Altus Power, Inc. (NYSE:AMPS) Q1 2023 Earnings Call Transcript May 15, 2023

Altus Power, Inc. beats earnings expectations. Reported EPS is $0.03, expectations were $0.01031.

Operator: Good morning, and welcome to Altus Power First Quarter 2023 Conference Call. As a reminder, today’s call is being recorded. [Operator Instructions] 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.

Chris Shelton: Good morning, and welcome to our first quarter 2023 earnings call. Speaking on today’s call are Gregg 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 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 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 30, 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 Gregg Felton, Co-Chief Executive Officer of Altus Power.

Gregg Felton: Thanks, Chris, and welcome, all our investors and analysts to our call. It’s been just 6 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 3, 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 million 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 4, which shows our portfolio as of March 31.

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 5, 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 6. This quarter, we’re introducing increased visibility on the timing of our project completions. We’ve detailed a variety of challenges we 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 8 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 3 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 the breakdown of 40 megawatts of projects in New Jersey, many of which are being [indiscernible] 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 2 slides have been a good prelude to our pipeline on Slide 7. 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 CBRE Investment Management, Trammell Crow and now Iron Mountain, we expect to shorten the prospective sales cycle for these customers and increase velocity into preconstruction activities. Our playbook remains to prioritize customers with large real estate portfolios, who are motivated to standardized 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?

Dustin Weber: Thanks, Gregg, and welcome to our call. Please join me on Slide 8, 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 GAAP 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 noncash 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 9 as I discuss our outlook. First quarter results put us in a position to reaffirm our 2023 adjusted EBITDA guidance range of $97 million to $103 million with substantial capacity additions in February, giving us increased clarity for the full year outlook. As Gregg 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 Gregg for some closing remarks.

Gregg Felton: Thanks, Dustin. 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 plan to 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.

Q&A Session

Operator: [Operator Instructions] Our first question comes from James West with Evercore ISI.

Operator: The next question comes from Andrew Percoco with Morgan Stanley.

Operator: Our next question comes from Justin Clare with ROTH MKM.

Operator: The next question comes from Chris Souther with B. Riley.

Operator: [Operator Instructions] Our next question comes from Jon Windham with UBS.

Operator: [Operator Instructions] There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

Gregg Felton: 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.

Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.