Frank Curzio 00:00

Alex Cuppage, CIO of Vivo, thank you so much for joining us today. There’s a lot going on with your stock, and you know we just want to get some clarity for a lot of investors that we’re in. I’m in personally too, so I really appreciate you taking the time to come on the podcast.

Alex Cuppage 00:12

Yeah, thanks for the opportunity, Frank. Great to see you again.

Frank Curzio 00:15

Okay, so let’s start off. You published your annual report on Tuesday. This was a delayed annual report. You were supposed to report a couple months ago, I believe, and when everybody read it, the stock got hit pretty hard. I have to tell you, after I read it, I was surprised as well, since it showed a lot of— it showed a massive loss of $50 million. You said they canceled the contract with a tenant that you apparently announced a few months ago and said you were going to provide the actual terms to investors. It looked like it had balance sheet concerns. And when I spoke to you, I noticed that it was a lot different. This is something that was, you know, annual results, it got delayed a few times, and it got published. But it surprised a lot of people. It actually surprised them to the point where it scared them into being that, I believe, it may be this is a selling company or not, right? Which was never on the table. You know, let’s start with the contract. Because— and I also want to say that you did— I did speak to you about 10 days ago at our one conference.

Frank Curzio 01:08

It was a positive update. A lot of my investors actually added to the position then. This was before you came out with this, you know, the annual results, and the stock got hit pretty hard. So let’s start with, I guess, the contract. Because, you know, I think a lot of people were wondering. You did come out and say, “Hey, you know what, this contract is secure, and we’re going to give you the details.” And now you’re seeing it pull back. Talk a little about that, because there’s a lot of moving parts in this. I think people need to understand to see, hey, should we add more? Is this a great buying opportunity? Or, you know, should they have the right to be nervous here?

Alex Cuppage 01:37

Yeah, look, it’s a good place to start, Frank. And I would say, look, our focus here is on maximizing the long-term equity value of the assets and the company, and also maximizing the free cash flow over the next 10 to 20 years. We have a— I would start with saying we have an incredibly rare asset. And what I mean by that, Frank, is this is an operational power asset. So what you’re seeing in a lot of data center deals today is it’s raw land, and you’re getting power to that land for the first time. Which means securing a power connection agreement, securing permitting, design and construction, but also paying a huge amount of money up front and then actually bringing that infrastructure, that power infrastructure, into the site. What’s important to differentiate here is, as I said, it’s an operational asset. It’s currently in occupation as a data center, which we are upgrading to an AI data center, but it has the power there.

Alex Cuppage 02:43

In addition, it’s also generating positive cash flow for Vivo, and I’m sure today we’ll talk about the cash flow position going forward. But what that does is that gives us a huge amount of optionality, because we’re actually generating operationally positive cash flow from this asset. And our job is to make sure that we find the best tenant that will generate the highest return for the company. And that means that the covenant strength of that tenant needs to be as strong, if not stronger, in year 5 as in year 1, and as year 10 as in year 5, and year 15 as in year 10. That’s really difficult at the moment, right? And we’ve, you know, we walked away from one very advanced discussion because rents were starting to climb, and we were getting offers in excess of what we were negotiating.

Frank Curzio 03:41

What month was that first one?

Alex Cuppage 03:43

That was— we walked away from that in August.

Frank Curzio 03:47

Okay.

Alex Cuppage 03:49

You know, we were getting right down to the wire on that one. So that was kind of, you know, that had been kind of progressed through the start of the summer, through into August. And then we canceled negotiations on another contract, which was even more further advanced in September. And look, we’re— first of all, we’re very mindful of the share price, right? And the need that people are expecting an announcement of a tenant. But just announcing a tenant, and there’s lots of evidence in this market, does not mean that you create both short-term gains and long-term gains. And, you know, I’ll take the brunt for this, Frank. I was the person in the room banging the table saying, “This is not the right deal for the company.” And I truly believe that. And the way the credit markets have played out, and the neocloud market has played out, we were correct to walk away from that opportunity.

Frank Curzio 04:48

So let me stop you there, because that’s a big difference. Because people really don’t know what’s going on in this industry right now. They just fear everything. They think all the contracts could be BS. They’re going to see, you know, they’re seeing some of the biggest companies that are supposed to IPO pushing out their IPOs. We have one that actually, I think two of them, one in Australia, supposed to be one of the biggest that they pushed it out and canceled it. Another one, I think it was NSCAL. You know, you’re seeing Cerebras get hit, right? You’re seeing just, you know, a lot of these names getting hit right now. So did you walk away, or was this canceled? And what made you walk away? Because can you explain the conditions in between just a few months ago to now? Because if you’re walking away and telling everyone and said, “We walked away because we’re going to get better terms, and this is what we did,” compared to someone canceling that contract, I mean, I think that’s a big deal.

Frank Curzio 05:34

It shows that you’re in control compared to saying, “Wow, we thought this had this done, and somebody else canceled.” I don’t know how much you could say about that, but can you explain that part of it?

Alex Cuppage 05:41

Yeah, we canceled the negotiations. Look, it was a well-structured deal with an intelligent, good counterpart. But you have to look at the short term, the medium term, and the long term here. And what I saw coming down the road is exactly what the credit markets have played out over the last three weeks. So just to give you an example, right? So, you know, in order— like, the key thing here is that the tenant has to be financeable. It has to be financeable on the development phase, and it has to be financeable on the stabilized phase, the income-producing phase of the lease. And what happened in the credit markets was you would be typically structuring a deal at, say, 80% loan to cost. And what I saw was actually a negative reaction that was coming to the younger AI companies and the neoclouds, where their cost of financing was going to significantly increase, and your loan to cost— so the amount of debt that you can get versus the amount of equity you have to put in— was going to change dramatically.

Alex Cuppage 06:53

And what we’ve seen over the last three to four weeks is, you know, your loan to cost on if you can actually get it financed has kind of come down from 80% to kind of 60 to 70. And your cost of debt for, you know, an immature AI company or a neocloud, even if they have an investment-grade off-taker within that structure, it’s jumped from 8, 9% to somewhere between 12 to 14% cost of funds.

Frank Curzio 07:24

So explain that in terms of long term, of what that means in terms of maybe, you know, EBITDA generation. You know, and simplify it for people who like to understand, because it’s massive when you talk about those terms. And obviously, I think, you know, if I was to explain this, and from what I’ve seen with this market, is I remember three months ago, four months ago, five months ago, six months ago, when you announced a contract, neocloud companies, these stocks took off tremendously. And then you saw over the last three, four weeks, when they announced these contracts, they actually went up and then got annihilated because of the funding, right? So if you’re looking at Cerebras, NSCAL, and watching these companies absolutely crash, and those are the ones you maybe signed deals with, now the market changed where we want to see a little bit more financing before you really announce these deals. But I could see why you wanted to change. I don’t know if I’m explaining that right, but I understand. But, you know, the conditions, can you be more specific of now by pulling out of that deal?

Frank Curzio 08:14

It seems like, you know, if you’re looking at a two-year, three-year, five-year time horizon, explain what that means in terms of maybe EBITDA to you compared to if you kept the existing deal.

Alex Cuppage 08:24

Yeah, well, maybe I’ll unpack it in a bit of a bigger picture and kind of finish on what’s the true impact to a developer or a power channel provider like Vivo. So the first aspect within a neocloud is they take a long-term lease. So they take a 10 to 15-year lease, and then they’re selling that off-take to an investment-grade covenant or to an AI lab who might not be rated at all for four to six years. So you’ve got a mismatch, right? So if you think of WeWork, WeWork took long leases on office buildings, and they sold that space short. Okay? So it’s incredibly risky. So what you have to look towards to the guys is you need to put down an extra two to three years cash in deposit in case you default, or, you know, you need to get a guarantee from, you know, your creditworthy, your investment-grade off-taker, your hyperscaler, or your Nvidia, etc. So that’s what’s happening.

Alex Cuppage 09:27

And the markets— and you saw this, right? I think, you know, I first read about it on one of your updates— was Nvidia’s credit default swaps just kind of, you know, shot up. You saw Intel, you know, shooting up, and it’s, you know, got a significant stake by the U.S. government in it as well. So these are two companies that you think are rock solid, right? And that’s how much the credit markets have been impacted. But even before that, a lot of these neoclouds had challenges that they needed to overcome to be funded. And you had to get that credit enhancement. And that’s one of the more difficult things in terms of actually structuring a lease. You fast forward to today, and, you know, we predicted that this was going to happen, and that’s why we ended the conversations. And within, you know, 10 to 14 days later, the credit markets just, you know, completely deteriorated. And so if we had done that lease, our financing costs would have jumped into the low teens.

Alex Cuppage 10:32

So suddenly, you know, your free cash flow that you were projecting out based on the financing terms that we were looking at would have halved at best.

Frank Curzio 10:41

Wow, okay.

Alex Cuppage 10:42

Right? And because— and also what’s really important to understand here is the cap rate. So the value of the asset with that lease, you know, that would have jumped from 7 to 8% to, you know, I did some work on it over the weekend. It was like 9.5 to 10.5%. So that brings your net equity value to the company on this asset in Moirana from 500 million down to low 300 million. But if you actually look at— if you’re getting smashed because you’re carrying this double-digit interest rate into stabilized financing, you know, you could, instead of sitting there on 35 to 45 million of free cash, you’re suddenly closer to 17 to 20. You know, and if people still have concerns around the neocloud or the immature AI company business model, you’re not getting 20 times earnings value on your stock price. You’re getting 10. So suddenly you’ve got a net asset value that’s depressed at 300 odd, and, you know, the market might only reward you for 170 to 200 million.

Alex Cuppage 11:48

So I believe that we made the right call, Frank, on this, and I can talk a little bit more about where we think we’re going, or we can delve a bit more into the neocloud kind of.

Frank Curzio 11:59

I mean, I love that, because what you’re saying is going to influence a lot of neocloud companies, and just the deals that we’ll currently sign is pretty incredible. I mean, what you’re saying is a lot of those deals might not, you know, come to fruition, which, you know, I get we know the cost, but yeah.

Alex Cuppage 12:12

Yeah, well, just, yeah, just to kind of build on that point, and this was before the credit markets deteriorated. Our real estate advisors, who are a global company, you know, they informed us of six different leases, both in the U.S. and in Europe, with what I would call AI companies and neoclouds, where they’d signed a lease with the developer, and six months later, they still hadn’t been able to get that financed. So that was the challenge earlier this year. It’s an even bigger challenge now. So again, look, I’m a personal shareholder, right? So I’m feeling this every single day. But it was the right decision for both the short term and the long term of the company.

Frank Curzio 12:59

So now I think the question is, okay, you know, people might be worried, are you going to get a contract in place? I mean, you own this Powell, right? And we can go over the valuation of the asset in a minute, right? We have plenty of comparisons. But you’re talking about the trouble of financing you had in that release. Again, that was, you know, delayed when it was supposed to come out a couple months ago, where you’re saying it’s $400 million to build this out. So what about the financing for you? How has that come along when announcing the contract? And are you— you say you’re seeing much favorable terms. Is that just one? Is that three clients? Is that four clients? Five clients? Can you just say that? Because I think that’s going to leave a lot of concerns with investors saying, “Hey, we didn’t have this contract, but we saw massive demand for this,” which, you know, everybody could say there’s massive demand, right? We know the hyperscalers, how much power they need. We saw SpaceX, what is it, 1.7 gigawatts of power generating $40 billion.

Frank Curzio 13:46

But Elon Musk said, “We’re going to scale this up to 25 gigawatts by end of 2027,” which I think is insane. But it shows a dire need just for SpaceX and everyone else that how much they need the power that you actually have. So I think people want to know, you know, the timing. I know it could go a little bit further out, but, you know, how are those negotiations? And is it hard for you to finance? Because, you know, again, your balance sheet looks a lot better, I think, than what it was portrayed, because you’re talking about 12 months out, and we’ll get to that part in a minute. But talk about, like, the contract, how many people you have, and whatever you could say on that, because that’s what people want to know. Hey, is the contract still, like, up? Are we still going to get this? If not, obviously, should we just wait for you to announce it and sell the stock and wait on that? And what about the financing that you’re talking about is so tough? Is it tough for you? Is it a different ball game? What’s going on there?

Alex Cuppage 14:30

Yeah. So a couple of things to address here. I’d start with saying, you know, to reiterate, we’re in a really fortunate position. If this was just raw land with no income, you know, we would probably have been forced into taking one of those leases, right, in order to drive income. The great position that we’re in is that this is generating positive cash flow for the company at the bottom line. And that cash, you know, with that current lease that we have sitting on the asset runs to June. And even after that, we have demand response revenue where we sell back to the grid that gives us positive cash flow as well. So we’re sitting in a really fortunate position. The second part of being fortunate is it’s operational, right? So we don’t have that upfront cost to bring the power to the site. What that does is that gives us real optionality as a business to choose the right tenant. But really importantly, with what, you know, your listeners will be focused on is everyone see there’s absolute immense demand for power, right?

Alex Cuppage 15:35

Everyone knows that. Everyone knows that, excuse me, compute demand is increasing month by month. But these tenants, they’re looking at hundreds of deals a month, but the ones they only really laser-focused on are the ones that actually have power and where you can deliver the end asset as soon as possible. Because of our exist, because of our assets, and because of the power being connected, we can deliver this asset inside 10 to 12 months, which really attracts some of the best kind of covenant-strength tenants today. So we’re engaged with five parties.

Frank Curzio 16:16

Five, okay.

Alex Cuppage 16:17

On this asset.

Frank Curzio 16:18

All five of those, I don’t know if you could say, were better terms than you originally had?

Alex Cuppage 16:24

Five of those are. The sixth isn’t. Sorry, there’s also a sixth that has come in. The sixth isn’t, but it’s with an undoubted covenant strength, so with a hyperscaler. But of the five, you know, we are in and around everything that we’ve been looking at. And look, when we bought this asset earlier this year, I was underwriting it, you know, at a rent of a net rent to us, right? So an EBITDA figure to us of about 1.2, 1.3 million a megawatt. Today, we’re closer to 1.6 to 1.7.

Frank Curzio 16:57

Okay.

Alex Cuppage 16:57

So, and that is a number of factors that have driven that. That is, one, the demand for compute. It’s also the fact that actually these assets are not getting delivered for a variety of reasons in the U.S. So you have all the U.S. companies looking to Europe. It’s also driven by the fact that, you know, if you asked me in April, May this year, any major strong covenant would have been saying, “I want 100 megawatts plus.” Now, everyone is moving to inference, or the sovereign AI companies are looking to put nodes overseas. Everyone’s kind of looking to smaller data centers, right? So if you look at Google and Meta, they have products for sub-25 megawatts, sub-50 megawatts, and they’ve got a product of 50 megawatts plus. So this becomes this. So the way to look at it now today versus when we bought this asset, we have a much broader universe of people we can target. The other aspect that makes this asset truly attractive, that I haven’t mentioned so far, is its power input cost is incredibly low.

Alex Cuppage 18:04

So it’s circa $0.05 kilowatt hour. So it’s in an electricity area in Norway called N04, which is some of the cheapest power in Europe, if not some of the cheapest power in the world. And that really matters to end users. So you’ve seen all the noise in the market about what is the true unit economics of an AI data center? What is the value of it of an end token? No one really knows that today. And, you know, I was speaking to one AI operator about two weeks ago, and he said he saw in one data center, you know, he used to have a rule of thumb that the electricity cost was about 20% of the opex. It had shot to 80%, right?

Frank Curzio 18:47

Wow.

Alex Cuppage 18:48

So suddenly, you know, and that was just the sheer demand for compute. People were just taking over the last few years, anything they could get their hands on. Now, with the open-source models, people are worried about that end cost, right? They’re looking at, you know, what is the cost of delivering this token? So this is, going back to it, this is some of the cheapest power in the world, and therefore incredibly attractive to a number of parties. So of those five parties, you know, one, you know, we exchanged actually the NDA the other day with directly with a hyperscaler. You know, that hyperscaler said, “We’re not going to go direct, but we’re going to give you somebody that we want to operate that data center to preferred partner, and, you know, they will stand behind the lease,” right? That wouldn’t have happened six months ago. Not a chance. Suddenly that’s happened, right? And it’s more optionality. And that only happened in the last couple of days. But of the five, one, as I said, just happened.

Alex Cuppage 19:46

The other four, we’ve been engaged with. And these are what I would call far stronger covenants than we’ve kind of talked about already on this show today. And why is that important? Well, first of all, they’ll take a longer-term lease. So you’re looking more likely at 15 to 20 years. The second aspect of this is, you know, their covenant strength, whether it’s direct kind of sovereigns on the cap table or backed by sovereigns or off-takers being sovereigns or major enterprises, you are going to be able to get this deal financed. And I cannot reiterate, the single biggest challenge to the development of the rollout of AI today is financing these assets. So the tenants that we’re in negotiations with, we can get it financed. We can get it financed at an appropriate loan to cost. We can get it financed at single-digit total cost of funds.

Alex Cuppage 20:49

And then most importantly, if I go back to what I talked about and why we walked away from the other deal, the cap rate on this is going to be substantially lower than you would find on a neocloud. And let me just play that through what that means, right, from the bottom line. So that means that you’re, based on the current rental levels we’re discussing, the net equity value to Vivo is going to be closer to 500 million rather than 300 million. Incredibly important, right? Could be closer to 600 million. We just don’t know, right? But let’s call it 500 million. That means then when you come to stabilize finance this asset when it’s income-producing, you’re going to actually be able to finance it on way better terms. So a lower cost of funds, you’re going to be able to put it out on long-term financing, not short-term financing, which gives you stability to the company. And we’re also going to be able to release cash out of that. So Vivo Power’s business model is to own these cash flows in perpetuity.

Alex Cuppage 21:51

We don’t want to sell. And every time we refinance an asset, we want to be able to generate $1.50 to $2 of released equity for every dollar of development equity we put into the business. What is the impact of that of shareholders? That means that we recycle those $2 into the next deal, right? Which means that we don’t have to go back to the market to keep raising capital. So that cap rate is incredibly important. If that cap rate is 9.5 to 10.5, you’re not refinancing and you’re not releasing any equity, and you’re carrying a double-digit interest rate going forward. The covenants that we are now speaking to are the occupiers and their covenant strength will allow us to execute on our business plan and deliver long-term value.

Frank Curzio 22:37

So this means you’re talking to the people, the biggest lenders, and also, you know, every type of scales or sovereign, you know, pretty much at the same time, right? And it seems like you’re in, you know, which is good, because I think what shareholders want to see is, hey, it’s okay that if you backed away from it, it wasn’t this, hey, everything was in this one basket with this client, and now they’re not there anymore. I think people are like, wow, they didn’t have a contract in place. But if you pulled in and said, hey, we’re doing this for better terms, it’s a much different story than I think was outlined in that report.

Alex Cuppage 23:05

Yeah, yeah. Look, it’s, you know, the wording wasn’t accurate in the detail. And, you know, look, there are also confidential, complex negotiations, right? So it’s always difficult to kind of communicate. But I go back to it. We were in a fortunate position that we could walk away from a contract that would have made the company money, but would not have maximized shareholder value. The position we’re in, because we are, you know, operationally net cash flow positive, allowed us to walk away from that contract. And, you know, we are working night and day now to get that contract signed as soon as possible. The other really great element of the demand for power today is that the people we’re talking to are saying, hey, we need this done by the first half of 2027, which is impossible, right? You can’t deliver the power. But they have hundreds of megawatts of demand for the first half of 2027. So you also have a willing partner on the other side.

Alex Cuppage 24:06

Doesn’t mean the negotiations are easy. They shouldn’t be. But it means that you’ve got two willing parties. We wanting to lease the asset to the best possible group, and they want to get access to some of the cheapest power in the world and long-term contracts.

Frank Curzio 24:20

Talk about the valuation when I mentioned before for Boerana, where, you know, you were saying this asset, you know, I think you said it, put it in terms of how much is being paid per megawatt by some of these companies right now, because you have 40 ready to go, right? In a year, it could probably be built, you know, 11, 12 months that you stated. And then, you know, you have another 40 that can come online in whatever, maybe, you know, another year from there, a year and a half, which is great. That’s 80. But let’s start with the 40. How much are you seeing these megawatts go for for competitors for something similar to what you’re offering? Because, you know, to put a value, we need to put a valuation on it, because right now you’re trading at a $60 million, I believe, market cap, right? Which is insane, right? If everything’s, you know, if you really own these assets and people believe that with these assets and you have this massive demand where you’re in charge of negotiating this contract, it’s a much different story than I think what people read from that, you know, a document that is a couple months old, but they just got released, which is, you know, the yearly, you know, your yearly update.

Frank Curzio 25:18

But talk about how much is, how much have you seen these megawatts valued for, you know, to fulfill that? How much are they, are hyperscalers paying for this?

Alex Cuppage 25:28

Yeah, so look, I go back to when we underwrote this asset, I was probably at 1.2 to 1.3 million a megawatt in rent per year.

Frank Curzio 25:38

Okay.

Alex Cuppage 25:39

The market is now, so if you look at Bitdeer and, you know, not publicly known, so we’re guessing it’s Anthropic is the off-taker, they signed a deal at, you know, close to 2 million a megawatt. To put that into context, that puts Norway, sorry, that was also a Norwegian deal. That puts Norway on a par with London, Dublin, Paris, Berlin, Frankfurt, et cetera, right? So you’re, you know, and so we’ve seen significant rental increases in Norway, because I think people are looking at Norway going, actually, for AI workloads, this is one of the best environments. And I’m not talking just about the cold weather, right? I’m talking about the attitude of the sovereign to developing this infrastructure. So you’re able to develop it within, you know, one to two years in terms of lead time of looking for your permits to putting a shovel in the ground. And you’ve got some of the cheapest power in the world. And in addition, like my personal view is Norway has the most sophisticated electricity grid in the world.

Alex Cuppage 26:42

It’s all hydro. It was developed after World War II. And I think I was given a stat by a local player during the summer where they said that the total downtime since 1956 has been in aggregate three hours. So incredibly attractive. And you’re putting these data centers away from populated areas, right? In small towns that need to generate revenue. So therefore, they’re being welcome to come in. So I think the world has started to see that countries like Norway and Finland, they’re super attractive to developing these assets, which again, just drives tenant demand and has also seen the increase in rents that we’re seeing. To go back now to answer your question on the capital value. So, you know, if we look at what we bought the asset today for, right? Like we’re generating on the current lease, you know, circa quarter, 175 grand per megawatt. You know, we’re kind of, you know, where we are on the offers for the asset today, we’re at 1.6 million a megawatt.

Alex Cuppage 27:47

You’re taking an asset that we purchased for 40 million, and you’re driving up to 500 million of net equity after debt to the company’s balance sheet. So you get a 10X increase over the next 12 to 13 months.

Frank Curzio 28:03

A 10X increase. So basically, you’re sitting, if you do the math, and overall, even with the 80, you’re talking about something around a billion dollars in assets. I mean, it could be anywhere from a million to 1.2, around there.

Alex Cuppage 28:14

Like, look, if, look, depending on the cap rate, right? But if we look at a cap rate of 7.5 to 8.5, you’re looking at a gross asset value here of north of 800 million. If you manage, you know, if it’s a sovereign tenant and you get investment grade on that, you could be looking at a 5.5 to 6.5 cap rate, which put the gross asset value of this north of a billion dollars.

Frank Curzio 28:38

And trading, and again, that’s, you could say, okay, it’s a 60 million dollar market cap, but of course, that includes the 400 million financing based on the terms, but you’re looking at an asset that’s significantly valued more than what it’s going to be billed for.

Alex Cuppage 28:51

Yeah, your net equity, Frank, will be between 450 and 650 under those scenarios.

Frank Curzio 28:57

Under those scenarios. Let’s talk about, let’s, which is incredible, right? So let’s talk about, you know, the balance sheet a little bit, because I think people got a little nervous. They saw, okay, a $50 million loss. Again, you’re putting, this is you billing the whole entire company, and I have to tell you, I think you really need to hire someone when it comes to the marketing part of this part, you know, just to get out a press release. Because even when I saw that press release, I was like, you know, what’s going on here? And it’s not a reflection of the company, because you’re just reporting your first quarter results. And people might say, how you can first quarter when you just reported, you know, Q4 and the rest of it, it’s because it’s been delayed because of, you know, again, it’s not as easy going through, I would guess, the auditing process through, you know, the UK, whatever it is, you know, European compared to the US and stuff. But explain that part, because it looks like that is this a solvency concern?

Frank Curzio 29:43

Do you have enough money on the balance sheet? And when you see the Q1, it’s a totally different report, which is reflecting what’s going on right now, the last three months. And I feel like that report, again, that wasn’t explained at all for some reason. I think it scared the shit out of everyone. That’s why your stock got hit. But explain a balance sheet, because again, even when I saw it and I did this 30 years, I was like, whoa, what’s going on? And I called you guys immediately.

Alex Cuppage 30:02

Yeah, well, firstly, look, apologies to you and to all the other shareholders, right? In terms of, you know, it could be better and it will get better, right? You know, we got punished for it. As I said, I’m, you know, I have my entire net worth in this company. So, you know, I felt it as much as anyone else. What we should note, first of all, was, you know, Vivo acquired our business earlier this year on the basis they were exiting all their other historic business lines. So what you’ve seen is a backward-looking statement, which kind of relates to both cash incurrence and also some accounting charges based on that restructure and exiting those businesses. But if you look going forward and you’ve seen this from the Q1 release today, the business is operationally cash flow positive. And the majority of that has been driven by the data center business. So if we do not, and this is a key point to get across here, if we do not generate any AI revenues, this business stays cash flow positive for more than 15 months.

Alex Cuppage 31:11

And, you know, we, you know, and the other point to really kind of, you know, drum home here is, you know, we’re a power shell developer. So we are not.

Frank Curzio 31:22

Explain what that is, because I think that’s a very important part of the story, especially when it comes to the capex.

Alex Cuppage 31:27

Yeah, so what we do is we buy the land, we design and construct the data center, and then we finance that data center out over the long term. We don’t get involved on the compute layer or the operational layer, which, you know, NeoClouds and some full-stack developers like the Irons, et cetera, of the world get involved, which means two things. We don’t have to hire a massive engineering and compute team, and we don’t have to buy GPUs. So you’ll have seen from the statement, right? That, and this is including the Tembo, the EV business, which we’re spinning out, right? The total, the total opex for the quarter was 1.7 million. I think it was 5.5 this time last year. So we drive a very lean team where people incentivize over the long term. And the idea is to maximize the cash flows that will come out of the data center business.

Frank Curzio 32:21

And what about the cash? Because, you know, the Q1 results are totally different. I know people might be like, okay, why don’t you just report this where, you know, again, that was a delayed financial, that report. They think that’s a reflection of it now. And now you’re saying, you know, 6.8 million in revenue for the quarter. I mean, it just reflects something that’s much more healthy here. Gross profit for the quarter is 2.5 million. Again, people aren’t buying you to be cash flow positive from your Bitcoin mining operations, right? So I get it. You know, people want to see a deal signed and want to see you transition to AI, what you guys are doing. But, you know, just looking at some of this stuff where, you know, the $50 million pipe, which I talked about, I thought it was a fantastic deal, but it looked like you guys had a big interest payment on that. Can you explain that part? And also those receivables of over 50 million, which means money coming in, is that coming in? Because, you know, if people see that on your balance sheet, it’s much different.

Frank Curzio 33:07

Again, which you’re reporting something that’s, you know, for the full year, a lot of moving parts, a lot of one-time charges and stuff. And people thought that’s a reflection of what’s going on right now. So talk about the balance sheet part, because I think that will alleviate concerns. Maybe people won’t buy the stock, but they’re going to know that you perfectly solve it.

Alex Cuppage 33:22

Yeah, no, no, it’s a great point to raise. Thanks, Frank. So, first of all, we used part of the pipe two that we raised during the summer to clear our shareholder debt. So that was cleared out. There was 16 million of interest that was sitting on that. That actually sits within Tembo. So it doesn’t sit, it’s consolidated into Vivo, but it’s sitting there. It’s not earning a coupon. And when the Tembo business is spun off, that will be spun off with it. So there’s no kind of, that doesn’t need to be paid back, and it’s not incurring any interest expense going forward.

Frank Curzio 33:54

And look, reading the report, it did not seem like that. So that’s a big deal.

Alex Cuppage 33:59

No, no, no. And it was, you know, and again, our apologies for that. And hopefully we’ve rectified that with the announcement today as well, that that has been kind of cooked out. And then going forward, you’re sitting there with cash plus cash owed from disposals of about 4 million. You’ve got another 16.5 million coming in from investors that have committed to the company. So in the short term, you’re sitting over 20 million in cash, and then you’ve got another 54 million that’s due to come in kind of later this year, which is from an historic commitment from a very large deep pocketed investor. So, you know, we’re sitting there going forward in a really strong cash position, which one, allows us to fund the equity out on Moirana and also future strategic acquisitions on land opportunities.

Frank Curzio 34:49

Let’s talk about the US midterms, right? I think this is important relative because, you know, a lot of people believe that, you know, they’re against, you know, data center development and, you know, the future of data center. And some states, right? I mean, other states could say, hey, come our way and generate a ton, a ton of money by doing that. And, you know, we know water’s never a concern as golf courses use more water than these things. And also electricity prices as well, where they’re going up, they could have concessions where, you know, these hyperscales have to, you know, take care of those costs, which are fine. But either way, people are believing that, okay, this could result in a little bit of a slowdown. There’s a big race between us and China. But how does this relate to you? Because it seems like this would be a huge positive for you because you’re outside the US with your assets.

Alex Cuppage 35:33

Yeah, look, there’s parallels between the US and Europe, and then there’s nuances as well. I think, look, the elephant in the room is the capex spend, right? Everyone’s worried about how much capex needs to be spent on these assets. You know, I think it was the Google CEO that said a day or two ago that what they’re delivering now was demand in 2024. And if you actually look at the stats of what was planned and permitted to be delivered for data centers, we’ve only delivered a fraction. And compute is rising in terms of demand, right? From enterprises, sovereigns, models, et cetera. So even if you take a very small incremental increase in compute demand, we’re just not delivering enough of this infrastructure, right? And that’s the first thing. So our belief is that actually demand for these assets, which means that rental values are going to keep climbing, is only going to increase because we are so far behind today.

Alex Cuppage 36:36

And then if you look at the credit markets, you look at the municipality pushbacks in some states in the US, which you are also seeing in parts of Europe, right? You’re seeing that in Ireland and the UK and France and Benelux and Germany. That’s only going to further delay the delivery of these assets, which is going to drive rental increase before. I think I also saw on another podcast that the CFO for OpenAI said that they could sell their current compute for 2 to 4X what they contracted at. That is the sheer demand. And then, like, do I see this capex being stopped? Well, like, make no bones about it, right? It’s, the US economy is pretty much underpinned by technology and AI capex spend over the last, whatever, six, seven years. And do I see this slowing down? I don’t. I see more, I see greater fundamentals coming in from every angle on it, which is not a bad thing, right?

Alex Cuppage 37:37

We want to build sustainable businesses and industries. But, you know, this is a war, right? It’s a war to win the race on AI and primarily between America and China. And I just cannot see the White House, whichever party is in power, slowing this down. I actually see them, my personal view is getting behind the road out of this infrastructure. I think we as an industry need to do a far better job of communicating the value of these assets and the need for these assets and the true impact on water and electricity and the environment. I think, and you know this, Frank, from engaging with us, and I’m a massive, you know, passionate person about this. I think, you know, you need to find a way of sharing the wealth and driving the ancillary prosperity of your communities, municipalities, and sovereigns from these assets. But, you know, the countries that can deliver these assets are going to have greater national security and have greater prosperity.

Alex Cuppage 38:41

I’m a big believer in that. But, you know, we need to do more as an industry to communicate that.

Frank Curzio 38:49

And communication too, when you look at sovereign AI, explain what that is. You signed a great deal with someone who has the best software with sovereign AI, and you talk about, hey, a lot of these companies that we’re talking about and potential clients are sovereign AI. Why is that important? What is sovereign AI? Because that’s a really big deal, because nailing one of these clients is, you know, as close as guaranteed, high credit rating, you know, as could be, right?

Alex Cuppage 39:12

Yeah, so if you think about the use of data, AI data centers today, it’s mainly the AI labs, the chip companies, the hyperscalers, right? They’re training their models. But if you take a view that AI is going to run industry, society, and government infrastructure, right? Each of those verticals is going to have a demand for power. And when we talk about sovereign AI, that is the AI that is running a country’s defense, their medical side of the country, their educational side, their government administration, and also their financial services. Even if financial services is a private industry, it’s so critical to an economy that, you know, it’s going to need to be housed within a sovereign cloud. And a sovereign cloud is completely ring-fenced, right? So it can’t be transmitted back to the US or to Asia or wherever. It’s models and it’s a full stack owned by the government or the sovereign.

Alex Cuppage 40:15

And this is, you know, this is playing out, right? This is at an immature phase of its development. I think a lot of sovereigns or governments haven’t figured out what they need to do yet. And a lot of the companies, and there’s some great super intelligent people developing these companies, and they’re growing really fast. But, you know, they’re series, they’re series A to series D companies. I sit here in Abu Dhabi. Abu Dhabi are probably the world’s leaders in sovereign AI. So they’re already running everything from their traffic cameras to their medical side, their government administration, their defense on sovereign AI. And, you know, we’re very fortunate that we vented into a partnership with Open Innovation who run the orchestration layer for a lot of the government divisions. And a lot of their clients are the big state AI companies. And the reason we partnered with that was because we saw demand twofold in Europe, particularly the Nordics.

Alex Cuppage 41:20

We saw demand from these companies sitting in the GCC to actually put operations into Europe as part of a diversification, security diversification strategy. The second thing we’re seeing is as governments develop their thinking around AI, and if they’re going to put their, let’s just take their medical data or their defense data, police and defense data, you want to put that within a company that is rock solid from a governance balance sheet point of view and also a technology point of view. So we see a lot of these sovereign AI players in this part of the world as actually being able to go in and partner with European governments and running their sovereign cloud. And because Open Innovation are the orchestration layer, they sit in quite a neutral position where they can come in and say, well, we can bring our clients from Abu Dhabi, or if you’ve got a company technology partner sitting in France or Germany or the UK, we can also kind of bring them into the stack as well.

Alex Cuppage 42:23

And this, I think I mentioned this at your conference, Frank, if you add in financial services, just Europe alone, I think this is a 60 gigawatt opportunity.

Frank Curzio 42:34

60 gigawatt opportunity.

Alex Cuppage 42:36

Yeah, and if you take that perspective, Europe doesn’t have that amount of power, right? Which it means it’s going to have to stop giving power away to US and Asian hyperscalers.

Frank Curzio 42:47

Yeah, because if I’m not mistaken, if you’re looking at the US Cloud Act, how does it work with you? Because it seems like if you’re using a US company and say if Google decides to sign a contract and they sign a contract with, say, you know, the Nordic government, that because of the way the Cloud Act is in the US, it means that if we subpoena issue a warrant, we currently have access to all that, all the data of another government, right? All the cloud data that goes into there where, so how does that work? Where is it either going to be a Google, Microsoft, or just a sovereign nation, or could they both work together? That works for you because is it either or you could have both of these clients that you’re giving power to?

Alex Cuppage 43:26

As a company you mean, Frank?

Frank Curzio 43:27

Yes.

Alex Cuppage 43:30

Look, yeah, technically, I think as our strategy evolves, we can work with both. But I’m a big believer that, you know, how do you create real long-term value for Vivo? I think you create that by being the most trusted neutral partner to sovereigns. I think that will allow you to have a very defensible cash flow position, right? And we can talk about the risks of what could happen with these assets since a lot of, you know, kind of similarities to the way the oil and gas played out around the world as well. But I also think about, you know, nations are going to start to look at their power infrastructure from a top-down perspective. And they’ll start looking at their grids and they’ll map out the future demands. So they’ll map out what they need themselves for sovereign cloud. They’ll map out potentially how they could house other countries’ sovereign cloud and make a business model out of it. They’ll look at industry residential use.

Alex Cuppage 44:31

And then they’ll figure out what else do they have to give away. But let’s take Norway as an example. You know, Norway could go and do a deal with a US hyperscaler or an Asian hyperscaler. You know, they’re just passing through that electricity cost, right? So maybe there’s a small markup, maybe there’s tariffs, maybe there’s tax in there. But, you know, these companies are pretty sophisticated. They’re paying the minimum amount of tax in that country. So there will come a point where these countries are saying, hey, I’m not giving my power to Microsoft because, you know, they’re adding very little value locally. They’re giving the power, they’re taking the data under the Cloud Act, bringing it back to the US and paying very little tax. And then most importantly, I think the sovereigns, and this is just my theory and how it’s going to play out, I think the sovereigns are going to go, we need that power, you know, to drive our own prosperity. So if you go back to, you know, I believe compute power equals prosperity and national security, but you can’t have compute power if you haven’t allocated the actual physical power to it.

Alex Cuppage 45:37

And this is why we’ve done this deal with Open Innovation, because I think, you know, sovereign cloud or housing other sovereign AI firms as nodes in those countries is the highest, best use of power for the sovereign. And then, you know, selfishly from Vivo Power’s perspective, you know, we get extremely strong covenants, which, you know, give us long-term stable cash flows and very attractive cap rates.

Frank Curzio 46:06

Yeah, terms, that makes sense. So I think, you know, people seeing this interview, especially me, I’m a shareholder. I bought some at 330 on the way down, and I haven’t sold a share. So, you know, I’m feeling it as well. I know a lot of investors still, even after, you know, they saw it on conferences of our big events, they’re worried about this. But it seems like, you know, you addressed a lot of concerns, especially with the Q1 is, you know, light years like positive compared to, you know, what we saw. So you address saying, okay, hey, our balance sheet is fine. Yes, you know, we pulled away from a contract, but we have literally five people that we’re negotiating with that we could pick one. It seems like almost all of them have better terms, right? Which is good. So it’s just a matter of timing. People just don’t want to sit there, but it sounds like that timing could come, you know, sooner rather than later. And I know it takes, you know, weeks and weeks to get that done. It could take a couple of months, but at least, you know, that’s something that’s positive. One of the things that I really loved about your company where I could say, hey, you know, from a risk-reward perspective is you have access to close to three gigawatts of power, correct?

Alex Cuppage 47:01

Yeah, it’s a little bit more than that at the moment.

Frank Curzio 47:03

So for me, when I look at this, if you could define the model where, hey, we just sign a client, a year from now you get 40 megawatts of power up, maybe 18 months after that you get the 80 megawatts of power up, and now you’re generating a lot of free cash flow, right? A lot of EBITDA. Now you’re, so it’s going to take, you know, excuse me, a shitload of money to build that out, right? Incredible amount of money. But if you could provide this model, I think what separates you and what I like about this is something that I want to hold and just close my eyes and wake up five years from now is if you’re able to pull off the first 40 megawatts of power and that works and you see the cash flow coming in and EBITDA going up the way you’re saying it, now you have access to this where I feel like a lot of other companies don’t have, you know, that access where, hey, here’s the model, we did it. Now you can go again for 40 mega, whatever, 80 megawatts, 100 megawatts, and keep like building into that, you know, three plus gigawatts of power where you have this long stream of this asset sitting here that if this works, hey, all this is going to be done over and over and over again to build up all those gigawatts that all these people of that data come in, which your valuation, we’re not talking about, you know, we’re talking about well into the tens of billions of dollars.

Frank Curzio 48:08

Again, we’re far away from that. You’re looking at a small company. But when I recommend companies, I want to see what is the maximum upside that could possibly happen if you get this right. But a lot is focused on the small part. Talk about that because you’ve been securing so much of this power to be building in the future, and I know it’s going to cost a lot. But how important is that? Because it’s not just everyone’s looking at the 40 megawatts, get that going, come on, generate some money in, and I get it. But how important is that to you that you’ve done that pretty much before everyone else where you’re sitting on a massive amount of that power that could be developed sometime in the future?

Alex Cuppage 48:40

Look, it’s transformational, right? And, you know, they’re huge numbers. Like three gigawatt is huge numbers. I think San Francisco is like four and a half gigawatts of the uses a year, right? So that’s a huge, or the whole Bay Area, it’s a huge amount of power. You know, the key, will we do all of that? Probably not. Will we replace some of that? Yes. But, you know, the key is that we continue to focus on fundamentals and invest in the right assets. And I think what, you know, the street is going to reward us on is a consistent ability to take land and deliver that into EBITDA over 12 to 24 months. And with the business model that we have, which the market doesn’t see in terms of our permanent capital vehicle, we should be generating $2 of released equity every 12 to 18 months that we recycle into the portfolio.

Alex Cuppage 49:43

So what does that mean? If we execute on that, and the keyword is execution, but if we do, we should be doubling our operational megawatts, doubling our EBITDA every 18 to 24 months. And that’s incredibly powerful. So you’re sitting here in three years’ time, you know, you’re approaching the gigawatt. And that gigawatt is, you know, worth 20 to 25 million, sorry, a megawatt. There’s your capital value. You put 60% debt on that. You know, that 40% is your net equity value to the company. And, you know, think of yourself as generating free cash flow at about, you know, 1.2 to 1.3 million a megawatt.

Frank Curzio 50:26

What would you tell to shareholders who just watched their, you know, the stock really come down tremendously and now they’re seeing a more favorable report? But what would you tell them in terms of, you know, Vivo and being shareholders and, you know, the outlook and what, you know, why they should be holding the stock down instead of saying, hey, you know what? I’m going to wait until these guys really, you know, show me, you know, an agreement, the financing in place. You know, I don’t want to wait. So what are you telling those shareholders? Because I think that’s a big deal with the communication part. It’s so relevant in today’s markets where the littlest thing gets, you know, just construed where, you know, it just, and it goes off, right? And then all of a sudden this is the story that everyone’s telling you. Social media goes around in two seconds and you can see a stock price absolutely crash and sometimes it creates a buying opportunity. But, you know, what would you tell them for investors who say, hey, you know, I want to go this long term, but I’m not too sure?

Alex Cuppage 51:12

First of all, no one likes to see what happened yesterday. That’s the first thing. And, you know, we apologize for, you know, we could do better on the press release. That’s the first thing. So, you know, take apologies. As I said, you know, my entire net worth is in this company. So I felt that as much as anyone, but I’m in it for the long term. And, you know, I’m not in it for small gains. You know, I’m in it to hit the two, three gigawatt portfolio that we think we can achieve over the next five to six years. The second thing is I’m a buyer at this price. I’m a massive buyer at this price. And I know the rest of the team is as well. And I think, you know, what I think just in general, the industry, and I’ve spoken to some of our investors who are in the technology world, this is going to go, not just Vivo, the industry is going to go up or down, right? And you’re going to see people swing on momentum, positive and negative, based on various developments of the model and the application there.

Alex Cuppage 52:14

I think if you, it was last week actually during our conference and Stephen Bird, the Morgan Stanley analyst who I rate as probably the best energy analyst on Wall Street, and he talked about, you know, trying to determine the value of AI, you know, at the application or the neocloud level. But he said, all these powered shell providers, which Vivo is one, that were too small to be covered by Morgan Stanley. But he was saying these are screaming buys. You want to make money in AI long term? Own the power. Own the power. That’s what excites me, right? So Frank, when you talk about, we have Moirana, right? Which is probably the last site in Europe that can deliver power by the end of 2027. That’s incredibly valuable. And then just to kind of nuance between the US, this is not concession power over 15 to 30 years. As long as we pay our electricity bills, this is our power. So that has huge value long term, right?

Alex Cuppage 53:15

So, and you’ve seen other commentators like Shamas, you’ve seen Musk all talk about the value in the AI trade is in the power and owning the power. So that’s what gets me incredibly excited. And, you know, as I said, we can take an asset that we bought for 40 million, structured it in a great way, right? With a huge downside protection. And over the next 12 to 13 months, we’ll deliver an AI data center, which will deliver 60 million plus of EBITDA to the company and, you know, generate somewhere between 400 and 550 of equity gain. So you’re 10Xing your money within, based on an equity value, you’re 10Xing your equity value inside, you know, 15 months, which is incredibly exciting. And then if we get the flywheel going, to your point, on the rest of the land that we’re able to bring in. So, you know, next year we start on site, hopefully, you know, north of 100 megawatts. Next year you’re doing 200, 300, et cetera, et cetera.

Alex Cuppage 54:17

The flywheel really kicks in and you start to see huge momentum. And, you know, I’m not coming on here sitting saying, hey, we’re going to sit on our hands and just wait for release. We’re active. We’re with five companies. They’re stronger positions than we were in in June, than we were in in August, than we were in in September. And, you know, if that gets signed in November, if it gets signed in December, gets signed in January, we’re in the fortunate position that we’re cash flow positive, but we will do the right thing for the company long term. And that’s where you see the true equity gains. I think what you’ve seen in the market today, Frank, is, you know, a lot of kind of shooting up and down, right? You get a lease, big pop, somebody does the analysis or there’s, you know, a bit of a wobble within a certain segment of AI that goes back down again. That’s not great. If you’re an investor trying to time that, it’s impossible, right? Maybe you make some money, maybe you have a massive loss on a swing.

Alex Cuppage 55:18

But if you want to take a five-year view to making significant multiples in your capital, I think we’re a very good bet. And that’s what I’m making the bet on.

Frank Curzio 55:28

Well, I want to thank you for coming on. I called you yesterday. I wanted to get also Kevin on. Kevin was literally on operating table and everything’s okay. He’s okay, but he had to get something. He’s tried to come on. I said, I think that’s a really bad idea. You know, because you already had a press release that came out and I know the drugs that you’re going to be in your systems are probably not a good idea. And he said, I can come on in 48 hours. I said, you got to, it’s got to be sooner than that because a lot of people are worried and they’re just going to leave it and sell it after that report. But, you know, that was the company, you know, a while ago, right? So now the first quarter really reflects that. I’m glad you got that press release out. But I want to say thank you so much for coming on and just, you know, focus on the communication part. It’s very, very important for investors to know. I appreciate you coming on, but also if every three months that you’re coming out with those earnings, just release Q1. When you release Q2 too, hopefully we can get an exclusive or just have you come on again or have Kevin come on to explain everything.

Frank Curzio 56:18

Because I think that’s what people really want in this industry. Because all they know is everything AI is coming down. Is there a serious problem behind the scenes? I get great information from you because you’re talking to so many people. People have built data centers and we just want to get the right story because if we get it right, we know the facts. There’s a ton of money to be made here and also a ton of money to be saved and not lost by betting on the right, on the wrong people, right? That are in trouble. So I really appreciate the transparency and I just want to say thank you very much for coming on very quickly after that report was released yesterday.

Alex Cuppage 56:44

Well, you know, thanks for the opportunity, Frank. Thanks for the feedback, which we’ll take on board. We’ll do better. And, you know, we appreciate the support as well.

Frank Curzio 56:52

All right. Thanks a lot for coming on and I’ll talk to you soon. Thanks.

Alex Cuppage 56:55

Thanks, Frank.

Frank Curzio 56:59

All right. What’d you think? Good? We covered a lot, right?

Alex Cuppage 57:03

Yeah, that was great. Thank you. Super nervous, but I appreciate you giving us the opportunity.

Frank Curzio 57:07

I think the nervous is good, right? I mean, it just shows that you care. You have a big position in the stock, it’s your life savings, like you said. I think that’s important, right? Because, you know, if you weren’t nervous and just were like, hey, we’ll be okay. You know, people get pissed off with that too. I think it was, I think it went really well. I think people are going to resonate with it and say, okay, this is really cool. And, you know, let’s see what happens. But, you know, if everything you said is true and everything and people are going to believe it, you should see the stock price, you know, more buying come in from, especially from the insiders that people are going to buy at this price. And, you know, it’s really good news.

Alex Cuppage 57:36

Yeah, no, it’s good. But thanks for the opportunity and thanks for the feedback, you know, and, you know, we’d be lost without it, put it that way.

Frank Curzio 57:45

No, I really appreciate it.

Alex Cuppage 57:47

So thank you.

Frank Curzio 57:48

No, no, you’re welcome. You’re welcome. And thanks for coming on. I know it’s, you know, the hours are off too and you’re probably crazy. You’ve been up all day with Kevin, but I’ll talk to Kevin a couple of days or so. But thanks so much. I’ll make sure that this doesn’t go out until that press release gets released. I don’t know when it is, but yeah.

Alex Cuppage 58:01

I think maybe it went out. I don’t know if I saw something in the corner of my eye, but yeah, hopefully it’s gone out by now.

Frank Curzio 58:08

Yeah, so I mean, we’re not going to get this up and running for another hour and a half anyway before it goes live. So if you need anything else in the meantime, call me directly, email me, but thanks for coming on. I really appreciate it, Alex.

Alex Cuppage 58:17

Yeah, thanks, Frank. Have a wonderful day. Appreciate it. Thank you. Bye.

Frank Curzio 58:20

Bye.

Announcer 58:21

Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money, and your responsibility.