding our ownership of development projects by 1.8 gigawatts and growing our operating fleet to 93 megawatts.

The next two slides illustrate a key driver of our development model and demonstrate why we are focusing on maximizing the net present value of projects. Slide 8 illustrates the potential value that can be created in a solar project over its development life cycle. As a project successfully achieves development milestones, the value of the equity in the project typically grows as the project's risks are reduced and the project becomes attractive to investors with a lower cost of capital.

The range of values indicated by the bars on the chart tie to a study of recent transaction values of solar projects prepared by Deloitte. Based on our experience and backed up by the Deloitte study, we estimate that the equity value of our projects can be increased from a fair market value of $0.05 to $0.08 per watt during the development stage to $0.08 to $0.15 a watt once construction has commenced to $0.15 to $0.25 per watt once projects are operational.

Please note that these estimates of equity value are net of development expenses and project financing and thus represent true equity value.

Slide 9 takes these valuation estimates of a typical development project and applies that to VivoPower in a sum of the parts analysis. We have used the midpoint of the estimated equity value of developed projects to estimate a potential equity value of approximately $380 million for our 1.8 gigawatt portfolio. We have added the estimated fair market value of our equity stakes in operating projects in the United States and Australia as well as an estimate of the equity value of Aevitas.

Against this sum of the combined equity value, we have deducted the estimated development cost for the U.S. portfolio and our corporate debt and preferred shares which results in an estimated equity value of $194 million to $233 million. This represents an implied four to five times our current equity market value.

It is important to note that this estimated equity value is dependent upon the successful development of our U.S. solar portfolio which is subject to many assumptions that may ultimately differ from our current view and are subject to development risks and events that are outside our control.

Turning to the next slide, we continue to sustain a robust project pipeline from which we intend to grow our owned and operating portfolio. Our origination team is active in multiple markets not only in the United States which represents our largest market, but also Australasia, Europe and Latin America. We are actively pursuing a diverse set of projects representing over 2.3 gigawatts of solar generating capacity.

As can be seen on the right-hand side, we have successfully grown our owned and operating portfolio over the last three years based on converting our pipeline. It is unlikely that we can sustain the absolute growth rates that we have achieved in the past, but we believe that we will continue to grow both our pipeline and owned and operating portfolio in the future.

Turning to slide 11, we have a disciplined and easily-understood strategic growth plan. From a base of revenues which are generated by monetizing the successful development of projects, we intend to grow recurring revenues from both operating our projects under asset management agreements and equity ownership in operating projects. In the future, we intend to extract additional revenues from optimizing the operations of projects with new technology such as battery storage and data analytics.

As can be seen on slide 12, we believe we have an attractive proposition for investors on the basis of several key attributes. We are active in a large and growing addressable market and have an experienced management and execution team. Based on the acquisition of our U.S. development portfolio, we rank in the top five of U.S. solar developers. We operate with a strong risk management framework and are building a base of long-term cash flow, representing diversified recurring revenue streams.

Moving to the appendixes, we wish to provide some additional material about VivoPower that we believe is relevant to our story. As depicted on slide 14, we operate a global business and target a globally balanced portfolio not only to mitigate political risk, but also to reap the benefits of tremendous growth opportunities worldwide.

The United States is clearly our largest market with a pipeline of almost 1.8 gigawatts. The Australian and Asian markets are substantial with a 350-megawatt pipeline. Our European and Latin American markets are also growing representing 30 -- excuse me, 50 and 30 megawatts respectively. In these latter two markets, we are targeting significant growth to the extent that our early initiatives show progress.

The next slide highlights our senior business development team which represents a strong, experienced and capable effort. All of our team members have years of direct experience in all aspects of the solar industry, in particular with their regions of focus.

The next two slides support the two main drivers of growth in the solar power generation market. Slide 16 demonstrates the on-going rapidly declining cost of solar power which in just six years has fallen from over $200 a megawatt hour to below $50 and we see further improvement in many markets.

As this rapid compression has occurred, solar has become competitive with other sources of power generation as shown in the middle graph. This competitive position has fueled the adoption of solar power by electricity users as clearly demonstrated on the right-hand graph.

While solar power generation has become competitive, we have also seen the investment capacity by institutional investors increase significantly. Attracted to stable and predictable cash yields as well as inflation-protected returns that are not correlated to the general equity market, investors have concluded that this asset has abundant opportunities which also satisfy ESG goals. As a result, the amount of capital available has consistently grown during this last decade as shown on the chart on the right.

The next few slides summarize a few key accomplishments for the last year. The first case study on slide 18 is our successful monetization of 91 megawatts of solar projects in North Carolina in our last fiscal year. We believe that this success proves the viability of our business model.

We acquired two projects from a solar developer, completed their development and brought the projects to full operation. We secured construction financing, tax equity and a long-term institutional investor prior to commencing construction, thus locking in our profit. We deployed $13.7 million of capital to these projects and generated revenues of $25.4 million, delivering the projects on time and on budget.

The second case study on slide 19 illustrates the results of both our commercial and industrial projects origination strategy as well as a very attractive alliance agreement with ReNu Energy, a strategic investor in Australia. Under the terms of our alliance agreement, ReNu Energy will have the right of first offer to acquire solar projects originated by VivoPower in Australia below 5 megawatts in size. In addition, VivoPower is in the process of monetizing the first project with ReNu Energy, the 600 kilowatt Amaroo solar PV project, subject to customary conditions precedent.

Under the terms of the agreement, ReNu Energy will pay an alliance fee, an annual alliance fee for the initial five-year term of the agreement calculated based on the number of projects acquired from VivoPower, which may be extended by VivoPower for an additional five years. For each project acquired, ReNu Energy will also pay an upfront origination fee to VivoPower and will enter into a long-term agreement under which VivoPower will provide asset management services.

The third case study on slide 20 represents our joint venture in the United States which is at the core of our business model, as it represents a long-term partnership with an excellent development Company where we have acquired a 50% interest in 1.8 gigawatt solar projects in a diversified portfolio of 38 projects in 9 states.

We have a demonstrated track record with this developer who was the original developer for our 91 megawatts completed last year. We have complementary skillsets and both believe that we are mutually aligned to ensure the successful execution of the joint venture.

Under the terms of the joint venture, we have a modest capital commitment for which we have a pre-agreed purchase price to acquire fully-developed projects. This purchase price is significantly below the price at which we could acquire similar projects in the broader market. With this approach, we have protected our downside and preserved the opportunity to capture all the related upside.

Slide 21 clarifies the reconciliation of adjusted EBITDA to net income under IFRS financial measures. The largest adjustments include interest income and amortization of intangibles.

In closing, we strongly believe that VivoPower represents a compelling investment opportunity. Our industry has very strong tailwinds with several major trends supporting rapid deployment of solar generation, which represents a large and growing addressable market. We have created a business and financial model that will create a growing base of recurring revenues with high profitability due to our capital efficient model and diversified revenue streams.

Underpinning this outlook are the execution skills of our highly experienced management team. We see a bright future for our activities and we are focused on execution. Overall, we are committed to capturing the exciting trends in our industry and to delivering value for our shareholders. The entire industry is evolving rapidly and we have conviction that VivoPower and our shareholders will benefit from these trends.

I would now like to open the discussion to questions from participants.

(Operator Instructions)

Vishal Shah from Deutsche Bank.

This is Christine on the line for Vishal.

My first question is, can you talk a little bit about how you plan to grow your development pipeline?

Yes, thank you, Christine. Thanks for the question. We have a dedicated origination team in three regions, in the U.S., in Australia, and in Europe. Our European team is also looking at Latin America. So they are actively looking at development opportunities.

The strategy that we take is based upon the success of our U.S. development portfolio where we identify and try to partner with local developers. We have lots of evidence that proves that successful development around the world is based on local knowledge, local relationships and really boots on the ground. We find excellent partners that have those attributes and we can supplement their skills with not only our global project engineering, construction management, project finance experience but also some additional capital to bring those projects to a developed and more valuable stage.

How does a corporate tax reform impact the financing of renewable projects and which markets do you think are currently driving demand for those projects?

Sure. Well, first of all, being a global Company, we are not dependent on any one market and we think that's an important risk diversification measure. We've seen regulatory changes, tax changes both good and bad throughout the world over many years and the solar market adapts to those changes.

Currently, the U.S. is clearly in the bull's eye of tax reform. You can't look at a Web Site without seeing some new news or some Twitter about that. We have looked at the range of potential outcomes based upon news from Washington. Because in the U.S. solar projects depend in part on the investment tax credit, it is a benefit that is not affected by the tax rate itself. So when we look at different tax rates that might occur, we do not see a material disadvantage to solar projects at all. We've also seen that that investment tax credit appears to be supported by both sides of Congress and therefore, we do not believe that the current proposals will negatively impact solar development in the United States. But that is definitely a topic to follow.

And then just the second part of the question, about which markets are driving the demand for your projects.

Well demand is global, in developed markets as well as emerging markets. We are focused on developed markets and certainly the United States is the largest -- represents the largest growth opportunity for us. We are also very excited about select regions in Europe and in Australia, both of which we have some very exciting initiatives. And then we are opportunistically following developments in Latin America, particularly Brazil and Argentina.

But overall, the US is our largest market with the greatest growth potential at the moment.

Colin Rusch from Oppenheimer.

Can you talk a little bit about the targeted return on capital as you look at these investments? What are you expecting to see in terms of return on equity, let's just put it on a three-year time horizon?

Thinking about return on equity is a two-pronged analysis. It's not only what is the potential for monetizing projects through a development profit, but it's also managing the amount of capital that is deployed in any one project.

And so we are very careful to develop projects that are profitable and that involves shrewd development activities, wise procurement, seeking lower cost of capital, but we also carefully manage the amount of capital we've invested, so we try to recycle our capital quickly.

Overall, we target a return on our equity in any one project of 1.5 to 2.5 times, and we expect to recycle our capital at least once a year if not more frequently. So that would lead to an average return on equity of 100% on project development. Now, that does not include the corporate overhead and other costs, but since but since our business is very much driven by the development of projects and monetizing development, that's how we start with our financial metrics.

And then how should we think about how big the portfolio needs to grow to reach EBITDA breakeven on an annualized basis? Obviously, you're talking about some cost reduction on overhead and optimizing activities of the organization but I want to think about kind of where you need to get to consistently generate cash on a quarterly basis.

Yes. Well, the development business is dependent in part on timelines that we can't control. And when you combine that with the size of our Company which is still relatively small, any one project can have an outsize impact on profitability.

Now, you asked about being breakeven. Last year, we generated $18.9 million of EBITDA. So, for the 12 months ended March 31, 2017, we were very profitable and on an EBITDA at an EPS basis.

For the 6 months ended September, we have not been profitable on EBITDA basis because we were investing our development activities. So, when you think about EBITDA profitability over a longer period of time, we believe that the value of our U.S. development portfolio will contribute significant EBITDA profits to VivoPower.

We cannot predict the exact quarter in which those profits would be generated, but we expect that over the next two to three years we will be generating significant EBITDA profits as those projects reach, pass certain development milestones.

Jim McIlree from Chardan Capital.

On the JV with ISS, I'm trying to reconcile what looks to be a pretty diverse geographic development pipeline with your comments in response to an earlier question about finding partners with boots on the ground. I'm trying to figure out how that would work with the ISS portfolio.

ISS is a perfect example of a partnership with a strong development team with boots on the ground. So, ISS was the original developer of the two projects that we completed in North Carolina. So, we have a proven track record of success with ISS or Innovative Solar.

Over the past five years, they have grown from North Carolina to having a very strong land identification and procurement organization throughout the United States. Our relationship with ISS blossomed and we decided to create this joint venture for the 1.8 gigawatts of solar projects.

They allowed us the opportunity to select that portfolio. So, we were able to go through their entire portfolio which represents many multiples of 1.8 gigawatts and select, construct a portfolio that we thought provided the best risk adjusted returns for VivoPower.

So, it's diversified, we're in nine states with 38 projects. And, again, we chose those projects because of many factors but in the parts of the country with the highest sun radiance, with projects that we believe were the most advanced and were the most likely to be developed. And then finally, which gave us enough diversity so that if any one region had a hiccup, it wouldn't have an outsized impact on the portfolio as a whole.

So, that entire portfolio is one developer's footprint. We are looking for similar developers in the other regions in the market in which we operate including Europe, Australia, Asia and Latin America.

I just want to make sure that I understand this. So, in the North Carolina projects, those developers, they had strong ties with the community or they created strong ties with the community and indeed, that team is doing the same thing in these what did you say nine states?

Yes, that's right.

Is that already done or that's in process or that's still to be started up or is that --?

No. That's great. No. So, they have been developing that portfolio for about five years, so their process is to identify attractive regions and that is on the basis of the amount of sun, regulatory considerations, demand for solar power.

They then drill down into local markets where they identify land owners who have suitable sites and the site selection is critical because not only do you want to have a land profile that is attractive for a solar project but you also need to be near electricity infrastructure, substations and transmission and you want to be in regions that are receptive to solar power.

So, they have a very detailed and organized screening process. They then have outreached to land owners and they're very good at forming good, strong relationships with farmers and other land owners from whom they lease the land under long-term leases to build solar projects.

So, this portfolio, all of that is done. So, the land is under control. We have exclusive rights either under options or under leases for those properties, and that was done when we concluded the joint venture. Since then, we have matured the portfolio for six months and we have entered into a wide variety of permitting and regulatory efforts to bring those projects to the point where they can be shovel-ready and ready for construction.

So, that whole process is ongoing. It's been a very active work for us working together with ISS.

And then on that project or on that portfolio, can you -- I know it's difficult -- but can you kind of ballpark what you think would be developed or completed, let's say in 2018, 2019, 2020, and I'm not trying to pin you down with exact numbers; I'm just trying to get a feel for are we looking for most of this to happen in 2020 or are we going to see like 20% per year over the next five years? And, again, I'm just trying to get ballpark-ish numbers.

No. This is a great question. It's a little bit like of a distribution chart. So, we expect that the entire portfolio will be developed over three to four years. So, that takes us into 2020, 2021. However, there are already projects that we believe will go into construction within the next six months, maybe three months, maybe six months.

And so, they will be developed in 2018, maybe completed by 2019. That represents approximately 20% of the portfolio as it currently stands. I would stay that some of the development milestones such as getting permission from a local utility to interconnect into the grid is subject to timelines that are not in our control.

Sometimes those timelines can accelerate and we've seen that and sometimes those timelines can be delayed and we've seen that. So, there are certainly some adjustments to timing that will occur but we think that 20% to 25% of the portfolio will start to reach construction over the next 6 to 12 months, then we'll see a much larger ramp up for the bulk of the portfolio over the following year, year and a half and then as the portfolio completes there'll be some trailing projects that for whatever reason have taken longer.

But I will say it's very possible that projects might not reach development at all. We certainly factored in the probability that some projects may need to be abandoned for whatever reason and that is another reason why we like both the size and the diversity of the portfolio to accommodate potential downside scenarios on any one or two projects.

If I think of this as three tranches of three, let's call it 18-month tranches, get about 20% in the first tranche, maybe 50%, 60% in the next and then the remainder in the third. Does that ballpark it enough?

Yes, that's a great way to think about it.

And just last question, the capital commitment, do you have a firm capital commitment and do they have a right to call capital from you or you from them or how does that work in this project?

Yes. Absolutely. So, a little bit like we broke it down into tranches. There are phases to the development and it ties to that chart that I had in the middle of the presentation that had a buildup in value over time.

So, there's a development phase. There's a construction phase and there are operations. The development phase requires the least amount of capital and from that perspective we are fully funded. We have committed to provide that capital. It is not fully funded yet; it's dependent upon certain milestones. But that capital is fully funded.

Once projects have been developed, there's going to be a ramp in capital needs. We are currently in the market as I mentioned in the presentation seeking co-development capital. So, that is being sized, that amount of capital is being sized to fund that construction period.

But it's important to note that the projects at that point in time will have value that exceeds the amount of capital that we've invested, and there's a ready market available for sale of those projects at that time. So, regardless of whether we're successful raising this co-development capital, which we are confident that we will be able to do that, but even if we don't, those projects will have value that would allow us to generate profits.

Our goal is to have a development partner to provide co-development capital which will allow us to take all those projects through construction to operations, where they would have another value uplift once the projects have been completed. So, each, and at that point there would need to be permanent capital for which there is an abundance in the current market as I mentioned in the presentation, so not only senior project finance debt but also long-term equity capital for operating projects.

So, we see that from a funding and from a valuation perspective, we see the development of this portfolio in those three phases, each of which have a slightly different capital need but also have a step up in value over time, so development to construction and operations.

And I would say just so I was thinking of it, the two projects that we completed and monetized last year were monetized at a value to our equity greater than the numbers that we showed on page 8. So, we have, again, a demonstrated track record of hitting these kinds of numbers that we're showing for the solar development life cycle.

(Operator Instructions)

Philip Shen from Roth Capital Partners.

It sounds like you're going through a strategic shift as you mentioned early in your prepared remarks. Your model historically, I believe, has been one of kind of build and transfer. What do you expect your new business model to look like and can you contrast that with what you've been doing in the past.

Yes.

In other words, what have you been doing historically that you expect to stop doing going forward and do you expect to sell, like monetize projects on a regular basis or perhaps own the vast majority of the megawatts or do you think you will do both with a partial sale?

And then on the frontend with the developments, in the past we've talked about how you guys find local developers that have that local knowledge and you effectively try to match them with institutional capital, I mean, is that model still there or do you expect with your emphasis of developments to actually be doing more of the primary development yourself?

I might take about five hours to answer that. No. The shift in strategy is in our mind is a very natural shift reflecting market conditions and in particular, the needs of our clients. We have two clients. One client is some that wants a solar power project to produce electricity. Another client is a long-term institutional investor that wants to invest in a developed project.

The first client is looking for a developer. The second client is looking for someone that can develop projects that are of institutional quality.

Our previous model as you correctly stated was build, transfer, operate, which positioned us somewhat as an intermediary between the development phase and the ultimate financing phase. And it became challenging for us to communicate a compelling and clear business plan.

We were evolving to what we're now communicating over the last six months anyway, so this refreshed strategic description is really something that has already occurred with Vivo. So, we identified the opportunity in the market to be more of a developer, like the media business. You want to be a content provider or a content distributor.

So, we believe that there's enormous value in the development of solar projects. And then, after those projects are fully developed and de-risked, refinancing the long-term equity with institutional partners for whom we will do asset management. So, we see that as a develop, own and operate model although the own will include capital partners. It's very akin to a real estate development business that does the same type of phased operations. Did that answer your question, Phil?

Absolutely, in parts. And let me follow up with in terms of the development side of the business with that partnership and JV with ISS.

Yes.

That was part of that prior model. Is the future one where you literally have your own boots on the ground in all the pockets throughout the U.S. or in parts of the world? Do you have the right people in the right locations at all times?

Yes.

There was a benefit to the prior model in the sense that you could capitalize on a local expert that didn't have the ability to bring that project to the institutional caliber of projects, but then you could refine them and bring that to market. So, are you not doing that going forward?

Yes. No, I understand. No. We are doing that. I think what I would say the partnership with Innovative Solar really represents an effort to become more involved with development.

I think the prior model was more focused on acquiring projects that were developed from developers, from developed projects. Today, we're certainly looking for partnerships with local development teams, but we're looking for developers that need support from the sort of global procurement, engineering design and financing capabilities that we have.

So, it's really going to an early stage development activity, still partnering with local partners who have key valuable local relationships, but we're really going I think further down downstream into the value-added part of development.

The key is that we believe that we can develop projects with a lower cost than we can by acquiring developed projects in the market and that's the distinction that we're trying to draw.

Shifting gears to your existing portfolio, 1.9 gigs of which the vast majority is in the U.S., can you quantify the percentage of that 1.8 gigs in the U.S. that is economic at current Utility Scale Module ESPs.

So, if you're adding your $0.42 to $0.45 module ESPs utility scale in the U.S., if we kind of end up there maybe $0.50 with 30% tariff, how much of that can actually get done you think?

I mean, first of all, the development not only the projects that we own and are developing but also our pipeline of projects won't be in a position to be constructed as we talked about earlier, the earliest, a year from now but really more on sort of a weighted average basis two to three years from now.

So, over that period of time, we have through our relationships with equipment suppliers and EPC firms, we have clear visibility in the continued cost decline on not only panel and balances system and labor cost. So, we definitely see a temporary uplift in panel prices as a result of Suniva and other sort of supply demand imbalances.

But we foresee all-in project cost to again follow the cost decline curve so that we see that projects will remain profitable at the point that we need to lock in equipment supply and financing.

It sounds like at some point they're econo0mic and we just have to wait for the right opportunity which could be a couple of years from now depending on the specific project.

Yes, that is right, Philip. And we're also benefited because we are procuring offtake arrangements with a wide variety of counterparties and we have the ability to negotiate those contracts against our expected project cost to ensure that we've got profitable projects to complete.

And we have no further questions at this time.

I'd like to turn it back to you for any closing remarks.

Well, thank you very much. Appreciate everyone's attendance. We are open for follow-up questions if people have any we can be contacted through our Web Site. I welcome additional questions from interested parties.

Thank you for your support. And we look forward to building a successful Company together.

And that concludes our call for today. Thank you for your participation. You may now disconnect.