Altus Power, Inc.

Ladies and gentlemen, good morning and welcome to the Altus Power Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Shelton, Head of Investor Relations. Please go ahead, sir.

Good morning, and welcome to our third quarter 2023 earnings call. Joining me on today's call are Greg Shelton, Co-Chief Executive Officer, Julia Sears, Chief Digital 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 accept, anticipate, believe, will, plan, estimate, and similar expressions as they relate to ALTA's power identify a forward-looking statement. These statements are subject to various risks and uncertainties and could cause actual results to differ materially from those predicted in the forward-looking statements. Altus Power seems 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. During this call, we will also refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. Our management team uses non-GAAP financial measures to plan, monitor, and evaluate our financial performance, and we believe this information may be useful to our investors. These non-GAAP financial measures exclude certain items that 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. More detailed information about these measures and reconciliation from GAAP to these non-GAAP financial measures is contained in both the press release and the presentation that we issued today. With that, I will now turn the call over to Greg Felton, Co-Chief Executive Officer of Altus Power.

Thanks, Chris, and welcome to all our investors and analysts. Please join me on slide three as I summarize our accomplishments during the quarter. First, we have a unique opportunity to expand our leadership position in the current environment. The secular tailwinds of the commercial-scale solar market are very much intact, and our opportunity set has never been greater. Rising power prices, sustainability objectives, and expanding community solar programs provide an excellent backdrop for our long-term growth plans. To be clear, the greatest challenge of the current environment is that access to traditional bank financing continues to be constrained for most of the market. Many developers have limited access to financing and are looking to align with long-term partners prior to construction. In that context, one of Altus's core strengths, our unique funding architecture, is proving to be a particularly compelling competitive advantage. We deliberately designed our business to be attractive to long-term capital providers, in particular insurance companies, who, unlike banks, continue to have significant demand to fund our activities. Today, we are pleased to announce an important expansion of our funding architecture, which is a very innovative construction facility with Blackstone and our insurance partners. Our new construction facility enables us to borrow up to $200 million for assets during development and construction. Importantly, the source of this capital are the very same insurance partners who wish to provide long-term funding for our assets once construction is completed in our existing and scalable Blackstone long-term funding facility. Dustin will provide additional details regarding the benefits of this facility later on this call. We continue to grow the flow of opportunities from our origination sources, and in particular, from CBRE and our channel partners. And we are pleased to have welcomed a number of new partnerships which will contribute to our pipeline, including Trans Western Investment Group, Morgan Stanley, and Brennan Investment Group. Third, today we announced our purchase of a 121 megawatt portfolio, which will increase our market share in our rapidly growing segment. We remain selective and opportunistic on the deals we pursue, but once again, we expect to demonstrate how the demand for our capital, our technical skill, and our efficiency as a counterparty all play a role in our ability to execute. Finally, reminding everyone of our relentless focus on profitable growth, even in this challenging market environment, we are pleased to reaffirm our guidance range of $97 to $103 million with an adjusted EBITDA margin in the mid to high 50s. The theme of profitable growth remains paramount for Altus Power, and our third quarter results continue to build out our track record. As shown on slide four, profitability for Altus Power is measured by our adjusted EBITDA and also underscored by our cash generated from our operating activities. We believe both measures of profitability to be key and differentiating characteristics relative to most other cleantech companies. The long-term contracted nature of our assets produces cash flow that is not only recurring, but is expected to continue to grow. Net of debt service and payments to tax equity partners, we expect to continue to generate increasing levels of cash flow, which can be reinvested into our growing asset base and customer reach. On slide five, during the third quarter, we added 22 megawatts of long-term contracted assets bringing our total to 721 megawatts, representing 91% growth versus third quarter of 2022. Over the first three quarters of 2023, we have added 251 megawatts, and we expect this total to grow substantially in the fourth quarter, supported by the expected closing of our portfolio acquisition and additional assets currently under construction, both of which I will detail in the next two slides. Starting on slide six, during this year, we have completed construction of 53 megawatts of development assets, and we continue to expect approximately 75 megawatts to be completed by year end. Community solar represents an important component of our growth opportunity as it serves to expand our total addressable market. This year, we've entered New Jersey, Hawaii, and Maine to serve new community solar customers. We are seeing the rapid adoption of community solar programs around the country and see potential to aggressively scale in this segment. Since our last call, our newly completed assets include 28 megawatts in New Jersey, all of which will serve our growing segment of community solar customers. We continue to lay the foundation to meet the significant development growth we expect in 2024, which will represent a record level of construction activity for Altus Power. Now on slide seven for details of our most recent acquisition. This portfolio of 121 megawatts across 35 discrete sites fits well into our existing portfolio, providing additional scale in key markets. Upon closing, which we expect this quarter, our portfolio will expand significantly within North and South Carolina, adding both geographic diversification and an attractive set of customers to the Altus Power brand within the Southeast region of the United States, where we look forward to further expansion. As with all our large acquisitions, this transaction was the result of intense financial, legal, and technical diligence and bilateral negotiation with the seller. Once these assets are onboarded to the Altus Power platform, our team will be focused on asset performance and other opportunities to optimize operating margins. We plan to efficiently finance the $120 million purchase price with our Blackstone long-term funding facility combined with cash on hand. The financing benefits from our interest rate hedge, which was opportunistically established in January of 2023, and proved valuable at a time when cost of capital has been increasing dramatically. As a serial acquirer of large portfolios like this, Altus Power has developed a strong reputation for providing sellers with competitive pricing and execution certainty. Our technical expertise continues to be an important competitive advantage during the diligence process providing us with critical insights regarding asset quality and system performance and allowing for an efficient transaction. Please turn to slide eight for our pipeline update. Starting with our development asset pipeline, our relationship with CBRE, Blackstone, and our channel partners provides us with a critical advantage when negotiating long-term agreements with real estate owners across large asset portfolios of multiple buildings. We are focused on expanding relationships with existing customers, and this quarter provides an excellent example of Altus Power's execution capability as we were awarded 18 megawatts under Illinois' new community solar program. This scale of contract leveraged our work to secure master lease agreements with multiple large property owners, which Altus is already serving in other markets, including CBRE Investment Management, Iron Mountain, and another large institutional real estate owner. We further announced last week an exclusive agreement with Trans Western Investment Group to install new solar arrays across its national portfolio of 24 industrial and logistics properties. Trans Western is another CBRE introduction that was motivated to negotiate a master lease agreement with Altus to begin decarbonizing its portfolio and secure a stream of lease payments. These are examples of numerous relationships where Altus's origination and development teams are engaged with large developers and owners of real estate. As our market continues to expand, these partnerships promise a growing pipeline of buildings which are not included in our one gigawatt pipeline. With successful execution and a long-term model to serve our customers, we anticipate significant opportunities to add many more buildings within our clients' portfolios, and we would expect increased velocity of incremental contracts as these relationships season over time. Moving now to acquisitions, our pipeline of opportunities is particularly robust as the precipitous rise in long-term interest rates over the past several months has created something of a buyer's market. Many market participants are particularly motivated and sometimes even forced to sell in order to make capital available for other purposes. As a result, our opportunity set is growing and we are currently negotiating multiple opportunities such as the one we announced this morning. Turning to slide nine, while the foundation of our business is energy as a service, our long-term business model is to land and expand by offering our customer relationships additional Altus Power products and services. This quarter, we're excited to announce Altus IQ, our digital customer interface as our software as a service offering. Specially invited to tell us more on our call today, I'm happy to introduce Julia Sears, who joined us as Chief Digital Officer in 2021 after a successful career with NASDAQ and TIAA. For the past two years, Julia and the Altus Power team have been busy developing this proprietary software, which we have just recently introduced to our clients. I'll now turn the call over to Julia, who will share the exciting details about Altus IQ. Welcome, Julia.