Q2 2022 Altus Power Inc Earnings Call
[music].
Good morning, and welcome to the Altice power second quarter 2022 conference calls.
As a reminder, today's call is being recorded.
Participants are in a listen only mode.
A question and answer session will follow the formal presentation.
At this time for opening remarks, and introduction I would like to turn the call over to Chris Shelton head of Investor Relations.
Please go ahead, Sir good morning, and welcome to all of our investors and analysts speaking on today's call is Lars <unk> co Chief Executive Officer, Dan <unk>, Chief platform Officer, and Duston Weber Chief Financial Officer.
In addition, co Chief Executive Officer, Gregg Felton 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 dot all of his power dot 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 all of those powers future operations and financial performance.
When used in this call. The words aim believe expect intend may could will should plan project forecast seek anticipate goal objective target future outlook strategy.
And similar expressions as they relate to oldest power as such identify a forward looking statement.
These statements are subject to various risks and uncertainties and are based on certain assumptions and thus could cause actual results to differ materially from our from those predicted in our forward looking statements.
I'll just power assumes no obligation to update these statements in the future or as circumstances change for more information. We encourage you to review the risks uncertainties and other factors discussed in our SEC filings, specifically, our 10-K filed with the SEC on March 24 2022.
During this call. We will also refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures.
Our management team uses these non-GAAP financial measures to plan monitor and evaluate our financial performance and we believe that the information may be useful to our investors.
non-GAAP financial measures excludes certain items and should not be considered as a substitute for comparable GAAP financial measures.
All of those powers.
Methods of computing. These non-GAAP financial measures may differ from similar non-GAAP financial measures used by other companies.
Detailed information about these measures and a reconciliation from GAAP to non-GAAP financial measures is contained in both the press release and the presentation, we issued today.
Finally, our speakers today will reference our second quarter slide deck during our 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 Lars morale co Chief Executive Officer of all of this power Lars.
Thanks, Chris and welcome to the investors and analysts who have joined our call.
I want to start this morning, with our financial highlights, which you can see on slide three of our presentation.
We're pleased to report that during the second quarter, we continued to execute our business profitably.
We recorded revenues of $24 8 million, which combined with our efficient cost structure led to adjusted EBITDA of $13 9 million and a 56% adjusted EBITDA margin.
Our financial performance puts us on track to fully achieve our 2022, adjusted EBITDA guidance of 57% to $63 million as well as adjusted EBITA margin in the mid 50% range.
We are focused on profitability at Altus power and.
And we're proud to have been cash flow positive since 2017.
It's crucially important to us that we maintain our profitability, even as we position to rapidly scale and grow our business.
Equally important to office tower or the environmental benefits of our solar plus storage assets, which we generate on behalf of our stakeholders each and every quarter.
During the second quarter, we sold 137 megawatt hours of clean electricity to our customers, which avoided almost 100000 equivalent metric tons of carbon when compared to carbon intensive utility power.
<unk> over the first six months on behalf of our customers. We have avoided almost a 160000 metric tons of carbon equivalent occur.
According to the environmental Protection agency, that's equivalent to the annual electricity consumption of over 30000 homes or the gasoline used from driving almost 400 million miles.
The environmental benefits of our solar and storage assets, often field direct and magnified because they're typically customer sited.
It is important to all this power and our stakeholders that we educate and amplify for the market the solar plus storage benefits, we generate and how they are foundational to our own high ESG standards to this end. We recently issued our first sustainability report on the ESG section of our website.
And you can see to cover on slide four.
While we've only been a public company for seven months, our team was resolute and issuing this initial report showing how we currently stack up on environment, social and governance metrics we.
We hope you will reviewed as reported the tail and we expect to issue our sustainability report annually going forward building on our commitments.
Before heading into our company update I'd like to comment on the inflation reduction Act, which we believe precedent Biden will signed into law shortly.
The provisions in the Bill will grant our industry at least 10 years of federal support in the form of investment tax credits that allow us to plan for significant long term capital investments.
We expect to bill to not only enhance the economic argument for commercial scale solar but also to accelerate the rate of addition of battery storage for our existing assets.
The Bill also includes significant incentives for the build out of community solar, which we believe expands our addressable market substantially.
We look forward to engaging with our customers on the benefits included in the inflation reduction Act.
Now I want to discuss several important topics for our business starting with an update on our pipeline.
Our current portfolio of operating assets.
Followed by a progress on building out our team here at all.
As part of this discussion our chief.
Apart from officer, Dan All comprised has joined our call to discuss how his team has begun to leverage Cbre's project management team for efficiency and scale.
After that I will provide some commentary on our supply chain and the expected.
It impacts of continued energy price inflation for our company.
Finally, we'll hear financial highlights from our CFO Duston Webber before taking your questions.
Starting with the update of our pipeline on slide five.
Which remains over one gigawatt in total.
Looking first at our pipeline of operating asset acquisitions represented by the Pie chart on the left hand side of this slide.
We continued to progress on over 500 megawatts of individual assets or portfolios of operating assets.
This quarter, we've updated our disclosure to show how we're moving assets through the pipeline in our efforts to add them to our operating portfolio.
Since our first quarter call, we have been seeing a significant increase in acquisition opportunities and we are pleased with the progress we are making in terms of executing on these transactions. We currently have approximately 20% of this portion of our pipeline in the closing stage and we are in active negotiation on terms.
On the matter of 61% of this portion of our pipeline.
Moving now to our development pipeline on the right.
During the quarter, we were able to move a significant number of megawatts out of the engagement stage and into the more advanced contracting and construction stage buckets.
You can see the progress in our Pie chart compared to Q1 with.
With a COVID-19% increase in the later stage buckets of contracting and construction our ultimate focus is to move all of these development assets into operation generating clean electricity for our customers. We look forward to showing you additional progress on all three bucket for this portion of our pipeline on future calls.
Moving then to our operating portfolio on slide six.
We finished the second quarter with 369 megawatts, including new clients and assets added from both our development and acquisition pipelines during the quarter.
These new assets were added within our current footprint, which includes 18 states across the country.
While we continue to contend with a challenging environment as it relates to sourcing of components and general construction timelines. We are pleased that our construction activity as well as pre construction and development activity.
<unk> to progress.
With assets moving towards completion well.
We look forward to adding their generation capacity to our portfolio either late this year or early in 2023.
This brings me to one of the themes that we want to highlight in the current period.
We are very focused on allocating resources to the build out of our engineering construction and physical asset servicing team here at Altice power, which we illustrate on slide seven.
We are prepared for this moment for some time and the purpose is to increase our capacity to respond to the increased number of client engagements and the resulting increased cadence of assets moving into pre construction construction and ultimately operating phases.
Maintained in house expertise across all of our teams is critical because we plan to own and operate the assets. We develop are purchased for the life of their contracts and beyond <unk>.
Exemplifying this buildout of capacity. This summer we have welcomed new members to our development team our construction management team.
And our energy optimization team.
A critical piece of our vision to construct all of these megawatts at scale.
CBRE is project management organization in January Dan All can Brian joined our team to streamline this relationship as our Chief platform Officer.
And his 15 years of experience specifically in development of commercial and industrial distributed generation here.
His unique task is to take assets, we've originated and make sure we properly leverage project management to drive permitting and construction.
He has joined our call today to help describe what he believes altice can succeed where others have failed.
Dan Thanks for joining our investor call today.
Thanks Lars.
I'm very excited to share how altice power will scale, our commercial and industrial solar development and construction in a unique way to give us a competitive advantage and at the same time bring exceptional cost competitive service to our customers.
Please reference slide eight during my commentary.
My primary role as Chief platform Officer is to create a nationwide clean electrification development and construction platform.
With end to end services and coverage.
Over my career I've witnessed developers in the clean energy space built significant and in flexible fixed cost structures.
<unk> of our regional construction offices.
Which ultimately from an overhead our cost perspective.
Some harmful to their business.
Workload at the single purpose captive regional offices is either feast or famine.
Busy or never busy enough.
I joined Altus power, because I believe our relationship with CBRE and more specifically their project management team will provide locally sourced workforce in most locations across the United States.
Does that and we have recently signed a master services agreement or MSA for short with CBRE.
Under the MSA, we are actively developing clean energy projects from coast to coast.
CBRE project management was built to execute a wide array of construction projects.
Cost competitive basis.
As required by Cbre's extensive client base.
In the U S alone project management has 200 local offices are staffed with 3600 full time professionals.
This workforce currently handles over 35000 separate projects for CBRE clients each year.
What makes project management, particularly attractive to all this power is that each of these 200 local offices have extensive experience managing projects for occupiers and tenants real estate owners and investors across diverse vertical markets, including a strong resume of.
<unk> solar energy storage and EV charging projects.
A critical advantage for all this power is that there is no fixed cost component or a minimum threshold payment.
We hired the local project management field office to execute a program of projects.
And then disengage once those projects are complete.
Said, another way project management becomes a competitive variable costs to office power.
Avoiding direct investment in head count construction assets equipment or offices.
This is precisely why I believe all this power has captured a competitive advantage to scale C&I clean energy construction, where others may have failed in the past.
That concludes my introduction to our currently nationwide development platform.
I'd now like to turn the call back to Lars for additional updates.
Thanks, Dan.
We're incredibly fortunate to have dance expertise to leverage CBRE is project management construction muscle on our behalf.
Together, we believe we can create a go to market organization that will be unique in throughput and the ability to convert to client engagements into solar plus storage operating and.
And cash flowing assets.
I'd now like to give an update on our supply chain.
In May we welcomed the executive orders issued by the current administration in support of domestic manufacturing.
We of course already to support North American panel production under our agreement with Helene.
But we would like to see additional domestic production capacity.
With regard to the delivery of modules from Southeast Asia. We believe there is still some uncertainty amongst suppliers, who want the full resolution of the department of Commerce investigation or the U F. L. P eight attention.
With that said, we continue to see no issue with either our supply or pricing modules for assets. We're currently constructing for the remainder of 2022 and into 2023.
Moving now to the topic of energy price inflation in slide nine.
Youll see the substantial utility rate increases faced by commercial customers across the four states, where the majority of our assets are located.
We continue to expect further upward pressure as natural gas prices remain elevated compared to 2021.
And these costs have not yet been reflected in the local utility rates.
We continue to believe our solar and storage assets offer a tremendous solution for our customers to counter rising utility rates, which in turn will benefit our company and our stakeholders.
Now I'd like to turn the call over to our CFO Duston Weber for additional financial highlights duston.
Thanks, Laurie and thanks to all the investors and analysts joining our call you.
You can turn to slide 10, as I begin my remarks, covering our financials.
During the second quarter, we generated total operating revenues of $24 8 million, an increase of 41% over the second quarter of 2021, reflecting the growth of our portfolio over the last 12 months.
Operating revenues for the first six months were $44 million as compared to $30 1 million in the first half of 2021 and.
An increase of 46%.
As previously discussed our variable rate contracts take up to 12 months to reflect the full extent of rising utility rates, but we have started to see the first signs of this tailwind in our second quarter revenues.
Turning to adjusted EBITDA, which is a non-GAAP financial measure this quarter, we reported $13 9 million compared to $10 2 million in the second quarter of 2021, an increase of 37% year over year for.
For the first half of the year, we generated $22 7 million of adjusted EBITDA compared to $16 5 million in the first half of 2021 also a 37% increase.
Moving to our margins adjusted EBITDA margin was 56% for the quarter, bringing our margin for the first six months to 52%.
We've mentioned in the past that our portfolio experiences seasonality, which coupled with growth throughout the year results in more annual revenue weighted to the second half of the year.
As a result, we expect third and fourth quarters will generate a majority of our adjusted EBITDA as well as higher EBITDA margins.
For this reason we continue to anticipate adjusted EBITDA margins in the mid <unk> range for the full year.
Our GAAP net income for the second quarter totaled $21 6 million, which was primarily the result of a noncash gain of $21 4 million from the remeasurement of our redeemable warrants and alignment shares.
During the second quarter, the stock price decline, which resulted in a noncash gain.
We would expect a reverse effect should the stock price increase in future quarters.
Moving to our balance sheet total debt at the end of the second quarter was $538 million.
Our balance sheet remains well capitalized with $295 million of unrestricted cash on hand, making our net debt figure of $243 million.
The primary use of cash balance in Q2 was to procure equipment for our projects under construction and the acquisition of a small operating portfolio in Hawaii.
We plan to continue actively managing our capital structure to maintain liquidity and maximize capital efficiency.
I also want to highlight the warrant exchange, we announced during the quarter.
We agreed to retire approximately $4 5 million or 44% of our outstanding public warrants in exchange for approximately 1.07 million class a common shares or a ratio of <unk> <unk> for common share for each warrant redeemed.
We believe this was an excellent opportunity to reduce future dilution from warrants, which would have had higher redemption ratios if our stock price continues to increase.
We will monitor for future opportunities to improve our capital structure and deliver value to our shareholders in.
In summary, we remain on track to meet our 2022, adjusted EBITDA guidance and EBITDA margin.
We believe we will continue to maintain ample liquidity to execute our growth plans.
That concludes my comments I'll now turn the call back to Lars for his closing remarks.
Thanks, Dustin I want to end on slide 12 by reiterating the four reasons, we believe <unk> power is the premier commercial scale clean electrification company.
One.
We are the largest and only public pure play company in our lucrative and fast growing sector.
Two we are EBITDA positive focused on growing profitably and.
And equipped with the capital necessary to carry out our growth plan.
Three we have valuable strategic partnerships that we believe streamline our customer engagement and finally, four we are vertically integrated making all of this the one stop solution for delivering savings and de carbonization benefits to our customers.
We would now like to welcome your questions.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment please poll for questions.
We have our first question from the line of Justin Clare with Roth Capital Partners. Please go ahead.
Hey, good morning, Thanks for taking my questions.
Good morning, Hey, Justin.
Hi.
I guess first off just on the capacity outlook here you shared a lot more detail on your project pipeline, which is appreciated.
It looks like you could close in the near term on a 100 megawatts of project acquisitions, and then you're in construction or preconstruction on it looks like a little more than 100 megawatts.
So I was just wondering if you could share a little bit more detail on the timing when when could those acquisitions potentially be completed and then.
Given the extension of project timelines, we've seen recently, how how should we be thinking about when the projects in construction or preconstruction could get completed.
Okay.
Hey, thanks.
Thanks, Justin for the question. This is Gregg Felton I'm going to kick it off with respect to the operating projects and then turn it to Lars to talk about the development pipeline. So.
Regarding the operating acquisition pipeline.
The 100 megawatts or so that you.
Went out are in that closing category you should assume that those are the <unk>.
Asset opportunities that are very high certainty with a very near term closing opportunity, we would characterize that timeline for that bucket to be approximately one to three months.
And then I would also highlight of course that we have a significant chunk of opportunities that are in the negotiation bucket, which is essentially assets. We're looking to turn into closing opportunities, but there is a robust pipeline of operating acquisitions that we think are going to be able to be closed in the relatively near term for the closing and then moved into.
Closing in the relatively near term for negotiation assets, but let me turn it to Lars for the development pipeline. Thanks, Greg.
Yes can we understand of course that.
Awesome client engagement that we are experiencing right now with the volume of inbounds to all just from channel partners Blackstone and ultimately and most of all CBRE is something we haven't seen before.
And as we talked about during the prepared remarks, making sure that we have the structure here to prosecute all that deal flow and turn them into construction assets or in the case of operating assets due diligence and the vesting existing contracts.
Ultimately that has to lead to having us turn asset into operation.
Hopefully you can sense, we're feeling quite confident about the fact that we're increasingly each closing buckets on the operating side the negotiation bucket on the.
Operating side, and then increasing the construction bucket that you referred to in the contract negotiation bucket on the development side.
The construction bucket, it's a mix of both assets that have been in construction for some time and they're going to be turned on in 2022.
A mix of.
Assets that third parties are building on our behalf.
And ultimately some assets, but have just gone into construction that are going to follow the timeline that we previously communicated. So some portion of this is likely to come on in 2022 in fact, some of it in the near term and some is likely to spill into 2023 on the 36% that in contract last negotiation on the development side.
Some of that is more near term construction projects, where much of the work has already been done by a third party and we could see some of that to come on in 2022 as well with the remainder coming in 2023.
Okay great.
That's really helpful.
Just following up on that.
I'm wondering if you could talk about the the bottlenecks that you are seeing because I know in the past you had issues with securing.
Transformers, and then permitting and interconnection.
I know has been a challenge this year how are those things evolving today or are you seeing improvement.
Just an update there would be appreciated.
Yes, absolutely this is Lars again.
We are in fact, we are indeed seeing an improvement.
Bucket for example on the development side of the pipeline at the 23% that's in construction.
Nothing can be in construction until you've actually received interconnection permission from the utility and received permitting from the local building department.
So that bucket has a bunch of assets where people are in the field are on roofs building solar systems.
We have gotten those systems into construction in spite of a backlog both at the utility and the backlog at the building apartments for purposes of securing interconnection and permits but.
But we've become.
We have become focused on trying to make sure that we scale our effort to take into account some of the delays that are sort of being presented to us both on the permitting side, but also interconnection side.
We're also taking into account.
The scarcity of components and we're leaning in on basically ordering transformers switchgear and other things to maintain effectively an inventory of those materials. So that we don't have to have each construction project be subject to new delays when it comes to sourcing. We've also been able to do a little.
Bit of defining around some components, where we can effectively build the solar system using a different set of components instead of.
So while they remain.
Items to slow us down a little bit we basically.
Become accustomed to some of them are.
Progressing with our system our constructions in spite of those delays.
Okay got it.
And then just shifting gears on the inflation reduction act it sounds like especially for utility scale projects, the PTC might make more sense than the ITC. So just wanted to check in you know.
With you on your commercial projects would you potentially look at the P. P C and if so what would be the.
As.
A result of that in terms of your project economics.
And then also on the IR a there is a low income bonus.
That is possible to that either ITC or PTC can you talk about.
What that could mean in terms of an opportunity for you do you serve low income communities today potentially with your.
Community solar business and what could that mean.
Yes, so great questions. Thanks for thanks for that let me start with maybe the first which was the PTC question. So to level set for US others were following it less closely the market has historically for C&I relied on the investment tax credit the investment tax credit.
Has been the source of best Economics in terms of government support for C&I as compared with utility scale as you mentioned.
Our expectation from what we've heard that PTC might be preferable for utility scale, we're not convinced that will be the case for the commercial scale projects that we're engaged in but of course will <unk>.
Evaluate that and see whether or not there is the incremental benefits associated with the PTC when applied to C&I.
As you also pointed out in the latter part of the question. There are significant benefits. In addition to stepping up the ITC from 26% where it was prior to this imminent law change to 30%. So all projects that are constructed in 2022 and beyond will qualify for 30 <unk>.
ITC, which we believe is very favorable in addition to that there are adders for a number of things, including low and moderate income offtake.
And as it relates to that off take yes, we have a variety of projects that would qualify for the benefit of serving low and moderate income customers. As you may know, we're doing that already today, a significant portion of our pipeline our community solar projects that are designed to service those customers.
And there is up to a 20% additional ITC benefit.
When providing a majority of your project community solar project to the low and moderate income customer base. So as a reminder, when you look at our New Jersey sites that we've announced our Maryland sites much of our pipeline is community solar and we would intend to service those clients with those projects.
Okay, great. Thanks, very much I'll pass it on.
Thanks, Jonathan.
Okay.
Thank you we have next question from the line of Chris <unk> with B Riley. Please go ahead.
Hey, Thanks for taking my question here and congrats on the progress and the actionable pipeline I appreciate the updated color here for that 100 megawatts.
That's in closing is that one or several transactions can you talk a little bit about geographies as well.
The pricing atmosphere for completed projects given all the inflation we're seeing.
On kind of new belt I'm curious what the impact is there.
Already operating projects.
Thank you.
We are in general is something Thats important to highlight is we're focused on and have the benefit of a pipeline of operating acquisitions that are bilateral in nature.
So if you looked at the deals that were both in the 20% bucket as well as the predominance of deals in that 61% in negotiation bucket, we're talking about deals, where we're bilaterally negotiating altice and a seller in terms of the mix, we have sometimes some smaller acquisitions and some chunkier acquisitions.
<unk> I would say that we are a combination of both larger and smaller in both the closing bucket and the negotiation bucket.
In terms of the jurisdictions. These are tend to be multistate opportunities so portfolios that span multiple jurisdictions.
Obviously, we're looking to expand as you know our footprint from the 18 states today across more states and I think the advantage that you also alluded to in terms of the operating acquisition relates to the tailwind that we're seeing that large referenced in his prepared remarks around inflation.
In electricity price inflation is something we continue to expect so.
While we do underwrite to conservative assumptions, we are optimistic that that tailwind for electricity pricing is something that will benefit.
Our projects as and when they have variable elements to them and then finally I'd add just importantly that there is a very large storage opportunity that we haven't yet talked about on the call, but the inflation reduction act for the first time includes a standalone investment tax credit for battery.
Storage and Thats significant not only as it relates to new projects, but also the opportunity that altice power has to look at its existing portfolio. What we have in operation today, what we expect to have an operation in the near term and look to add storage to those assets over time, we've talked about is the belief that many of our.
Assets, if not all should ultimately be paired with storage and we think.
For storage does a lot to accelerate the adoption of storage and many more locations.
Got it no that makes a lot of sense and maybe just.
With the <unk>.
Kris collaboration here with CBRE it sounds like we're seeing good momentum with long term agreements. So I wanted to see if you could frame that master supply agreement within the pipeline.
What isn't yet in the pipeline.
CBRE.
A big bump in <unk>.
In contract negotiation bucket or is it really not being reflected.
To the full extent here yet.
Thanks, I think it's a little bit of all of the above we are actually happy to have both CBRE and Blackstone in all three of those buckets.
On the 500 megawatts of projects under development. There are some CBRE assets that are currently in construction. There is something contract and there is a lot in the engagement a bucket and the same for Blackstone.
I don't know if its made its way through the ether, but there was the press release issued this morning by CBRE investment management, which is the capital allocation vehicle and large asset owner that inside the CBRE.
We just announced that for.
600 buildings, mostly in Europe , and the United States Theyre going to work with us.
About 200 million square feet of rooftop, which translates roughly into two gigawatts worth of solar.
That type of engagement, obviously is a multi year effort.
That engagement just to mention one is not yet reflected in any of our actionable pipeline. Those are all things that are that are sort of behind the stuff that we're working on right now.
That's why we wanted to take some time and highlight the fact that our construction muscle and development of asset muscle is going to have to grow significantly which is what Dan is working on with them.
Together with <unk> very very excited about the flow.
<unk> have some of that flow found its way already into the in construction bucket, but more to come there.
Got it Thats great to hear and then maybe just last one you talked a little bit about <unk>.
And reduction act benefits for solar storage I'm curious.
Any update on the EV charging side just.
Love to hear kind of what your thoughts are as far as.
Timelines for that certainly kind of kickoff.
Become kind of a more meaningful piece.
Yes, Chris This is Dan often bright thanks, thanks for the question.
EV charging and sleek charging.
<unk> is going to be a continued.
Importance to our business.
And as we look.
As you know Altice N terminal pro signed a $600 million development agreement.
The back back in.
In the second quarter.
And.
Working with CBRE E.
We're able to now.
Now look at adding not only solar to these.
To these buildings that are in development and in construction, but also adding storage and adding charging.
For fleet vehicles and passenger vehicles.
So in terms of the.
Altice.
DNA.
Fleet charging an ability to bundle that into the solar and storage services is going to continue to be very important to us.
Got it okay.
Thanks, guys.
Thank you.
Thank you.
We have a next question from the line of Stephen Byrd with Morgan Stanley . Please go ahead.
Hey, thanks, so much for taking my questions.
I wanted to just maybe explore CBRE a little bit.
<unk> do you feel like kind of a.
A game changer in terms of accelerating growth.
And especially given the two gigawatts sort of announcement I wondered if you could just talk a little bit more.
Essentially about the pace of scaling up your development efforts around that.
New operations agreement seems like obviously the.
It's laid out you can leverage a huge reese.
Resource space, but how quickly can you can you achieve that in other words as you think about this fairly vast opportunity set can you give us a little bit more about the cadence of being able to scale up your efforts and pursue that kind of magnitude that we're not talking about what you are obviously much greater than what you've done in the past.
Yes, Thank you Steven.
And Thats exactly how we feel about it as well and I believe that's how CBRE.
Feels about it and just to pause on that for a second from our perspective of course the CBRE.
Engagement offers untold opportunities to build solar storage and like Dan said fleet charging.
From their perspective all of this is now on their platform and able to deliver exactly the kind of electrification of real estate that their investors and shareholders and stakeholders are asking them to do.
So it really is a win for CBRE to be able to come to us and immediately be provided execution. It's a win for us and our shareholders. Because it is a gigantic client that we're going to serve for many years to come.
And it's a win for.
For the tenants and the landlords that are that are part of this.
We are all about execution.
It is crucially important for us that these are not some plans that were sitting around working on that we want to see action and in the case of solar storage simply charging action means going to the utility and asking for an interconnection go into the building department asking for building permit.
Placing orders, whether its tesla or LG Chem on the battery front and all the suppliers of modules and Inverters et cetera. So the agreements that Dan has already signed with the <unk> side on the project management side. The Master services agreement. The fact that we're ordering equipment that is going to go on to CBRE.
Management's roof. The fact that we are now as we've announced previously active in Europe , calling on utilities seeking interconnection for buildings that CBRE investment management owns.
Whether it's in France outside of Paris, or Germany, or elsewhere, we want to see systems move into construction and then be able to communicate back to the market that not only is there a big forward here and game changing it's exactly how we feel about it but we've begun the process of actually permitting and building those.
Systems wherever they might be Dan do you want to add some yes, so stephen.
Just a couple of concrete examples.
CBRE is assigned a senior project management executive as Altice Power's dedicated single point of contact.
In addition, we have established quarterly meetings with top CBRE executives to two two is to make sure that.
We're making the progress against the goals that we've established.
Through the MSA with CBRE.
We're currently engaged on the ground with CBRE project managers.
To perform essential development services, including interconnection support local permitting support subcontract to review and site visits too.
To support the diligence and those are just some examples to name a few.
That's really really helpful color. Thank you and then I wanted to shift over to the IRA did a great job laying out sort of the different elements that will will matter for you I'm thinking as we head into 2023.
How do you think about the more specific financial benefits.
To your company.
In other words as we think about these enhanced.
Tax credits et cetera are you more bullish about.
The returns in the margin that you get or do you think of this more is not necessarily yet medium term boost to margins per se, but just more of a boost to growth and so the customer value proposition how are you thinking about that.
Yes, I think where you ended is exactly how we feel.
Theres a number of things that I think about this bill that are hugely beneficial first off we have to call out. The fact that it gives the industry 10 years of visibility to a regime a structure that is supportive and transparent and as you know we've worked with.
Other previous incentive structures that have been shorter term in nature, and it's been harder to create longer term planning.
When we think about what it means for the industry. We absolutely think it's an accelerant to growth and it's an expansion of the addressable market opportunity.
So there may have been markets, you've heard us talk about before where the economics were maybe more marginal.
We think about solar competing very well when there is a power price were local rack or some other element like production that ultimately makes these deals pencil in a way that is economical.
You add the benefit.
Of the 30% investment tax credit and the benefit associated with other adders like domestic content of 10% at or like low and moderate income offtake of 20% at or where 10% adder depending on the profile. These are things that we absolutely think will expand the market.
In storage.
Is going to be a huge beneficiary of this as well in terms of projects attaching storage in projects, where previously the economics may not have made sense certainly the other benefits of storage would have been there, but we think to the extent youre focused on the economic attributes.
An important ingredient the beneficiaries, we thank our stakeholders Alt as power. We think there are the landlords in terms of lease streams, we think that the tenants in the form of discounted power or other off take in the form of LMI offtake. So theres a lot of different beneficiaries, but we think in the aggregate it should be thought of as an accelerant of adoption.
And an expansion of market opportunity.
Great. Thanks, so much.
Thank you.
Thank you.
You ask a question ladies and gentlemen, please press star one on your telephone keypad. We have next question from the line of Ryan Levine with Citi. Please go ahead.
Good morning.
Can you speak to how many employees you currently have and how are you.
Fifth grow that head count over the next year and a half.
How important that is to be able to scale your business.
Hi, Ryan. Thank you very much I don't know that we've gone out with precise numbers around the number of employees. We have the majority of our employees and obviously altice has grown significantly this year or in the office and Stanford, but theres a significant chunk, perhaps a quarter of our total workforce that is out in the country, whether it's in Hawaii.
We're Minnesota or Florida. These are field technicians.
Professionals, who vest solar systems that we buy that are operating where help manage the process of constructing assets. We've been very focused on hiring more professionals on the construction engineering and so the physical asset management side like we talked about because the number of assets that we have an operation is growing significantly and the number of.
Assets, we have in construction.
As you heard to say, we're basically going to be constructing solar storage and fleet charging for CBRE and others in other locations, whether it's Europe or Canada and.
And so that's going to require people on the ground there as well the limiter on our growth is that we are really focused on remaining profitable. It is important to us that at every step of the way here, we're able to show the market and investors that we can build an attractive business in an attractive space.
It still generate cash flow from doing that.
And so that's the comment I would make on unemployed.
Thanks, and then.
It's scary any transformer.
Resource strategy.
Are you today from an inventory perspective, and where do you hope to be able to get to here in the next year.
It's a great question.
And so what has perhaps been a temporary delay on delivery timelines for certain switch gear in transformers and other things. There is a risk we think that utilities around the country will begin to upgrade their grids and so the scarcity of those types of components, which not.
When we go to solar and storage systems, but also into the grid itself will just remain a secular dilemma. We have we think a better starting position than many others, because we have great relationships with big makers of this equipment that we've been buying for more than a decade, and we pay bills on time and were flexible when it comes to the exact specifications.
But we received but we've begun the process of doing two things.
We are buying into inventory. So we now own some switch gear that do not have a solar system that they're specifically purchased for their switch gear that we think or no. We can put into solar systems as they get ready to be constructed. The second thing. We're doing is working hard on the design to seek to eliminate.
Some of the components that have the longest lead times you can do that by effectively building the solar system.
In a more.
In a more sort of sleeved fashion that obviates the need for major switch gear to be the final point the connection into the grid.
That's something we're studying closely and have been able to do a little bit of already because it's important to us that we don't.
We remain beholden.
Some 40 week lead time.
Items that we need to complete our solar system. So we're basically all over that and trying to make sure that that does not remain a bottleneck for us.
Yes.
How many companies you've precursor switch gear from.
Is it concentrated mostly from a supply chain management with one particular provider.
No there is more than theres more than one provider. Obviously this is an example for everyone's benefit of components that are basically always been sourced from the U S itself or North America and to some extent Europe . So we're not relying on some so far flung supply chain issues here.
These components are all made in.
The Europe and the U S. However, they include excuse me to include components.
That may be sourced from southeast Asia.
So we have a number of suppliers some are bigger than others.
But I would say more than a handful of.
Companies, who are able to make to sort of switch gear and transformers that we use in our solar systems.
Great. Thanks for the color.
Thanks, Brian .
Thank you ladies and gentlemen, we have reached the end of the question and answer session and that does concludes today's conference.
You disconnect your lines at this time, thank you for your participation.
Okay.
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