Altus Power, Inc.

Good morning and welcome to Altus Power first quarter 2023 conference call. As a reminder, today's call is being recorded and participants are in a listen only mode. A question and answer session will follow the formal presentation. At this time for opening remarks and introductions, I would like to turn the call over to Chris Shelton, head of investor relations.

Please proceed. Good morning and welcome to our first quarter 2023 earnings call. Speaking on today's call are Greg Felton, Co-Chief Executive Officer, and Dustin Weber, Chief Financial Officer. In addition, Co-Chief Executive Officer Lars Norell will be joining us for Q&A. This morning, we issued a press release and a presentation related to matters to be discussed on this call. You can access both the press release and the presentation on our website, www.altuspower.com, in the investor section. This information is also available on the SEC's website, As a reminder, our comments on this call may contain forward-looking statements. These forward-looking statements refer to future events, including Altus Power's future operations and financial performance. When used on this call, the words expect, will, plan, forecast, estimate, outlook, and similar expressions as they relate to Altus Power as such identify a forward-looking statement. These statements are subject to various risks and uncertainties and are based on certain assumptions that could cause actual results to differ materially from those predicted in the forward-looking statements. Altus Power assumes no obligation to update these statements in the future or if circumstances change. For more information, we encourage you to review the risks, uncertainties, and other factors discussed in our SEC filings that could impact these forward-looking statements. Specifically, our 10-K filed with the SEC on March 30th, 2023, and our 10-Q filed with the SEC today. During this call, we will also refer to adjusted EBITDA, adjusted EBITDA margin, and exit PAR, which are non-GAAP financial measures. Our management uses these non-GAAP financial measures to plan, monitor, and evaluate financial performance, and we believe this information may be useful to our investors. These non-GAAP financial measures exclude certain items and should not be considered as a substitute for comparable GAAP financial measures. Altus Power's methods of computing these non-GAAP financial measures may differ from similar non-GAAP financial measures used by other companies. For more detailed information about these measures on a reconciliation from GAAP to these non-GAAP financial measures is contained in both the press release and the presentation that we issued today. Finally, our speakers today will reference our first quarter slide deck during prepared remarks. We are providing this information to assist you in understanding certain of the financial information we will be discussing today. And with that, I'm pleased to turn the call over to Greg Felton, Co-Chief Executive Officer of Altus Power.

Thanks, Chris, and welcome all our investors and analysts to our call. It's been just six weeks since we last spoke with you on our year-end call. But we have entered this spring season with plenty of activity to report. Let me start on slide three as I summarize first quarter earnings and our annual guidance. Today, for the first quarter, we're reporting $29.4 million of operating revenues, a 53% increase compared to first quarter of 2022. as well as adjusted EBITDA of $16 million, an 83% increase compared to first quarter of last year. These results position us to reiterate our 2023 adjusted EBITDA guidance range of 97 to 103 million and EBITDA margin in the mid to high 50% range. With that introduction, I want to use this time to provide investors with a portfolio update including insights into how we're progressing our portfolio, starting with slide four, which shows our portfolio as of March 31st. This quarter, you'll see our portfolio now totals 678 megawatts and includes the 205 megawatts from the acquisition we closed in February. One attractive feature of this transaction was an increased exposure to New York, which has now become our largest market in terms of installed megawatts. New York's clean energy program was designed to facilitate significant growth in distributed generation, including one of the largest community solar programs in the U.S. We are looking forward to growing our presence in New York and reiterate our view that community solar is an attractive and growing segment of the addressable market for commercial scale projects. You can see on this slide that Altus now owns and operates over 160 megawatts of community solar projects serving approximately 20,000 customers across the country. One final highlight, you'll notice an increase in the percentage of variable rate contracts compared to last quarter, which aligns with our internal view that utility rate inflation will persist, providing a growing stream of revenues from assets currently in our portfolio. As I move to slide five, I want to acknowledge we are engaging with sophisticated owners of large real estate portfolios, which translates to sales cycles that are both longer and more complex than we originally anticipated. While the timeline has been elongated, we are making progress. Today, we announced a new relationship with Iron Mountain, which illustrates our connectivity with both owners of large real estate portfolios as well as new customers for our clean power. Iron Mountain has agreed to a 2.6 megawatt solar and storage installation on the roof of their record storage center in Northborough, Massachusetts. For this project, Iron Mountain is expected to subscribe to 50% of the power, with the remaining serving local residents in the surrounding Northborough community. The expansion of this project to accommodate community solar is becoming a common theme across many of our discussions with other large owners of real estate as well. It allows us to build larger arrays that fully utilize building rooftops while also providing a larger lease payment to the building owners. We're currently in discussion with Iron Mountain beyond this distribution facility, including buildings in California, Illinois, and New York. This Iron Mountain relationship is an example of a programmatic customer which has been facilitated by CBRE. and that is now permeating the earlier stages of our development pipeline. This initial project also includes battery storage, which we think will ultimately facilitate fleet charging, where electric trucks can recharge as they unload and reload their cargoes. These additional services have become part of our conversations with other customers across our pipeline. Now let me move to our construction activity on slide six. This quarter, we're introducing increased visibility on the timing of our project completions. We've detailed a variety of challenges we've faced to this point, including delays on permitting and interconnection agreements and the availability of switchgear, but we're now seeing significant progress on several of our projects currently under construction. Over the past few weeks, we've announced the completion of eight megawatts of projects in Maryland, Rhode Island, and Maine, and we expect to complete an additional 67 megawatts by the end of this year, totaling 75 megawatts over the next three quarters. We continue to lay the foundation for an increased construction cadence as we head into next year. We're also providing additional granularity with a breakdown of 40 megawatts of projects in New Jersey, many of which are being sited on rooftops of warehouses owned by Blackstone, along with others originated by our channel partners. The New Jersey program had some prolonged permitting delays, but we're pleased that many of these sites are in active construction. Additionally, we have another 27 megawatts of projects across Maryland, New York, and Hawaii, also originated in partnership with CBRE and our channel partners, which we look forward to completing this year. These previous two slides have been a good prelude to our pipeline on slide seven. Our development pipeline on the right reflects the progress I just highlighted on both construction and contracting. And we look forward to delivering 75 megawatts out of this bucket this year. We're also equally focused on reloading the construction bucket with new customer contracts. Having negotiated master form leases with Seabury Investment Management, Trammell Crow, and now Iron Mountain, we expect to shorten the prospective sales cycle for these customers and increase velocity into pre-construction activities. Our playbook remains to prioritize customers with large real estate portfolios who are motivated to standardize contracting on the front end in order to accelerate execution and delivery timelines. We look forward to demonstrating additional progress. Moving now to our acquisition pipeline on the left, we continue to see an attractive flow of opportunities made up of portfolios of contracted assets. Acquisition opportunities continue to flow steadily in part as a consequence of tightening financial conditions where certain market participants have been forced to divest more quickly than they had intended. We believe that this environment plays to our strengths as we enjoy a relative advantage on cost of capital and we are importantly generating cash which is available to be deployed into new opportunities. We expect these opportunities to provide attractive, contracted returns, along with the opportunity to expand these customer relationships over time. Our focus remains on bilateral negotiations rather than competitive processes, which tend to have a lower probability of success. We've demonstrated success on acquisitions over the past few years, and given the current environment, we would be disappointed not to execute on a portion of this pipeline over the course of 2023. We remain very much aligned with our stockholders in terms of minimizing dilution and increasing shareholder value. We have capacity to execute on transactions with internal cash flow generation, cash on our balance sheet, or other sources which aren't linked to our common equity. With that, let me now turn the call over to our CFO, Dustin Weber, for additional financial highlights.

Dustin? Thanks, Greg, and welcome to our call. Please join me on slide eight as I cover our first quarter financial highlights. During the first quarter, our revenues grew to $29.4 million compared to $19.2 million in the first quarter of 2022, an increase of 53% driven by the growth of our portfolio and increased sales of clean energy to our customers. Turning to gap net income for the quarter, We posted income of $3.8 million compared to net income of $60.1 million during the first quarter of 2022. This decrease was primarily the result of a fair value remeasurement of our alignment shares during both periods. As a reminder, these remeasurements are non-cash and are driven by movements in our share price from quarter to quarter. Moving to adjusted EBITDA, we reported $16 million compared to $8.8 million in first quarter 2022. amounting to growth of 83.3%. This increase was driven by the growth of our portfolio and partially offset by increased levels of operating, general, and administrative expenses. Similar to the prior year, we expect the seasonality of sunlight to drive higher revenues and adjusted EBITDA in the remaining quarters. Focusing now on our adjusted EBITDA margin, We reported a quarterly margin of 55%, which is an increase from 46% reported in the first quarter of last year. Driving this are the economies of scale associated with spreading expenses over a larger number of revenue generating projects. Looking at margins for the remaining quarters of the year, we expect the second and third quarters to experience our highest margins and the fourth quarter narrowing somewhat driven by seasonality. We continue to expect steady increase in our general and administrative expenses over the course of the year as we build operational scale to meet customer demand, but in the context of our revenue growth. Please turn to slide nine as I discuss our outlook. First quarter results put us in a position to reaffirm our 2023 adjusted EBITDA guidance range of 97 to 103 million with substantial capacity additions in February giving us increased clarity for the full year outlook. As Greg outlined, we're also looking forward to more asset additions from our pipeline over the remaining quarters. We also continue to expect full year adjusted EBITDA margins in the mid to high 50% range. We look forward to expanding our margins as we scale our business over the course of the year. Turning to our financing plan of 2023, We expect to employ incremental debt and tax equity along with cash from our balance sheet and cash we expect to generate from operations. We have plans to utilize our financing facility with Blackstone as well as incremental tax equity to provide long-term financing for unlevered assets across our portfolio. We also continue to view 65 to 70% loan to value ratio as an appropriate leverage metric for our assets. new development assets will continue to benefit from at least 30% tax equity available from providers who have appetite to utilize investment tax credits. These funding sources, as outlined, provide sufficient capital to execute our plan, and we therefore have no need to issue common equity at current prices. That concludes my review of our financials. I'll now pass the call to Greg for some closing remarks.

Thanks, Justin. As a final comment, we hope our additional disclosures today give you increased visibility into the business we're building here at Altus Power. We view our dual pipelines for customer acquisition as powerful and symbiotic engines of growth. As we grow our customer base and market presence, we are starting to see the benefits of a network effect that will make Altus Power the brand name for commercial solar. As our customer team onboards new relationships from our recent acquisitions, customers are increasingly expressing interest in growing their exposure to the clean energy solutions we provide and are eager to partner with Altus to decarbonize other buildings in their portfolio. Our customer relationships are of paramount importance to us as we plant a service and hope to grow each relationship, not only for the life of their initial contract, but also beyond. That concludes our prepared remarks, and we're now looking forward to your questions.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment while we vote for our first question.

Our first question comes from James West with Evercore ISI. Please proceed. Hey James, you there? You might be on mute. James, your line is open.

I'm here. Can you guys hear me? Yes.

Good morning. Okay. Sorry about that. I must have had a mute on. Sorry about that. Greg, curious about the community solar part of your business. You highlighted it a couple times on your prepared remarks this morning, but the Iron Mountain announcement, obviously a clear good win there, and they're going to have a lot more to do. But I'd love to maybe if you could elaborate more on this community solar aspect of the business and what that opportunity set is.

Sure, James. This is Lars. Thanks for that question. So, as you can tell, community solar is a significant part of what we spend our day on. And since 2013, we've been involved, so I guess 10-year anniversary this year. in several community solar markets. And our presence in this space, James, serve a number of purposes. We can basically make efficient use of large commercial roof areas and build larger solar systems on those rooftops than what would be required to serve the load of that particular building. And then we're able to send the excess energy generated back into the surrounding community. And importantly, it allows us to serve homeowners And in particular, multifamily homeowners and renters who might otherwise not be able to have solar energy, including, of course, low- and middle-income households. And together, interestingly, and most recently with Blackstone and CBRE in using our growing digital platform, we've begun to have a really cool partnership for community solar going to employees. We basically invited large corporates into that program where they can sign up together with CBRE, Blackstone, and Altus, and they're able to offer their employees access to our community solar service as sort of an employee benefit. It represents the fastest contracting that we've ever done at Altus, going from presenting an idea to having a corporate sign up in a matter of weeks versus a sales cycle for solar and storage of several months. And then, of course, we take that connectivity, James, with those corporates and expand it into solar storage on their buildings as well. So we think of community solar as a sort of faster product that can get access to more homeowners and households than some of the other products out there is able to do.

Right. Okay. Makes a lot of sense to me especially. I guess if I think about the follow-up is on the lower income areas, which probably represents a very attractive market to you. Do you benefit from the, or is the IRA helping benefit that part of the business?

Absolutely. So we look forward to monetizing what I think everyone is expecting to see, which is the increased investment tax credit associated with sending at least 50% of the output to from a solar array into LMI households. Now, we should say that many of the state programs that we're already operating under in New Jersey and Maryland, for example, have us sending significant chunks of energy into LMI households. So we're basically not waiting around for the guidance to happen. We're not going to slow down construction. But when that guidance comes and those programs become available, The community solar deals we do will become really attractive, in particular because of the efficient use of capital. We can basically build a deal and almost have no equity that we require to fund into that. We have a very positive situation coming out of those deals where our access to capital translates into more megawatts because of that added tax credit. But we're not waiting around for it. When it comes, it'll be awesome, and we're looking forward to that.

Just one thing, James, this is Greg, to supplement on the low and moderate income tax adder, ITC adder, and I want to supplement just because there's been a number of things written about the adder, but I think there may be a little confusion in the market, which is there are two elements or two types of this program. One is where you actually build on the low and moderate income tract of land or on a particular housing authority. And then there's a different version which Lars was speaking to where you just procure a majority of your customers as low and moderate income customers. So the important point I want to make is that all of our community solar projects are eligible for the latter where regardless of the location of the system we can align the system offtake with low and moderate income households within that community so a lot of flexibility with respect to where we locate these systems there's not a constraint on where we build got it okay thanks guys thanks james the next question comes from andrew per circle with morgan stanley please proceed

Great. Thanks so much for the time. I just did want to follow up on the IRA tax credit adders. I know it's hot off the press here, but just around some of the domestic content adders, can you maybe just elaborate on where you stand today and your confidence level in terms of achieving some of those adders?

Yeah, this is Greg, and thanks for the question. As you know, the domestic content adder is a very attractive feature of the IRA. It basically allows us to receive an additional 10% tax credit to the extent we have a sufficient amount of domestic content within our systems. Today, the domestic supply chain in the U.S. is fairly limited. And so based on our reading of the rules, it's very difficult in the very short term to fulfill that requirement. The good news is that over the next couple of years, there is a substantial amount of domestic capacity coming online, and so it is our expectation that we will be able to easily fulfill that domestic content requirement within the next couple of years. There are significant manufacturing incentives, as you know, that are incentivizing that manufacturing capacity, but it's definitely something we're looking forward to in the next number of years as that capacity comes online. for sure take advantage of it.

Great. Thank you. And maybe just one follow-up around commercial real estate. Obviously, there's a lot of fears in the market around commercial real estate defaults and the exposure to regional banks. Can you maybe just talk through any potential protections you have there? Your recent disclosure in your investor presentation was very helpful, just outlining no exposure to office properties. But Any kind of protections that you have in place on your existing contracts would be helpful if you could maybe summarize some of those.

Sure. This is Lars, and maybe Greg will chime in. The first protection, and one that we think is very relevant, is the natural sort of selection of real estate that solar storage and charging goes through. The filtering for us happens to be where are there large roof areas that are also in congested areas where electricity is hard to get and electricity is expensive. And that tends to rule out downtown areas. Electricity, of course, is very expensive on Manhattan, but it's very hard and impractical to build solar systems on skyscrapers. And so we end up being in the sort of suburbs instead on large, mostly logistical facilities, whether they are industrial or distribution related. And I'd say a vast majority of what's in our current pipeline, both in terms of contracting and construction, is exactly those kind of facilities because they are so optimal for solar and storage and ultimately charging. So through natural selection, we've tended to gravitate towards the real estate sector. That happens to be one that I think a lot of analysts are thinking is going to be the most resilient if there's indeed a recession. We, of course, have other safeguards. we sign what's called subordination non-disturbance agreements with our landlords we're able to survive going through a cram down on a mortgage or bankruptcy it can get very detailed pretty quickly but as as you guys know we've been doing this for some time now and have a very um carefully calibrated way to mitigate risk in case something were to happen to the building But as I say, this natural selection towards real estate, that's kind of still in demand, we think is a good thing on the way in.

Yeah, and the only thing, this is Greg, I would add to that, just for those that have followed us less long than you have, is that we have an excellent credit history. We have never had a commercial default in the history of Altus Power. That includes during the recent pandemic where a lot of businesses were under stress. Of course, we're selling discounted electricity, and so naturally it's not the type of contract that somebody is likely to default on because they're buying power cheaper than they could otherwise buy it. So there's some pretty sensible features of our contract that makes it pretty low risk. But as Laura said, we do a lot to protect the risk in any event, but we have not had any commercial defaults in our history, and I think our credit underwriting standards are excellent.

Great. Thank you so much.

Thanks, Andrew.

Thank you. Our next question comes from Justin Clare with Roth MKM. Please proceed.

Hi. Good morning. Thanks for taking our questions. Morning. You're welcome, Justin.

So, I guess first off here, was wondering if you could just speak a bit more about the timelines that you're seeing for permitting and interconnection. You know, are things broadly improving there? Or are you just having more success navigating the challenges? And then I guess, you know, just looking at overall project timelines, do you have visibility into things improving? Could timelines get shorter here, you know, in the coming quarters?

Sure. I'll start with that, Justin. There are Definitely challenges remaining, as we have previously discussed. And we've sort of divided adjusting those challenges into things that we feel we can have some control over, which is component availability, labor availability, et cetera, meaning, you know, you can sign up subcontractors in advance and sort of for batches of deals. And those factors that are a little harder for us to exercise control over, such as building permits coming out of permitting departments or interconnections coming out of utilities. But while those challenges in some cases remain, namely elongated permitting and interconnections, some of these medium voltage components like transformers taking longer, one of the interesting things that are taking some time for us or have been taking some time is that very large portfolio clients have a more involved approval process. And so to add solar and storage to their buildings, which we're used to doing for 15 years now, in the olden days, we would have one particular principle that we would interact with, and all the people in the room were all the people needed to be in that room. And once we have an agreement on a contract, we can basically move that deal or asset into permitting and construction. With some of the larger clients, that we are now working with, which, by the way, is exactly the right clients for us to be working with because they represent a significant scale of growth. The stakeholders and the internal sign-off processes are much different from smaller clients. And so it's been important for us to overcome some of these delays and challenges. And we're adjusting our late-stage development and construction playbook to sort of stay on schedule. For purposes of the two first obstacles, we're keeping components in inventory. We're focusing on growing the platform so that we can move at a pace that's consistent with what we'd like to do in terms of adding growth to our portfolio. So we're basically trying to overcome some of these issues now by adding components in inventory and staff. And we're noticing a slight pickup in pace. both in terms of contracting with these larger clients, but importantly also on the construction, permitting, and interconnection front.

Okay, great. And then I guess just with the larger clients that you are working with, can you speak to whether you're having success in converting these relationships into essentially programmatic relationships where you're doing multiple projects with one client in different locations? I think Iron Mountain might be an example of this, but maybe you could speak to how that's evolving here.

Absolutely. So, in spite of having taken slightly longer than we had perhaps anticipated, these larger programmatic partnerships still is where our most significant growth will come from, as I think you're outlining. It represents an opportunity set where we've been given preferred access to both real estate partners and tenant power customers, courtesy of CBRE mostly, but Blackstone, of course, a little bit as well. And we are intent on strengthening what basically is a moat for Altus around some of these names and make sure that we turn it into a sustainable competitive advantage that this access to clients mean to us. With CBRE-owned real estate, first and foremost, and also with their clients, and Iron Mountain is a perfect example, like you're outlining, It's letting us put assets into interconnection and pre-construction where we are noticing that the first asset takes a little bit longer than historically we've been used to. But the second asset and the third asset and the fourth asset picks up significantly quicker because we put in place the form documentation in the internal decision processes that that client uses. And we believe these wins will sort of start feeding on themselves. Large corporates tend to follow other large corporates. And we should start seeing a bit of a flywheel effect, which we intend to capitalize when more and more of these clients are signing up and we're allowed to publicize the fact that they're being added to Altus' list of clients.

Okay, great. And then maybe just one more for me. You know, on the 67 megawatts that you anticipate completing before the end of this year, Can you talk about where you are in the process of securing permits and interconnection for those projects and any remaining hurdles that you might face in completing those projects?

Sure. So the 67 are actually in mid to late stage construction. They're literally representing deals where people are on roofs or in parking lots. you know, sort of proverbially swinging hammers in making sure that those deals can be completed in sort of a string of pearls during this year. And, Justin, I think the important part is immediately behind that 67, there are now deals that are going into construction coming out of permitting or going into permitting because they're coming out of interconnection. And, importantly, they're on the sort of one-yard line in our contracting bucket. in the second we can actually push them over get signed sealed and stamped leases if you will and move that into permitting etc that will represent what effectively is going to be a doubling of our construction pace next year compared to this year and of course as everyone has seen with about 75 megawatts, give or take, a plan to be constructed this year. We are sort of returning to what has been our construction pace in the last couple of years from a very low year last year. But we're not stopping there. This is meant to be the beginning of coming to much greater volumes that, of course, will require us to succeed getting these deals out of contracting and into construction so that they can then represent the deal flow that's going to be in construction in Q1, Q2, and Q3 of next year.

Okay. Good to hear. Thank you.

The next question comes from Chris Feather with B Reilly. Please proceed.

Hey, guys, thanks for taking my questions here. So the visibility on 2023 seems pretty strong, but can you give us just a sense, you know, I assume if we did an exit part of the 1Q and, you know, kind of baking in the, you know, anticipated completions throughout the year, we're pretty close to where the guidance is. So maybe just talk about what we do need from the acquisition pipeline in order to hit the guidance.

Sure. Thanks for the question. This is Greg. I'll take that. So as you can see from our pipeline, we have a somewhat modest amount of acquisition opportunities in the closing segment of our pipeline, which you should read to me in that we don't have any very near-term closings anticipated other than a 3% that's in that bucket. Of course, we're working on another 19% that are in negotiation. And maybe just to speak to the environment, the environment, we believe, is quite attractive for Altus Power, which is an environment where, frankly, the financing backdrop has become fairly challenging, credit access and cost of capital and the like is a real challenge for many market participants. We are in an excellent spot. We set ourselves up well for this moment. And so we feel very good about the flow of opportunities. But we also, as you know, want to be and have been disciplined in terms of how and when we act on these opportunities. The way we would describe it is that we absolutely believe that there are a number of opportunities that we will execute on this year. But as you'll see from the pie chart, it's not as significant as it has been in the past, largely based on our expectation of timeline. So we would firmly expect that as we move through the year, there'll be more opportunities we'll be acting upon, but there's not a lot that's baked into the current target set for 2023.

Okay, that's really helpful, Kohler. So the messaging suggests that you'd be hesitant to utilize equity raises to fund acquisition growth at these levels. And it sounds like acquisitions for this year shouldn't really be kind of a gaining factor of needing to raise capital from equity. But can you just walk through the puts and takes on how you'd think growth for 2024 could be impacted, you know, given kind of, you know, capital needs and, you know, how much more debt and tax equity you think the current portfolio could support? Or should we think that, you know, maybe it's more focusing on that construction pipeline for 2024?

Hey, Chris, this is Dustin. I'll take that one. So we'll continue to focus on growing our business in an efficient way and in a way that optimizes return for our investors. So as you noted, that primarily means funding capital expenditures through a mix of term loan and tax equity financing. You know, we've, We've spent a good amount of time highlighting in the past that our rated term loan with Blackstone is uniquely designed to provide for unlimited upsizing. We borrow from a diverse syndicate of insurance companies. They have significant appetite to lend at attractive rates at long duration. It's worth noting that we currently have a significant pool of unlevered assets, which are online and revenue generating. and we expect to add them to the facility in the next few months. So that will provide a meaningful inflow of cash to our balance sheet. On the tax equity front, we have great relationships there, a long history of sourcing tax equity through a double-digit number of participants, some banks, but also some corporates. So yeah, we have a high degree of confidence to continue to source tax equity at attractive rates.

Got it. Thanks for that. I'll open the queue.

Once again, ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad. Our next question comes from John Windham with UBS. Please proceed.

Hi. Thanks for taking the questions. I wanted to go back to a topic you touched on at a very high level earlier, and that is the IRS guidance on the domestic content adder. It would strike me that it's going to be a pretty big competitive differentiator for those developers that can qualify for that credit earlier than others. Can you talk through a little bit the roadmap to how you can get to the thresholds and any conversations you might already be having in terms of commitments for domestic capacity? Thanks.

Sure. Thanks for the question. So there are a number of elements to the IRA as it relates to fulfilling the availability of not only the base ITC amount of 30%, but also the adders. There are prevailing wage requirements, which our systems are already adhering to. And so we're kind of well set up in terms of the way that we do business in the ordinary course. in terms of being eligible for the adders and so the the key issue um just to kind of broaden it out is to what degree are the adders a good fit with the portfolio of opportunities that we pursue and so i just want to kind of take a step back and talk more broadly about that because i think alta's power is actually in a very unique position based on its business activity. First off, you heard from Lars earlier that the low and moderate income adder, which is essentially 20% additional tax credit, is something we're well set up to benefit from by virtue of all of our community solar projects really taking advantage of or positioned to take advantage of an offtake, a majority offtake that's LMI. There are other features of the IRA, namely If we build on brownfields, landfills, and things like that, we can benefit from a 10% adder. That's something that Altus has done for years, and in our pipeline, there are sites with that particular profile. So I would say that if you think about the commercial scale systems that we build, they're very much consistent with policy as it relates to a lot of the activities that the government is trying to incentivize. For domestic content in particular, there has been very little by way of domestic supply chain to support this industry. But what's fascinating is that the incentives that were put in place are going to ramp up capacity very quickly so that the supply of modules, for example, is going to overwhelm the current annual demand in the next couple of years. And that's great news for Altus Power because as a buyer of modules, We are going to see not only significant domestic supply, but likely price benefit by virtue of the fact that supply is going to overwhelm demand. And so, you know, for the last number of years, of course, modules have been sourced predominantly internationally. There hasn't been a lot of domestic supply. supply for commercial scale or utility scale solar. So having a domestic source and having significant domestic supply will be great for pricing. But then of course it will benefit, allow us to benefit from a 10% adder. And so in terms of your particular question around the different avenues, we have multiple providers. There are no shortage of different providers that have reached out to us and that we're in dialogue with, with respect to procuring domestic modules. Again, not in 2023, but in the next, call it next year and beyond. So that's in motion. And again, not single source, but a diverse source of suppliers. So we feel very good about how Altus Power is positioned to benefit from the domestic supplies that's coming online.

Perfect. Appreciate the comments. Thanks for the question.

Once again, ladies and gentlemen, to ask a question at this time, please press star 1 on your telephone keypad.

One moment while we go for more questions. There are no further questions in queue at this time.

I would like to turn the call back over to management for closing comments.

Thanks very much. Well, thanks again for all the time you spent with us this morning and the excellent questions. We look forward to updating you on our progress on our next call, and please feel free to reach out to us with any additional questions. Thanks.

Thank you. This thus concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.