Item 1. Financial Statements
Altus Power, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues, net | $ | 24,762 | | | $ | 17,613 | | | $ | 43,961 | | | $ | 30,084 | |
| Operating expenses | | | | | | | |
| Cost of operations (exclusive of depreciation and amortization shown separately below) | 4,290 | | | 3,236 | | | 8,354 | | | 6,156 | |
| General and administrative | 6,558 | | | 4,220 | | | 12,942 | | | 7,443 | |
| Depreciation, amortization and accretion expense | 6,863 | | | 4,470 | | | 13,685 | | | 8,858 | |
| Acquisition and entity formation costs | 52 | | | 85 | | | 346 | | | 232 | |
| Gain on fair value remeasurement of contingent consideration, net | (1,140) | | | (775) | | | (971) | | | (2,050) | |
| Stock-based compensation | 2,657 | | | 37 | | | 3,962 | | | 77 | |
| Total operating expenses | $ | 19,280 | | | $ | 11,273 | | | $ | 38,318 | | | $ | 20,716 | |
| Operating income | 5,482 | | | 6,340 | | | 5,643 | | | 9,368 | |
| Other (income) expense | | | | | | | |
| Change in fair value of redeemable warrant liability | (4,659) | | | — | | | (23,117) | | | — | |
| Change in fair value of alignment shares liability | (16,705) | | | — | | | (63,051) | | | — | |
| Other income, net | (608) | | | (138) | | | (593) | | | (249) | |
| Interest expense, net | 5,173 | | | 4,826 | | | 10,111 | | | 8,739 | |
| Total other (income) expense | $ | (16,799) | | | $ | 4,688 | | | $ | (76,650) | | | $ | 8,490 | |
| Income before income tax expense | $ | 22,281 | | | $ | 1,652 | | | $ | 82,293 | | | $ | 878 | |
| Income tax expense | (707) | | | (2,092) | | | (584) | | | (1,055) | |
| Net income (loss) | $ | 21,574 | | | $ | (440) | | | $ | 81,709 | | | $ | (177) | |
| Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | (2,541) | | | 749 | | | (2,825) | | | 50 | |
| Net income (loss) attributable to Altus Power, Inc. | $ | 24,115 | | | $ | (1,189) | | | $ | 84,534 | | | $ | (227) | |
| Net income (loss) per share attributable to common stockholders | | | | | | | |
| Basic | $ | 0.16 | | | $ | (0.01) | | | $ | 0.55 | | | $ | — | |
| Diluted | $ | 0.16 | | | $ | (0.01) | | | $ | 0.55 | | | $ | — | |
| Weighted average shares used to compute net income (loss) per share attributable to common stockholders | | | | | | | |
| Basic | 153,310,068 | | | 88,741,089 | | | 152,988,078 | | | 88,741,089 | |
| Diluted | 153,954,843 | | | 88,741,089 | | | 153,771,992 | | | 88,741,089 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Altus Power, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share and per share data)
| | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 295,079 | | | $ | 325,983 | |
| Current portion of restricted cash | 2,459 | | | 2,544 | |
| Accounts receivable, net | 13,158 | | | 9,218 | |
| Other current assets | 5,748 | | | 6,659 | |
| Total current assets | 316,444 | | | 344,404 | |
| Restricted cash, noncurrent portion | 1,794 | | | 1,794 | |
| Property, plant and equipment, net | 764,884 | | | 745,711 | |
| Intangible assets, net | 19,383 | | | 16,702 | |
| Other assets | 3,547 | | | 4,638 | |
| Total assets | $ | 1,106,052 | | | $ | 1,113,249 | |
| Liabilities, redeemable noncontrolling interests, and stockholders' equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 2,869 | | | $ | 3,591 | |
| Interest payable | 4,383 | | | 4,494 | |
| Current portion of long-term debt, net | 15,726 | | | 21,143 | |
| Other current liabilities | 4,597 | | | 3,663 | |
| Total current liabilities | 27,575 | | | 32,891 | |
| Redeemable warrant liability | 19,476 | | | 49,933 | |
| Alignment shares liability | 64,408 | | | 127,474 | |
| Long-term debt, net of unamortized debt issuance costs and current portion | 522,604 | | | 524,837 | |
| Intangible liabilities, net | 12,844 | | | 13,758 | |
| Asset retirement obligations | 7,689 | | | 7,628 | |
| Deferred tax liabilities, net | 10,153 | | | 9,603 | |
| Other long-term liabilities | 6,480 | | | 5,587 | |
| Total liabilities | $ | 671,229 | | | $ | 771,711 | |
| Commitments and contingent liabilities (Note 10) | | | |
| Redeemable noncontrolling interests | 16,103 | | | 15,527 | |
| Stockholders' equity | | | |
Common stock $0.0001 par value; 988,591,250 shares authorized as of June 30, 2022, and December 31, 2021; 154,718,268 and 153,648,830 shares issued and outstanding as of June 30, 2022, and December 31, 2021, respectively | 15 | | | 15 | |
Preferred stock $0.0001 par value; 10,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2022, and December 31, 2021 | — | | | — | |
| Additional paid-in capital | 416,832 | | | 406,259 | |
| Accumulated deficit | (16,822) | | | (101,356) | |
| Total stockholders' equity | $ | 400,025 | | | $ | 304,918 | |
| Noncontrolling interests | 18,695 | | | 21,093 | |
| Total equity | $ | 418,720 | | | $ | 326,011 | |
| Total liabilities, redeemable noncontrolling interests, and stockholders' equity | $ | 1,106,052 | | | $ | 1,113,249 | |
The following table presents the assets and liabilities of the consolidated variable interest entities (Refer to Note 5).
| | | | | | | | | | | |
| (In thousands) | As of June 30, 2022 | | As of December 31, 2021 |
| Assets of consolidated VIEs, included in total assets above: | | | |
| Cash | $ | 8,298 | | | $ | 7,524 | |
| Current portion of restricted cash | 1,478 | | | 1,763 | |
| Accounts receivable, net | 5,036 | | | 2,444 | |
| Other current assets | 1,381 | | | 1,400 | |
| Restricted cash, noncurrent portion | 1,437 | | | 1,122 | |
| Property, plant and equipment, net | 362,679 | | | 363,991 | |
| Intangible assets, net | 5,729 | | | 6,909 | |
| Other assets | 630 | | | 739 | |
| Total assets of consolidated VIEs | $ | 386,668 | | | $ | 385,892 | |
| Liabilities of consolidated VIEs, included in total liabilities above: | | | |
| Accounts payable | $ | 460 | | | $ | 419 | |
| Current portion of long-term debt, net | 3,015 | | | 2,457 | |
| Other current liabilities | 1,241 | | | 776 | |
| Long-term debt, net of unamortized debt issuance costs and current portion | 33,536 | | | 34,022 | |
| Intangible liabilities, net | 1,800 | | | 2,420 | |
| Asset retirement obligations | 4,039 | | | 3,988 | |
| Other long-term liabilities | 652 | | | 548 | |
| Total liabilities of consolidated VIEs | $ | 44,743 | | | $ | 44,630 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Altus Power, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in Capital | | Accumulated
Deficit | | Total
Stockholders'
Equity | | Non
Controlling
Interests | | Total Equity |
| | Shares | | Amount | | | | | |
| As of March 31, 2021 | 89,999,976 | | | $ | 9 | | | $ | 202,178 | | | $ | (84,589) | | | $ | 117,598 | | | $ | 14,758 | | | $ | 132,356 | |
| Cash contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 439 | | | 439 | |
| Accretion of Series A preferred stock | — | | | — | | | 539 | | | (539) | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 41 | | | — | | | 41 | | | — | | | 41 | |
| Accrued dividends and commitment fees on Series A preferred stock | — | | | — | | | 4,263 | | | (4,263) | | | — | | | — | | | — | |
| Cash distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (345) | | | (345) | |
| Net loss | — | | | — | | | — | | | (1,189) | | | (1,189) | | | (285) | | | (1,474) | |
| As of June 30, 2021 | 89,999,976 | | | $ | 9 | | | $ | 207,021 | | | $ | (90,580) | | | $ | 116,450 | | | $ | 14,567 | | | $ | 131,017 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in Capital | | Accumulated
Deficit | | Total
Stockholders'
Equity | | Non
Controlling
Interests | | Total Equity |
| | Shares | | Amount | | | | | |
| As of March 31, 2022 | 153,648,830 | | | $ | 15 | | | $ | 406,867 | | | $ | (40,937) | | | $ | 365,945 | | | $ | 20,361 | | | $ | 386,306 | |
| Stock-based compensation | — | | | — | | | 2,657 | | | — | | | 2,657 | | | — | | | 2,657 | |
| Cash distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (336) | | | (336) | |
| Cash contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | 1,064 | | | 1,064 | |
| Conversion of alignment shares to class A common stock and exercised warrants | 2,021 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Exchange of warrants into common stock | 1,067,417 | | | — | | | 7,308 | | | — | | | 7,308 | | | — | | | 7,308 | |
| Net income (loss) | — | | | — | | | — | | | 24,115 | | | 24,115 | | | (2,394) | | | 21,721 | |
| As of June 30, 2022 | 154,718,268 | | | $ | 15 | | | $ | 416,832 | | | $ | (16,822) | | | $ | 400,025 | | | $ | 18,695 | | | $ | 418,720 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Altus Power, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in Capital | | Accumulated
Deficit | | Total
Stockholders'
Equity (Deficit) | | Non
Controlling
Interests | | Total Equity (Deficit) |
| | Shares | | Amount | | | | | |
As of December 31, 2020 (as previously reported) | 1,029 | | | $ | 1 | | | $ | 2,033 | | | $ | (80,802) | | | $ | (78,768) | | | $ | 14,016 | | | $ | (64,752) | |
| Retroactive application of recapitalization | 89,998,947 | | | 8 | | | 203,739 | | | — | | | 203,747 | | | — | | | 203,747 | |
As of December 31, 2020, effect of reverse acquisition | 89,999,976 | | | $ | 9 | | | $ | 205,772 | | | $ | (80,802) | | | $ | 124,979 | | | $ | 14,016 | | | $ | 138,995 | |
| Cash contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 439 | | | 439 | |
| Accretion of Series A preferred stock | — | | | — | | | 1,072 | | | (1,072) | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 78 | | | — | | | 78 | | | — | | | 78 | |
| Accrued dividends and commitment fees on Series A preferred stock | — | | | — | | | 8,479 | | | (8,479) | | | — | | | — | | | — | |
| Payment of dividends and commitment fees on Series A preferred stock | — | | | — | | | (8,380) | | | — | | | (8,380) | | | — | | | (8,380) | |
| Cash distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (605) | | | (605) | |
| Accrued distributions to noncontrolling interests | — | | | — | | | — | | | | | — | | | (146) | | | (146) | |
| Net income (loss) | — | | | — | | | — | | | (227) | | | (227) | | | 863 | | | 636 | |
As of June 30, 2021 | 89,999,976 | | | 9 | | | 207,021 | | | (90,580) | | | 116,450 | | | 14,567 | | | 131,017 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in Capital | | Accumulated
Deficit | | Total
Stockholders'
Equity | | Non
Controlling
Interests | | Total Equity |
| | Shares | | Amount | | | | | |
As of December 31, 2021 | 153,648,830 | | | $ | 15 | | | $ | 406,259 | | | $ | (101,356) | | | $ | 304,918 | | | $ | 21,093 | | | $ | 326,011 | |
| Stock-based compensation | — | | | — | | | 3,962 | | | — | | | 3,962 | | | — | | | 3,962 | |
| Cash distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (666) | | | (666) | |
| Cash contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 1,064 | | | 1,064 | |
| Equity issuance costs | — | | | — | | | (712) | | | — | | | (712) | | | — | | | (712) | |
| Conversion of alignment shares to Class A Common Stock and exercised warrants | 2,021 | | | — | | | 15 | | | — | | | 15 | | | — | | | 15 | |
| Exchange of warrants into common stock | 1,067,417 | | | | | 7,308 | | | — | | | 7,308 | | | — | | | 7,308 | |
| Net income (loss) | — | | | — | | | — | | | 84,534 | | | 84,534 | | | (2,796) | | | 81,738 | |
As of June 30, 2022 | 154,718,268 | | | $ | 15 | | | $ | 416,832 | | | $ | (16,822) | | | $ | 400,025 | | | $ | 18,695 | | | $ | 418,720 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Altus Power, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
| | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
| Cash flows from operating activities | | | |
| Net income (loss) | $ | 81,709 | | | $ | (177) | |
| Adjustments to reconcile net income (loss) to net cash from operating activities: | | | |
| Depreciation, amortization and accretion | 13,685 | | | 8,858 | |
| Unrealized gain on interest rate swaps | (1,777) | | | (292) | |
| Deferred tax expense | 550 | | | 1,069 | |
| Amortization of debt discount and financing costs | 1,428 | | | 1,443 | |
| Change in fair value of redeemable warrant liability | (23,117) | | | — | |
| Change in fair value of alignment shares liability | (63,051) | | | — | |
| Remeasurement of contingent consideration | (971) | | | (2,050) | |
| Stock-based compensation | 3,962 | | | 77 | |
| Other | (189) | | | (194) | |
| Changes in assets and liabilities, excluding the effect of acquisitions | | | |
| Accounts receivable | (3,940) | | | (3,836) | |
| Other assets | 2,712 | | | (4) | |
| Accounts payable | (722) | | | 4,062 | |
| Interest payable | (78) | | | 776 | |
| Other liabilities | 1,668 | | | (247) | |
| Net cash provided by operating activities | 11,869 | | | 9,485 | |
| Cash flows used for investing activities | | | |
| Capital expenditures | (23,338) | | | (6,277) | |
| Payments to acquire businesses, net of cash and restricted cash acquired | — | | | (2,126) | |
| Payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired | (11,572) | | | (4,968) | |
| Net cash used for investing activities | (34,910) | | | (13,371) | |
| Cash flows used for financing activities | | | |
| Proceeds from issuance of long-term debt | — | | | 26,391 | |
| Repayment of long-term debt | (8,120) | | | (16,680) | |
| Payment of debt issuance costs | (42) | | | (596) | |
| Payment of dividends and commitment fees on Series A preferred stock | — | | | (8,380) | |
| Payment of deferred transaction costs | — | | | (2,140) | |
| Payment of contingent consideration | (45) | | | (102) | |
| Payment of equity issuance costs | (744) | | | — | |
| Contributions from noncontrolling interests | 2,151 | | | 439 | |
| Distributions to noncontrolling interests | (1,148) | | | (1,102) | |
| Net cash used for financing activities | (7,948) | | | (2,170) | |
| Net decrease in cash, cash equivalents, and restricted cash | (30,989) | | | (6,056) | |
| Cash, cash equivalents, and restricted cash, beginning of period | 330,321 | | | 38,206 | |
| Cash, cash equivalents, and restricted cash, end of period | $ | 299,332 | | | $ | 32,150 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| Supplemental cash flow disclosure | | | |
| Cash paid for interest, net of amounts capitalized | $ | 9,804 | | | $ | 6,822 | |
| Cash paid for taxes | 39 | | | 99 | |
| Non-cash investing and financing activities | | | |
| Asset retirement obligations | $ | 96 | | | $ | 223 | |
| Acquisitions of property and equipment included in other current liabilities | 1,334 | | | 819 | |
| Deferred transaction costs not yet paid | — | | | 2,810 | |
| Accrued dividends and commitment fees on Series A preferred stock | — | | | 8,480 | |
| Accrued distributions to non-controlling interests | — | | | 145 | |
| Construction loan conversion | (4,186) | | | — | |
| Term loan conversion | 4,186 | | | — | |
| Conversion of alignment shares into common stock | 15 | | | — | |
| Exchange of warrants into common stock | 7,303 | | | — | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Table of Contents
Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
1.General
Company Overview
Altus Power, Inc., a Delaware corporation (the “Company” or "Altus"), headquartered in Stamford, Connecticut, develops, owns, constructs and operates large-scale roof, ground and carport-based photovoltaic solar energy generation and storage systems, for the purpose of producing and selling electricity to credit worthy counterparties, including commercial and industrial, public sector and community solar customers, under long-term contracts. The Solar energy facilities are owned by the Company in project specific limited liability companies (the “Solar Facility Subsidiaries”).
On December 9, 2021 (the "Closing Date"), CBRE Acquisition Holdings, Inc. ("CBAH"), a special purpose acquisition company, consummated the business combination pursuant to the terms of the business combination agreement entered into on July 12, 2021 (the "Business Combination Agreement"), whereby, among other things, CBAH Merger Sub I, Inc. ("First Merger Sub") merged with and into Altus Power, Inc. (f/k/a Altus Power America, Inc.) ("Legacy Altus") with Legacy Altus continuing as the surviving corporation, and immediately thereafter Legacy Altus merged with and into CBAH Merger Sub II, Inc. ("Second Merger Sub") with Second Merger Sub continuing as the surviving entity and as a wholly owned subsidiary of CBAH (together with the merger with the First Merger Sub, the “Merger”). In connection with the closing of the Merger, CBAH changed its name to "Altus Power, Inc." and CBAH Merger Sub II (after merger with Legacy Altus) changed its name to "Altus Power, LLC."
COVID-19
The spike of a novel strain of coronavirus (“COVID-19”) in the first quarter of 2020 caused significant volatility in the U.S. markets that remain ongoing. In response to the COVID-19 pandemic, federal, state, local, and foreign governments put in place, and in the future may again put in place, travel restrictions, quarantines, “stay at home” orders and guidelines, and similar government orders and restrictions, in an attempt to control the spread of the disease. Such restrictions or orders resulted in, and in the future may result in, business closures, work stoppages, slowdowns and delays, among other effects that negatively impacted, and in the future may negatively impact, our operations, as well as the operations of our customers and business partners. In addition, COVID-19 has caused disruptions to the supply chain across the global economy, including within the solar industry, and we are working with our equipment suppliers to minimize disruptions to our operations. Certain suppliers have experienced, and may continue to experience, delays and increased costs related to a variety of factors, including logistical delays and component shortages from upstream vendors. Based on the challenges described above, such as supply chain and logistical delays, such results have had and will continue to have a material adverse effect on our business, operations, financial condition, results of operations, and cash flows.
2.Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company prepares its unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial reporting. The Company’s condensed consolidated financial statements include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 filed with the Company’s 2021 annual report on Form 10-K on March 24, 2022, and the related notes which provide a more complete discussion of the Company’s accounting policies and certain other information. The information as of December 31, 2021, included in the condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of June 30, 2022, and the results of operations and cash flows for the three and six months ended June 30, 2022, and 2021. The results of
Table of Contents
Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the full year or any other future interim or annual period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available. Estimates are used for such items as the fair value of net assets acquired in connection with accounting for business combinations, the useful lives of the solar energy facilities, and inputs and assumptions used in the valuation of asset retirement obligations (“AROs”), contingent consideration, and alignment shares.
Segment Information
Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makers are the co-chief executive officers. Based on the financial information presented to and reviewed by the chief operating decision makers in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined it operates as a single operating segment and has one reportable segment, which includes revenue under power purchase agreements, revenue from net metering credit agreements, solar renewable energy certificate revenue, rental income, performance-based incentives, and other revenue. The Company’s principal operations, revenue and decision-making functions are located in the United States.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents includes all cash balances on deposit with financial institutions and readily marketable securities with original maturity dates of three months or less at the time of acquisition that are denominated in U.S. dollars. Pursuant to the budgeting process, the Company maintains certain cash and cash equivalents on hand for possible equipment replacement related costs.
The Company records cash that is restricted as to withdrawal or use under the terms of certain contractual agreements as restricted cash. Restricted cash is included in current portion of restricted cash and restricted cash, noncurrent portion on the condensed consolidated balance sheets and includes cash held with financial institutions for cash collateralized letters of credit pursuant to various financing and construction agreements.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets. Cash, cash equivalents, and restricted cash consist of the following:
| | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 |
| Cash and cash equivalents | $ | 295,079 | | | $ | 325,983 | |
| Current portion of restricted cash | 2,459 | | | 2,544 | |
| Restricted cash, noncurrent portion | 1,794 | | | 1,794 | |
| Total | $ | 299,332 | | | $ | 330,321 | |
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, may exceed Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash balances.
The Company had no customers that accounted for over 10% of total accounts receivable as of June 30, 2022, and no customers that individually accounted for more than 10% of revenue for the three and six months ended June 30, 2022.
Table of Contents
Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
The Company had two customers that individually accounted for 16.0% and 11.7% of total accounts receivable as of December 31, 2021. The Company had one customer that individually accounted for 11.6% of total revenue for the three months ended June 30, 2021. The Company had no customers that individually accounted for more than 10% of total revenue for the six months ended June 30, 2021.
Accounting Pronouncements
As a public company, the Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as non-public business entities, including early adoption when permissible. The Company expects to elect to adopt new or revised accounting guidance within the same time period as non-public business entities, as indicated below.
Recent Accounting Pronouncements Adopted
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to ASC 740. This standard is effective for fiscal periods beginning after December 15, 2020. The Company has adopted this standard as of the first quarter of 2021 and did not have a material impact on the condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which primarily changes the lessee’s accounting for operating leases by requiring recognition of lease right-of-use assets and lease liabilities. This standard is effective for annual reporting periods beginning after December 15, 2021. The Company expects to adopt this guidance in fiscal year 2022. The Company is continuing the analysis of the contractual arrangements that may qualify as leases under the new standard and expects the most significant impact will be the recognition of the right-of-use assets and lease liabilities on the consolidated balance sheets.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and has since released various amendments including ASU No. 2019-04. The new standard generally applies to financial assets and requires those assets to be reported at the amount expected to be realized. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
3.Revenue and Accounts Receivable
Disaggregation of Revenue
The following table presents the detail of revenues as recorded in the unaudited condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | Six Months Ended June 30, |
| | 2022 | | 2021 | 2022 | | 2021 |
| Revenue under power purchase agreements | $ | 6,730 | | | $ | 4,653 | | $ | 10,912 | | | $ | 7,784 | |
| Revenue from net metering credit agreements | 7,822 | | | 7,155 | | 11,722 | | | 10,465 | |
| Solar renewable energy certificate revenue | 7,975 | | | 4,900 | | 17,506 | | | 10,099 | |
| Rental income | 785 | | | 539 | | 1,429 | | | 760 | |
| Performance-based incentives | 295 | | | 260 | | 654 | | | 811 | |
| Other revenue | 1,155 | | | 106 | | 1,738 | | | 165 | |
| Total | $ | 24,762 | | | $ | 17,613 | | $ | 43,961 | | | $ | 30,084 | |
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Accounts receivable
The following table presents the detail of receivables as recorded in accounts receivable in the unaudited condensed consolidated balance sheets:
| | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 |
| Power purchase agreements | $ | 4,164 | | | $ | 1,678 | |
| Net metering credit agreements | 3,154 | | | 3,322 | |
| Solar renewable energy certificates | 4,785 | | | 3,789 | |
| Rental income | 36 | | | 350 | |
| Performance-based incentives | 496 | | | 4 | |
| Other | 523 | | | 75 | |
| Total | $ | 13,158 | | | $ | 9,218 | |
Payment is typically received within 30 days for invoiced revenue as part of power purchase agreements (“PPAs”) and net metering credit agreements (“NMCAs”). Receipt of payment relative to invoice date varies by customer for renewable energy certificates ("RECs"). The Company does not have any other significant contract asset or liability balances related to revenues. As of June 30, 2022, and December 31, 2021, the Company determined that the allowance for uncollectible accounts is $0.4 million and $0.4 million, respectively.
4.Acquisitions
2022 Acquisitions
Stellar NJ Acquisition
On April 1, 2022, the Company acquired a 1.0 MW solar energy facility located in New Jersey (the "Stellar NJ Acquisition") from a third party for a total purchase price of $1.3 million. The transaction was accounted for as an acquisition of assets, whereby the Company acquired $2.3 million of property, plant and equipment and assumed $0.4 million of intangible liabilities and $0.6 million of other liabilities. The intangible liability assumed is associated with an unfavorable rate power purchase agreement and has a weighted average amortization period of 15 years.
Stellar HI 2 Acquisition
On June 10, 2022, the Company acquired a 4.6 MW portfolio of six solar energy facilities located in Hawaii (the "Stellar HI 2 Acquisition") from a third party for a total purchase price of $9.9 million, including $0.2 million of transaction related costs. This transaction was accounted for as an acquisition of assets, whereby the Company acquired $7.3 million of property, plant and equipment and $3.1 million of intangible assets, and assumed $0.5 million of intangible liabilities and $0.1 million of asset retirement obligations.
The Company attributed intangible asset and liability values to favorable and unfavorable rate revenue contracts to sell power generated by the acquired solar energy facilities, as well as a favorable rate lease. The following table summarizes the estimated fair values and the weighted average amortization periods of the acquired intangible assets and assumed intangible liabilities as of the acquisition date:
| | | | | | | | | | | |
| Fair Value
(thousands) | | Weighted Average Amortization Period |
| Favorable rate revenue contracts | $ | 2,903 | | | 10 years |
| Site lease acquisition | 229 | | | 15 years |
| Unfavorable rate revenue contracts | (464) | | | 14 years |
2021 Acquisitions
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Gridley Acquisition
On January 14, 2021, the Company acquired a portfolio of two solar energy facilities (the “Gridley Acquisition”) located in California with a combined nameplate capacity of 4.3 MW from a third party for a total purchase price of $5.0 million, including $0.1 million of transaction related costs. This transaction was accounted for as an acquisition of assets, whereby the Company acquired $5.3 million of property, plant and equipment and assumed $0.3 million of other liabilities.
5.Variable Interest Entity
The Company consolidates all variable interest entities (“VIEs”) in which it holds a variable interest and is deemed to be the primary beneficiary of the variable interest entity. Generally, a VIE is an entity with at least one of the following conditions: (a) the total equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support, or (b) the holders of the equity investment at risk, as a group, lack the characteristics of having a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE and to disclose certain information about its significant variable interests in the VIE. The primary beneficiary of a VIE is the entity that has both 1) the power to direct the activities that most significantly impact the entity’s economic performance and 2) the obligations to absorb losses or receive benefits that could potentially be significant to the VIE.
The Company participates in certain partnership arrangements that qualify as VIEs. Consolidated VIEs consist of tax equity financing arrangements and partnerships in which an investor holds a noncontrolling interest and does not have substantive kick-out or participating rights. The Company, through its subsidiaries, is the primary beneficiary of such VIEs, because as the manager, it has the power to direct the day-to-day operating activities of the entity. In addition, the Company is exposed to economics that could potentially be significant to the entity given its ownership interest, therefore, has consolidated the VIEs as of June 30, 2022, and December 31, 2021. No VIEs were deconsolidated during the six months ended June 30, 2022 and 2021.
The obligations of the consolidated VIEs discussed in the following paragraphs are nonrecourse to the Company. In certain instances where the Company establishes a new tax equity structure, the Company is required to provide liquidity in accordance with the contractual agreements. The Company has no requirement to provide liquidity to purchase assets or guarantee performance of the VIEs unless further noted in the following paragraphs. The Company made certain contributions during the six months ended June 30, 2022 and 2021, as determined in the respective operating agreement.
The carrying amounts and classification of the consolidated VIE assets and liabilities included in condensed consolidated balance sheets are as follows:
| | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 |
| Current assets | $ | 16,193 | | | $ | 13,131 | |
| Non-current assets | 370,475 | | | 372,761 | |
| Total assets | $ | 386,668 | | | $ | 385,892 | |
| Current liabilities | $ | 4,716 | | | $ | 3,652 | |
| Non-current liabilities | 40,027 | | | 40,978 | |
| Total liabilities | $ | 44,743 | | | $ | 44,630 | |
The amounts shown in the table above exclude intercompany balances which are eliminated upon consolidation. All of the assets in the table above are restricted for settlement of the VIE obligations, and all of the liabilities in the table above can only be settled using VIE resources.
The Company has not identified any VIEs during the six months ended June 30, 2022 and 2021, for which the Company determined that it is not the primary beneficiary and thus did not consolidate.
The Company considered qualitative and quantitative factors in determining which VIEs are deemed significant. During each of the six months ended June 30, 2022 and the year ended December 31, 2021, the Company consolidated twenty-five VIEs. No VIEs were deemed significant as of June 30, 2022 and December 31, 2021.
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
6.Debt
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2022 | | As of December 31, 2021 | | Interest
Type | | Weighted
average
interest rate |
| Long-term debt | | | | | | | |
| Amended rated term loan | $ | 493,465 | | | $ | 499,750 | | | Fixed | | 3.51 | % |
| Construction loans | — | | | 5,593 | | | Floating | | — | % |
| Term loans | 16,520 | | | 12,818 | | | Floating | | 3.31 | % |
| Financing lease obligations | 37,643 | | | 37,601 | | | Imputed | | 3.65 | % |
| Total principal due for long-term debt | 547,628 | | | 555,762 | | | | | |
| Unamortized discounts and premiums | (118) | | | (176) | | | | | |
| Unamortized deferred financing costs | (9,180) | | | (9,606) | | | | | |
| Less: Current portion of long-term debt | 15,726 | | | 21,143 | | | | | |
| Long-term debt, less current portion | $ | 522,604 | | | $ | 524,837 | | | | | |
Amended Rated Term Loan
As part of the Blackstone Capital Facility, APA Finance, LLC (“APAF”), a wholly owned subsidiary of the Company, entered into a $251.0 million term loan facility with Blackstone Insurance Solutions ("BIS") through a consortium of lenders, which consists of investment grade-rated Class A and Class B notes (the "Rated Term Loan").
On August 25, 2021, APAF entered into an Amended and Restated Credit Agreement with BIS to refinance the Rated Term Loan (hereby referred to as the “Amended Rated Term Loan”). The Amended Rated Term Loan added an additional $135.6 million to the facility, bringing the aggregate facility to $503.0 million. The Amended Rated Term Loan has a weighted average 3.51% annual fixed rate, reduced from the previous weighted average rate of 3.70%, and matures on February 29, 2056 (“Final Maturity Date”).
The Amended Rated Term Loan amortizes at an initial rate of 2.5% of outstanding principal per annum for a period of 8 years at which point the amortization steps up to 4% per annum until September 30, 2031 (“Anticipated Repayment Date”). After the Anticipated Repayment Date, the loan becomes fully-amortizing, and all available cash is used to pay down principal until the Final Maturity Date.
As of June 30, 2022, the outstanding principal balance of the Rated Term Loan was $493.5 million less unamortized debt discount and loan issuance costs totaling $8.0 million. As of December 31, 2021, the outstanding principal balance of the Rated Term Loan was $500.0 million less unamortized debt discount and loan issuance costs totaling $8.4 million.
As of June 30, 2022, the Company was in compliance with all covenants. As of December 31, 2021, the Company was in compliance with all covenants, except the delivery of the APAF audited consolidated financial statements, for which the Company obtained a waiver to extend the financial statement reporting deliverable due date. The Company delivered the audited financial statements on May 25, 2022, before the extended reporting deliverable due date.
Construction Facilities
Construction Loan to Term Loan Facility and Letters of Credit Facilities
On January 10, 2020, APA Construction Finance, LLC (“APACF”) a wholly-owned subsidiary of the Company, entered into a credit agreement with Fifth Third Bank, National Association and Deutsche Bank AG New York Branch to fund the development and construction of future solar facilities (“Construction Loan to Term Loan Facility”). The Construction Loan to Term Loan Facility includes a construction loan commitment of $187.5 million and a letter of credit commitment of $12.5 million, which can be drawn until January 10, 2023.
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
The construction loan commitment can convert to a term loan upon commercial operation of a particular solar energy facility. In addition, the Construction Loan to Term Loan Facility accrued a commitment fee at a rate equal to 0.50% per year of the daily unused amount of the commitment. During the three and six months ended June 30, 2022, the Company converted the outstanding construction loan of $5.6 million into the term loan of $4.2 million. As of June 30, 2022, the outstanding principal balances of the construction loan and term loan were zero and $16.2 million, respectively. As of December 31, 2021, the outstanding principal balances of the construction loan and term loan were $5.6 million and $12.3 million, respectively. As of June 30, 2022, and December 31, 2021, the Company had an unused borrowing capacity of $171.3 million. For the three months ended June 30, 2022, and 2021, the Company incurred interest costs associated with outstanding construction loans totaling zero and $0.1 million, respectively. For the six months ended June 30, 2022, and 2021 the Company incurred interest costs associated with outstanding construction loans totaling zero and $0.3 million, respectively. These interest costs were capitalized as part of property, plant and equipment. Also, on October 23, 2020, the Company entered into an additional letters of credit facility with Fifth Third Bank for the total capacity of $10.0 million. The Construction Loan to Term Loan Facility includes various financial and other covenants for APACF and the Company, as guarantor. As of June 30, 2022, and December 31, 2021, the Company was in compliance with all covenants.
As of June 30, 2022, and December 31, 2021, the total letters of credit outstanding with Fifth Third Bank were $10.0 million with an unused capacity of zero. As of June 30, 2022, and December 31, 2021, the total letters of credit outstanding with Deutsche Bank were $0.7 million and $0.6 million, respectively, with an unused capacity of $11.8 million and $11.9 million, respectively. To the extent liabilities are incurred as a result of the activities covered by the letters of credit, such liabilities are included on the accompanying condensed consolidated balance sheets. From time to time, the Company is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies’ statutes and regulations. The Company sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company’s borrowing facility capacity.
Financing Lease Obligations
From time to time, the Company sells equipment to third parties and enters into master lease agreements to lease the equipment back for an agreed-upon term. Due to certain forms of continuous involvement provided by the master lease agreements, sale leaseback accounting is prohibited under ASC 840. Therefore, the Company accounts for these transactions using the financing method by recognizing the sale proceeds as a financing obligation and the assets subject to the sale-leaseback remain on the balance sheet of the Company and are being depreciated. The aggregate proceeds have been recorded as long-term debt within the condensed consolidated balance sheets.
As of June 30, 2022 and December 31, 2021, the Company's recorded financing obligations were $36.5 million, net of $1.1 million of deferred transaction costs. Payments of $0.6 million and zero were made under financing lease obligations for the three months ended June 30, 2022, and 2021, respectively. Payments of $0.8 million and zero were made under financing obligations for the six months ended June 30, 2022 and 2021, respectively. Interest expense, inclusive of the amortization of deferred transaction costs, for the three months ended June 30, 2022, and 2021, was $0.4 million and zero, respectively. Interest expense, inclusive of the amortization of deferred transaction costs, for the six months ended June 30, 2022 and 2021, was $0.7 million and zero, respectively.
The table below shows the minimum lease payments under the financing lease obligations for the years ended:
| | | | | |
| 2022 | $ | 1,493 | |
| 2023 | 2,336 | |
| 2024 | 2,340 | |
| 2025 | 2,353 | |
| 2026 | 2,336 | |
| Thereafter | 14,993 | |
| Total | $ | 25,851 | |
The difference between the outstanding financing lease obligation of $37.6 million and $25.9 million of minimum lease payments, including the residual value guarantee, is due to $13.2 million of investment tax credits claimed by the Lessor, less
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
$2.6 million of the implied interest on financing lease obligation included in minimum lease payments. The remaining difference is due to $1.0 million of interest accrued and a $0.1 million difference between the minimum lease payments and the fair value of financing lease obligations acquired.
7.Fair Value Measurements
The Company measures certain assets and liabilities at fair value, which is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. Our fair value measurements use the following hierarchy, which prioritizes valuation inputs based on the extent to which the inputs are observable in the market.
•Level 1 - Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.
•Level 2 - Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs are observable in active markets are Level 2 valuation techniques.
•Level 3 - Valuation techniques in which one or more significant inputs are unobservable. Such inputs reflect our estimate of assumptions that market participants would use to price an asset or liability.
The Company holds various financial instruments that are not required to be recorded at fair value. For cash, restricted cash, accounts receivable, accounts payable, and short-term debt, the carrying amounts approximate fair value due to the short maturity of these instruments.
Redeemable Warrant Liability
CBAH sold 10,062,500 warrants as part of the SAILSM (Stakeholder Aligned Initial Listing) securities in the CBAH initial public offering (which traded separately on the NYSE under the symbol “CBAH WS” prior to the Merger, and following the Merger trade under the symbol “AMPS WS”) (such warrants, the "Redeemable Warrants"). The Redeemable Warrants are exercisable for an aggregate of 10,062,500 shares of the Company's Class A common stock, par value $0.0001 per share (the "Class A common stock"), at a purchase price of $11.00 per share. CBAH also issued 7,366,667 warrants to CBRE Acquisition Sponsor, LLC (the “Sponsor”) in a private placement simultaneously with the closing of the CBAH IPO and 2,000,000 warrants to the Sponsor in full settlement of a second amended and restated promissory note with the Sponsor (such warrants, the "Private Placement Warrants"). The Private Placement Warrants are identical to the Redeemable Warrants except that, so long as they are held by the Sponsor, officers or directors or their respective permitted transferees, (i) they will not be redeemable by the Company (except in certain circumstances), (ii) they may be exercised by the holders on a cashless basis, and (iii) they (including the shares of our Class A common stock issuable upon exercise of these warrants) are entitled to registration rights. If the Private Placement Warrants are held by holders other than the Sponsor, officers or directors or their respective permitted transferees, the Private Placement Warrants will become redeemable by the Company in all redemption scenarios and exercisable by the holders on the same basis as the Redeemable Warrants. The Private Placement Warrants will be exercisable for an aggregate of 9,366,667 shares of CBAH Class A common stock at a purchase price of $11.00 per share.
Redeemable warrants, including Private Placement Warrants, are not considered to be “indexed to the Company’s own stock.” This provision precludes the Company from classifying the Redeemable warrants, including Private Placement Warrants, in stockholders’ equity. As the Redeemable warrants, including Private Placement Warrants, meet the definition of a derivative, the Company recorded these warrants as liabilities on the condensed consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in the consolidated statements of operations at each reporting date.
On May 31, 2022, and June 15, 2022, the Company entered into separate, privately negotiated warrant exchange agreements (the "Exchange Agreements") with a limited number of holders of the Company's outstanding Redeemable Warrants. Pursuant to the Exchange Agreements, the Company agreed to issue an aggregate of 1,067,417 shares of Class A common stock to the holders of Redeemable Warrants in exchange for the surrender and cancellation of an aggregate of 4,447,555 Redeemable Warrants. The issuance by the Company of the shares of Common Stock in exchange for the surrender and cancellation of the Redeemable Warrants was made in reliance on the exemption from registration in Section 3(a)(9) of the Securities Act. Immediately prior to the exchange, the Redeemable Warrants were remeasured to fair value based on the trading price of the
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
exchanged shares of common stock, resulting in a gain on fair value remeasurement of $4.1 million within operating income in the condensed consolidated statements of operations for the six months ended June 30, 2022, and a redeemable warrant liability of $7.3 million, which was then reclassified to additional paid-in capital in the condensed consolidated balance sheet as of June 30, 2022.
As the remaining Redeemable Warrants (other than our Private Placement Warrants) continue to trade separately on the NYSE following the Merger, the Company determines the fair value of the Redeemable Warrants based on the quoted trading price of those warrants. As the inputs are observable and reflect quoted trading price, the overall fair value measurement of the Redeemable Warrants, excluding Private Placement Warrants, is classified as Level 1. The Private Placement Warrants have the same redemption and make-whole provisions as the Redeemable Warrants. Therefore, the fair value of the Private Placement Warrants is equal to the Redeemable Warrants. Private Placement Warrants are considered Level 2 as they are measured at fair value using observable inputs for similar assets in an active market.
| | | | | | | | | | | |
| | For the six months ended June 30, 2022 |
| | Units | | $ |
| Redeemable warrants, beginning balance | 19,429,167 | | | $ | 49,933 | |
| Warrants exercised | (10) | | | — | |
| Exchange of warrants into common stock | (4,447,555) | | | (7,339) | |
| Forfeiture of fractional warrants | (13) | | | — | |
| Fair value remeasurement | — | | | (23,117) | |
| Redeemable warrants, ending balance | 14,981,589 | | | $ | 19,476 | |
Alignment Shares Liability
The Company has 1,207,500 Alignment shares outstanding, all of which are held by the Sponsor, certain former officers of CBAH (such officers, together with the Sponsor, the “Sponsor Parties”) and former CBAH directors. The Alignment shares will automatically convert into shares of Class A common stock based upon the Total Return (as defined in Exhibit 4.4 to our 2021 Annual Report on Form 10-K) on the Class A common stock as of the relevant measurement date over each of the seven fiscal years following the Merger.
Upon the consummation of the Merger, Alignment shares have no continuing service requirement and do not create an unconditional obligation requiring the Company to redeem the instruments by transferring assets. In addition, the shares convert to a variable number of Class A common stock depending on the trading price of the Class A common stock and dividends paid/payable to the holders of Class A common stock. Therefore, the shares do not represent an obligation or a conditional obligation to issue a variable number of shares with a monetary value based on any of the criteria in ASC 480, Distinguishing Liabilities From Equity. The Company determined that the Alignment shares meet the definition of a derivative because they contain (i) an underlying (Class A common stock price), (ii) a notional amount (a fixed number of Class B common stock), (iii) no or minimal initial net investment (the Sponsor paid a de minimis amount which is less than the estimated fair value of the shares), and (iv) net settleable through a conversion of the Alignment shares into Class A shares. As such, the Company concluded that the Alignment shares meet the definition of a derivative, which will be presented at fair value each reporting period, with changes in fair value recorded through earnings.
The Company estimates the fair value of outstanding Alignment shares using a Monte Carlo simulation valuation model utilizing a distribution of potential outcomes based on a set of underlying assumptions such as stock price, volatility, and risk-free interest rate. As volatility of 69% and risk-free interest rate of 3.0% are not observable inputs, the overall fair value measurement of Alignment shares is classified as Level 3. Unobservable inputs can be volatile and a change in those inputs might result in a significantly higher or lower fair value measurement of Alignment shares.
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
| | | | | | | | | | | |
| | For the six months ended June 30, 2022 |
| | Shares | | $ |
| Beginning balance | 1,408,750 | | | $ | 127,474 | |
| Alignment shares converted | (201,250) | | | (15) | |
| Alignment shares forfeited | — | | | — | |
| Fair value remeasurement | — | | | (63,051) | |
| Ending balance | 1,207,500 | | | $ | 64,408 | |
Contingent Consideration
Solar Acquisition
In connection with the acquisition of a portfolio of sixteen solar energy facilities with a combined nameplate capacity of 61.5 MW on December 22, 2020 (the "Solar Acquisition"), contingent consideration of up to an aggregate of $10.5 million may be payable upon achieving certain market power rates and actual power volumes generated by the acquired solar energy facilities. The Company estimated the fair value of the contingent consideration for future earnout payments using a Monte Carlo simulation model. Significant assumptions used in the measurement include the estimated volumes of power generation of acquired solar energy facilities during the 18-36-month period since the acquisition date, market power rates during the 36-month period, and the risk-adjusted discount rate associated with the business. As the inputs are not observable, the overall fair value measurement of the contingent consideration is classified as Level 3. Liability for the contingent consideration is included in other long-term liabilities in the condensed consolidated balance sheets at the estimated fair value of $1.8 million and $2.3 million as of June 30, 2022 and December 31, 2021, respectively. For the three and six months ended June 30, 2022, the Company recorded $1.1 million and $0.5 million gain on fair value remeasurement of contingent consideration within operating income in the condensed consolidated statements of operations, respectively. For the three and six months ended June 30, 2021, the Company recorded $0.8 million and $2.1 million gain on fair value remeasurement of contingent consideration within operating income in the condensed consolidated statements of operations, respectively. Gain was recorded due to changes in significant assumptions used in the measurement, including the actual versus estimated volumes of power generation of acquired solar energy facilities and market power rates.
Other
Gain on fair value remeasurement of other contingent consideration of $0.5 million was recorded within operating income in the condensed consolidated statements of operations for the six months ended June 30, 2022. No gain or loss on fair value remeasurement of contingent consideration was recorded for the six months ended June 30, 2021.
8.Equity
As of June 30, 2022, the Company had authorized and issued 988,591,250 and 154,718,268 shares of Class A common stock, respectively. As of December 31, 2021, the Company had authorized and issued 988,591,250 and 153,648,830 shares of Class A common stock, respectively. Class A common stock entitles the holder to one vote on all matters submitte d to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors. As of June 30, 2022, and December 31, 2021, no common stock dividends have been declared.
As of June 30, 2022, and December 31, 2021, the Company had 1,207,500 and 1,408,750 authorized and issued shares of Class B common stock, respectively, also referred to as Alignment Shares. Refer to Note 7, "Fair Value Measurements," for further details.
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
9.Redeemable Noncontrolling Interests
The changes in the components of redeemable noncontrolling interests are presented in the table below:
| | | | | | | | | | | |
| | For the six months ended June 30, |
| | 2022 | | 2021 |
| Redeemable noncontrolling interest, beginning balance | $ | 15,527 | | | $ | 18,311 | |
| Cash distributions | (482) | | | (496) | |
| Accrued distributions to noncontrolling interests | — | | | (104) | |
| Cash contributions | 1,087 | | | — | |
| Net loss attributable to redeemable noncontrolling interest | (29) | | | (813) | |
| Redeemable noncontrolling interest, ending balance | $ | 16,103 | | | $ | 16,898 | |
10.Commitments and Contingencies
Legal
The Company is a party to a number of claims and governmental proceedings which are ordinary, routine matters incidental to its business. In addition, in the ordinary course of business the Company periodically has disputes with vendors, customers, and other counterparties. The outcomes of any current, pending matters are not expected to have, either individually or in the aggregate, a material adverse effect on the Company’s financial position or results of operations.
Performance Guarantee Obligations
The Company guarantees certain specified minimum solar energy production output under the Company’s PPA agreements, generally over a term of 10, 15 or 25 years. The solar energy systems are monitored to ensure these outputs are achieved. The Company evaluates if any amounts are due to customers based upon not meeting the guaranteed solar energy production outputs at each reporting period end. As of June 30, 2022, and December 31, 2021, the guaranteed minimum solar energy production has been met and the Company has recorded no performance guarantee obligations.
Leases
The Company has operating leases for land and buildings. For the three months ended June 30, 2022, and 2021, the Company recorded site lease expenses under these agreements totaling $1.1 million and $0.9 million, respectively. For the six months ended June 30, 2022, and 2021, the Company recorded site lease expenses under these agreements totaling $2.4 million and $1.8 million, respectively. Site lease expenses are recorded in cost of operations in the condensed consolidated statements of operations. As of June 30, 2022, and December 31, 2021, $2.8 million and $2.1 million, respectively, have been recorded as other long-term liabilities on the condensed consolidated balance sheets relating to the difference between actual lease payments and straight-line lease expense.
11.Related Party Transactions
There were no amounts due to or from related parties as of June 30, 2022, and December 31, 2021. Additionally, in the normal course of business, the Company conducts transactions with affiliates, such as:
Blackstone Subsidiaries as Amended Rated Term Loan Lender
The Company incurs interest expense on the Amended Rated Term Loan. For the three months ended June 30, 2022, and 2021, the total related party interest expense associated with the Amended Rated Term Loan was $4.4 million and $4.0 million, respectively, and is recorded as interest expense in the accompanying condensed consolidated statements of operations. For the six months ended June 30, 2022, and 2021, the total related party interest expense associated with the Amended Rated Term Loan was $8.7 million and $7.3 million, respectively, and is recorded as interest expense in the accompanying condensed consolidated statements of operations. As of June 30, 2022, and December 31, 2021, interest payable of $4.4 million and $4.5
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
million, respectively, due under the Amended Rated Term Loan was recorded as interest payable on the accompanying condensed consolidated balance sheets.
Master Services Agreement with CBRE
On June 13, 2022, the Company signed a Master Services Agreement ("MSA") with CBRE Group, Inc. ("CBRE"), a related party, under which CBRE will assist the Company in developing clean energy projects. As of June 30, 2022, no amounts have been paid by the Company under the MSA.
12.Earnings per Share
The calculation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021 was as follows (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) attributable to Altus Power, Inc. | 24,115 | | | (1,189) | | | 84,534 | | | (227) | |
| Income attributable to participating securities | (190) | | | — | | | (667) | | | — | |
| Net income (loss) attributable to common stockholders - basic and diluted | 23,925 | | | (1,189) | | | 83,867 | | | (227) | |
| Class A Common Stock | | | | | | | |
Weighted average shares of common stock outstanding - basic(1) | 153,310,068 | | | 88,741,089 | | | 152,988,078 | | | 88,741,089 | |
| Dilutive restricted stock | 644,775 | | | — | | | 645,019 | | | — | |
| Dilutive RSUs | — | | | — | | | 138,895 | | | — | |
Weighted average shares of common stock outstanding - diluted(2) | 153,954,843 | | | 88,741,089 | | | 153,771,992 | | | 88,741,089 | |
| Net income (loss) attributable to common stockholders per share - basic | $ | 0.16 | | | $ | (0.01) | | | $ | 0.55 | | | $ | — | |
| Net income (loss) attributable to common stockholders per share - diluted | $ | 0.16 | | | $ | (0.01) | | | $ | 0.55 | | | $ | — | |
(1) Excludes 669,101 shares of Company Class A common stock provided to holders of Altus Restricted Shares for the three and six months ended June 30, 2022, and 1,259,887 shares of Company Class A common stock provided to holders of Altus Restricted Shares for the three and six months ended June 30, 2021.
(2) Excludes 5,614,922 Redeemable Warrants and Private Placement Warrants for the three and six months ended June 30, 2022. The Redeemable Warrants and Private Placement Warrants are exercisable at $11.00 per share. As the warrants are deemed anti-dilutive, they are excluded from the calculation of earnings per share.
13.Stock-Based Compensation
The Company recognized $2.7 million and approximately zero of stock-based compensation expense for the three months ended June 30, 2022, and 2021, respectively. The Company recognized $4.0 million and $0.1 million of stock-based compensation expense for the six months ended June 30, 2022, and 2021, respectively. As of June 30, 2022, and December 31, 2021, the Company had $37.1 million and $0.2 million of unrecognized share-based compensation expense related to unvested restricted units, respectively, which the Company expects to recognize over a weighted-average period of approximately five years.
Legacy Incentive Plans
Prior to the Merger, Altus maintained the APAM Holdings LLC Restricted Units Plan, adopted in 2015 (the “APAM Plan”) and APAM Holdings LLC adopted the 2021 Profits Interest Incentive Plan (the “Holdings Plan”, and together with the APAM
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Plan, the “Legacy Incentive Plans”), which provided for the grant of restricted units that were intended to qualify as profits interests to employees, officers, directors and consultants. In connection with the Merger, vested restricted units previously granted under the Legacy Incentive Plans were exchanged for shares of Class A Common Stock, and unvested Altus Restricted Shares under each of the Legacy Incentive Plans were exchanged for restricted Class A Common Stock with the same vesting conditions. As of June 30, 2022, and December 31, 2021, 126,590 and 446,128 shares of Class A Common Stock were restricted under the APAM Plan, respectively. As of June 30, 2022, and December 31, 2021, 542,511 and 813,759 shares of Class A Common Stock were restricted under the Holdings Plan, respectively. No further awards will be made under the Legacy Incentive Plans.
The fair value of the granted units was determined using the Black-Scholes Option Pricing model and relied on assumptions and inputs provided by the Company. All option models utilize the same assumptions with regard to (i) current valuation, (ii) volatility, (iii) risk-free interest rate, and (iv) time to maturity. The models, however, use different assumptions with regard to the strike price which vary by award.
Omnibus Incentive Plan
On July 12, 2021, the Company entered into the Management Equity Incentive Letter with each of Mr. Felton and Mr. Norell pursuant to which, on February 15, 2022, the Compensation Committee granted to Mr. Felton and Mr. Norell, together with other senior executives, including Anthony Savino, Chief Construction Officer, and Dustin Weber, Chief Financial Officer, restricted stock units (“RSUs”) under the Omnibus Incentive Plan (the "Incentive Plan") that are subject to time-based and, for the named executive officers and certain other executives, eighty percent (80%) of such RSUs also further subject to performance-based vesting, with respect to an aggregate five percent (5%) of the Company’s Class A common stock on a fully diluted basis, excluding the then-outstanding shares of the Company’s Class B common stock or any shares of the Company’s Class A common stock into which such shares of the Company’s Class B common stock are or may be convertible. Subject to continued employment on each applicable vesting date, the time-based RSUs generally vest 33 1/3% on each of the third, fourth and fifth anniversaries of the Closing, and the performance-based RSUs vest with respect to 33 1/3% of the award upon the achievement of the above time-based requirement and the achievement of a hurdle representing a 25% annual compound annual growth rate measured based on an initial value of $10.00 per share.
As of June 30, 2022, and December 31, 2021, there were 23,047,325 and 15,364,883 shares of the Company's Class A common stock authorized for issuance under the Incentive Plan, respectively. The number of shares authorized for issuance under the Incentive Plan will increase on January 1 of each year from 2022 to 2031 by the lesser of (i) 5% of the number of shares outstanding as of the close of business on the immediately preceding December 31 and (ii) the number of shares determined by the Company's board of directors. For the three months ended June 30, 2022, the Company granted 15,000 RSUs and recognized $2.7 million of stock compensation expense in relation to the incentive plan. For the six months ended June 30, 2022, the Company granted 7,918,789 RSUs and recognized $4.0 million of stock-based compensation expense in relation to the Incentive Plan.
Employee Stock Purchase Plan
On December 9, 2021, we adopted the 2021 Employee Stock Purchase Plan ("ESPP"), which provides a means by which eligible employees may be given an opportunity to purchase shares of the Company’s Class A common stock. As of June 30, 2022, and December 31, 2021, there were 3,072,976 and 1,536,488 shares of the Company's Class A common stock authorized for issuance under the ESPP, respectively. The number of shares authorized for issuance under the ESPP will increase on January 1 of each year from 2022 to 2031 by the lesser of (i) 1% of the number of shares outstanding as of the close of business on the immediately preceding December 31 and (ii) the number of shares determined by the Company's board of directors. No shares of the Company’s Class A common stock were issued and no stock-based compensation expense was recognized in relation to the ESPP for the three and six months ended June 30, 2022.
14.Income Taxes
The income tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate as adjusted for discrete items arising in that quarter.
For the three months ended June 30, 2022, and 2021, the Company had income tax expense of $0.7 million and income tax expense of $2.1 million, respectively. For the six months ended June 30, 2022, and 2021, the Company had income tax expense
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Altus Power, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data, unless otherwise noted)
of $0.6 million and $1.1 million, respectively. For the six months ended June 30, 2022, the effective tax rate differs from the U.S. statutory rate primarily due to effects of non-deductible compensation, noncontrolling interests, redeemable noncontrolling interests, fair value adjustments for warrant liabilities and alignment shares, as well as state and local income taxes. For the three months ended June 30, 2021, the effective tax rate differs from the U.S. statutory rate primarily due to effects of noncontrolling interests, redeemable noncontrolling interests, state and local income taxes, and gain on fair value remeasurement of contingent consideration.
15.Subsequent Events
The Company has evaluated subsequent events from June 30, 2022, through August 15, 2022, which is the date the unaudited condensed consolidated financial statements were available to be issued. There are no subsequent events requiring recording or disclosure in the condensed consolidated financial statements.
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ALTUS POWER'S MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and operating results for Altus Power, Inc. (as used in this section, “Altus” or the “Company”) has been prepared by Altus Power's management. You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, our 2021 Annual Report on Form 10-K, and subsequent Quarterly Reports on Form 10-Q. Any references in this section to “we,” “our” or “us” shall mean Altus. In addition to historical information, this Quarterly Report on Form 10-Q for the period ended June 30, 2022 (this “Report”), including this management’s discussion and analysis (“MD&A”), contains statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements do not convey historical information but relate to predicted or potential future events and financial results, such as statements of our plans, strategies and intentions, or our future performance or goals that are based upon management's current expectations. Our forward-looking statements can often be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “aims," “may,” “could,” “will,” “should,” “plans,” “projects,” “forecasts,” “seeks,” “anticipates,” “goal,” “objective,” “target,” “estimate,” “future,” “outlook,” “vision,” or variations of such words or similar terminology. Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current estimations. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to the risks as described in the "Risk Factors" in our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 24, 2022 (the “2021 Annual Report on Form 10-K”). These risks and uncertainties, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks to circumstances only as of the date on which it is made. We are not obligated to update these forward-looking statements, even though our situation may change in the future.
Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside Altus Power’s control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks, uncertainties, assumptions and other important factors include, but are not limited to: (1) the ability of Altus Power to maintain its listing on the New York Stock Exchange; (2) the ability to recognize the anticipated benefits of the recently completed business combination and related transactions, which may be affected by, among other things, competition, (3) the ability of Altus Power to grow and manage growth profitably, maintain relationships with customers, business partners, suppliers and agents and retain its management and key employees; (4) changes in applicable laws or regulations; (5) the possibility that Altus Power may be adversely affected by other economic, business, regulatory and/or competitive factors; and (6) the impact of COVID-19, inflationary pressures, and supply chain issues on Altus Power’s business.
Overview
Our mission is to create a clean electrification ecosystem, to drive the clean energy transition of our customers across the United States while simultaneously enabling the adoption of corporate environmental, social and governance (“ESG”) targets. In order to achieve our mission, we develop, own and operate solar generation and energy storage facilities. We have the in house expertise to develop, build and provide operations and maintenance and customer servicing for our assets. The strength of our platform is enabled by premier sponsorship from The Blackstone Group ("Blackstone"), which provides an efficient capital source and access to a network of portfolio companies, and CBRE Group, Inc. ("CBRE"), which provides direct access to their portfolio of owned and managed commercial and industrial (“C&I”) properties.
We are a developer, owner and operator of large-scale roof, ground and carport-based photovoltaic ("PV") and energy storage systems, serving commercial and industrial, public sector and community solar customers. We own systems across the United States from Hawaii to Vermont. Our portfolio consists of over 350 megawatts (“MW”) of solar PV. We have long-term power purchase agreements ("PPAs") with over 300 C&I entities and contracts with over 5,000 residential customers which are serviced by approximately 40 megawatts of community solar projects currently in operation. We have agreements to install another approximately 55 megawatts of community solar projects. Our community solar projects are currently servicing customers in 6 states with projects in a 7th state currently under construction. We also participate in numerous renewable energy certificate (“REC”) programs throughout the country. We have experienced significant growth in the last 12 months as a product of organic growth and targeted acquisitions and currently operate in 18 states, providing clean electricity to our customers equal to the consumption of approximately 30,000 homes, displacing 255,000 tons of CO2 emissions per annum.
Comparability of Financial Information
Our historical operations and statements of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the recently completed business combination with CBRE Acquisition Holdings, Inc. as described in Note 1, “General,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (the "Merger"), recent acquisitions as described in Note 4, "Acquisitions," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and Note 7, “Acquisitions,” to our audited consolidated annual financial statements included in our 2021 Annual Report on Form 10-K, and the cost becoming a public company.
As a result of becoming a public company, Altus is subject to additional rules and regulations applicable to companies listed on a national securities exchange and compliance and reporting obligations pursuant to the rules and regulations of the SEC. Altus expects to hire additional employees to meet these rules and obligations, and incur higher expenses for investor relations, accounting advisory, directors' and officers’ insurance, legal and other professional services and will engage consultants and third party advisors to assist with the heightened requirements of being a public company.
Key Factors Affecting Our Performance
Our results of operations and our ability to grow our business over time could be impacted by a number of factors and trends that affect our industry generally, as well as new offerings of services and products we may acquire or seek to acquire in the future. Additionally, our business is concentrated in certain markets, putting us at risk of region-specific disruptions such as adverse economic, regulatory, political, weather and other conditions. See “Risk Factors” in our 2021 Annual Report on Form 10-K for further discussion of risks affecting our business.
Execution of Growth Strategies
We believe we are in the beginning stages of a market opportunity driven by the broad shift away from traditional energy sources to renewable energy and an increasing emphasis by the commercial and industrial sector on their public commitment to decarbonization. We intend to leverage our competitive strengths and market position to become customers’ “one-stop-shop” for the clean energy transition by 1) Using our existing customer and developer networks to build out our electric vehicle ("EV") charging and energy storage offerings and establish a position comparable to that of our C&I solar market position through our existing cross-sell opportunities and 2) partnering with Blackstone and CBRE to access their client relationships, portfolio companies, and their strong brand recognition, to increase the number of customers we can support.
Competition
We compete in the C&I scale renewable energy space with utilities, developers, independent power producers, pension funds and private equity funds for new investment opportunities. We expect to grow our market share because of the following competitive strengths:
•Development Capability: We have established an innovative approach to the development process. From site identification and customer origination through the construction phase, we’ve established a streamlined process enabling us to further create the scalability of our platform and significantly reduce the costs and time in the development process. Part of our attractiveness to our customers is our ability to ensure a high level of execution certainty. We anticipate that this ability to originate, source, develop and finance projects will ensure we can continue to grow and meet the needs of our customers.
•Long-Term Revenue Contracts: Our C&I solar generation contracts have a typical length of 20 years or longer, creating long-term relationships with customers that allow us to cross-sell additional current and future products and services. The average remaining life of our current contracts is approximately 17 years. These long-term contracts are either structured at a fixed rate, often with an escalator, or floating rate pegged at a discount to the prevailing local utility rates. We refer to these latter contracts as variable rate, and as of June 30, 2022, these variable rate contracts make up approximately 60% of our current installed portfolio. During the six months ended June 30, 2022, overall utility rates have been increasing in states where we have projects under variable rate contracts. The realization of solar power price increases varies depending on region, utility and terms of revenue contract, but generally, we would benefit from such increases in the future as inflationary pressures persist.
•Flexible Financing Solutions: We have a market-leading cost of capital in an investment-grade rated scalable credit facility from Blackstone, which enables us to be competitive bidders in asset acquisition and development. In addition to our Blackstone term loan, we also have financing available through a construction to term loan facility. This facility has $200 million of committed capacity which carries a floating rate of LIBOR plus 2.25%.
•Leadership: We have a strong executive leadership team who has extensive experience in capital markets, solar development and solar construction, with over 20 years of experience each. Moreover, through the transaction structure, management and employees will continue to own a significant interest in the Company.
•CBRE Partnership: Our partnership with CBRE, the largest global real estate services company, provides us with a clear path to creating new customer relationships. CBRE is the largest manager of data centers and 90% of the Fortune 100 are CBRE clients, providing a significant opportunity for us to expand our customer base.
Financing Availability
Our future growth depends in significant part on our ability to raise capital from third-party investors and lenders on competitive terms to help finance the origination of our solar energy systems. We have historically used a variety of structures including tax equity financing, construction loan financing, and term loan financing to help fund our operations. From September 4, 2013, the inception of Legacy Altus, to June 30, 2022, we have raised over $100 million of tax equity financing, $80 million in construction loan financing and $690 million of term loan financing. Our ability to raise capital from third-party investors and lenders is also affected by general economic conditions, the state of the capital markets, inflation levels, interest rate levels, and lenders' concerns about our industry or business.
Cost of Solar Energy Systems
Although the solar panel market has seen an increase in supply in the past few years, most recently, there has been upward pressure on prices due to lingering issues of the COVID-19 pandemic (further discussed below), recent inflationary pressures, growth in the solar industry, regulatory policy changes, tariffs and duties and an increase in demand. As a result of these developments, we have been experiencing higher prices on imported solar modules. The prices of imported solar modules have increased as a result of the COVID-19 pandemic and may increase as a result of the Russia invasion of Ukraine. If there are substantial increases, it may become less economical for us to serve certain markets. Attachment rates for energy storage systems have trended higher while the price to acquire has trended downward making the addition of energy storage systems a potential area of growth for us.
Seasonality
The amount of electricity our solar energy systems produce is dependent in part on the amount of sunlight, or irradiation, where the assets are located. Because shorter daylight hours in winter months and poor weather conditions due to rain or snow results in less irradiation, the output of solar energy systems will vary depending on the season and the overall weather conditions in a year. While we expect seasonal variability to occur, the geographic diversity in our assets helps to mitigate our aggregate seasonal variability.
Another aspect of seasonality to consider is in our construction program, which is more productive during warmer weather months and generally results in project completion during fourth quarter. This is particularly relevant for our projects under construction in colder climates like the Northeast.
Pipeline
As of June 30, 2022, our pipeline of opportunities totaled over one gigawatt and is comprised of approximately 50% potential operating acquisitions and 50% projects under development. The operating acquisitions are dynamic with new opportunities being evaluated by our team each quarter.
As of June 30, 2022, with respect to the half of our pipeline made up of development projects, approximately 23% of these projects are currently in construction or pre-construction, 36% of these projects are still in the contracting or due diligence phase, and the final 41% represent projects from our client engagements which are progressing toward an agreement in principle.
As of June 30, 2022, with respect to the half of our pipeline made up of potential operating acquisitions, approximately 19% of these projects are currently in the initial engagement phase, 61% of these projects are in negotiation, and the final 20% of these projects are in the closing phase.
Projects originated by our channel partners which we then develop, engineer and construct benefit from a shorter time from agreed terms to revenues, typically 6 to 9 months based on our historical experience. Projects that we are originating ourselves and self-developing, such as those with a lead from CBRE or Blackstone, would historically take 12 to 15 months from agreed
terms to bring to commercial operation. Given the supply chain challenges and permitting and interconnection delays described above, as of June 30, 2022, these historical timelines are currently pushed out by approximately 3 to 6 months.
Government Regulations, Policies and Incentives
Our growth strategy depends in significant part on government policies and incentives that promote and support solar energy and enhance the economic viability of distributed solar. These incentives come in various forms, including net metering, eligibility for accelerated depreciation such as modified accelerated cost recovery system, solar renewable energy credits (“SRECs”), tax abatements, rebate and renewable target incentive programs and tax credits, particularly the Section 48(a) investment tax credits ("ITC"). We are a party to a variety of agreements under which we may be obligated to indemnify the counterparty with respect to certain matters. Typically, these obligations arise in connection with contracts and tax equity partnership arrangements, under which we customarily agree to hold the other party harmless against losses arising from a breach of warranties, representations, and covenants related to such matters as title to assets sold, negligent acts, damage to property, validity of certain intellectual property rights, non-infringement of third-party rights, and certain tax matters including indemnification to customers and tax equity investors regarding Commercial ITCs. The sale of SRECs has constituted a significant portion of our revenue historically. A change in the value of SRECs or changes in other policies or a loss or reduction in such incentives could decrease the attractiveness of distributed solar to us and our customers in applicable markets, which could reduce our growth opportunities. Such a loss or reduction could also reduce our willingness to pursue certain customer acquisitions due to decreased revenue or income under our solar service agreements. Additionally, such a loss or reduction may also impact the terms of and availability of third-party financing. If any of these government regulations, policies or incentives are adversely amended, delayed, eliminated, reduced, retroactively changed or not extended beyond their current expiration dates or there is a negative impact from the recent federal law changes or proposals, our operating results and the demand for, and the economics of, distributed solar energy may decline, which could harm our business.
Impact of the COVID-19 Pandemic and Supply Chain Issues
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic.
Our business operations have continued to function effectively during the pandemic. We are continuously evaluating the pandemic and are taking necessary steps to mitigate known risks. We will continue to adjust our actions and operations as appropriate in order to continue to provide safe and reliable service to our customers and communities while keeping our employees and contractors safe. Although we have been able to mitigate to a certain extent the impact to the operations of the Company to date, given that COVID-19 infections remain persistent in many states where we do business and the situation is evolving, we cannot predict the future impact of COVID-19 on our business. We considered the impact of COVID-19 on the use of estimates and assumptions used for financial reporting and noted there were material impacts on our results of operations for the six months ended June 30, 2022, and 2021, as supply chain issues and logistical delays have materially impacted the timing of our construction schedules and likely will continue to have a material adverse effect on our business, operations, financial condition, results of operations, and cash flows.
The service and installation of solar energy systems has continued during the COVID-19 pandemic. This continuation of service reflects solar services’ designation as an essential service in all of our service territories. Throughout the COVID-19 pandemic, we have seen some impacts to our supply chain affecting the timing of delivery of certain equipment, including, but not limited to, solar modules, inverters, racking systems, and transformers. Although we have been able to ultimately procure the equipment needed to service and install solar energy systems, we have experienced delays in such procurement. We have established a geographically diverse group of suppliers, which is intended to ensure that our customers have access to affordable and effective solar energy and storage options despite potential trade, geopolitical or event-driven risks. We do anticipate continuing impacts to our ability to source parts for our solar energy systems or energy storage systems, which we are endeavoring to mitigate via advanced planning and ordering from our diverse network of suppliers. However, if supply chains become even further disrupted due to additional outbreaks of the COVID-19 virus or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems could become more adversely impacted.
Governmental restrictions of implemented to try to slow the spread of the COVID-19 virus have caused, and may continue to cause, us to experience operational delays and may cause milestones or deadlines relating to various project documents to be missed. To date, we have not received notices from our dealers regarding significant performance delays resulting from the COVID-19 pandemic. However, worsening economic conditions could result in such outcomes over time, which would impact our future financial performance. Further, the effects of the economic downturn associated with the COVID-19 pandemic may reduce consumer credit ratings and credit availability, which may adversely affect new customer origination and our existing customers’ ability to make payments on their solar service agreements. Periods of a lack of availability of credit may lead to increased delinquency and default rates. We have not experienced a significant increase in
default or delinquency rates to date. However, if existing economic conditions continue for a prolonged period of time or worsen, delinquencies on solar service agreements could materialize, which would also negatively impact our future financial performance. Moreover, the Russia invasion of Ukraine may further exacerbate some of the supply chain issues.
We cannot predict the full impact the COVID-19 pandemic, the Russia invasion of Ukraine, or the significant disruption and volatility currently being experienced in the capital markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. The ultimate impact will depend on future developments, including, among other things, the ultimate duration of the COVID-19 virus, the duration of the Russia invasion of Ukraine and associated sanctions, the distribution, acceptance and efficacy of the vaccine, the depth and duration of the economic downturn and other economic effects of the COVID-19 pandemic, the consequences of governmental and other measures designed to prevent the spread of the COVID-19 virus, actions taken by governmental authorities, customers, suppliers, dealers and other third parties, our ability and the ability of our customers, potential customers and dealers to adapt to operating in a changed environment and the timing and extent to which normal economic and operating conditions resume. For additional discussion regarding risks associated with the COVID-19 pandemic, see “Risk Factors” elsewhere in our 2021 Annual Report on Form 10-K.
Key Financial and Operational Metrics
We regularly review a number of metrics, including the following key operational and financial metrics, to evaluate our business, measure our performance and liquidity, identify trends affecting our business, formulate our financial projections and make strategic decisions.
Megawatts Installed
Megawatts installed represents the aggregate megawatt nameplate capacity of solar energy systems for which panels, inverters, and mounting and racking hardware have been installed on premises in the period. Cumulative megawatts installed represents the aggregate megawatt nameplate capacity of solar energy systems for which panels, inverters, and mounting and racking hardware have been installed on premises.
| | | | | | | | | | | | | | | | | |
| As of June 30, 2022 | | As of June 30, 2021 | | Change |
Megawatts installed | 369 | | | 262 | | | 107 | |
Cumulative megawatts installed increased from 262 MW as of June 30, 2021, to 369 MW as of June 30, 2022.
| | | | | | | | | | | | | | | | | |
| As of June 30, 2022 | | As of December 31, 2021 | | Change |
Megawatts installed | 369 | | | 362 | | | 7 | |
Cumulative megawatts installed increased from 362 MW as of December 31, 2021, to 369 MW as of June 30, 2022.
The following table provides an overview of megawatts installed by state as of June 30, 2022:
| | | | | | | | | | | | | | |
| State | | Megawatts installed | | Share, % |
| Massachusetts | | 95 | | 26 | % |
| New Jersey | | 92 | | 25 | % |
| Minnesota | | 56 | | 15 | % |
| California | | 34 | | 9 | % |
| Hawaii | | 23 | | 6 | % |
| New York | | 13 | | 4 | % |
| Maryland | | 10 | | 3 | % |
| Vermont | | 8 | | 2 | % |
| Connecticut | | 7 | | 2 | % |
| All other | | 31 | | 8 | % |
| Total | | 369 | | 100 | % |
Megawatt Hours Generated
Megawatt hours (“MWh”) generated represents the output of solar energy systems from operating solar energy systems. MWh generated relative to nameplate capacity can vary depending on multiple factors such as design, equipment, location, weather and overall system performance.
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 | | Change |
Megawatt hours generated | 137,000 | | | 109,000 | | | 28,000 | |
Megawatt hours generated increased from 109,000 MWh for the three months ended June 30, 2021, to 137,000 MWh for the three months ended June 30, 2022.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 | | Change |
Megawatt hours generated | 223,000 | | | 172,000 | | | 51,000 | |
Megawatt hours generated increased from 172,000 MWh for the six months ended June 30, 2021, to 223,000 MWh for the six months ended June 30, 2022.
Non-GAAP Financial Measures
Adjusted EBITDA
We define adjusted EBITDA as net income plus net interest expense, depreciation, amortization and accretion expense, income tax expense, acquisition and entity formation costs, non-cash compensation expense, and excluding the effect of certain non-recurring items we do not consider to be indicative of our ongoing operating performance such as, but not limited to, gain or loss on fair value remeasurement of contingent consideration, change in fair value of redeemable warrant liability, change in fair value of alignment shares liability, and other miscellaneous items of other income and expenses.
We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues.
Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that we use to measure our performance. We believe that investors and analysts also use adjusted EBITDA in evaluating our operating performance. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The GAAP measure most directly comparable to adjusted EBITDA is net income and to adjusted EBITDA margin is net income over operating revenues. The presentation of adjusted EBITDA and adjusted EBITDA margin should not be construed to suggest that our future results will be unaffected by non-cash or non-recurring items. In addition, our calculation of adjusted EBITDA and adjusted EBITDA margin are not necessarily comparable to adjusted EBITDA as calculated by other companies and investors and analysts should read carefully the components of our calculations of these non-GAAP financial measures.
We believe adjusted EBITDA is useful to management, investors and analysts in providing a measure of core financial performance adjusted to allow for comparisons of results of operations across reporting periods on a consistent basis. These adjustments are intended to exclude items that are not indicative of the ongoing operating performance of the business. Adjusted EBITDA is also used by our management for internal planning purposes, including our consolidated operating budget, and by our board of directors in setting performance-based compensation targets. Adjusted EBITDA should not be considered an alternative to but viewed in conjunction with GAAP results, as we believe it provides a more complete understanding of ongoing business performance and trends than GAAP measures alone. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) | | (in thousands) |
Reconciliation of Net income (loss) to Adjusted EBITDA: | | | | | | | |
Net income (loss) | $ | 21,574 | | | $ | (440) | | | $ | 81,709 | | | $ | (177) | |
Income tax expense | 707 | | | 2,092 | | | 584 | | | 1,055 | |
Interest expense, net | 5,173 | | | 4,826 | | | 10,111 | | | 8,739 | |
Depreciation, amortization and accretion expense | 6,863 | | | 4,470 | | | 13,685 | | | 8,858 | |
Stock-based compensation | 2,657 | | | 37 | | | 3,962 | | | 77 | |
Acquisition and entity formation costs | 52 | | | 85 | | | 346 | | | 232 | |
| Gain on fair value of contingent consideration, net | (1,140) | | | (775) | | | (971) | | | (2,050) | |
| Change in fair value of redeemable warrant liability | (4,659) | | | — | | | (23,117) | | | — | |
| Change in fair value of alignment shares liability | (16,705) | | | — | | | (63,051) | | | — | |
Other income, net | (608) | | | (138) | | | (593) | | | (249) | |
Adjusted EBITDA | $ | 13,914 | | | $ | 10,157 | | | $ | 22,665 | | | $ | 16,485 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | (in thousands) |
Reconciliation of Adjusted EBITDA margin: | | | | | | | |
Adjusted EBITDA | $ | 13,914 | | | $ | 10,157 | | | $ | 22,665 | | | $ | 16,485 | |
Operating revenues, net | 24,762 | | | 17,613 | | | 43,961 | | | 30,084 | |
Adjusted EBITDA margin | 56 | % | | 58 | % | | 52 | % | | 55 | % |
Components of Results of Operations
The Company derives its operating revenues principally from power purchase agreements, net metering credit agreements, solar renewable energy credits, and performance-based incentives. Approximately 60% of our combined power purchase agreements and net metering credit agreements are variable-rate contracts, 15% are fixed-rate contracts with escalators, and 25% are fixed-rate contracts.
Revenue under power purchase agreements. A portion of the Company’s power sales revenues is earned through the sale of energy (based on kilowatt hours) pursuant to the terms of PPAs. The Company’s PPAs typically have fixed or floating rates and are generally invoiced monthly. The Company applied the practical expedient allowing the Company to recognize revenue in the amount that the Company has a right to invoice which is equal to the volume of energy delivered multiplied by the applicable contract rate. As of June 30, 2022, PPAs have a weighted-average remaining life of 14 years.
Revenue from net metering credit agreements. A portion of the Company’s power sales revenues are obtained through the sale of net metering credits under net metering credit agreements (“NMCAs”). Net metering credits are awarded to the Company by the local utility based on kilowatt hour generation by solar energy facilities, and the amount of each credit is determined by the utility’s applicable tariff. The Company currently receives net metering credits from various utilities including Eversource Energy, National Grid Plc, and Xcel Energy. There are no direct costs associated with net metering credits, and therefore, they do not receive an allocation of costs upon generation. Once awarded, these credits are then sold to third party offtakers pursuant to the terms of the offtaker agreements. The Company views each net metering credit in these arrangements as a distinct performance obligation satisfied at a point in time. Generally, the customer obtains control of net metering credits at the point in time when the utility assigns the generated credits to the Company account, who directs the
utility to allocate to the customer based upon a schedule. The transfer of credits by the Company to the customer can be up to one month after the underlying power is generated. As a result, revenue related to NMCA is recognized upon delivery of net metering credits by the Company to the customer. As of June 30, 2022, NMCAs have a weighted-average remaining life of 18 years.
Solar renewable energy certificate revenue. The Company applies for and receives SRECs in certain jurisdictions for power generated by solar energy systems it owns. The quantity of SRECs is based on the amount of energy produced by the Company’s qualifying generation facilities. SRECs are sold pursuant to agreements with third parties, who typically require SRECs to comply with state-imposed renewable portfolio standards. Holders of SRECs may benefit from registering the credits in their name to comply with these state-imposed requirements, or from selling SRECs to a party that requires additional SRECs to meet its compliance obligations. The Company receives SRECs from various state regulators including New Jersey Board of Public Utilities, Massachusetts Department of Energy Resources, and Maryland Public Service Commission. There are no direct costs associated with SRECs and therefore, they do not receive an allocation of costs upon generation. The majority of individual SREC sales reflect a fixed quantity and fixed price structure over a specified term. The Company typically sells SRECs to different customers from those purchasing the energy under PPAs. The Company believes the sale of each SREC is a distinct performance obligation satisfied at a point in time and that the performance obligation related to each SREC is satisfied when each SREC is delivered to the customer.
Rental income. A portion of the Company’s energy revenue is derived from long-term PPAs accounted for as operating leases under Accounting Standards Codification ("ASC") 840, Leases. Rental income under these lease agreements is recorded as revenue when the electricity is delivered to the customer.
Performance-Based Incentives. Many state governments, utilities, municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and operation of a renewable energy facility. Up-front rebates provide funds based on the cost, size or expected production of a renewable energy facility. Performance-based incentives provide cash payments to a system owner based on the energy generated by its renewable energy facility during a pre-determined period, and they are paid over that time period. The Company recognizes revenue from state and utility incentives at the point in time in which they are earned.
Other Revenue. Other revenue consists primarily of sales of power on wholesale electricity market which are recognized in revenue upon delivery.
Cost of Operations (Exclusive of Depreciation and Amortization). Cost of operations primarily consists of operations and maintenance expense, site lease expense, insurance premiums, property taxes and other miscellaneous costs associated with the operations of solar energy facilities. Altus expects its cost of operations to continue to grow in conjunction with its business growth. These costs as a percentage of revenue will decrease over time, offsetting efficiencies and economies of scale with inflationary increases of certain costs.
General and Administrative. General and administrative expenses consist primarily of salaries, bonuses, benefits and all other employee-related costs, including stock-based compensation, professional fees related to legal, accounting, human resources, finance and training, information technology and software services, marketing and communications, travel and rent and other office-related expenses.
Altus expects increased general and administrative expenses as it continues to grow its business but to decrease over time as a percentage of revenue. Altus also expects to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. Further, Altus expects to incur higher expenses for investor relations, accounting advisory, directors' and officers' insurance, and other professional services.
Depreciation, Amortization and Accretion Expense. Depreciation expense represents depreciation on solar energy systems that have been placed in service. Depreciation expense is computed using the straight-line composite method over the estimated useful lives of assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives or the remaining term of the lease. Amortization includes third party costs necessary to enter into site lease agreements, third party costs necessary to acquire PPA and NMCA customers and favorable and unfavorable rate revenues contracts. Third party costs necessary to enter into site lease agreements are amortized using the straight-line method ratably over 15-30 years based upon the term of the individual site leases. Third party costs necessary to acquire PPAs and NMCA customers are amortized using the straight-line method ratably over 15-25 years based upon the term of the customer contract. Estimated fair value allocated to the favorable and unfavorable rate PPAs and REC agreements are amortized using the straight-line method over the remaining
non-cancelable terms of the respective agreements. Accretion expense includes over time increase of asset retirement obligations associated with solar energy facilities.
Acquisition and Entity Formation Costs. Acquisition and entity formation costs represent costs incurred to acquire businesses and form new legal entities. Such costs primarily consist of professional fees for banking, legal, accounting and appraisal services.
Fair Value Remeasurement of Contingent Consideration. In connection with the Solar Acquisition (as defined in Note 7, “Acquisitions,” to our audited consolidated annual financial statements included in our Annual Report on Form 10-K), contingent consideration of up to an aggregate of $10.5 million may be payable upon achieving certain market power rates and actual power volumes generated by the acquired solar energy facilities. The Company estimated the fair value of the contingent consideration for future earnout payments using a Monte Carlo simulation model. Significant assumptions used in the measurement include the estimated volumes of power generation of acquired solar energy facilities during the 18-36-month period since the acquisition date, market power rates during the 36-month period, and the risk-adjusted discount rate associated with the business.
Stock-Based Compensation. Stock-based compensation expense is recognized for awards granted under the Legacy Incentive Plans and Omnibus Incentive Plan, as defined in Note 13, "Stock-Based Compensation," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Change in Fair Value of Redeemable Warrant Liability. In connection with the Merger, the Company assumed a redeemable warrant liability composed of publicly listed warrants (the "Redeemable Warrants") and warrants issued to CBRE Acquisition Sponsor, LLC in the private placement (the "Private Placement Warrants"). Redeemable Warrant Liability was remeasured as of June 30, 2022, and the resulting gain was included in the condensed consolidated statements of operations. As our Redeemable Warrants (other than the Private Placement Warrants) continue to trade separately on the NYSE following the Merger, the Company determines the fair value of the Redeemable Warrants based on the quoted trading price of those warrants. The Private Placement Warrants have the same redemption and make-whole provisions as the Redeemable Warrants. Therefore, the fair value of the Private Placement Warrants is equal to the Redeemable Warrants. The Company determines the fair value of the Redeemable Warrants, including Private Placement Warrants, based on the quoted trading price of the Redeemable Warrants.
Change in Fair Value of Alignment Shares Liability. Alignment shares represent Class B common stock of the Company which were issued in connection with the Merger. Class B common stock, par value $0.0001 per share ("Alignment Shares") are accounted for as liability-classified derivatives, which were remeasured as of June 30, 2022, and the resulting gain was included in the condensed consolidated statements of operations. The Company estimates the fair value of outstanding Alignment Shares using a Monte Carlo simulation valuation model utilizing a distribution of potential outcomes based on a set of underlying assumptions such as stock price, volatility, and risk-free interest rates.
Other (Income) Expense, Net. Other income and expenses primarily represent state grants and other miscellaneous items.
Interest Expense, Net. Interest expense, net represents interest on our borrowings under our various debt facilities, amortization of debt discounts and deferred financing costs, and unrealized gains and losses on interest rate swaps.
Income Tax Expense. We account for income taxes under ASC 740, Income Taxes. As such, we determine deferred tax assets and liabilities based on temporary differences resulting from the different treatment of items for tax and financial reporting purposes. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Additionally, we must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. We have a partial valuation allowance on our deferred state tax assets because we believe it is more likely than not that a portion of our deferred state tax assets will not be realized. We evaluate the recoverability of our deferred tax assets on a quarterly basis.
Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests. Net income attributable to noncontrolling interests and redeemable noncontrolling interests represents third-party interests in the net income or loss of certain consolidated subsidiaries based on Hypothetical Liquidation at Book Value.
Results of Operations – Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021 (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Operating revenues, net | $ | 24,762 | | | $ | 17,613 | | | $ | 7,149 | | | 40.6 | % |
Operating expenses | | | | | | | |
Cost of operations (exclusive of depreciation and amortization shown separately below) | 4,290 | | | 3,236 | | | 1,054 | | | 32.6 | % |
General and administrative | 6,558 | | | 4,220 | | | 2,338 | | | 55.4 | % |
Depreciation, amortization and accretion expense | 6,863 | | | 4,470 | | | 2,393 | | | 53.5 | % |
Acquisition and entity formation costs | 52 | | | 85 | | | (33) | | | (38.8) | % |
Gain on fair value remeasurement of contingent consideration, net | (1,140) | | | (775) | | | (365) | | | 47.1 | % |
Stock-based compensation | 2,657 | | | 37 | | | 2,620 | | | 7,081.1 | % |
Total operating expenses | $ | 19,280 | | | $ | 11,273 | | | $ | 8,007 | | | 71.0 | % |
Operating income | 5,482 | | | 6,340 | | | (858) | | | (13.5) | % |
Other (income) expense | | | | | | | |
Change in fair value of redeemable warrant liability | (4,659) | | | — | | | (4,659) | | | 100.0 | % |
Change in fair value of alignment shares liability | (16,705) | | | — | | | (16,705) | | | 100.0 | % |
Other income, net | (608) | | | (138) | | | (470) | | | 340.6 | % |
Interest expense, net | 5,173 | | | 4,826 | | | 347 | | | 7.2 | % |
Total other (income) expense | $ | (16,799) | | | $ | 4,688 | | | $ | (21,487) | | | (458.3) | % |
Income before income tax expense | $ | 22,281 | | | $ | 1,652 | | | $ | 20,629 | | | 1,248.7 | % |
Income tax expense | (707) | | | (2,092) | | | 1,385 | | | (66.2) | % |
Net income (loss) | $ | 21,574 | | | $ | (440) | | | $ | 22,014 | | | (5,003.2) | % |
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | (2,541) | | | 749 | | | (3,290) | | | (439.3) | % |
Net income (loss) attributable to Altus Power, Inc. | $ | 24,115 | | | $ | (1,189) | | | $ | 25,304 | | | (2,128.2) | % |
Net income (loss) per share attributable to common stockholders | | | | | | | |
Basic | $ | 0.16 | | | $ | (0.01) | | | $ | 0.17 | | | (1,264.7) | % |
Diluted | $ | 0.16 | | | $ | (0.01) | | | $ | 0.17 | | | (1,259.8) | % |
Weighted average shares used to compute net income (loss) per share attributable to common stockholders | | | | | | | |
Basic | 153,310,068 | | | 88,741,089 | | | 64,568,979 | | | 72.8 | % |
Diluted | 153,954,843 | | | 88,741,089 | | | 65,213,754 | | | 73.5 | % |
Operating revenues, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | Change | | % |
| (in thousands) | | | | |
Revenue under power purchase agreements | $ | 6,730 | | | $ | 4,653 | | | $ | 2,077 | | | 44.6 | % |
Revenue from net metering credit agreements | 7,822 | | | 7,155 | | | 667 | | | 9.3 | % |
Solar renewable energy certificate revenue | 7,975 | | | 4,900 | | | 3,075 | | | 62.8 | % |
| Rental income | 785 | | | 539 | | | 246 | | | 100.0 | % |
Performance-based incentives | 295 | | | 260 | | | 35 | | | 13.5 | % |
Other revenue | 1,155 | | | 106 | | | 1,049 | | | 989.6 | % |
Total | $ | 24,762 | | | $ | 17,613 | | | $ | 7,149 | | | 40.6 | % |
Operating revenues, net increased by $7.1 million, or 40.6%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, primarily due to the increased volume of generated electricity as a result of solar energy facilities acquired and placed in service subsequent to June 30, 2021. We have three main sources of revenue including via power purchase agreements, net metering credit agreements, and the sale of solar renewable energy certificates. The revenue streams from PPAs and NMCAs vary slightly in how the customers are billed and in which states the projects earn credits, but both are products of our 20+ year contracts with our customers who purchase power from our projects. Also the Company has no NMCAs in states where high-profile Net Energy Metering proceedings are occurring, which are focused on utility rate design.
Cost of operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Cost of operations (exclusive of depreciation and amortization shown separately below) | $ | 4,290 | | | $ | 3,236 | | | $ | 1,054 | | | 32.6 | % |
Cost of operations increased by $1.1 million, or 32.6%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service subsequent to June 30, 2021.
General and administrative
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
General and administrative | $ | 6,558 | | | $ | 4,220 | | | $ | 2,338 | | | 55.4 | % |
General and administrative expense increased by $2.3 million, or 55.4%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to increase in general personnel costs resulting from increased headcount in multiple job functions and costs associated with operating as a public company.
Depreciation, amortization and accretion expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Depreciation, amortization and accretion expense | $ | 6,863 | | | $ | 4,470 | | | $ | 2,393 | | | 53.5 | % |
Depreciation, amortization and accretion expense increased by $2.4 million, or 53.5%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service subsequent to June 30, 2021.
Acquisition and entity formation costs
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Acquisition and entity formation costs | $ | 52 | | | $ | 85 | | | $ | (33) | | | (38.8) | % |
Acquisition and entity formation costs decreased by 38.8% during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to higher costs associated with the Merger and other acquisitions in the prior period.
Gain on fair value remeasurement of contingent consideration, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Gain on fair value remeasurement of contingent consideration, net | $ | (1,140) | | | $ | (775) | | | $ | (365) | | | 47.1 | % |
Gain on fair value remeasurement of contingent consideration, net is primarily associated with the Solar Acquisition (as defined in Note 7, “Acquisitions,” to our audited consolidated annual financial statements included in our 2021 Annual Report on Form 10-K) completed on December 22, 2020. Gain on fair value remeasurement was recorded for the three months ended June 30, 2022 and 2021, due to changes in the values of significant assumptions used in the measurement, including the estimated volumes of power generation of acquired solar energy facilities.
Stock-based compensation
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Stock-based compensation | $ | 2,657 | | | $ | 37 | | | $ | 2,620 | | | 7,081.1 | % |
Stock-based compensation increased by $2.6 million during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to restricted stock units granted under the Omnibus Incentive Plan (as defined in Note 13, "Stock-Based Compensation," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), which was adopted on July 12, 2021.
Change in fair value of redeemable warrant liability
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Change in fair value of redeemable warrant liability | $ | (4,659) | | | $ | — | | | $ | (4,659) | | | 100.0 | % |
In connection with the Merger, the Company assumed a redeemable warrant liability which was remeasured as of June 30, 2022, and the resulting gain was included in the consolidated statement of operations. The gain was primarily driven by the decrease in the quoted price of the Company's Redeemable Warrants as of June 30, 2022, compared to December 31, 2021.
Change in fair value of alignment shares liability
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Change in fair value of alignment shares liability | $ | (16,705) | | | $ | — | | | $ | (16,705) | | | 100.0 | % |
In connection with the Merger, the Company assumed a liability related to alignment shares, which was remeasured as of June 30, 2022, and the resulting gain was included in the consolidated statement of operations. The gain was primarily driven by the decrease in the Company's stock price as of June 30, 2022, compared to December 31, 2021.
Other income, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Other income, net | $ | (608) | | | $ | (138) | | | $ | (470) | | | 340.6 | % |
Other expense increased by $0.5 million during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to increases in miscellaneous income items.
Interest expense, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Interest expense, net | $ | 5,173 | | | $ | 4,826 | | | $ | 347 | | | 7.2 | % |
Interest expense increased by $0.3 million, or 7.2%, during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to the increase of outstanding debt held by the Company during these periods but offset by a lower blended interest rate on the Amended Rated Term Loan Facility.
Income tax expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Income tax expense | $ | (707) | | | $ | (2,092) | | | $ | 1,385 | | | (66.2) | % |
For the three months ended June 30, 2022, the Company recorded an income tax expense of $0.7 million in relation to pretax income of $22.3 million, which resulted in an effective income tax rate of 3.2%. The effective income tax rate was primarily impacted by $4.3 million of income tax benefit related to fair value adjustments on redeemable warrants and alignment shares, $0.2 million of income tax expense from net losses attributable to noncontrolling interests and redeemable noncontrolling interests, and $0.1 million of state income tax expense.
Related to the $4.3 million of income tax benefit, the Company has issued redeemable warrants and alignment shares. These awards are liability classified awards, and, as such, they are required to be remeasured to fair value each reporting period with the change in value included in operating income. The redeemable warrants and alignment shares are considered equity awards for U.S. tax purposes. Therefore, the change in value does not result in taxable income or deduction. The change in fair value results in a permanent tax difference which impacts the Company’s estimated annual effective tax rate.
For the three months ended June 30, 2021, the Company recorded an income tax expense of $2.1 million in relation to a pretax income of $1.7 million, which resulted in an effective income tax rate of 126.6%. The effective income tax rate was primarily impacted by $1.0 million of income tax expense due to net losses attributable to noncontrolling interests and
redeemable noncontrolling interests, $0.3 million of state income tax expense, and $0.5 million of income tax expense associated with the remeasurement of contingent consideration.
Net (loss) income attributable to redeemable noncontrolling interests and noncontrolling interests
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | $ | (2,541) | | | $ | 749 | | | $ | (3,290) | | | (439.3) | % |
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests was $2.5 million during the three months ended June 30, 2022, as compared to net income attributable to redeemable noncontrolling interests and noncontrolling interests of $0.7 million for the three months ended June 30, 2021, primarily due to additional funding provided by a tax equity investor and reduced recapture periods for investment tax credits.
Results of Operations – Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021 (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Operating revenues, net | $ | 43,961 | | | $ | 30,084 | | | $ | 13,877 | | | 46.1 | % |
Operating expenses | | | | | | | |
Cost of operations (exclusive of depreciation and amortization shown separately below) | 8,354 | | | 6,156 | | | 2,198 | | | 35.7 | % |
General and administrative | 12,942 | | | 7,443 | | | 5,499 | | | 73.9 | % |
Depreciation, amortization and accretion expense | 13,685 | | | 8,858 | | | 4,827 | | | 54.5 | % |
Acquisition and entity formation costs | 346 | | | 232 | | | 114 | | | 49.1 | % |
Gain on fair value remeasurement of contingent consideration, net | (971) | | | (2,050) | | | 1,079 | | | (52.6) | % |
Stock-based compensation | 3,962 | | | 77 | | | 3,885 | | | 5,045.5 | % |
Total operating expenses | $ | 38,318 | | | $ | 20,716 | | | $ | 17,602 | | | 85.0 | % |
Operating income | 5,643 | | | 9,368 | | | (3,725) | | | (39.8) | % |
Other (income) expense | | | | | | | |
Change in fair value of redeemable warrant liability | (23,117) | | | — | | | (23,117) | | | 100.0 | % |
Change in fair value of alignment shares liability | (63,051) | | | — | | | (63,051) | | | 100.0 | % |
Other income, net | (593) | | | (249) | | | (344) | | | 138.2 | % |
Interest expense, net | 10,111 | | | 8,739 | | | 1,372 | | | 15.7 | % |
Total other (income) expense | $ | (76,650) | | | $ | 8,490 | | | $ | (85,140) | | | (1,002.8) | % |
Income before income tax expense | $ | 82,293 | | | $ | 878 | | | $ | 81,415 | | | 9,272.8 | % |
Income tax expense | (584) | | | (1,055) | | | 471 | | | (44.6) | % |
Net income (loss) | $ | 81,709 | | | $ | (177) | | | $ | 81,886 | | | (46,263.3) | % |
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | (2,825) | | | 50 | | | (2,875) | | | (5750.0) | % |
Net income (loss) attributable to Altus Power, Inc. | $ | 84,534 | | | $ | (227) | | | $ | 84,761 | | | (37,339.6) | % |
Net income (loss) per share attributable to common stockholders | | | | | | | |
Basic | $ | 0.55 | | | $ | — | | | $ | 0.55 | | | (21,530.5) | % |
Diluted | $ | 0.55 | | | $ | — | | | $ | 0.55 | | | (21,421.2) | % |
Weighted average shares used to compute net income (loss) per share attributable to common stockholders | | | | | | | |
Basic | 152,988,078 | | | 88,741,089 | | | 64,246,989 | | | 72.4 | % |
Diluted | 153,771,992 | | | 88,741,089 | | | 65,030,903 | | | 73.3 | % |
Operating revenues, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | Change | | % |
| (in thousands) | | | | |
Revenue under power purchase agreements | $ | 10,912 | | | $ | 7,784 | | | $ | 3,128 | | | 40.2 | % |
Revenue from net metering credit agreements | 11,722 | | | 10,465 | | | 1,257 | | | 12.0 | % |
Solar renewable energy certificate revenue | 17,506 | | | 10,099 | | | 7,407 | | | 73.3 | % |
| Rental income | 1,429 | | | 760 | | | 669 | | | 88.0 | % |
Performance-based incentives | 654 | | | 811 | | | (157) | | | (19.4) | % |
Other revenue | 1,738 | | | 165 | | | 1,573 | | | 953.3 | % |
Total | $ | 43,961 | | | $ | 30,084 | | | $ | 13,877 | | | 46.1 | % |
Operating revenues, net increased by $13.9 million, or 46.1%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, primarily due to the increased volume of generated electricity as a result of solar energy facilities acquired and placed in service subsequent to June 30, 2021. We have three main sources of revenue including power purchase agreements, net metering credit agreements, and the sale of solar renewable energy certificates. The revenue streams from PPAs and NMCAs vary slightly in how the customers are billed and in which states the projects earn credits, but both are products of our 20+ year contracts with our customers who purchase power from our projects. Also the Company has no NMCAs in states where high-profile Net Energy Metering proceedings are occurring, which are focused on utility rate design.
Cost of operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Cost of operations (exclusive of depreciation and amortization shown separately below) | $ | 8,354 | | | $ | 6,156 | | | $ | 2,198 | | | 35.7 | % |
Cost of operations increased by $2.2 million, or 35.7%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service subsequent to June 30, 2021.
General and administrative
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
General and administrative | $ | 12,942 | | | $ | 7,443 | | | $ | 5,499 | | | 73.9 | % |
General and administrative expense increased by $5.5 million, or 73.9%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to increase in general personnel costs resulting from increased headcount in multiple job functions and costs associated with operating as a public company.
Depreciation, amortization and accretion expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Depreciation, amortization and accretion expense | $ | 13,685 | | | $ | 8,858 | | | $ | 4,827 | | | 54.5 | % |
Depreciation, amortization and accretion expense increased by $4.8 million, or 54.5%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service subsequent to June 30, 2021.
Acquisition and entity formation costs
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Acquisition and entity formation costs | $ | 346 | | | $ | 232 | | | $ | 114 | | | 49.1 | % |
Acquisition and entity formation costs increased by $0.1 million, or 49.1%, during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to costs associated with the Merger.
Gain on fair value remeasurement of contingent consideration, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Gain on fair value remeasurement of contingent consideration, net | $ | (971) | | | $ | (2,050) | | | $ | 1,079 | | | (52.6) | % |
Gain on fair value remeasurement of contingent consideration, net is primarily associated with the Solar Acquisition (as defined in Note 7, “Acquisitions,” to our audited consolidated annual financial statements included in our 2021 Annual Report on Form 10-K) completed on December 22, 2020. Gain on fair value remeasurement was recorded for the six months ended June 30, 2022 and 2021, due to changes in the values of significant assumptions used in the measurement, including the estimated volumes of power generation of acquired solar energy facilities.
Stock-based compensation
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Stock-based compensation | $ | 3,962 | | | $ | 77 | | | $ | 3,885 | | | 5,045.5 | % |
Stock-based compensation increased by $3.9 million during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to restricted stock units granted under the Omnibus Incentive Plan (as defined in Note 13, "Stock-Based Compensation," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), which was adopted on July 12, 2021.
Change in fair value of redeemable warrant liability
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Change in fair value of redeemable warrant liability | $ | (23,117) | | | $ | — | | | $ | (23,117) | | | 100.0 | % |
In connection with the Merger, the Company assumed a redeemable warrant liability which was remeasured as of June 30, 2022, and the resulting gain was included in the consolidated statement of operations. The gain was primarily driven by the decrease in the quoted price of the Company's Redeemable Warrants as of June 30, 2022, compared to December 31, 2021.
Change in fair value of alignment shares liability
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Change in fair value of alignment shares liability | $ | (63,051) | | | $ | — | | | $ | (63,051) | | | 100.0 | % |
In connection with the Merger, the Company assumed a liability related to alignment shares, which was remeasured as of June 30, 2022, and the resulting gain was included in the consolidated statement of operations. The gain was primarily driven by the decrease in the Company's stock price as of June 30, 2022, compared to December 31, 2021.
Other income, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Other income, net | $ | (593) | | | $ | (249) | | | $ | (344) | | | 138.2 | % |
Other income, net increased by $0.3 million during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, due to increases in miscellaneous income items.
Interest expense, net
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Interest expense, net | $ | 10,111 | | | $ | 8,739 | | | $ | 1,372 | | | 15.7 | % |
Interest expense increased by $1.4 million, or 15.7%, during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to the increase of outstanding debt held by the Company during these periods but offset by a lower blended interest rate on the Amended Rated Term Loan Facility.
Income tax expense
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Income tax expense | $ | (584) | | | $ | (1,055) | | | $ | 471 | | | (44.6) | % |
For the six months ended June 30, 2022, the Company recorded an income tax expense of $0.6 million in relation to pretax income of $82.3 million, which resulted in an effective income tax rate of 0.7%. The effective income tax rate was primarily impacted by $19.0 million of income tax benefit related to fair value adjustments on redeemable warrants and alignment shares, $1.6 million of income tax expense associated with nondeductible compensation, $0.6 million of income tax expense from net losses attributable to noncontrolling interests and redeemable noncontrolling interests, and $0.1 million of state income tax expense.
Related to the $19.0 million of income tax benefit, the Company has issued redeemable warrants and alignment shares. These awards are liability classified awards, and, as such, they are required to be remeasured to fair value each reporting period with the change in value included in operating income. The redeemable warrants and alignment shares are considered equity awards for U.S. tax purposes. Therefore, the change in value does not result in taxable income or deduction. The change in fair value results in a permanent tax difference which impacts the Company’s estimated annual effective tax rate.
For the six months ended June 30, 2021, the Company recorded an income tax expense of $1.1 million in relation to a pretax income of $0.9 million, which resulted in an effective income tax rate of 120.2%. The effective income tax rate was primarily impacted by $0.5 million of income tax expense due to net losses attributable to noncontrolling interests and
redeemable noncontrolling interests, $0.2 million of state income tax expense, and $0.3 million of income tax expense associated with the remeasurement of contingent consideration.
Net (loss) income attributable to redeemable noncontrolling interests and noncontrolling interests
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | $ | (2,825) | | | $ | 50 | | | $ | (2,875) | | | (5750.0) | % |
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests was $2.8 million during the six months ended June 30, 2022, as compared to net income attributable to redeemable noncontrolling interests and noncontrolling interests of $0.1 million for the six months ended June 30, 2021, primarily due to additional funding provided by a tax equity investor and reduced recapture periods for investment tax credits.
Liquidity and Capital Resources
As of June 30, 2022, the Company had total cash and restricted cash of $299.3 million. For a discussion of our restricted cash, see Note 2, “Significant Accounting Policies, Cash, Cash Equivalents, and Restricted Cash,” to our condensed consolidated financial statements.
We seek to maintain diversified and cost-effective funding sources to finance and maintain our operations, fund capital expenditures, including customer acquisitions, and satisfy obligations arising from our indebtedness. Historically, our primary sources of liquidity included proceeds from the issuance of redeemable preferred stock, borrowings under our debt facilities, third party tax equity investors and cash from operations. Additionally, the Company received cash proceeds of $293 million as a result of the Merger. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy facilities. We will seek to raise additional required capital from borrowings under our existing debt facilities, third party tax equity investors and cash from operations.
The solar energy systems that are in service are expected to generate a positive return rate over the useful life, typically 32 years. Typically, once solar energy systems commence operations, they do not require significant additional capital expenditures to maintain operating performance. However, in order to grow, we are currently dependent on financing from outside parties. The Company will have sufficient cash and cash flows from operations to meet working capital, debt service obligations, contingencies and anticipated required capital expenditures for at least the next 12 months. However, we are subject to business and operational risks that could adversely affect our ability to raise additional financing. If financing is not available to us on acceptable terms if and when needed, we may be unable to finance installation of our new customers’ solar energy systems in a manner consistent with our past performance, our cost of capital could increase, or we may be required to significantly reduce the scope of our operations, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, our tax equity funds and debt instruments impose restrictions on our ability to draw on financing commitments. If we are unable to satisfy such conditions, we may incur penalties for non-performance under certain tax equity funds, experience installation delays, or be unable to make installations in accordance with our plans or at all. Any of these factors could also impact customer satisfaction, our business, operating results, prospects and financial condition.
Contractual Obligations and Commitments
We enter into service agreements in the normal course of business. These contracts do not contain any minimum purchase commitments. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly, to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. As of June 30, 2022, we do not expect to cancel these agreements.
The Company has operating leases for land and buildings and has contractual commitments to make payments in accordance with site lease agreements.
Off-Balance Sheet Arrangements
The Company enters into letters of credit and surety bond arrangements with lenders, local municipalities, government agencies, and land lessors. These arrangements relate to certain performance-related obligations and serve as security under the applicable agreements. As of June 30, 2022, and December 31, 2021, the Company had outstanding letters of credit and surety bonds totaling $10.7 million. Our outstanding letters of credit are primarily used to fund the debt service reserve account associated with the Amended Rated Term Loan. We believe the Company will fulfill the obligations under the related arrangements and do not anticipate any material losses under these letters of credit or surety bonds.
Debt
Amended Rated Term Loan Facility
As part of the Blackstone Capital Facility, APA Finance, LLC (“APAF”), a wholly owned subsidiary of the Company, entered into a $251.0 million term loan facility with Blackstone Insurance Solutions ("BIS") through a consortium of lenders, which consists of investment grade-rated Class A and Class B notes (the "Rated Term Loan").
On August 25, 2021, APAF entered into an Amended and Restated Credit Agreement with BIS to refinance the Rated Term Loan (hereby referred to as the “Amended Rated Term Loan”). The Amended Rated Term Loan added an additional $135.6 million to the facility, bringing the aggregate facility to $503.0 million. The Amended Rated Term Loan has a weighted average 3.51% annual fixed rate, reduced from the previous weighted average rate of 3.70%, and matures on February 29, 2056 (“Final Maturity Date”).
The Amended Rated Term Loan amortizes at an initial rate of 2.5% of outstanding principal per annum for a period of 8 years at which point the amortization steps up to 4% per annum until September 30, 2031 (“Anticipated Repayment Date”). After the Anticipated Repayment Date, the loan becomes fully-amortizing, and all available cash is used to pay down principal until the Final Maturity Date.
As of June 30, 2022, the outstanding principal balance of the Rated Term Loan was $493.5 million less unamortized debt discount and loan issuance costs totaling $8.0 million. As of December 31, 2021, the outstanding principal balance of the Rated Term Loan was $500.0 million less unamortized debt discount and loan issuance costs totaling $8.4 million.
As of June 30, 2022, the Company was in compliance with all covenants. As of December 31, 2021, the Company was in compliance with all covenants, except the delivery of the APAF audited consolidated financial statements, for which the Company obtained a waiver to extend the financial statement reporting deliverable due date. The Company delivered the audited financial statements on May 25, 2022, before the extended reporting deliverable due date.
Construction Loan to Term Loan Facility
On January 10, 2020, APA Construction Finance, LLC (“APACF”) a wholly-owned subsidiary of the Company, entered into a credit agreement with Fifth Third Bank, National Association and Deutsche Bank AG New York Branch to fund the development and construction of future solar facilities (“Construction Loan to Term Loan Facility”). The Construction Loan to Term Loan Facility includes a construction loan commitment of $187.5 million and a letter of credit commitment of $12.5 million, which can be drawn until January 10, 2023.
The construction loan commitment can convert to a term loan upon commercial operation of a particular solar energy facility. In addition, the Construction Loan to Term Loan Facility accrued a commitment fee at a rate equal to 0.50% per year of the daily unused amount of the commitment. As of June 30, 2022, the outstanding principal balances of the construction loan and term loan were zero and $16.2 million, respectively. As of December 31, 2021, the outstanding principal balances of the construction loan and term loan were $5.6 million and $12.3 million, respectively. As of June 30, 2022, and December 31, 2021, the Company had an unused borrowing capacity of $171.3 million. For the three months ended June 30, 2022, and 2021, the Company incurred interest costs associated with outstanding construction loans totaling zero and $0.1 million, respectively. For the six months ended June 30, 2022, and 2021 the Company incurred interest costs associated with outstanding construction loans totaling zero and $0.3 million, respectively. These interest costs were capitalized as part of property, plant and equipment. Also, on October 23, 2020, the Company entered into an additional letters of credit facility with Fifth Third Bank for the total capacity of $10.0 million. The Construction Loan to Term Loan Facility includes various financial and other covenants for APACF and the Company, as guarantor. As of June 30, 2022, and December 31, 2021, the Company was in compliance with all covenants.
Financing Lease Obligations
From time to time, the Company sells equipment to third parties and enters into master lease agreements to lease the equipment back for an agreed-upon term. Due to certain forms of continuous involvement provided by the master lease agreements, sale leaseback accounting is prohibited under ASC 840. Therefore, the Company accounts for these transactions using the financing method by recognizing the sale proceeds as a financing obligation and the assets subject to the sale-leaseback remain on the balance sheet of the Company and are being depreciated. The aggregate proceeds have been recorded as long-term debt within the condensed consolidated balance sheets.
As of June 30, 2022 and December 31, 2021, the Company's recorded financing obligations were $36.5 million, net of $1.1 million of deferred transaction costs. Payments of $0.6 million and zero were made under financing lease obligations for the three months ended June 30, 2022, and 2021, respectively. Payments of $0.8 million and zero were made under financing obligations for the six months ended June 30, 2022 and 2021, respectively. Interest expense, inclusive of the amortization of deferred transaction costs, for the three months ended June 30, 2022, and 2021, was $0.4 million and zero, respectively. Interest expense, inclusive of the amortization of deferred transaction costs, for the six months ended June 30, 2022 and 2021, was $0.7 million and zero, respectively.
Cash Flows
For the Six Months Ended June 30, 2022, and 2021
The following table sets forth the primary sources and uses of cash and restricted cash for each of the periods presented below:
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2022 | | 2021 |
| (in thousands) |
Net cash provided by (used for): | | | |
Operating activities | $ | 11,869 | | | $ | 9,485 | |
Investing activities | (34,910) | | | (13,371) | |
Financing activities | (7,948) | | | (2,170) | |
Net decrease in cash, cash equivalents, and restricted cash | $ | (30,989) | | | $ | (6,056) | |
Operating Activities
During the six months ended June 30, 2022 cash provided by operating activities of $11.9 million consisted primarily of net income of $81.7 million adjusted for net non-cash income of $69.5 million and an increase in net assets of $0.4 million.
During the six months ended June 30, 2021, cash provided by operating activities of $9.5 million consisted primarily of net loss of $0.2 million adjusted for net non-cash expenses of $8.9 million and an increase in net liabilities of $0.8 million.
Investing Activities
During the six months ended June 30, 2022, net cash used in investing activities was $34.9 million, consisting of $23.3 million of capital expenditures and $11.6 million of payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired.
During the six months ended June 30, 2021, net cash used in investing activities was $13.4 million, consisting of $6.3 million of capital expenditures, $5.0 million to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired, and $2.1 million to acquire businesses, net of cash and restricted cash acquired.
Financing Activities
Net cash used for financing activities was $7.9 million for the six months ended June 30, 2022, which primarily consisted of $8.1 million to repay long-term debt, $0.7 million paid for equity issuance costs, and $1.1 million of distributions to noncontrolling interests. Cash used for financing activities was partially offset by $2.2 million of contributions from noncontrolling interests.
Net cash used for financing activities was $2.2 million for the six months ended June 30, 2021, which consisted primarily of $16.7 million to repay long-term debt, $8.4 million of paid dividends and commitment fees on Series A preferred stock, $2.1 million of deferred transaction costs, $1.1 million of distributions to noncontrolling interests, $0.6 million of debt issuance costs, and $0.1 million of paid contingent consideration. Cash used for financing activities was partially off-set by $26.4 million of proceeds from issuance of long-term debt and $0.4 million of contributions from noncontrolling interests.
Critical Accounting Policies and Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As of June 30, 2022, there have been no significant changes to the accounting estimates that we have deemed critical. Our critical accounting estimates are more fully described in our 2021 Annual Report on Form 10-K.
Other than the policies noted in Note 2, “Significant Accounting Policies,” in the Company’s notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes to its critical accounting policies and estimates as compared to those disclosed in its audited consolidated financial statements in our 2021 Annual Report on Form 10-K.
Emerging Growth Company Status
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Altus has elected to use the extended transition period for new or revised accounting standards during the period in which we remain an EGC.
We expect to remain an EGC until the earliest to occur of: (1) the last day of the fiscal year in which we, as applicable, have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our stock held by non-affiliates is greater than or equal to $250 million as of the end of that fiscal year's second fiscal quarter, or (ii) our annual revenues are greater than or equal to $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is greater than or equal to $700 million as of the end of that fiscal year's second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.