Altus Power, Inc. (NYSE:AMPS) Q3 2023 Earnings Call Transcript

Altus Power, Inc. (NYSE:AMPS) Q3 2023 Earnings Call Transcript November 13, 2023

Altus Power, Inc. reports earnings inline with expectations. Reported EPS is $0.03 EPS, expectations were $0.03.

Operator: 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 please question-and-answer session will follow the formal presentation. [Operator Instructions] 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.

Chris Shelton: Good morning, and welcome to our third quarter 2023 earnings call. Joining me on today’s call are Gregg Felton, Co-Chief Executive Officer; Julia Sears, Chief Digital Officer; and Dustin Weber, Chief Financial Officer. In addition, Co-Chief Executive Officer, Lars Morel, 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.altispower.com in the Investors 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 except, anticipate, believe, will, plan, estimate and similar expressions as they relate to Altus 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 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 30, 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 reconciliations 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 Gregg Felton, Co-Chief Executive Officer of Altus Power.

Gregg Felton: Thanks, Chris, and welcome to all our investors and analysts. Please join me on Slide 3 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’ 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. Second, 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 Transwestern Investment Group, Morgan Stanley and Brendan 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 million to $103 million with an adjusted EBITDA margin in the mid to high 50s. We 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 4, 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 clean tech 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 5, 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 3 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 2 slides. Starting on Slide 6. 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 7 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 8 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 Transwestern Investment Group to install new solar arrays across its national portfolio of 24 industrial and logistics properties. Transwestern 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’ 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 1 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 9. 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 2 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 [ph] Welcome, Julia.

Julia Sears: Thank you, Greg. We’re excited to unveil Altus IQ [ph] to our investors and analysts today because e believe it reflects the value that Altus can uniquely bring to our customers. We’ve collected and analyzed years of customer energy data for the purposes of rightsizing our solar and storage deployments. Our team of data scientists, usability designers and climate experts have leveraged AI and machine learning to turn that trove of data into actionable intelligence that aims to provide threefold value for our customers. Energy transparency, insight and transactability. On Slide 9, you can see an example of the Altus IT platform, which was designed with usability and transparency in mind. A customer sees their total energy usage with the option of including clean electric power purchased for Altus and their savings relative to utility rates.

From this dashboard, our customers can view detailed carbon footprint measurement across specific properties, armed with the transparency of their footprint and data-driven insights into recommended carbon reduction actions, customers can transact directly through the Altus IQ platform. Customers choose from a menu of decarbonization options, including purchasing new solar, opting in for storage or having Altus identify and source the best renewable credits or carbon offsets to close any remaining gaps. We’ve been pleased with the initial feedback from customers during the pilot phase, and our plan is to continue to enhance the Altus IQ platform in order to deploy it to the vast majority of our corporate customers. That concludes the brief description of our new Software as a Service offering.

Gregg, let me turn the call back to you.

Gregg Felton: Thanks, Julia. We believe Altus IQ will be particularly valuable for our customers who are facing increasing requirements to disclose carbon emissions to their regulators and are currently struggling to track progress of their own carbon reduction as well as their tenants at a portfolio level. We have recently introduced Altus IQ to a subset of Altus Power customers, and we look forward to onboarding many more customers in the quarters ahead. Now let me hand the call over to Dustin for a review of our financials and further details on our new construction facility. Dustin?

Dustin Weber: Thanks, Gregg, and welcome to everyone on the call. Please join me on Slide 10 as I cover our third quarter financials and guidance for the year. This review will include a discussion of GAAP measures and non-GAAP measures, which include adjusted EBITDA and adjusted EBITDA margin. During the third quarter, our revenues grew to $45.1 million compared to $30.4 million in the third quarter of 2022, an increase of 48%, driven predominantly by the additions of our larger acquisitions and new development assets placed into service during the year. Turning to GAAP net income for the quarter. We posted income of $6.8 million compared to a net loss of $96.6 million during the third quarter of last year. This increase primarily resulted from the fair value remeasurement of our alignment shares during both periods.

As a reminder, these remeasurements are noncash and driven by movements in our share price from quarter-to-quarter. Shifting to adjusted EBITDA. We reported $29.1 million compared to $19.4 million in the third quarter of 2022, amounting to growth of approximately 50% and reflecting an adjusted EBITDA margin of 64% for the quarter. Our third quarter results put us on track to achieve our 2023 adjusted EBITDA guidance range of $97 million to $103 million and EBITDA margins in the mid- to high 50% range. At this late stage of the year, we expect the remaining 22 megawatts of soon-to-be completed construction assets and our large portfolio acquisition to have only a modest impact on our ’23 results, but the recurring revenue of these asset additions will be fully reflected in our 2024 results.

There will be more details to come on our year-end call in March when we plan to provide our 2024 guidance. Turning to financing on Slide 11. This illustration shows advantages provided by our new Blackstone construction facility, which allows us to finance up to $200 million of costs, including equipment, labor, interconnection and other development costs necessary to build the solar array. The additional flexibility to finance these construction costs is an important piece of our plan to manage our cash position as we accelerate our construction pace into next year. Once construction assets are completed and begin generating revenue, they will be eligible for our long-term fixed rate funding facility, which, as of the end of the quarter, carried a weighted average interest rate of 4.35% on existing borrowings.

During the third quarter, we upsized the long-term funding facility by $28 million and it plans for an additional upside in the next few months to finance our portfolio acquisition and other newly constructed assets. In anticipation of the expected draw, in October, we unwound the remaining portion of our interest rate hedge for a cumulative realized gain of approximately $17 million. The rate hedge proved extremely beneficial in a rising interest rate environment and is another example of our ability to execute creative and market-leading financing solutions. Moving to tax equity. This quarter, we received additional proceeds from our tax equity partnerships, which monetized tax attributes of newly completed assets. Our partners have indicated ongoing tax appetite to support our growth, it’s worth noting that we’ve evaluated the direct sale of investment tax credits.

And as of now, we believe tax equity arrangements provide superior economics. We will, of course, continue to evaluate both markets for the best execution of our tax credits in the future. In summary, we believe we are well positioned to take advantage of the robust growth opportunities available to us, thanks to our industry-leading platform, which generates significant cash flow and has access to the necessary financing to support our growth. That concludes my review of our financials. I’ll now pass the call back to Gregg for some additional remarks.

Gregg Felton: Thanks, Dustin. I hope our prepared remarks today illustrate how Altus has been built to execute on the large and growing market opportunity in commercial scale solar. This should be particularly apparent at a time when financial forecasts from other industry participants are being slashed and capital access is limited. Our roster of commercial and community customers is expanding as power prices rise and community solar programs proliferate. Consolidation in our industry is set to accelerate, and Altus Power has both the capabilities and the capital to be distinct beneficiary. With that, we’re now available to take your questions.

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Andrew Percoco with Morgan Stanley. Please go ahead.

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Q&A Session

Andrew Percoco: Thanks so much. Good morning, guys. Congrats on another strong quarter. I just wanted to come back to the financing for a second. We do see the market grappling a bit with any company in need of ongoing financing. So if you could just help us understand how conversations with Blackstone have evolved. And if you can maybe give us a sense for where you would expect the cost of debt to land on that incremental term loan that you’ll be using to finance that 121 megawatt acquisition, that would be great. I think the last financing in June was in the mid-5% range. I’m just curious how that’s changed as base rates have moved higher.

Gregg Felton: Thanks, Andrew. Thanks for the question. This is Gregg. First, on the construction facility, we’re quite proud of that accomplishment as hopefully, you can tell. It’s – the most important aspect of the construction facility is having access to capital in an environment where others do not. That access comes courtesy of the same insurance companies that are providing long-term funding. And their motivation, of course, is to have access to providing us long-term funding. So as it relates to the cost of the long-term funding, it’s the same methodology that we’ve used in the past, which is effectively we’re pricing it at a spread to the then prevailing 10-year treasury rate. So think of it as a 10-year plus a 2-handle type of spread.

But as Dustin mentioned that the financing does benefit from the fact that we had in place 10-year interest rate hedges that we put in place in January. And so while the ongoing or future spread should be thought of as to handle over, we do have a benefit of an interest rate hedge for this particular transaction that we completed.

Lars Norell: And we might want to add. Andrew, this is Lars. Thanks a lot for your question. There is tremendous strength involved in having a funding facility that allows us to take a 25-year contract to sell power to an investment-grade power buyer, which is a large enterprise or an entity and then take that and fund it with 25-year debt, you take away the rate risk, you take away the refinancing risk and the risk that you somehow have to find new money to back that asset in the middle of the contract. And so while it took us a while to put this investment-grade facility together, 10 years, in fact, from when we started in 2009 when it got done in 2019, the strength of being able to fund our assets that are long term with long-term capital is profound in the way we look at the business.

Andrew Percoco: That’s helpful. And I did just want to come back to this AI tool. How do you think about that in terms of how you monetize it? Is it more of a customer acquisition tool today? I know it’s still pretty early days, but just wondering how you’re envisioning this tool, whether it be additional monetization or just a way to get your foot in the door with additional customers? Thank you.

Lars Norell: Sure. It’s Lars again, and then Dustin can maybe give some details. I think a little bit of both, but we believe based on the initial received or reception by some enterprises that this thing is tremendously valuable to them. It allows them to begin the process of controlling and measuring their power consumption and you might think that for someone like a Home Depot, it’s easy to know what Power they consume because they obviously have a service from the utility and they get bills every month, and that would be true. But for somebody like Link, the portfolio logistics company for Blackstone or CBRE Investment Management, who own these gigantic distribution centers, it’s not so easy for them to know what power is being consumed in those buildings because they’re landlords in triple net lease situations.

And so Altus’ ability to come in and begin to shed light on the amount of power being consumed and what that would result in, in a carbon footprint. And then, of course, giving them the ability to sort of click on a button and have a solar system appear over the next 9 to 12 months. That’s very, very valuable to them. And so we intend to make sure that we charge for that value. It represents a sort of ancillary revenue source for Altus. And maybe, Dustin, we can talk about what we think the impact of that revenue will be on overall financials.

Dustin Weber: Sure. Yes. Lars, I think you did a nice job highlighting the value that Altus IQ is providing to our customers. I would just add that it’s always been our intention to have this land and expand and offer additional solutions to our customers. This is an example of that. We – while we expect IQ to have a growing impact on our revenue in years to come, I would say, in isolation for the immediate financial forecast, it’s – we’re going to – it’s not going to change our immediate forecast.

Julia Sears: I would also add, Andrew, just on top of that, I think you asked a couple of interesting questions. One on acquisition, absolutely. So bringing in new clients and growing our path, that’s going to be a key part of our strategy. But also our existing clients for the past 15 years managing their capabilities and increasing our efficiency as a company and their efficiency to manage their bills or look at their savings or grow their market, that’s strategic for us and important for us.

Andrew Percoco: Great. Thank you so much.

Operator: Thank you. Our next question is from Justin Clare with ROTH MKM. Please go ahead.

Justin Clare: Yes. Thanks for taking the questions here. So first, I just wanted to ask about the acquisition. It looks like you’re paying about $1 a watt for the 121 megawatt acquisition that you just announced here. It seems to be a little bit lower than prior acquisitions that you’ve made and then the typical cost, I would assume to build commercial assets. So I was wondering if you could just speak to the lower per watt price here? And then can you give us any sense for the revenue and EBITDA contribution here? I think historically, you’ve paid maybe 10 to 11 times EBITDA for prior acquisitions. Is that a reasonable assumption here or any meaningful difference? It seems like multiples may have compressed. So maybe you could speak to that as well?

Dustin Weber: Sure. Thanks for the question. So let me touch on the first – the second question first. As it relates to the current environment and the valuations, that is true that we are seeing, obviously, more favorable pricing. And so in this case, that benchmark a rule of thumb of 10% to 11% or 10% to 12% that we’ve historically talked about, we think is still appropriate. And this particular acquisition was at the low end of the range in terms of a multiple. As you know, we’re underwriting to cash flows through sort of discounted cash flow methodology. And not all megawatts are created equal, as you know, Justin. So in this particular case, we’re acquiring a portfolio that is national, but it has a healthy concentration in the Southeast, which we like.

It’s a nice diversifier for us. And the price of power in the Southeast tends to be lower than it might be in other parts of the country. And so the cash flow profile of that asset base warranted a dollar per watt type of number. But it’s an excellent acquisition and very accretive to the company for a variety of reasons.

Justin Clare: Got it. Okay. That’s helpful. And then just on the financing of the acquisition, can you share the mix of the financing between the Blackstone facility and then how much equity is required here. And then you did talk about the possibility for attractive further acquisitions here. Could you talk about your capacity to make further acquisitions, given your cash on hand and your – the different sources of debt financing that’s available to?

Dustin Weber: Sure. So the first point to make is that this financing fits nice – sorry, this acquisition fits nicely into our current facilities that will be upsized to support the acquisition and there’ll be a good portion of the acquisition will be funded through the Blackstone long-term debt facility, combined with cash on hand. As you heard, the effective rate of this financing will be a bit lower, i.e., there will be a benefit from the interest rate hedge. So there’ll be a predominant use of long-term debt and some lesser amount of cash on hand. In terms of our long-term capacity to continue to pursue the robust opportunity of deals in front of us, both on the development and the acquisition side. We do have plenty of capital to support those transactions — and I want to reiterate that we have no intention of issuing equity or equity-linked instruments to support that growth.

The access to debt financing that we have, whether it be Blackstone or other debt financing is adequate in order to support our growth plans.

Justin Clare: Got you. Okay. And then maybe just one more. It looks like you moved a decent amount of assets into the construction bucket here in this quarter. Wondering what you’re seeing for construction time lines. And I’m also trying to get a sense for when do you need to have all the assets under construction in order to hit your target for next year of 150 megawatts of self-developed assets?

Dustin Weber: Sure. Yes, Justin, we’re very happy. Over 50 of the 75 megawatts that have been in construction this year have been molding operation, and we’re busy finishing up the rest. In fact, many of the ones that are not yet in the finished column are actually completed. They’re built and they’re just sitting around waiting for the utility to come by either in inspected or for the utility to put up their polls so that we can complete those. So it’s been a very interesting year. A lot of companies in our space apparently have had some headwinds and are running into market conditions that are causing them to slow down. We are not. We’ve had and will have the best construction year ever for Altus with a 75 megawatts of completion once we get to the end of the year in 6 or so weeks.

We feel very good about continuing to grow that platform. And so while others are sort of cutting and slowing down, we’re increasing the size of the platform. We’re investing in more staff and expanding our capacity further as we continue to scale up. We have already started with some of the construction for assets that are going to be completed next year, and we look forward to providing some more details on our fourth quarter call as we have more visibility into the exact number and makeup of the assets we’re going to complete building next year.

Justin Clare: Got it. Okay. Thank you.

Operator: Thank you. Our next question is from the line of James West with Evercore ISI. Please go ahead.

James West: Hey, good morning, guys. I wanted to follow up on Altus IQ. Really interesting introduction here. I know you dug into some of the details, but I was curious about the rollout of this product. I know you’ve rolled it out to a few customers so far. What’s the plan to attack the rest of the existing customer base? And then maybe secondarily, what will this be offered kind of with every project going toward? I’m assuming it will be?

Julia Sears: James, that’s a great question. And nice to meet you. We’ve had, to your point, rollout earlier this year, we started in February with several clients, and we’ll continue to do that with clients that are a part of what we call Altus fit [ph] So whether they’re a part of looking at energy optimization for their organizations or they are looking at solar solutions and offsets, we want to provide a solution that helps any one of those categories and can help grow that space. From a rollout perspective, today, if you go to the public website, you can look under commercial and see a tab for IQ. You can see the base features of the product and also had a request a scheduled demo and get involved with our team internally. We welcome folks that are either within our organization as an existing clients or new clients or part of our partners to be a part of that growth.

Lars Norell: And James, this is Lars. We’ve been beta testing IQ with some of our existing customers that we have been delivering clean electric power to for some time to make sure that we can begin to have a sense for how they want this user interface to work. And we ultimately will roll it out so that all our existing customers are able to be on it. And frankly, one of the very simple features in there is to pay your bill. And so the ability for large corporates to basically access their billing in one place has proven to be very valuable to them, and it’s relatively straightforward for us to set up. But it’s in the interaction with new customers, new development customers, both from Blackstone and from CBRE in particular, that we’re noticing that there’s a great deal of excitement about what IQ can do for them.

And so one of the things, it takes a while for us, as we’ve talked about on prior calls, it takes a while for us to onboard a large enterprise customer into our solar program. There’s a lot of stakeholders at very large entities and they all need to be consulted and they have their internal processes, et cetera, et cetera. We’ve been wanting to see if there’s some way that we can connect early with those customers in an actual commercial relationship. And so to frankly, take them off the market a little bit while they’re busy looking through buildings and listening to engineering reports, et cetera, and so forth. And so Altus IQ is that way. We can now begin to serve these corporate customers very early in the process. And while a solar system might take 9 or 12 or even 15 months to build, onboarding buildings onto Altus IQ can be done in a day.

And so the ability for us to connect with those customers is going, we think, to prove very, very – it’s going to provide us with a very nice competitive advantage.

James West: Okay. Got it. Thanks, Lars. And then maybe just another question for me. Gregg, When I saw you recently, we talked a bit about community solar, and I think that’s going to be a pretty big platform going forward and a pretty big opportunity going forward. I wonder if you could elaborate on how you guys are thinking about community solar. I know there’s 9 or 10 or so states that do have programs in place, but that will probably roll out some more over time? And what – how Altus going to participate in this?

Gregg Felton: Sure. It’s a great topic of conversation, James. And we are incredibly well positioned to continue to roll out community solar programs across the country as and when these programs proliferate. And we really view this as a TAM or total addressable market expander for the company. As you know, we’re – our reach in terms of our relationships or our customer relationships and the real estate that we touch is global, but it’s specifically across the U.S. And as community solar programs roll out, for example, the largest state in the country, California, has yet to introduce, but is on the horizon. In 2024, it’s anticipated. So we are well positioned. We already have the real estate relationships, and we will look to pursue community solar expansion in every market where it’s coming. And so it’s a very exciting opportunity for us. Lars or any…

Lars Norell: Yes. James, one of the most practical implications of community solar is that it works as a system size enhancement to us. Where with a very large commercial rooftop from a logistical building, we might be able to fit like a quarter or third of that roof with solar because that’s all that building consumes in terms of electricity. But the second that building is in a community solar state, we cannot fill the entire roof with a silver system and sell the excess power back into the community, which is an awesome way for us to take our natural flow in customer engagement and maximize the impact to Altus from each of those deals.

Julia Sears: I would add, on community solar, one of our key efforts here is democratizing power to our end users. And you can see if you go to our site or any one of our applications that we have to help acquire new community solar customers or service them as we do in Hawaii. We are trying to make sure that it’s accessible and digestible and reachable by all of our consumers. So we are prepared to support that with Lars and Gregg’s comments.

James West: Got it. Thanks, everybody.

Operator: Thank you. [Operator Instructions] Our next question is from the line of Chris Souther with B. Riley Securities. Please go ahead.

Chris Souther: Hi, guys. Thanks for taking my questions, here. Maybe just touch on the 3Q results a bit. There’s pretty rough weather in the Northeast during the quarter where your footprint is pretty large. I’m curious how asset performance tracked in the quarter versus your expectations? And I know you reiterated the guidance, I’m just curious how we’re kind of tracking within that EBITDA guidance given expected seasonality in the fourth quarter there?

Dustin Weber: Yes. Chris, this is Dustin. Thanks for the question. Yes, thanks for highlighting the weather, particularly in the Northeast where we do have a nice footprint. It was a little lighter than our expectations in Q3. Typically, as forecasted, Q2 and Q3 are going to be very similar from an expected Sunlight or a Radian standpoint, which, of course, tracks closely to generation. This year, we saw a slightly better irradiance [ph] in Q2. And as I just noted, slightly lower in Q3. So one of the things we like best about our business is the fact that we’re distributed across the country in 25 states and growing. And typically, what you get – when you have that diversified portfolio, is that weather can be good on the West Coast and that on the East Coast and things tend to cancel out over the portfolio and importantly, over the course of the year.

And so despite some light being a little light in Q3, it’s – our models allow for that level of variability, and that’s why we’re confident in reiterating our guidance range for the year.

Gregg Felton: Chris, I’d also add just something to add, just to Dustin’s points about geographic mix, which we have on Slide 5, we show the states that are most where we have sort of greatest presence today, but that is – excludes the impact of this 121 megawatt acquisition we announced, which is predominantly in the Carolinas. So that acquisition will be a nice diversifier or expand of our market presence as well.

Chris Souther: Definitely. That’s great. Great. And then on the construction facility, how should we think about the size of the construction pipeline that could essentially fund into about 200 megawatts. I’m curious how much construction and progress you have today, basically, how much capital that would kind of unlock potentially like overnight. I think you had about $89 million in construction in progress at the end of last year, but I’m just curious kind of where that stands today?

Dustin Weber: Yes. I’ll take that first, and then maybe Gregg can follow up. basically, one of the questions that we’re dealing with is to make sure that we remove bottlenecks that are preventing us or that would prevent us from getting to the growth of assets, adding importantly to our operating portfolio, which is where the revenue comes from, that we want to have. In construction funding would definitely represent the bottleneck and the size of the construction platform, the size of the development platform, sites of engineering. And so with the launch of this particular new construction facility, which we are deeply, deeply [indiscernible] with because it’s from the same source that our long-term funding comes from. One of those bottlenecks is removed.

And we, of course, also use cash on balance sheet to build, but both the size and the strength of our growing construction teams, engineering teams and development teams – and now the ready availability of construction funding is what allows us to grow our pipeline significantly from where we’re sitting right now in ’24 over the construction throughput of 23. Gregg?

Gregg Felton: Yes. The thing I’d add to that is that the facility that we announced this morning is unique relative to bank facilities. It’s $200 million of commitment. It’s multiyear. It actually – there is no commitment fee that we’re paying for that, which is excellent. As you saw on Slide 11, just to highlight, unlike a construction facility, there’s a lot more flexibility that we have to use that facility for equipment, for labor. So if you think about the inventory that we’re able to have – so it’s a bit of a working capital facility in addition to a construction facility. And there’s a lot more really flexibility. And given the fact that these are our long-term lenders, it’s also much more streamlined relative to dealing with a construction syndicate that’s bank-led and then rolling it into a different long-term financing partners.

So there are huge advantages in terms of reducing bottlenecks, as Lars described. And it’s also highly flexible in nature. So that $200 million commitment that we have, which again is multiyear, does allow us the runway to be able to plan for our next handful of years of construction growth.

Chris Souther: That’s good to hear. Thanks. Thanks.

Operator: Thank you. As there are no further questions, I would now hand the conference over to Gregg Felton for closing comments. Thanks, everyone. As you can tell, we’re well positioned to take advantage of the growth opportunity in front of us. And we believe the current dislocation is creating an opportunity for the company to accelerate our growth. We look forward to updating you further on our Q4 call. Thanks again.

Operator: Thank you. The conference of Altus Power has now concluded. Thank you for your participation. You may now disconnect your lines.+