Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Class A common stock is listed on New York Stock Exchange under the symbol “AMPS."
Holders
As of March 13, 2023, there were approximately 41 holders of record of our Class A common stock. The actual number of holders of our Class A common stock is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares of our Class A common stock are held in street name by banks, brokers and other nominees.
Dividend Policy
The Company has not paid any cash dividends on shares of our common stock to date. The payment of cash dividends in the future will depend upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our board of directors at such time.
Item 6. [Reserved]
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 consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2022 (the “Report”). Any references in this section to “we,” “our” or “us” shall mean Altus. In addition to historical information, 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" section of this Report. 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 risk that pending acquisitions, including acquisitions that may occur in the future, may not close in the anticipated timeframe or at all due to a closing condition not being met; (2) failure to obtain required consents or regulatory approvals in a timely manner or otherwise; (3) the ability of Altus Power to successfully integrate the acquisition of solar assets into its business and generate profits from their operations; (4) the ability of Altus Power to retain customers and maintain and expand relationships with business partners, suppliers, and customers; (5) the risk of litigation and/or regulatory actions related to the proposed acquisition of solar assets; and (6) the possibility that Altus Power may be adversely affected by other economic, business, regulatory, credit risk and/or competitive factors.
Overview
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. Our mission is to create a clean electrification ecosystem and 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 believe 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 its portfolio of owned and managed commercial and industrial (“C&I”) properties.
We own systems across the United States from Hawaii to Vermont. Our portfolio consists of 470 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 over 70 additional megawatts of community solar projects, all of which are in advanced stages of development. Our community solar projects are currently servicing customers in 5 states with projects in two additional states currently under construction. We also participate in numerous renewable energy credit (“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 operate in 22 states, providing clean electricity to our customers equal to the electricity consumption of approximately 60,000 homes, displacing 320,000 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 financial position for reasons that include, but are not limited to (1) our business combination with CBRE Acquisition Holdings, Inc. as described in Note 1, “General,” to our audited consolidated annual financial statements included elsewhere in this Report (the "Merger"), recent acquisitions as described in Note 7, “Acquisitions,” the adoption of Accounting Standards Codification
("ASC") Topic 842 ("ASC 842") as described in Note 2, "Significant Accounting Policies," and (2) costs associated with becoming a public company.
As 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” elsewhere in this Report for further discussion of risks affecting our business. We believe the factors discussed below are key to our success.
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 C&I 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 (i) 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 (ii) 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 15 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 December 31, 2022, these variable rate contracts make up approximately 52% of our current installed portfolio. During the year ended December 31, 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 revolving credit facility which has $200 million of committed capacity with 5-year maturity and interest of SOFR plus spread between 160 - 260 bps on drawn balances.
•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 December 31, 2022, we have raised over $100 million of tax equity financing, $80 million in construction loan financing and $1 billion 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.
Construction 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 supply chain, interconnection and permitting delays (further discussed below), recent inflationary pressures, growth in the solar industry, regulatory policy changes, tariffs and duties (including investigations of potential circumvention of antidumping and countervailing ("AD/CV") duties and bans against imports of solar panel materials tied to forced labor), 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 these other factors. 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.
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 December 31, 2022, these historical timelines are currently pushed out by approximately 3 to 6 months.
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 December 31, 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 December 31, 2022, with respect to the half of our pipeline made up of development projects, approximately 25% of these projects are currently in construction or pre-construction, 42% of these projects are still in the contracting or due diligence phase, and the final 33% represent projects from our client engagements which are progressing toward an agreement in principle. We have over 50 projects currently in construction or pre-construction.
As of December 31, 2022, with respect to the half of our pipeline made up of potential operating acquisitions, approximately 67% of these projects are currently in the initial engagement phase, 30% of these projects are in negotiation, and the final 3% of these projects are in the closing phase.
On February 15, 2023, the Company, through its wholly-owned subsidiary, APA Finance III, LLC ("APAF III"), closed its previously announced purchase of approximately 220 MW of solar assets (the “True Green II Acquisition”) of True Green Capital Fund III, L.P. through acquisitions of the membership interests of APAF III Operating, LLC. The base purchase price is approximately $293 million, subject to customary working capital adjustments. The base purchase price and associated costs and expenses was funded by $193 million from the APAF III Term Loan and the remainder with cash. The Company also held back
an aggregate $10.9 million as security for indemnification claims which are expected to be paid within nine months after closing, contingent upon completion of development assets.
Warrant Redemption
On September 15, 2022, the Company issued a notice for redemption of all 14,798,981 of the Company's outstanding Redeemable Warrants at 5:00 p.m. New York City time on October 17, 2022 (the “Redemption Date”) for a redemption price of $0.10 per Warrant (the “Redemption Price”). Holders could elect to exercise their Warrants on a “cashless basis” and surrender the Redeemable Warrants for that number of shares of Class A Common Stock that is determined by reference to the table set forth in Section 6.2 of the Warrant Agreement based on the Redemption Date and the Redemption Fair Market Value of $10.98. Given the Redemption Fair Market Value and the Redemption Date, the number of shares of Class A Common Stock to be issued for each Redeemable Warrant that is exercised through a cashless exercise is 0.2763. Prior to the Redemption Date, the Company entered into several private warrant exchanges with warrant holders, exchanging 4,630,163 warrants for an aggregate of 1,111,243 shares of Class A Common Stock .
As of the Redemption Date, holders of 8,462 Redeemable Warrants exercised their Redeemable Warrants with the payment of cash and the Company received $93,082 of cash proceeds. Holders of 14,690,310 Redeemable Warrants exercised their Redeemable Warrants on a cashless basis in exchange for 4,058,845 shares of Class A Common Stock per Redeemable Warrant. A total of 100,209 Warrants remained unexercised as of the Redemption Date, and the Company redeemed those Warrants for an aggregate redemption price of $10,021.
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. 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 years ended December 31, 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, financial condition, results of operations, and cash flows.
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.
For additional discussion regarding risks associated with the COVID-19 pandemic, see “Risk Factors” elsewhere in this 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 December 31, | | |
| 2022 | | 2021 | | Change |
| Megawatts installed | 470 | | 362 | | 108 |
Cumulative megawatts installed increased from 362 MW as of December 31, 2021 to 470 MW as of December 31, 2022.
The following table provides an overview of megawatts installed by state as of December 31, 2022:
| | | | | | | | | | | | | | |
| State | | Megawatts installed | | Share, percentage |
| Massachusetts | | 105 | | 22.3 | % |
| New Jersey | | 103 | | 21.9 | % |
| California | | 67 | | 14.3 | % |
| Minnesota | | 56 | | 11.9 | % |
| Hawaii | | 29 | | 6.2 | % |
| Nevada | | 21 | | 4.5 | % |
| New York | | 13 | | 2.8 | % |
| Maryland | | 10 | | 2.1 | % |
| Connecticut | | 10 | | 2.1 | % |
| All other | | 56 | | 11.9 | % |
| Total | | 470 | | 100.0 | % |
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.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Change |
Megawatt hours generated | 455,630 | | | 359,411 | | | 96,219 | |
Megawatt hours generated increased from 359,411 MWh for the year ended December 31, 2021, to 455,630 MWh for the year ended December 31, 2022.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted EBITDA as net income plus net interest expense, depreciation, amortization and accretion expense, income tax expense, acquisition and entity formation costs, stock-based 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, loss on extinguishment of debt, and other miscellaneous items of other income and expenses. See "Components of Results of Operations" below for a description of each of these items.
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. Adjusted EBITDA and adjusted EBITDA margin are not recognized as financial measures prepared in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP measures of performance. The U.S. 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 and therefore should be 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. Factors in this determination include the exclusion of (1) variability due to gains or losses related to fair value remeasurement of contingent consideration and the change in fair value of redeemable warrant liability and Alignment Shares liability, (2) strategic decisions to acquire businesses, dispose of property, plant and equipment or extinguish debt, and (3) the non-recurring nature of stock-based compensation and other miscellaneous items of income and expense, which affect results in a given period or periods. In addition, Adjusted EBITDA represents the business performance of the Company before the application of statutory income tax rates and tax adjustments corresponding to the various jurisdictions in which the Company operates, as well as interest expense and depreciation, amortization and accretion expense, which are not representative of our ongoing operating performance.
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 U.S. GAAP results, as we believe it provides a more complete understanding of ongoing business performance and trends than U.S. 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 U.S. GAAP.
| | | | | | | | | | | | | | |
| | Year Ended
December 31, |
| | 2022 | | 2021 |
| (in thousands) |
| Reconciliation of Net income to Adjusted EBITDA: | | | | |
| Net income | | $ | 52,167 | | | $ | 13,005 | |
| Income tax expense | | 1,076 | | | 295 | |
| Interest expense, net | | 22,162 | | | 19,933 | |
| Depreciation, amortization and accretion expense | | 29,600 | | | 20,967 | |
| Stock-based compensation expense | | 9,404 | | | 148 | |
| Acquisition and entity formation costs | | 3,629 | | | 1,489 | |
| Loss (gain) on fair value remeasurement of contingent consideration | | 79 | | | (2,800) | |
| Gain on disposal of property, plant and equipment | | (2,222) | | | (12,842) | |
| Change in fair value of redeemable warrant liability | | 5,647 | | | 2,332 | |
| Change in fair value of Alignment Shares liability | | (61,314) | | | (5,013) | |
| Loss on extinguishment of debt | | 2,303 | | | 3,245 | |
| Other (income) expense, net | | (3,926) | | | 245 | |
| Adjusted EBITDA | | $ | 58,605 | | | $ | 41,004 | |
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2022 | | 2021 |
| (in thousands) |
Reconciliation of Adjusted EBITDA Margin: | | | |
Adjusted EBITDA | 58,605 | | | 41,004 | |
Operating revenues, net | | 101,163 | | | 71,800 | |
Adjusted EBITDA margin | 58% | | 57% |
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.
Power sales under PPAs. 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 December 31, 2022, PPAs have a weighted-average remaining life of 12 years.
Power sales under 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 December 31, 2022, NMCAs have a weighted-average remaining life of 17 years.
SREC 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.
Power sales on wholesale markets. Sales of power on wholesale electricity market are recognized in revenue upon delivery.
Rental income. A portion of the Company’s energy revenue is derived from long-term PPAs accounted for as operating leases under ASC 842. 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.
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, 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 U.S. Securities and Exchange Commission ("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 10, “Fair Value Measurements,” to our consolidated financial statements included elsewhere in this Report), contingent consideration of up to an aggregate of $3.1 million may be payable upon achieving certain market power rates 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 market power rates during the 36-month period, and the risk-adjusted discount rate associated with the business.
Gain on Disposal of Property, Plant and Equipment. In connection with the disposal of land, the Company recognized a gain on disposal of property, plant and equipment, which represents the excess of consideration received over the carrying value of the disposed land.
Stock-Based Compensation Expense. Stock-based compensation expense is recognized for awards granted under the Legacy Incentive Plans and Omnibus Incentive Plan, as defined in Note 19, "Stock-Based Compensation," to our consolidated financial statements included elsewhere in this Report.
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 through the Redemption Date, and the resulting loss was included in the consolidated statements of operations.
Change in Fair Value of Alignment Shares. 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 December 31, 2022, and the resulting gain was included in the 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 interest income, 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.
Loss on Extinguishment of Debt. When the repayment of debt is accounted for as an extinguishment of debt, loss on extinguishment of debt represents the difference between the reacquisition price of debt and the net carrying amount of the extinguished debt.
Income Tax (Expense) Benefit. 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.
As of December 31, 2022, the Company had U.S. federal net operating loss carryforwards of $262.4 million available to offset future federal taxable income which will begin to expire in 2034. Of the Company's U.S. federal net operating loss carryforwards, $225.3 million, can be carried forward indefinitely. As of December 31, 2022, the Company had state net
operating losses of $155.4 million which will begin to expire in 2023, if not utilized. Deferred tax assets associated with state net operating losses that we believe are more likely than not to expire unutilized have been fully offset by a valuation allowance of $0.8 million and $0.6 million as of December 31, 2022 and December 31, 2021, respectively.
Net Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests. Net loss 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 Book Value.
Results of Operations – Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Operating revenues, net | $ | 101,163 | | | $ | 71,800 | | | $ | 29,363 | | | 40.9 | % |
| Operating expenses | | | | | | | |
| Cost of operations (exclusive of depreciation and amortization shown separately below) | 17,532 | | | 14,029 | | | 3,503 | | | 25.0 | % |
| General and administrative | 25,026 | | | 16,767 | | | 8,259 | | | 49.3 | % |
| Depreciation, amortization and accretion expense | 29,600 | | | 20,967 | | | 8,633 | | | 41.2 | % |
| Acquisition and entity formation costs | 3,629 | | | 1,489 | | | 2,140 | | | 143.7 | % |
| Loss (gain) on fair value remeasurement of contingent consideration | 79 | | | (2,800) | | | 2,879 | | | -102.8 | % |
| Gain on disposal of property, plant and equipment | (2,222) | | | (12,842) | | | 10,620 | | | -82.7 | % |
| Stock-based compensation | 9,404 | | | 148 | | | 9,256 | | | * |
| Total operating expenses | $ | 83,048 | | | $ | 37,758 | | | $ | 45,290 | | | 119.9 | % |
| Operating income | 18,115 | | | 34,042 | | | (15,927) | | | -46.8 | % |
| Other (income) expenses | | | | | | | |
| Change in fair value of redeemable warrant liability | 5,647 | | | 2,332 | | | 3,315 | | | 142.2 | % |
| Change in fair value of Alignment Shares liability | (61,314) | | | (5,013) | | | (56,301) | | | * |
| Other (income) expense, net | (3,926) | | | 245 | | | (4,171) | | | * |
| Interest expense, net | 22,162 | | | 19,933 | | | 2,229 | | | 11.2 | % |
| Loss on extinguishment of debt | 2,303 | | | 3,245 | | | (942) | | | -29.0 | % |
| Total other (income) expense | $ | (35,128) | | | $ | 20,742 | | | $ | (55,870) | | | -269.4 | % |
| Income before income tax expense | $ | 53,243 | | | $ | 13,300 | | | 39,943 | | | 300.3 | % |
| Income tax expense | (1,076) | | | (295) | | | (781) | | | 264.7 | % |
| Net income | $ | 52,167 | | | $ | 13,005 | | | $ | 39,162 | | | 301.1 | % |
| Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | (3,270) | | | 7,099 | | | (10,369) | | | -146.1 | % |
| Net income attributable to Altus Power, Inc. | $ | 55,437 | | | $ | 5,906 | | | $ | 49,531 | | | * |
| Net income per share attributable to common stockholders | | | | | | | |
| Basic | $ | 0.36 | | | $ | 0.06 | | | $ | 0.30 | | | * |
| Diluted | $ | 0.35 | | | $ | 0.06 | | | $ | 0.29 | | | * |
| Weighted average shares used to compute net income per share attributable to common stockholders | | | | | | | |
| Basic | 154,648,788 | | | 92,751,839 | | | 61,896,949 | | | 66.7 | % |
| Diluted | 155,708,993 | | | 96,603,428 | | | 59,105,565 | | | 61.2 | % |
* Percentage is not meaningful
Operating revenues, net
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | Change | | % |
| (in thousands) | | | | |
| Power sales under PPAs | $ | 24,906 | | | $ | 15,731 | | | $ | 9,175 | | | 58.3 | % |
| Power sales under NMCAs | 27,162 | | | 23,029 | | | 4,133 | | | 17.9 | % |
| Power sales on wholesale markets | 4,146 | | | 975 | | | 3,171 | | | 325.2 | % |
| Total revenue from power sales | 56,214 | | | 39,735 | | | 16,479 | | | 41.5 | % |
| Solar renewable energy credit revenue | 40,502 | | | 28,271 | | | 12,231 | | | 43.3 | % |
| Rental income | 3,038 | | | 2,114 | | | 924 | | | 43.7 | % |
| Performance based incentives | 1,409 | | | 1,680 | | | (271) | | | (16.1) | % |
| Total | $ | 101,163 | | | $ | 71,800 | | | $ | 29,363 | | | 40.9 | % |
Operating revenues, net increased by $29.4 million, or 40.9%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service during 2021 and 2022. We have three main sources of revenue including via PPAs, NMCAs, and the sale of solar renewable energy credits. 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
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Cost of operations (exclusive of depreciation and amortization shown separately below) | $ | 17,532 | | | $ | 14,029 | | | $ | 3,503 | | | 25.0% |
Cost of operations increased by $3.5 million, or 25.0%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021 primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service during 2022.
General and administrative
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| General and administrative | $ | 25,026 | | | $ | 16,767 | | | $ | 8,259 | | | 49.3% |
General and administrative expense increased by $8.3 million, or 49.3%, during the year ended December 31, 2022, as compared to the year ended December 31, 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
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Depreciation, amortization and accretion expense | $ | 29,600 | | | $ | 20,967 | | | $ | 8,633 | | | 41.2% |
Depreciation, amortization and accretion expense increased by $8.6 million, or 41.2%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the increased number of solar energy facilities as a result of acquisitions and facilities placed in service during 2022.
Acquisition and entity formation costs
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Acquisition and entity formation costs | $ | 3,629 | | | $ | 1,489 | | | $ | 2,140 | | | 143.7% |
Acquisition and entity formation increased by $2.1 million, or 143.7%, during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the DESRI Acquisition (as defined in Note 7, “Acquisitions,” to our audited consolidated annual financial statements included elsewhere in this Report) completed on November 11, 2022.
Loss (gain) on fair value remeasurement of contingent consideration
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Loss (gain) on fair value remeasurement of contingent consideration | $ | 79 | | | $ | (2,800) | | | $ | 2,879 | | | (102.8)% |
Loss (gain) on fair value remeasurement of contingent consideration, net is primarily associated with the Solar Acquisition (as defined in Note 10, “Fair Value Measurements,” to our audited consolidated financial statements included elsewhere in this Report) completed on December 22, 2020. Loss and gain on fair value remeasurement was recorded for the years ended December 31, 2022 and 2021, respectively, due to changes in the values of significant assumptions used in the measurement, including the estimated market power rates.
Gain on disposal of property, plant and equipment
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Gain on disposal of property, plant and equipment | $ | 2,222 | | | $ | 12,842 | | | $ | (10,620) | | | (82.7)% |
Gain on disposal of property, plant and equipment is associated with the disposal of land that occurred in 2022 and the Johnston Disposal (as defined in Note 5, "Property, Plant and Equipment," to our audited consolidated financial statements included elsewhere in this Report) in 2021. The gain was calculated as the excess of consideration received over the carrying value of the disposed land.
Stock-based compensation
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Stock-based compensation | $ | 9,404 | | | $ | 148 | | | $ | 9,256 | | | * |
* Percentage is not meaningful
Stock-based compensation increased by $9.3 million during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to restricted stock units granted under the Omnibus Incentive Plan (as defined in Note 19, "Stock-Based Compensation," to our audited consolidated financial statements included elsewhere in this Report), on February 15, 2022.
Change in fair value of redeemable warrant liability
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Change in fair value of redeemable warrant liability | $ | 5,647 | | | $ | 2,332 | | | $ | 3,315 | | | 142.2% |
In connection with the Merger, the Company assumed a redeemable warrant liability which was remeasured through the Redemption Date, and the resulting loss was included in the consolidated statements of operations. The loss in 2022 was primarily driven by the increase in the quoted price of the Company's Redeemable Warrants as of the Redemption Date, compared to December 31, 2021.
Change in fair value of Alignment Shares liability
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Change in fair value of Alignment Shares liability | $ | (61,314) | | | $ | (5,013) | | | $ | (56,301) | | | * |
* Percentage is not meaningful
In connection with the Merger, the Company assumed a liability related to Alignment Shares, which was remeasured as of December 31, 2022, and the resulting gain was included in the consolidated statements of operations. The gain in 2022 was primarily driven by the decrease in the Company's stock price as of December 31, 2022, compared to December 31, 2021.
Other (income) expense, net
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Other (income) expense, net | $ | (3,926) | | | $ | 245 | | | $ | (4,171) | | | * |
* Percentage is not meaningful
Other income was $3.9 million during the year ended December 31, 2022, primarily consisting of a Hawaii state grant of $1.5 million, interest income of $2.4 million, and other miscellaneous income and expense items, as compared to other expense of $0.2 million for the year ended December 31, 2021, primarily consisting of fees related to the refinancing of the Rated Term Loan, partially offset by other miscellaneous other income items.
Interest expense, net
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Interest expense, net | $ | 22,162 | | | $ | 19,933 | | | $ | 2,229 | | | 11.2% |
Interest expense increased by $2.2 million, or 11.2%, during the year ended December 31, 2022, as compared to the year ended December 31, 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.
Loss on extinguishment of debt
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Loss on extinguishment of debt | $ | 2,303 | | | $ | 3,245 | | | $ | (942) | | | (29.0)% |
Loss on extinguishment of debt recognized by the Company during the year ended December 31, 2022, was associated with the repayment of loans assumed in the DESRI acquisition. Loss on extinguishment of debt recognized by the Company during the year ended December 31, 2021, was associated with the refinancing of Rated Term Loan. In conjunction with the refinancing, a portion of the Rated Term Loan was extinguished, resulting in a loss on extinguishment of debt of $3.2 million. Refer to Note 9, "Debt," to our audited consolidated financial statements included elsewhere in this Report.
Income tax expense
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Income tax expense | $ | (1,076) | | | $ | (295) | | | $ | (781) | | | 264.7% |
For the year ended December 31, 2022, the Company recorded an income tax expense of $1.1 million in relation to a pretax income of $53.2 million, which resulted in an effective income tax rate of 2.0%. The effective income tax rate was primarily impacted by $11.7 million of income tax benefit related to fair value adjustments on redeemable warrants and Alignment Shares, $1.6 million of tax expense associated with nondeductible compensation, $0.7 million of income tax expense from net losses attributable to noncontrolling interests and redeemable noncontrolling interests, and $0.7 million of income tax benefit on transaction costs associated with the Merger return to provision adjustment.
For the year ended December 31, 2021, the Company recorded an income tax expense of $0.3 million in relation to a pretax income of $13.3 million, which resulted in an effective income tax rate of 2.2%. The effective income tax rate was primarily impacted by $1.1 million of state income tax expense, $0.3 million of valuation allowance on state net operating losses, $1.5 million of income tax benefit due to net income attributable to noncontrolling interests and $1.7 million of income tax benefit on transaction costs associated with the Merger.
Net (loss) income attributable to redeemable noncontrolling interests and noncontrolling interests
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, | | Change |
| 2022 | | 2021 | | $ | | % |
| (in thousands) | | | | |
| Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | $ | (3,270) | | | $ | 7,099 | | | $ | (10,369) | | | (146.1)% |
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests was $3.3 million during the year ended December 31, 2022, as compared to net income attributable to redeemable noncontrolling interests and noncontrolling interests of $7.1 million for the year ended December 31, 2021, primarily due to the Johnston Disposal in November 2021 and the attribution of the gain on disposal of property, plant and equipment to a noncontrolling interest holder and ITC recapture step downs during the year.
Liquidity and Capital Resources
As of December 31, 2022, the Company had total cash and restricted cash of $199.4 million. For a discussion of our restricted cash, see Note 2, “Significant Accounting Policies, Cash, Cash Equivalents, and Restricted Cash,” to our audited consolidated annual financial statements included elsewhere in this Report.
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. After solar energy systems commence operations, they typically 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.
The Company has no exposure to Silicon Valley Bank, Signature Bank or First Republic Bank or their affiliates because the Company holds its cash and equivalents, and marketable securities at diverse institutions and the Company is not party to any financing agreement with any of these institutions or their affiliates.
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 December 31, 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 December 31, 2022 and 2021, the Company had outstanding letters of credit and surety bonds totaling $15.4 million and $10.6 million, respectively. 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
As part of the Blackstone Credit 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 (the “Amended Rated Term Loan”). The Amended Rated Term Loan added $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 a rate of 2.5% of initial 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. The Amended Rated Term Loan is secured by the membership interests in the Company's subsidiaries.
As of December 31, 2022, the outstanding principal balance of the Amended Rated Term Loan was $487.2 million, less unamortized debt discount and loan issuance costs totaling $7.6 million. As of December 31, 2021, the outstanding principal balance of the Rated Term Loan was $499.8 million, less unamortized debt discount and loan issuance costs totaling $8.4 million.
As of December 31, 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.
DESRI Loans and APAF II Term Loan
In conjunction with the DESRI Acquisition, the Company assumed five project-level term loans with a total outstanding principal of $106.3 million and a fair value discount of $1.0 million (the "DESRI Loans"). From November 11, 2022 (the date of the DESRI Acquisition) to December 23, 2022 (the date the loans were repaid, as discussed below), the Company incurred interest costs of $0.9 million associated with the DESRI Loans.
On December 23, 2022, APA Finance II, LLC (“APAF II”), a wholly owned subsidiary of the Company, entered into a $125.7 million term loan facility (the “APAF II Term Loan”) with KeyBank National Association ("KeyBank") and The Huntington Bank as lenders. The proceeds of the APAF II Term Loan were used to repay the outstanding amounts under the DESRI Loans. The APAF II Term Loan matures on December 23, 2027, and has a variable interest rate based on SOFR plus a spread of 1.475%. Simultaneously with entering into the Term Loan, the Company entered into interest rate swaps for the 100% of the amount of debt outstanding, which effectively fixed the interest rate at 4.885% (see Note 10, "Fair Value Measurements,"
to our audited consolidated financial statements included elsewhere in this Report for further details). The Company incurred $1.2 million of issuance costs related to the APAF II Term Loan, which have been deferred and recorded as a reduction to the outstanding principal balance and are amortized as interest expense on a straight-line basis until the loan's maturity date.
The repayment of the DESRI Loans was accounted for as a debt extinguishment. As a result, the Company recognized a loss on extinguishment of debt of $2.3 million in the consolidated statements of operations for the year ended December 31, 2022.
As of December 31, 2022, the outstanding principal balance of the APAF II Term Loan was $125.7 million, less unamortized debt issuance costs of $2.7 million. As of December 31, 2022, the Company was in compliance with all covenants.
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 included a construction loan commitment of $187.5 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 .50% per year of the daily unused amount of the commitment. As of December 31, 2022, the outstanding principal balances of the construction loan and term loan were zero and $15.9 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 December 31, 2022 and 2021, the Company had an unused borrowing capacity of $171.6 million and $169.7 million, respectively. For the year ended December 31, 2022 and 2021, the Company incurred interest costs associated with outstanding construction loans totaling $— million and $0.3 million, respectively, which were capitalized as part of property, plant and equipment. Outstanding amounts under the Construction to Term Loan Facility are secured by a first priority security interest in all of the property owned by APACF and each of its project companies, including all of the solar energy facility assets under construction a first priority security interest in all of the property owned by APACF and each of its project companies, including all of the solar energy facility assets under construction. The Construction Loan to Term Loan includes various financial and other covenants for APACF and the Company, as guarantor. As of December 31, 2022 and 2021, the Company was in compliance with all covenants.
Project-Level Term Loan
In conjunction with the Stellar NJ 2 Acquisition (as defined in Note 7, "Acquisitions," to our audited consolidated financial statements included elsewhere in this Report), the Company assumed a project-level term loan with an outstanding principal balance of $14.1 million and a fair value discount of $2.2 million. The term loan is subject to scheduled semi-annual amortization and interest payments, and matures on September 1, 2029.
As of December 31, 2022, the outstanding principal balance of the term loan is $12.6 million, less unamortized debt discount of $2.1 million. During the year ended December 31, 2022, the Company incurred interest costs associated with the term loan of $0.2 million.
The term loan is secured by an interest in the underlying solar project assets and the revenues generated by those assets. As of December 31, 2022, the Company was in compliance with all covenants.
APAG Revolver
On December 19, 2022, APA Generation, LLC (“APAG”), a wholly owned subsidiary of the Company, entered into revolving credit facility with Citibank, N.A. with a total committed capacity of $200.0 million (the "APAG Revolver"). Outstanding amounts under the APAG Revolver have a variable interest rate based on a base rate and an applicable margin. The APAG Revolver matures on December 19, 2027. As of December 31, 2022, there were no amounts outstanding under the APAG Revolver.
Financing Obligations Recognized in Failed Sale Leaseback Transactions
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. The Company has assessed these arrangements and determined that the transfer of assets should not be accounted for as a sale in accordance with ASC 842. Therefore, the Company accounts for these transactions using the financing method by recognizing the consideration received as a financing obligation, with the assets subject to the transaction remaining on the balance sheet of the Company and depreciated based on the Company's normal depreciation policy. The aggregate proceeds have been recorded as long-term debt within the consolidated balance sheets.
As of December 31, 2022 and 2021, the Company's recorded financing obligations were $35.6 million, net of $1.1 million of deferred transaction costs, and $36.5 million, net of $1.1 million of deferred transactions costs, respectively Payments of $2.2 million and $0.5 million were made under the financing obligation for the years ended December 31, 2022 and 2021, respectively. Interest expense, inclusive of the amortization of deferred transaction costs for the years ended December 31, 2022 and 2021, were $1.5 million and $0.4 million, respectively.
Cash Flows
For the Years Ended December 31, 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:
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2022 | | 2021 |
| (in thousands) |
| Net cash provided by (used in): | | | |
| Operating activities | $ | 35,242 | | | $ | 23,704 | |
| Investing activities | (163,212) | | | (223,250) | |
| Financing activities | (2,953) | | | 491,661 | |
| Net decrease in cash and restricted cash | $ | (130,923) | | | $ | 292,115 | |
Operating Activities
During the year ended December 31, 2022, cash provided by operating activities of $35.2 million consisted primarily of net income of $52.2 million adjusted for net non-cash income of $12.1 million and increase in net assets of $4.8 million.
During the year ended December 31, 2021, cash provided by operating activities of $23.7 million consisted primarily of net income of $13.0 million adjusted for the net non-cash expense of $8.9 million and off-set by an increase in net liabilities of $1.8 million.
Investing Activities
During the year ended December 31, 2022, net cash used in investing activities was $163.2 million, consisting of $77.2 million of capital expenditures, $76.2 million of payments to acquire businesses, net of cash and restricted cash acquired, and $13.9 million of payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired, partially off-set by $3.6 million of proceeds from the disposal of property, plant and equipment and $0.5 million of other cash receipts from investing activities.
During the year ended December 31, 2021, net cash used in investing activities was $223.3 million, consisting of $14.6 million of capital expenditures, $201.2 million of payments to acquire businesses, net of cash and restricted cash acquired, $27.4 million of payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired, partially off-set by $19.9 million of proceeds from the disposal of property, plant and equipment.
Financing Activities
Net cash used for financing activities was $3.0 million for the year ended December 31, 2022, which consisted primarily of $124.7 million of proceeds from issuance of long-term debt and $6.1 million of contributions from noncontrolling interests. Cash provided by financing activities was off-set by $123.4 million to repay long-term debt, $5.3 million of debt issuance costs, $1.3 million of debt extinguishment costs, $0.7 million of equity issuance costs related to the Merger, 0.1 million of paid contingent consideration, $0.5 million paid to redeem noncontrolling interests, and $2.6 million of distributions to noncontrolling interests.
Net cash provided by financing activities was $491.7 million for the year ended December 31, 2021, which consisted of $311.1 million of proceeds from issuance of long-term debt, 637.5 million of proceeds from the Merger and PIPE financing, $82.0 million proceeds from issuance of common stock and Series A preferred stock, and $3.8 million of contributions from noncontrolling interests. Net cash provided by financing activities was partially off-set by $160.5 million to repay long-term debt, $55.4 million of transaction costs related to the Merger, $290.0 million to repay Series A preferred stock, $22.2 million of paid dividends and commitment fees on Series A preferred stock, $2.6 million of debt issuance costs, $1.5 million of debt extinguishment costs, $5.3 million paid to redeem noncontrolling interests, $5.0 million of distributions to noncontrolling interests, and $0.2 million of paid contingent consideration.
Critical Accounting Policies and Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. 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.
While the Company’s significant accounting policies are described in more detail in Note 2, "Significant Accounting Policies," to the audited consolidated financial statements included elsewhere in this Report, it believes the following accounting policies and estimates to be most critical to the preparation of its consolidated financial statements.
Business Combinations and Acquisitions of Assets
The Company applies the definition of a business in ASC 805, Business Combinations, to determine whether it is acquiring a business or a group of assets. When the Company acquires a business, the purchase price is allocated to (i) the acquired tangible assets and liabilities assumed, primarily consisting of solar energy facilities and land, (ii) the identified intangible assets and liabilities, primarily consisting of favorable and unfavorable rate PPAs and REC agreements, (iii) asset retirement obligations (iv) non-controlling interests, and (v) other working capital items based in each case on their estimated fair values. The excess of the purchase price, if any, over the estimated fair value of net assets acquired is recorded as goodwill. The fair value measurements of the assets acquired and liabilities assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs include, but are not limited to, estimates of future power generation, commodity prices, operating costs, and appropriate discount rates. These inputs required significant judgments and estimates at the time of the valuation. In addition, acquisition costs related to business combinations are expensed as incurred.
When an acquired group of assets does not constitute a business, the transaction is accounted for as an asset acquisition. The cost of assets acquired and liabilities assumed in asset acquisitions is allocated based upon relative fair value. The fair value measurements of the solar facilities acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs include, but are not limited to, estimates of future power generation, commodity prices, operating costs, and appropriate discount rates. These inputs required significant judgments and estimates at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired.
Power Sales under PPAs
A portion of the Company’s power sales revenues is earned through the sale of energy (based on kilowatt hours) pursuant to terms of PPAs. PPAs that do not qualify as leases under ASC 842, Leases, or derivatives under ASC 815, Derivatives and Hedging, are accounted for under ASC 606, Revenue from Contracts with Customers. A portion of PPAs that qualify as derivatives is not material. The Company’s PPAs typically have fixed or floating rates and are generally invoiced on a monthly basis. The Company typically sells energy and related environmental attributes (e.g., SRECs) separately to different customers and considers the delivery of power energy under PPAs to represent a series of distinct goods that is substantially the same and has the same pattern of transfer measured by the output method. 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. There was no change in the Company’s revenue recognition policy for PPAs as a result of adopting ASC 606. For certain of the Company’s rooftop solar energy facilities revenue is recognized net of immaterial pass-through lease charges collected on behalf of building owners.
Power Sales under NCMAs
A portion of the Company’s power sales revenues are obtained through the sale of net metering credits under 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, 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. The Company’s customers apply net metering credits as a reduction to their utility bills.
SREC 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. Generally, individual SREC sales reflect a fixed quantity and fixed price structure over a specified term. The contracts related to SREC sales with a fixed price and quantity have maturity dates ranging from 2023 to 2031. 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.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rate on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In evaluating if a valuation allowance is warranted, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations, refer to Note 20, "Income Taxes," for further details.
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company to report information regarding its exposure to various tax positions taken by the Company. The Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. The uncertain tax position to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement, which could result in the Company recording a tax liability that would reduce net assets. The Company reviews and evaluates tax positions and determines whether or not there are uncertain tax positions that require financial statement recognition. Generally, tax authorities can examine all tax returns filed for the last three years.
Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities. As a result, no income tax liability or expense related to uncertain tax positions have been recorded in the accompanying consolidated financial statements.
The Company’s income tax expense, deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid.
Noncontrolling Interests and Redeemable Noncontrolling Interests in Solar Facility Subsidiaries
Noncontrolling interests and redeemable noncontrolling interests represent third parties’ equity interests in the net assets of certain consolidated Solar Facility Subsidiaries. Third party equity interests are primarily represented by tax equity partnerships which were created to finance the costs of solar energy facilities under long-term operating agreements. The tax equity interests are generally entitled to receive substantially all the accelerated depreciation tax deductions and investment tax credits arising from Solar Facility Subsidiaries pursuant to their contractual shareholder agreements, together with a portion of these ventures’ distributable cash. The tax equity interests’ claim to tax attributes and distributable cash from Solar Facility Subsidiaries decreases to a small residual interest after a predefined ‘flip point’ occurs, typically the expiration of a time period or upon the tax equity investor’s achievement of a target yield. Because the tax equity interests’ participation in tax attributes and distributable cash from each Solar Facility Subsidiary is not consistent over time with their initial capital contributions or percentage interest, the Company has determined that the provisions in the contractual arrangements represent substantive profit-sharing arrangements. In order to reflect the substantive profit-sharing arrangements, the Company has determined that the appropriate methodology for attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a balance sheet approach referred to as the Hypothetical Liquidation at Book Value (“HLBV”) method. Under the HLBV method, the amounts of income and loss attributed to the noncontrolling interests and redeemable noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the third parties would hypothetically receive at each balance sheet date based on the liquidation provisions of the respective operating partnership agreements. HLBV assumes that the proceeds available for distribution are equivalent to the unadjusted, stand-alone net assets of each respective partnership, as
determined under U.S. GAAP. The third parties’ noncontrolling interest in the results of operations of these subsidiaries is determined as the difference in the noncontrolling interests’ and redeemable noncontrolling interests’ claims under the HLBV method at the start and end of each reporting period, after considering any capital transactions, such as contributions or distributions, between the subsidiaries and third parties. The application of HLBV generally results in the attribution of pre-tax losses to tax equity interests in connection with their receipt of accelerated tax benefits from the Solar Facility Subsidiaries, as the third-party investors’ receipt of these benefits typically reduces their claim on the partnerships’ net assets.
Attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests under the HLBV method requires the use of significant assumptions and estimates to calculate the amounts that third parties would receive upon a hypothetical liquidation. Changes in these assumptions and estimates can have a significant impact on the amount that third parties would receive upon a hypothetical liquidation. The use of the HLBV methodology to allocate income to the noncontrolling and redeemable noncontrolling interest holders may create volatility in the Company’s consolidated statements of operations as the application of HLBV can drive changes in net income available and loss attributable to noncontrolling interests and redeemable noncontrolling interests from quarter to quarter.
The Company classifies certain noncontrolling interests with redemption features that are not solely within the control of the Company outside of permanent equity on its consolidated balance sheets. Estimated redemption value is calculated as the discounted cash flows attributable to the third parties subsequent to the reporting date. Redeemable noncontrolling interests are reported using the greater of their carrying value at each reporting date as determined by the HLBV method or their estimated redemption value in each reporting period. Estimating the redemption value of the redeemable noncontrolling interests requires the use of significant assumptions and estimates. Changes in these assumptions and estimates can have a significant impact on the calculation of the redemption value. See Note 13, "Redeemable Noncontrolling Interest," to the Company’s audited consolidated financial statements included elsewhere in this Report.
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 $1.235 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, "Significant Accounting Policies," to our audited consolidated financial statements included elsewhere in this Report.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Altus Power, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Altus Power, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' equity and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 14 Leases to the financial statements, the Company has changed its method of accounting for leases in the year ended December 31, 2022 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Stamford, CT
March 30, 2023
We have served as the Company’s auditor since 2015.
Altus Power, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2022 | | 2021 |
| Operating revenues, net | $ | 101,163 | | | $ | 71,800 | |
| Operating expenses | | | |
| Cost of operations (exclusive of depreciation and amortization shown separately below) | 17,532 | | | 14,029 | |
| General and administrative | 25,026 | | | 16,767 | |
| Depreciation, amortization and accretion expense | 29,600 | | | 20,967 | |
| Acquisition and entity formation costs | 3,629 | | | 1,489 | |
| Loss (gain) on fair value remeasurement of contingent consideration | 79 | | | (2,800) | |
| Gain on disposal of property, plant and equipment | (2,222) | | | (12,842) | |
| Stock-based compensation | 9,404 | | | 148 | |
| Total operating expenses | $ | 83,048 | | | $ | 37,758 | |
| Operating income | $ | 18,115 | | | $ | 34,042 | |
| Other (income) expenses | | | |
| Change in fair value of redeemable warrant liability | 5,647 | | | 2,332 | |
| Change in fair value of Alignment Shares liability | (61,314) | | | (5,013) | |
| Other (income) expense, net | (3,926) | | | 245 | |
| Interest expense, net | 22,162 | | | 19,933 | |
| Loss on extinguishment of debt | 2,303 | | | 3,245 | |
| Total other (income) expense | $ | (35,128) | | | $ | 20,742 | |
| Income before income tax expense | $ | 53,243 | | | $ | 13,300 | |
| Income tax expense | (1,076) | | | (295) | |
| Net income | $ | 52,167 | | | $ | 13,005 | |
| Net (loss) income attributable to noncontrolling interests and redeemable noncontrolling interests | (3,270) | | | 7,099 | |
| Net income attributable to Altus Power, Inc. | $ | 55,437 | | | $ | 5,906 | |
| Net income per share attributable to common stockholders | | | |
| Basic | $ | 0.36 | | | $ | 0.06 | |
| Diluted | $ | 0.35 | | | $ | 0.06 | |
| Weighted average shares used to compute net income per share attributable to common stockholders | | | |
| Basic | 154,648,788 | | | 92,751,839 | |
| Diluted | 155,708,993 | | | 96,603,428 | |
The accompanying notes are an integral part of these consolidated financial statements.
Altus Power, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 193,016 | | | $ | 325,983 | |
| Current portion of restricted cash | 2,404 | | | 2,544 | |
| Accounts receivable, net | 13,443 | | | 9,218 | |
| Other current assets | 6,206 | | | 6,659 | |
| Total current assets | 215,069 | | | 344,404 | |
| Restricted cash, noncurrent portion | 3,978 | | | 1,794 | |
| Property, plant and equipment, net | 1,005,147 | | | 745,711 | |
| Intangible assets, net | 47,627 | | | 16,702 | |
| Operating lease asset | 94,463 | | | — | |
| Derivative assets | 3,953 | | | — | |
| Other assets | 6,651 | | | 4,638 | |
| Total assets | $ | 1,376,888 | | | $ | 1,113,249 | |
| Liabilities, redeemable noncontrolling interests, and stockholders' equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 2,740 | | | $ | 3,591 | |
| Construction payable | 9,038 | | | 234 | |
| Interest payable | 4,436 | | | 4,494 | |
| Purchase price payable, current | 12,077 | | | — | |
| Due to related parties | 112 | | | — | |
| Current portion of long-term debt | 29,959 | | | 21,143 | |
| Operating lease liability, current | 3,339 | | | — | |
| Other current liabilities | 6,527 | | | 3,429 | |
| Total current liabilities | 68,228 | | | 32,891 | |
| Redeemable warrant liability | — | | | 49,933 | |
| Alignment Shares liability | 66,145 | | | 127,474 | |
| Long-term debt, net of unamortized debt issuance costs and current portion | 634,603 | | | 524,837 | |
| Intangible liabilities, net | 12,411 | | | 13,758 | |
| Purchase price payable, noncurrent | 6,940 | | | — | |
| Asset retirement obligations | 9,575 | | | 7,628 | |
| Operating lease liability, noncurrent | 94,819 | | | — | |
| Contract liability | 5,397 | | | — | |
| Deferred tax liabilities, net | 11,011 | | | 9,603 | |
| Other long-term liabilities | 4,700 | | | 5,587 | |
| Total liabilities | $ | 913,829 | | | $ | 771,711 | |
| Commitments and contingent liabilities (Note 15) | | | |
| Redeemable noncontrolling interests | 18,133 | | | 15,527 | |
| Stockholders' equity | | | |
Common stock $0.0001 par value; 988,591,250 shares authorized as of December 31, 2022 and 2021; 158,904,401 and 153,648,830 shares issued and outstanding as of December 31, 2022 and 2021, respectively | 16 | | | 15 | |
| Additional paid-in capital | 470,004 | | | 406,259 | |
| Accumulated deficit | (45,919) | | | (101,356) | |
| Total stockholders' equity | $ | 424,101 | | | $ | 304,918 | |
| Noncontrolling interests | 20,825 | | | 21,093 | |
| Total equity | $ | 444,926 | | | $ | 326,011 | |
| Total liabilities, redeemable noncontrolling interests, and stockholders' equity | $ | 1,376,888 | | | $ | 1,113,249 | |
The following table presents the assets and liabilities of the consolidated variable interest entities (Refer to Note 8).
| | | | | | | | | | | |
| As of December 31, |
| (In thousands) | 2022 | | 2021 |
| Assets of consolidated VIEs, included in total assets above: | | | |
| Cash | $ | 11,652 | | | $ | 7,524 | |
| Current portion of restricted cash | 1,152 | | | 1,763 | |
| Accounts receivable, net | 2,952 | | | 2,444 | |
| Other current assets | 678 | | | 1,400 | |
| Restricted cash, noncurrent portion | 1,762 | | | 1,122 | |
| Property, plant and equipment, net | 401,711 | | | 363,991 | |
| Intangible assets, net | 5,308 | | | 6,909 | |
| Operating lease asset | 36,211 | | | — | |
| Other assets | 591 | | | 739 | |
| Total assets of consolidated VIEs | $ | 462,017 | | | $ | 385,892 | |
| Liabilities of consolidated VIEs, included in total liabilities above: | | | |
| Accounts payable | 454 | | | 419 | |
| Operating lease liability, current | 2,742 | | | — | |
| Current portion of long-term debt | 2,336 | | | 2,457 | |
| Other current liabilities | 199 | | | 776 | |
| Long-term debt, net of unamortized debt issuance costs and current portion | 33,332 | | | 34,022 | |
| Intangible liabilities, net | 1,899 | | | 2,420 | |
| Asset retirement obligations | 4,438 | | | 3,988 | |
| Operating lease liability, noncurrent | 33,204 | | | — | |
| Other long-term liabilities | 565 | | | 548 | |
| Total liabilities of consolidated VIEs | $ | 79,169 | | | $ | 44,630 | |
The accompanying notes are an integral part of these consolidated financial statements.
Altus Power, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Additional Paid-in Capital | | Retained
Earnings
(Accumulated Deficit) | | Total Stockholders'
Equity | | Non
Controlling Interests | | Total
Equity |
| Shares | | Amount | | | | | |
| As of December 31, 2020 | 89,999,976 | | | $ | 9 | | | $ | 205,772 | | | $ | (80,802) | | | $ | 124,979 | | | $ | 14,016 | | | $ | 138,995 | |
| Issuance of Series A preferred stock | — | | | — | | | 82,000 | | | — | | | 82,000 | | | — | | | 82,000 | |
| Cash contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | 3,846 | | | 3,846 | |
| Accretion of Series A preferred stock | — | | | — | | | 8,417 | | | (8,417) | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 148 | | | — | | | 148 | | | — | | | 148 | |
| Accrued dividends and commitment fees on Series A preferred stock | — | | | — | | | 18,043 | | | (18,043) | | | — | | | — | | | — | |
| Payment of dividends and commitment fees on Series A preferred stock | — | | | — | | | (22,207) | | | — | | | (22,207) | | | — | | | (22,207) | |
| Issuance of Class A common stock upon the Merger, net of redemptions and equity issuance costs | 63,648,854 | | | 6 | | | 401,709 | | | — | | | 401,715 | | | — | | | 401,715 | |
| Redemption of Series A preferred stock | — | | | — | | | (290,000) | | | — | | | (290,000) | | | — | | | (290,000) | |
| Cash distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | (3,891) | | | (3,891) | |
| Redemption of noncontrolling interests | — | | | — | | | 1,346 | | | — | | | 1,346 | | | (4,613) | | | (3,267) | |
| Redemption of redeemable noncontrolling interests | — | | | — | | | 1,031 | | | — | | | 1,031 | | | — | | | 1,031 | |
| Noncontrolling interests assumed through acquisitions | — | | | — | | | — | | | — | | | — | | | 4,315 | | | 4,315 | |
| Net income | — | | | — | | | — | | | 5,906 | | | 5,906 | | | 7,420 | | | 13,326 | |
| As of December 31, 2021 | 153,648,830 | | | $ | 15 | | | $ | 406,259 | | | $ | (101,356) | | | $ | 304,918 | | | $ | 21,093 | | | $ | 326,011 | |
| Stock based compensation | 75,000 | | | — | | | 9,404 | | | — | | | 9,404 | | | — | | | 9,404 | |
| Cash distributions to non-controlling interests | — | | | — | | | — | | | — | | | — | | | (1,549) | | | (1,549) | |
| Cash contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | 5,010 | | | 5,010 | |
| Equity issuance costs | — | | | — | | | (1,165) | | | — | | | (1,165) | | | — | | | (1,165) | |
| Conversion of Alignment Shares to Class A common stock | 2,021 | | | — | | | 15 | | | — | | | 15 | | | — | | | 15 | |
| Exchange of warrants into common stock | 1,111,243 | | | — | | | 7,779 | | | — | | | 7,779 | | | — | | | 7,779 | |
| Exercised warrants | 4,067,307 | | | 1 | | | 47,836 | | | — | | | 47,837 | | | — | | | 47,837 | |
| Redemption of redeemable non-controlling interests | — | | | — | | | (124) | | | | | (124) | | | — | | | (124) | |
| Non-controlling interests assumed through acquisitions | — | | | — | | | — | | | — | | | — | | | 184 | | | 184 | |
| Net income (loss) | — | | | — | | | — | | | 55,437 | | | 55,437 | | | (3,913) | | | 51,524 | |
| As of December 31, 2022 | 158,904,401 | | | 16 | | | 470,004 | | | (45,919) | | | 424,101 | | | 20,825 | | | 444,926 | |
The accompanying notes are an integral part of the consolidated financial statements.
Altus Power, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| Cash flows from operating activities | | | |
| Net income | $ | 52,167 | | | $ | 13,005 | |
| Adjustments to reconcile net income to net cash from operating activities: | | | |
| Depreciation, amortization and accretion | 29,600 | | | 20,967 | |
| Deferred tax expense | 1,078 | | | 219 | |
| Non-cash lease expense | 443 | | | — | |
| Amortization of debt discount and financing costs | 3,018 | | | 2,873 | |
| Loss on extinguishment of debt | 2,303 | | | 3,245 | |
| Change in fair value of redeemable warrant liability | 5,647 | | | 2,332 | |
| Change in fair value of Alignment Shares liability | (61,315) | | | (5,013) | |
| Remeasurement of contingent consideration | 79 | | | (2,800) | |
| Gain on disposal of property, plant and equipment | (2,222) | | | (12,842) | |
| Stock-based compensation | 9,404 | | | 148 | |
| Other | (174) | | | 104 | |
| Changes in assets and liabilities, excluding the effect of acquisitions | | | |
| Accounts receivable | (2,122) | | | 162 | |
| Due from related parties | 112 | | | — | |
| Derivative assets | (1,247) | | | (324) | |
| Other assets | (280) | | | (4,647) | |
| Accounts payable | (1,126) | | | 2,001 | |
| Interest payable | (58) | | | 1,909 | |
| Contract liability | 562 | | | — | |
| Other liabilities | (627) | | | 2,365 | |
| Net cash provided by operating activities | 35,242 | | | 23,704 | |
| Cash flows from investing activities | | | |
| Capital expenditures | (77,223) | | | (14,585) | |
| Payments to acquire businesses, net of cash and restricted cash acquired | (76,166) | | | (201,175) | |
| Payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired | (13,924) | | | (27,364) | |
| Proceeds from disposal of property, plant and equipment | 3,605 | | | 19,910 | |
| Other | 496 | | | (36) | |
| Net cash used for investing activities | (163,212) | | | (223,250) | |
| Cash flows from financing activities | | | |
| Proceeds from issuance of long-term debt | 124,697 | | | 311,053 | |
| Repayments of long-term debt | (123,362) | | | (160,487) | |
| Payment of debt issuance costs | (5,257) | | | (2,628) | |
| Payment of debt extinguishment costs | (1,335) | | | (1,477) | |
| Proceeds from the Merger and PIPE financing | — | | | 637,458 | |
| Payment of transaction costs related to the Merger | (742) | | | (55,442) | |
| Proceeds from issuance of common stock and Series A preferred stock | — | | | 82,000 | |
| Repayment of Series A preferred stock | — | | | (290,000) | |
| Payment of dividends and commitment fees on Series A preferred stock | — | | | (22,207) | |
| Proceeds from exercise of warrants | 65 | | | — | |
| Payment of contingent consideration | (72) | | | (153) | |
| Contributions from noncontrolling interests | 6,097 | | | 3,846 | |
| Redemption of redeemable noncontrolling interests | (473) | | | (5,324) | |
| Distributions to noncontrolling interests | (2,571) | | | (4,978) | |
| Net cash provided by financing activities | (2,953) | | | 491,661 | |
| Net decrease in cash, cash equivalents, and restricted cash | (130,923) | | | 292,115 | |
| Cash, cash equivalents, and restricted cash, beginning of year | 330,321 | | | 38,206 | |
| Cash, cash equivalents, and restricted cash, end of year | $ | 199,398 | | | $ | 330,321 | |
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| Supplemental cash flow disclosure | | | |
| Cash paid for interest, net of amounts capitalized | $ | 21,605 | | | $ | 15,015 | |
| Cash paid for taxes | 73 | | | 103 | |
| Non-cash investing and financing activities | | | |
| Asset retirement obligations | $ | 1,840 | | | $ | 3,024 | |
| Debt assumed through acquisitions | 117,295 | | | 5,920 | |
| Initial recording of noncontrolling interest | 183 | | | 4,569 | |
| Redeemable noncontrolling interest assumed through acquisitions | 2,126 | | | — | |
| Acquisitions of property and equipment included in construction payable | 8,371 | | | 234 | |
| Construction loan conversion | (4,186) | | | — | |
| Term loan conversion | 4,186 | | | — | |
| Exchange of warrants into common stock | 7,779 | | | — | |
| Warrants exercised on a cashless basis | 47,836 | | | — | |
| Conversion of Alignment Shares into common stock | 15 | | | — | |
| Deferred purchase price payable | 18,548 | | | — | |
The accompanying notes are an integral part of the consolidated financial statements.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 remains ongoing. In connection with the COVID-19 pandemic, the associated business closures, work stoppages, slowdowns, and delays have 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 consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the regulations of the U.S Securities and Exchange Commission ("SEC"). The Company’s consolidated financial statements include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest with all intercompany balances and transactions eliminated in consolidation.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year financial statement presentation. Such reclassifications have no impact on previously reported net income, stockholders' equity, or cash flows. For the year ended December 31, 2021, $0.6 million was reclassified from goodwill to other assets and $0.2 million was reclassified from other current liabilities to construction payable on the consolidated balance sheet. These changes had no impact on total assets or total current liabilities reported in the consolidated balance sheet.
Further, for the year ended December 31, 2021 $0.1 was reclassified from General and Administrative to Stock-based compensation within the Operating expenses section of the consolidated statement of operations. This change had no impact on total operating expenses reported in the consolidated statement of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the 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 considerations, Class B common stock, par value $0.0001 per share ("Alignment Shares"), and derivative instruments.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Variable Interest Entities
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 variable interest entity, or 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 an entity that has a variable interest or a combination of variable interests that provide that entity with a controlling financial interest in the VIE. An entity is deemed to have a controlling financial interest in a VIE if it has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates whether an entity is a VIE whenever reconsideration events as defined by the accounting guidance occur. See Note 8, "Variable Interest Entities."
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. 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 include 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 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 consolidated balance sheets. Cash, cash equivalents, and restricted cash consist of the following:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| Cash and cash equivalents | $ | 193,016 | | $ | 325,983 |
| Current portion of restricted cash | 2,404 | | 2,544 |
| Restricted cash, noncurrent portion | 3,978 | | 1,794 |
| Total | $ | 199,398 | | $ | 330,321 |
Accounts Receivable
Management considers the carrying value of accounts receivable to be fully collectible. If amounts become uncollectible, they are charged to operations in the period in which that determination is made. U.S. GAAP requires that the allowance method be used to recognize bad debts. As of December 31, 2022 and 2021, the Company determined that the allowance for uncollectible accounts receivable was $0.4 million and $0.4 million, respectively.
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 one customer that individually accounted for 28.0% of total accounts receivable as of December 31, 2022. The Company had one customer that individually accounted for 16.2% of total revenue for the year ended December 31, 2022.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 11.7% of total revenue for the year ended December 31, 2021.
Economic Concentrations
The Company and its subsidiaries own and operate solar generating facilities installed on buildings and land located across the United States. Future operations could be affected by changes in the economy, other conditions in those geographic areas or by changes in the demand for renewable energy.
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. Refer to Note 10, "Fair Value Measurements" for further information on assets and liabilities measured at fair value.
Interest Rate Swap Agreements
The Company is exposed to interest rate risk on its floating-rate debt. The Company periodically enters into interest rate swap agreements to effectively convert its floating-rate debt to a fixed-rate basis. The principal objective of these contracts is to eliminate or reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company does not designate interest rate swap agreements as hedging instruments for accounting purposes. Therefore, changes in the fair value of interest rate swap agreements are reported in the consolidated statement of operations as part of interest expense.
Property, Plant and Equipment
The Company reports property, plant and equipment at cost, less accumulated depreciation. Costs include all costs incurred during the construction and development of the solar energy facilities, including land, development costs and site work. Repairs and maintenance are expensed as incurred. The Company begins depreciating the property, plant and equipment when the assets are 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. The estimated useful life of an asset is reassessed whenever applicable facts and circumstances indicate a change in the estimated useful life of such asset has occurred.
Business Combinations and Acquisitions of Assets
The Company applies the definition of a business in ASC 805, Business Combinations, to determine whether it is acquiring a business or a group of assets. When the Company acquires a business, the purchase price is allocated to (i) the acquired tangible assets and liabilities assumed, primarily consisting of solar energy facilities and land, (ii) the identified intangible assets and liabilities, primarily consisting of favorable and unfavorable rate power purchase agreements ("PPAs") and renewable energy credit ("REC") agreements, (iii) asset retirement obligations (iv) non-controlling interests, and (v) other working capital items based in each case on their estimated fair values. The excess of the purchase price, if any, over the estimated fair value of net assets acquired is recorded as goodwill. The fair value measurements of the assets acquired and liabilities assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs include, but are not limited to, estimates of future power generation, commodity prices, operating costs, and appropriate discount rates. These
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
inputs required significant judgments and estimates at the time of the valuation. In addition, acquisition costs related to business combinations are expensed as incurred.
When an acquired group of assets does not constitute a business, the transaction is accounted for as an asset acquisition. The cost of assets acquired and liabilities assumed in asset acquisitions is allocated based upon relative fair value. The fair value measurements of the solar facilities acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs include, but are not limited to, estimates of future power generation, commodity prices, operating costs, and appropriate discount rates. These inputs required significant judgments and estimates at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired.
Intangible Assets, Intangible Liabilities and Amortization
Intangible assets and intangible liabilities include favorable and unfavorable rate PPAs, net metering credit agreements (“NMCAs”), and REC agreements as well as value ascribed to in-place leases and fees paid to third parties for acquiring customers. PPAs, NMCAs and REC agreements obtained through acquisitions, which are recorded at the estimated fair value as of the acquisition date and the difference between the contract price and current market price is recorded as an intangible asset or liability.
Amortization of intangible assets and liabilities is recorded within depreciation, amortization and accretion in the consolidated statements of operations. Values ascribed to in-place leases 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. The straight-line method of amortization is used because it best reflects the pattern in which the economic benefits of the intangibles are consumed or otherwise used up. The amounts and useful lives assigned to intangible assets acquired and liabilities assumed impact the amount and timing of future amortization. See Note 6, "Intangible Assets and Intangible Liabilities."
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These events and changes in circumstances may include a significant decrease in the market price of a long-lived asset; a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; a significant adverse change in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; a current-period operating or cash flow loss combined with a history of such losses or a projection of future losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
When impairment indicators are present, recoverability is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flow expected to be generated and any estimated proceeds from the eventual disposition. If the long-lived assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair market value as determined from an appraisal, discounted cash flows analysis, or other valuation technique. For the years ended December 31, 2022 and 2021, there were no events or changes to circumstances that may indicate the carrying value of long-lived asset would not be recoverable, therefore, there was no impairment loss recognized for the years ended December 31, 2022 and 2021.
Leases
The Company has lease agreements for land and building rooftops on which our solar energy facilities operate, as well as a lease agreement for a corporate office. The leases are noncancelable and expire on various terms through 2058.
At the inception of a contractual arrangement, the Company determines whether it contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding right-of-use asset upon lease commencement. The Company's leases include various renewal options which are included in the lease term when the Company has determined it is reasonably certain of exercising the options based on consideration of all relevant factors that create an economic incentive for the Company as lessee. Operating lease assets and liabilities are recognized based on the present value of minimum lease payments over the lease term using an appropriate
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
discount rate. Right-of-use assets include any lease payments made at or before lease commencement and any initial direct costs incurred and exclude any lease incentives received. Right-of-use assets also include an adjustment to reflect favorable or unfavorable terms of the lease when compared to market terms, when applicable. Certain leases include variable lease payments associated with production of the solar facility or other variable payments such as real estate taxes and common area maintenance. As the Company has elected not to separate lease and non-lease components for all classes of underlying assets, all variable costs associated with leases are expensed in the period incurred and presented and disclosed as variable lease expense.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive financial covenants. The Company does not have any leases that have not yet commenced that create significant rights and obligations for the lessee.
A lessee is required to use the rate implicit in the lease when the assumptions are readily determinable. When the assumptions are not readily determinable, it is required to use its incremental borrowing rate. As the assumptions to determine the rate implicit in the lease are not readily determinable for any of the Company's leases, the incremental borrowing rate is used.
The discount rate used is the rate that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. At the lease commencement date, the Company’s incremental borrowing rate is used as the discount rate. Discount rates are reassessed when there is a new lease or a modification to an existing lease.
The Company records operating lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease payments. The Company records its operating lease right-of-use assets as long-term assets. The Company does not have any material short-term leases and, and such, has not presented or disclosed any amounts related to short-term leases in its financial statements.
Deferred Financing Costs
Deferred financing costs are capitalized and amortized to interest expense, net over the term of the related debt using the effective interest method for term loans or the straight-line method for revolving credit facilities. The unamortized balance of deferred financing costs is recorded in current portion of long- term debt and long-term debt, net of current (see Note 9, "Debt") for term loans or in other current assets and other assets for revolving credit facilities and debt and equity transactions not yet completed, in the consolidated balance sheets.
Asset Retirement Obligations
Asset retirement obligations are retirement obligations associated with long-lived assets for which a legal obligation exists under enacted laws, statutes, and written or oral contracts, including obligations arising under the doctrine of promissory estoppel, and for which the timing and/or method of settlement may be conditional on a future event. The Company recognizes the fair value of a liability for an ARO in the period in which it is incurred and when a reasonable estimate of fair value can be made.
Upon initial recognition of a liability for an ARO, the asset retirement cost is capitalized by increasing the carrying amount of the related long-lived asset by the same amount. Over time, the liability is accreted to its future value, while the capitalized cost is depreciated over the useful life of the related asset. The Company’s AROs are primarily related to the future dismantlement of equipment on leased property. The Company records AROs as part of other non-current liabilities on its balance sheet. See Note 18, "Asset Retirement Obligations."
Revenue Recognition
The Company derives its operating revenues principally from power purchase agreements, net metering credit agreements, solar renewable energy credits (“SRECs”), and performance based incentives.
Power sales under PPAs
A portion of the Company’s power sales revenues is earned through the sale of energy (based on kilowatt hours) pursuant to terms of PPAs. PPAs that do not qualify as leases under ASC 842, Leases, or derivatives under ASC 815, Derivatives and Hedging, are accounted for under ASC 606, Revenue from Contracts with Customers. A portion of PPAs that qualify as derivatives is not material. The Company’s PPAs typically have fixed or floating rates and are generally invoiced on a monthly basis and as of December 31, 2022 have a weighted-average remaining life of 12 years. The Company typically sells energy and related environmental attributes (e.g., SRECs) separately to different customers and considers the delivery of power energy under PPAs to represent a series of distinct goods that is substantially the same and has the same pattern of transfer measured by the output method. 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. There was no change in the Company’s revenue recognition policy for PPAs as a result of adopting ASC 606. For certain of the
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Company’s rooftop solar energy facilities revenue is recognized net of immaterial pass-through lease charges collected on behalf of building owners.
Power sales under NMCAs
A portion of the Company’s power sales revenues are obtained through the sale of net metering credits under NMCAs which have a weighted-average remaining life of 17 years as of December 31, 2022. 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, 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. The Company’s customers apply net metering credits as a reduction to their utility bills. There was no change in the revenue recognition policy for net metering credits as a result of adopting ASC 606.
Solar renewable energy credit 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. Generally, individual SREC sales reflect a fixed quantity and fixed price structure over a specified term. The contracts related to SREC sales with a fixed price and quantity have maturity dates ranging from 2023 to 2031. 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.
Power sales on wholesale markets
Sales of power on wholesale electricity market are recognized in revenue upon delivery.
Rental income
A portion of the Company’s energy revenue is derived from long-term PPAs accounted for as operating leases under ASC 842. 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 their 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.
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. Costs are charged to expense as incurred.
Stock-based Compensation
Stock-based compensation expense for equity instruments issued to employees is measured based on the grant-date fair value of the awards. The fair value of each time-based restricted stock unit is determined based on the valuation of the Company’s stock on the date of grant. The fair value of each restricted stock unit with market conditions is estimated using the Monte Carlo model utilizing a distribution of potential outcomes based on expected volatility and risk-free interest rate. The Company recognizes
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
compensation costs using the straight-line method for all equity compensation awards over the requisite service period of the awards, which is generally the awards’ vesting period. The Company accounts for forfeitures of awards in the period they occur.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rate on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In evaluating if a valuation allowance is warranted, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations, refer to Note 20, "Income Taxes," for further details.
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company to report information regarding its exposure to various tax positions taken by the Company. The Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. The uncertain tax position to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement, which could result in the Company recording a tax liability that would reduce net assets. The Company reviews and evaluates tax positions and determines whether or not there are uncertain tax positions that require financial statement recognition. Generally, tax authorities can examine all tax returns filed for the last three years.
Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities. As a result, no income tax liability or expense related to uncertain tax positions have been recorded in the accompanying consolidated financial statements.
The Company’s income tax expense, deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid.
Basic and Diluted Net Income Per Share
Basic net income per share attributable to common stockholder is calculated by dividing the net income attributable to the common stockholder by the weighted- average number of shares of common stock outstanding for the period.
The diluted net income per share attributable to common stockholder is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method or the if-converted method, as applicable. During periods in which the Company incurs a net loss attributable to common stockholder, stock options are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share attributable to common stockholder as the effect is antidilutive. See Note 17, "Earnings per Share."
Noncontrolling Interests and Redeemable Noncontrolling Interests in Solar Facility Subsidiaries
Noncontrolling interests and redeemable noncontrolling interests represent third parties’ equity interests in the net assets of certain consolidated Solar Facility Subsidiaries. Third party equity interests are primarily represented by tax equity partnerships which were created to finance the costs of solar energy facilities under long-term operating agreements. The tax equity interests are generally entitled to receive substantially all the accelerated depreciation tax deductions and investment tax credits arising from Solar Facility Subsidiaries pursuant to their contractual shareholder agreements, together with a portion of these ventures’ distributable cash. The tax equity interests’ claim to tax attributes and distributable cash from Solar Facility Subsidiaries decreases to a small residual interest after a predefined ‘flip point’ occurs, typically the expiration of a time period or upon the tax equity investor’s achievement of a target yield. Because the tax equity interests’ participation in tax attributes and distributable cash from each Solar Facility Subsidiary is not consistent over time with their initial capital contributions or percentage interest, the Company has determined that the provisions in the contractual arrangements represent substantive profit-sharing arrangements. In order to reflect the substantive profit-sharing arrangements, the Company has determined that the appropriate methodology for attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a balance sheet approach referred to as the Hypothetical Liquidation at Book Value (“HLBV”) method. Under the HLBV method, the amounts of income and loss attributed to the noncontrolling interests and redeemable noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the third parties would hypothetically receive at each balance sheet date based on the liquidation provisions of the respective operating partnership agreements. HLBV assumes that the proceeds available for distribution are equivalent to the unadjusted, stand-alone net assets of each respective partnership, as
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
determined under U.S. GAAP. The third parties’ noncontrolling interest in the results of operations of these subsidiaries is determined as the difference in the noncontrolling interests’ and redeemable noncontrolling interests’ claims under the HLBV method at the start and end of each reporting period, after considering any capital transactions, such as contributions or distributions, between the subsidiaries and third parties. The application of HLBV generally results in the attribution of pre-tax losses to tax equity interests in connection with their receipt of accelerated tax benefits from the Solar Facility Subsidiaries, as the third-party investors’ receipt of these benefits typically reduces their claim on the partnerships’ net assets.
Attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests under the HLBV method requires the use of significant assumptions and estimates to calculate the amounts that third parties would receive upon a hypothetical liquidation. Changes in these assumptions and estimates can have a significant impact on the amount that third parties would receive upon a hypothetical liquidation. The use of the HLBV methodology to allocate income to the noncontrolling and redeemable noncontrolling interest holders may create volatility in the Company’s consolidated statements of operations as the application of HLBV can drive changes in net income available and loss attributable to noncontrolling interests and redeemable noncontrolling interests from quarter to quarter.
The Company classifies certain noncontrolling interests with redemption features that are not solely within the control of the Company outside of permanent equity on its consolidated balance sheets. Estimated redemption value is calculated as the discounted cash flows attributable to the third parties subsequent to the reporting date. Redeemable noncontrolling interests are reported using the greater of their carrying value at each reporting date as determined by the HLBV method or their estimated redemption value in each reporting period. Estimating the redemption value of the redeemable noncontrolling interests requires the use of significant assumptions and estimates. Changes in these assumptions and estimates can have a significant impact on the calculation of the redemption value. See Note 13, "Redeemable Noncontrolling Interest."
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 February 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 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 adopted ASC 842 as of January 1, 2022, which primarily resulted in the recognition of an operating lease asset of $76.9 million and lease liabilities of $77.2 million on the consolidated balance sheets. See Note 14, "Leases," for additional details.
Recent Accounting Pronouncements Not Yet Adopted
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 adoption of this ASU is not expected to have a material impact on the Company's financial position or results of operations.
3.Reverse Recapitalization
On December 9, 2021, CBAH and Legacy Altus consummated the previously announced merger pursuant to the Business Combination Agreement. In accordance with the terms and subject to the conditions set forth in the Business Combination Agreement, (i) immediately prior to the consummation of the merger with First Merger Sub, each outstanding share of Legacy Altus preferred stock that was outstanding was redeemed in full for cash (refer to Note 12, "Redeemable Preferred Stock"), and (ii) each outstanding share of Legacy Altus common stock, including shares that were subject to vesting conditions (the "Altus Restricted Shares") that was outstanding as of immediately prior to the merger with First Merger Sub was cancelled and automatically converted into the right to receive 87,464 shares of the Company's Class A common stock. Class A common stock issued in respect of Altus Restricted Shares are subject to the same vesting restrictions as in effect immediately prior to the merger with First Merger Sub (refer to Note 19, "Stock-based Compensation").
Upon the closing of the Merger, the Company's certificate of incorporation was amended and restated to, among other things, authorize the issuance of 990,000,000 shares of common stock, $0.0001 par value per share, including 988,591,250 shares of
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Class A common stock and shares of Class B common stock, as well as 10,000,000 shares of preferred stock, $0.0001 par value per share.
Contemporaneously with the execution of the Business Combination Agreement, certain accredited investors, who we refer to as the “PIPE Investors,” including the Sponsor and certain of our directors and officers, entered into subscription agreements, which we refer to as the “PIPE Subscription Agreements,” pursuant to which the PIPE Investors purchased 42,500,000 shares of Class A common stock, which we refer to as the “PIPE Shares,” at a purchase price per share of $10.00 and an aggregate purchase price of $425.0 million, which we refer to as the “PIPE Investment.” Pursuant to its PIPE Subscription Agreement, the Sponsor purchased shares of Class A common stock in an aggregate amount of $220.0 million.
The following table reconciles the elements of the Merger to the consolidated statement of cash flows and the consolidated statement of stockholders’ equity for the year ended December 31, 2022 (amounts in thousands):
| | | | | |
| Recapitalization |
| Cash - CBAH's trust and cash (net of redemptions) | $ | 212,458 | |
| Cash - PIPE | 425,000 | |
| Non-cash net liabilities assumed from CBAH | (186) | |
| CBAH's deferred tax assets as of the Merger | 159 | |
| Less: Fair value of assumed redeemable warrants | 47,601 | |
| Less: Fair value of assumed Alignment Shares | 132,487 | |
| Less: transaction costs and advisory fees | 55,620 | |
| Net the Merger | $ | 401,723 | |
| Less: non-cash net liabilities assumed from CBAH | (186) | |
| Less: CBAH's deferred tax assets as of the Merger | 159 | |
| Add: non-cash fair value of assumed redeemable warrants | 47,601 | |
| Add: non-cash fair value of assumed Alignment Shares | 132,487 | |
| Add: accrued transaction costs and advisor fees | 178 | |
| Net contributions from the Merger and PIPE financing | $ | 582,016 | |
The number of shares of Class A common stock issued immediately following the consummation of the Merger was as follows:
| | | | | |
| Shares |
| Common stock, outstanding prior to the Merger | 40,250,000 | |
| Less: redemption of CBAH's shares | (19,101,146) | |
| Common stock of CBAH | 21,148,854 | |
| Shares issued in PIPE financing | 42,500,000 | |
| The Merger and PIPE Financing shares - Class A common stock | 63,648,854 | |
Legacy Altus shares - Class A common stock (1) | 89,999,976 | |
| Total shares of common stock immediately after the Merger and PIPE financing | 153,648,830 | |
(1) The number of Legacy Altus shares was determined from the 1,029 shares of Legacy Altus common stock outstanding immediately prior to the closing of the Merger converted at the Exchange Ratio of 87,464. All fractional shares were rounded down.
4.Revenue and Accounts Receivable
Disaggregation of Revenue
The following table presents the detail of revenues as recorded in the consolidated statements of operations:
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
| | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2022 | | 2021 |
| Power sales under PPAs | $ | 24,906 | | | $ | 15,731 | |
| Power sales under NMCAs | 27,162 | | | 23,029 | |
| Power sales on wholesale markets | 4,146 | | | 975 | |
| Total revenue from power sales | 56,214 | | | 39,735 | |
| Solar renewable energy credit revenue | 40,502 | | | 28,271 | |
| Rental income | 3,038 | | | 2,114 | |
| Performance based incentives | 1,409 | | | 1,680 | |
| Total | $ | 101,163 | | | $ | 71,800 | |
Accounts receivable
The following table presents the detail of receivables as recorded in accounts receivable in the consolidated balance sheets:
| | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 | | 2020 |
| Power sales under PPAs | $ | 4,092 | | | $ | 1,678 | | | $ | 1,388 | |
| Power sales under NMCAs | 3,183 | | | 3,322 | | | 3,016 | |
| Power sales on wholesale markets | 223 | | | 75 | | | 68 | |
| Total power sales | 7,498 | | | 5,075 | | | 4,472 | |
| Solar renewable energy credits | 5,387 | | | 3,789 | | | 1,108 | |
| Rental income | 429 | | | 350 | | | 37 | |
| Performance based incentives | 129 | | | 4 | | | 135 | |
| Total | $ | 13,443 | | | $ | 9,218 | | | $ | 5,752 | |
Payment is typically received within 30 days for invoiced revenue under PPAs and NMCAs. Receipt of payment relative to invoice date varies by customer for SRECs. As of December 31, 2022, the Company had short-term and long-term contract liabilities of $2.6 million and $5.4 million, respectively, associated with prepaid solar renewable energy credits. As of December 31, 2022, the short-term portion of contract liabilities is recorded within other current liabilities on the consolidated balance sheet. The Company did not have significant contract asset or liability balances related to revenues as of December 31, 2021.
5.Property, Plant and Equipment
As of December 31, 2022 and 2021, property, plant and equipment consisted of the following:
| | | | | | | | | | | | | | | | | |
| Estimated Useful
Lives (in Years) | | As of December 31, |
| | 2022 | | 2021 |
| Land | — | | $ | 6,173 | | | $ | 6,985 | |
| Solar energy facilities | 25 - 32 | | 979,358 | | | 757,714 | |
| Battery energy storage system | 20 | | 3,873 | | | 3,873 | |
| Site work | 15 | | 5,801 | | | 5,801 | |
| Leasehold improvements | 15 - 30 | | 7,113 | | | 5,637 | |
| Vehicles and other equipment | 3 - 5 | | 609 | | | — | |
| Construction in progress | — | | 88,717 | | | 21,195 | |
| Property, plant and equipment | | | 1,091,644 | | | 801,205 | |
| Less: Accumulated depreciation | | | (86,497) | | | (55,494) | |
| Property, plant and equipment, net | | | $ | 1,005,147 | | | $ | 745,711 | |
For the years ended December 31, 2022 and 2021, depreciation expense was $31.0 million and $21.5 million, respectively, and is recorded in depreciation, amortization and accretion expense in the accompanying consolidated statements of operations.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Disposal of Property, Plant and Equipment
On August 15, 2022, the Company, through its wholly-owned subsidiary, sold land to a third party for cash consideration of $3.6 million. As of that date, the carrying amount of the land was $1.4 million. The Company recognized a $2.2 million gain on disposal of property, plant and equipment in the consolidated statement of operations for the year ended December 31, 2022.
On November 19, 2021, the Company sold 100% of its membership interests in JO RI Solar, LLC, a subsidiary of the Company which owns and operates a solar energy facility located in Rhode Island with a nameplate capacity of 4.1 MW, for cash consideration of $19.9 million (the "Johnston Disposal"). As of that date, the carrying amount of the net assets and liabilities of JO RI Solar, LLC, which primarily consisted of the solar energy facility, was $7.1 million. As a result of the transaction, the Company recognized a gain on disposal of property, plant and equipment of $12.8 million in the consolidated statement of operations for the year ended December 31, 2021.
6.Intangible Assets and Intangible Liabilities
As of December 31, 2022 and 2021, intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | |
| Weighted Average Amortization Period
(in Years) | | As of December 31, |
| | 2022 | | 2021 |
| Cost: | | | | | |
| Customer acquisition costs | 16 years | | $ | 6,008 | | | $ | 6,008 | |
| In-place lease contracts | 21 years | | 819 | | | 1,657 | |
| Favorable rate revenue contracts | 9 years | | 43,604 | | | 11,222 | |
| Favorable operation and maintenance contracts | 4 years | | 135 | | | 135 | |
| Software in development | N/A | | 1,237 | | | — | |
| Other | 5 years | | 55 | | | 35 | |
| Total intangible assets | | | 51,858 | | | 19,057 | |
| Accumulated amortization: | | | | | |
| Customer acquisition costs | | | (1,384) | | | (1,015) | |
| In-place lease contracts | | | (201) | | | (209) | |
| Favorable rate revenue contracts | | | (2,602) | | | (1,120) | |
| Favorable operation and maintenance contracts | | | (44) | | | (11) | |
| Total accumulated amortization | | | (4,231) | | | (2,355) | |
| Total intangible assets, net | | | $ | 47,627 | | | $ | 16,702 | |
As of December 31, 2022 and 2021, intangible liabilities consisted of the following:
| | | | | | | | | | | | | | | | | |
| Weighted Average Amortization Period
(in Years) | | As of December 31, |
| | 2022 | | 2021 |
| Cost: | | | | | |
| Unfavorable rate revenue contracts | 5 years | | $ | 19,215 | | | $ | 16,988 | |
| Accumulated amortization: | | | | | |
| Unfavorable rate revenue contracts | | | (6,804) | | | (3,230) | |
| Total intangible liabilities, net | | | $ | 12,411 | | | $ | 13,758 | |
For the years ended December 31, 2022 and 2021, amortization expense was $1.9 million and $0.9 million, respectively, and was recorded in depreciation, amortization and accretion expense in the accompanying consolidated statements of operations.
For the years ended December 31, 2022 and 2021, amortization benefit was $3.6 million and $1.7 million, respectively, and was recorded in depreciation, amortization and accretion expense in the accompanying consolidated statements of operations.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Over the next five years, excluding any amortization expense related to software currently in development, the Company expects to recognize annual amortization on its intangibles as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 |
| Favorable rate revenue contracts | $ | 4,757 | | | $ | 4,642 | | | $ | 4,584 | | | $ | 4,584 | | | $ | 4,584 | |
| In-place lease contracts | 369 | | | 369 | | | 353 | | | 353 | | | 353 | |
| Customer acquisition costs | 40 | | | 40 | | | 40 | | | 40 | | | 40 | |
| Favorable operation and maintenance contracts | 33 | | | 8 | | | 8 | | | 8 | | | 8 | |
| Unfavorable rate revenue contracts | (2,482) | | | (1,187) | | | (1,018) | | | (913) | | | (913) | |
| Total net amortization expense | $ | 2,717 | | | $ | 3,872 | | | $ | 3,967 | | | $ | 4,072 | | | $ | 4,072 | |
7.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 construction payable. 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, $2.9 million of intangible assets, and $0.2 million of operating lease 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 |
| Unfavorable rate revenue contracts | (464) | | | 15 years |
Stellar NJ 2 Acquisition
On August 29, 2022, the Company acquired an 8.3 MW portfolio of five solar energy facilities located in New Jersey (the "Stellar NJ 2 Acquisition") from a third party for a total purchase price of $3.4 million, including $1.2 million to be paid over the next two years and $0.2 million of transaction related costs. Four of the acquired solar energy facilities in the transaction were accounted for as an acquisition of assets, and one solar energy facility was accounted for as an acquisition of a variable interest entity that does not constitute a business, refer to Note 8, "Variable Interest Entities." The Company acquired $17.7 million of property, plant and equipment, $0.1 million of accounts receivable, and $0.4 million of cash, and assumed $11.9 million of long-term debt, $0.6 million of intangible liabilities, $0.2 million of asset retirement obligations, and $2.1 million of noncontrolling interests associated with the acquired variable interest entity. The intangible liabilities assumed are associated with unfavorable rate power purchase agreements and have a weighted average amortization period of 11 years.
Acquisition of DESRI II & DESRI V
On November 11, 2022, APA Finance II, LLC, a wholly-owned subsidiary of the Company, acquired a 88 MW portfolio of nineteen solar energy facilities operating across eight US states. The portfolio was acquired from D.E. Shaw Renewables Investments L.L.C. ("DESRI") for total consideration of $100.8 million ("DESRI Acquisition"). The DESRI Acquisition was made pursuant to membership interest purchase agreements (the "MIPAs") dated September 26, 2022, and entered into by the Company to grow its portfolio of solar energy facilities. Pursuant to the MIPAs, the Company acquired 100% ownership interest in holding entities that own the acquired solar energy facilities. The Company accounted for the DESRI Acquisition under the
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
acquisition method of accounting for business combinations. Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed on November 11, 2022, based on their estimated fair value. All fair value measurements of assets acquired and liabilities assumed, including the noncontrolling interests, were based on significant estimates and assumptions, including Level 3 (unobservable) inputs, which require judgment. Estimates and assumptions include the estimates of future power generation, commodity prices, operating costs, and appropriate discount rates.
The assets acquired and liabilities assumed are recognized provisionally on the consolidated balance sheet at their estimated fair values as of the acquisition date. The initial accounting for the business combination is not complete as the Company is in process of obtaining additional information for the valuation of acquired tangible and intangible assets. The provisional amounts are subject to change to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Under U.S. GAAP, the measurement period shall not exceed one year from the acquisition date and the Company will finalize these amounts no later than November 11, 2023.
The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values on November 11, 2022 (in thousands):
| | | | | |
| Assets | |
Accounts receivable | $ | 2,001 |
| Derivative assets | 2,462 |
Other assets | 432 |
Property, plant and equipment | 179,500 |
| Operating lease asset | 17,831 |
Intangible assets | 29,479 |
Total assets acquired | 231,705 |
| |
| Liabilities | |
Accounts payable | 275 |
Accrued liabilities | 746 |
Long-term debt | 105,346 |
Intangible liabilities | 771 |
| Operating lease liability | 20,961 |
Contract liability(1) | 7,200 |
Asset retirement obligation | 1,508 |
Total liabilities assumed | 136,807 |
Non-controlling interests | 184 |
Total fair value of consideration transferred, net of cash acquired | $ | 94,714 |
The fair value of consideration transferred, net of cash acquired, as of November 11, 2022, is determined as follows:
| | | | | |
Cash consideration to the seller on closing | $ | 82,235 | |
Fair value of purchase price payable(2) | 19,017 | |
| Working capital adjustment | (469) | |
Total fair value of consideration transferred | 100,783 | |
Cash acquired | 1,220 | |
Restricted cash acquired | 4,849 | |
Total fair value of consideration transferred, net of cash acquired | $ | 94,714 | |
(1) Acquired contract liabilities related to long-term agreements to sell renewable energy credits that were fully prepaid by the customer prior to the acquisition date. The Company will recognize revenue associated with the contract liabilities as renewable energy credits are delivered to the customer through December 31, 2028.
(2) Purchase price outstanding as of December 31, 2022 is payable in three installments in two, twelve and eighteen months following the acquisition date, subject to the accuracy of general representations and warranty provisions included in MIPAs.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
The Company incurred approximately $2.7 million in acquisition related costs related to the DESRI Acquisition, which are recorded as part of Acquisition and entity formation costs in the consolidated statement of operations for the year ended December 31, 2022.
The impact of the DESRI Acquisition on the Company's revenue and net income in the consolidated statement of operations was an increase of $2.5 million and a decrease of $0.2 million for the year ended December 31, 2022, respectively.
Intangibles at Acquisition Date
The Company attributed the intangible asset and liability values to favorable and unfavorable rate revenue contracts to sell power. 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 – PPA | $ | 29,479 | | | 8 years |
| Unfavorable rate revenue contracts – PPA | (771) | | | 12 years |
Unaudited Pro Forma Combined Results of Operations
The following unaudited pro forma combined results of operations give effect to the DESRI Acquisition as if it had occurred on January 1, 2021. The unaudited pro forma combined results of operations are provided for informational purposes only and do not purport to represent the Company’s actual consolidated results of operations had the DESRI Acquisition occurred on the date assumed, nor are these financial statements necessarily indicative of the Company’s future consolidated results of operations. The unaudited pro forma combined results of operations do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.
| | | | | | | | | | | |
| For the year ended December 31, 2022
(unaudited) | | For the year ended December 31, 2021
(unaudited) |
| Operating revenues | $ | 125,160 | | | $ | 100,171 | |
| Net income | 72,187 | | | 26,473 | |
2021 Acquisitions
Acquisition of Gridley
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.
Acquisition of Stellar CNI
On July 29, 2021, the Company acquired a portfolio of three solar energy facilities located in Connecticut, Iowa and New York (the “Stellar CNI Acquisition”) with a combined nameplate capacity of 4.4 MW from a third party for a total purchase price of $5.8 million, including $0.2 million of transaction related costs. As of December 31, 2021, $0.4 million of total consideration remained payable to the seller and was included in purchase price payables on the consolidated balance sheet. This transaction was accounted for as an acquisition of assets, whereby the Company acquired $5.9 million of property, plant and equipment and assumed $0.1 million of asset retirement obligations.
Acquisition of TrueGreen
On August 25, 2021, APA Finance, LLC, a wholly-owned subsidiary of the Company, acquired a 79 MW portfolio of twenty eight solar energy facilities operating across seven U.S. states. The portfolio was acquired from private equity funds managed by True Green Capital Management, LLC for total consideration of $197.4 million (“TrueGreen Acquisition”). The TrueGreen Acquisition was made pursuant to a purchase and sale agreement (the “PSA”) dated August 25, 2021, entered into by the Company to grow its portfolio of solar energy facilities. Pursuant to the PSA, the Company acquired 100% ownership interest in a holding entity that owns solar energy facilities. The Company accounted for the TrueGreen Acquisition under the acquisition method of accounting for business combinations. Under the acquisition method, the assets acquired and liabilities assumed on August 25, 2021, were recognized generally based on their estimated fair values. All fair value measurements of assets acquired and liabilities assumed, including the non-controlling interests, were based on significant estimates and assumptions, including
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Level 3 (unobservable) inputs, which require judgment. Estimates and assumptions include the estimates of future power generation, commodity prices, operating costs, and appropriate discount rates.
The accounting for the TrueGreen Acquisition was finalized as of December 31, 2021. Subsequent to the acquisition date, the Company made certain measurement period adjustments to provisional amounts recognized, which resulted in a decrease to the goodwill of $1.4 million. The decrease was primarily due to an increase in Property, plant and equipment and Intangible assets by $0.3 million and $0.5 million, respectively, due to the clarification of information utilized to determine fair value during the measurement period. Additionally, the Company recorded a measurement period adjustment of $0.5 million to reduce the fair value of consideration transferred as a result of reconciling working capital adjustment and escrow accounts with the seller. The final amounts recognized for the assets, liabilities and non-controlling interests pertaining to this business combination was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Provisional accounting as of August 25, 2021 | | Measurement period adjustments | | Final amounts as of August 25, 2021 |
| Assets | | | | | |
Accounts receivable | $ | 3,420 | | $ | 32 | | $ | 3,452 |
Other assets | 510 | | — | | 510 |
Property, plant and equipment | 201,150 | | 310 | | 201,460 |
Intangible assets | 5,225 | | 510 | | 5,735 |
Total assets acquired | 210,305 | | 852 | | 211,157 |
| | | | | |
| Liabilities | | | | | |
Accounts payable | 23 | | (23) | | — |
Long-term debt | 1,795 | | — | | 1,795 |
Intangible liabilities | 10,115 | | (10) | | 10,105 |
Asset retirement obligation | 1,998 | | — | | 1,998 |
Other liabilities | 935 | | 55 | | 990 |
Total liabilities assumed | 14,866 | | 22 | | 14,888 |
Non-controlling interests(1) | 4,315 | | — | | 4,315 |
Goodwill | 1,965 | | (1,365) | | 600 |
Total fair value of consideration transferred, net of cash acquired | $ | 193,089 | | $ | (535) | | $ | 192,554 |
The fair value of consideration transferred, net of cash acquired, as of August 25, 2021, is determined as follows:
| | | | | | | | | | | | | | | | | |
Cash consideration to the seller on closing | $ | 136,689 | | | $ | — | | | $ | 136,689 | |
Cash consideration paid to settle debt and interest rate swaps on behalf of the seller | 51,523 | | | — | | | 51,523 | |
Cash in escrow accounts | 2,738 | | | (112) | | | 2,626 | |
Purchase price payable(2) | 6,486 | | | (423) | | | 6,063 | |
Total fair value of consideration transferred | 197,436 | | (535) | | | 196,901 | |
Cash acquired | 229 | | | — | | | 229 | |
Restricted cash acquired | 4,118 | | | — | | | 4,118 | |
Total fair value of consideration transferred, net of cash acquired | $ | 193,089 | | | $ | (535) | | | $ | 192,554 | |
(1) The fair value of the non-controlling interests was determined using an income approach representing the best indicator of fair value and was supported by a discounted cash flow technique.
(2) The Company paid the total purchase price payable after the acquisition date but prior to December 31, 2021.
The Company incurred approximately $0.9 million in acquisition costs related to the TrueGreen Acquisition, which are recorded as part of Acquisition and entity formation costs in the consolidated statements of operations for the year ended December 31, 2021.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
The impact of the TrueGreen Acquisition on the Company’s revenue and net income in the consolidated statements of operations was an increase of $8.4 million and increase of $5.1 million for the year ended December 31, 2021, respectively.
Intangibles at Acquisition Date
The Company attributed the intangible asset and liability values to favorable and unfavorable rate revenue contracts to sell power and SRECs generated by acquired solar generating facilities as well as to O&M contracts and leases. 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 – PPA | $ | 4,500 | | | 20 years |
| Favorable rate revenue contracts – SREC | 450 | | | 7 years |
| Favorable O&M contracts | 135 | | | 4 years |
| In-place lease contract | 650 | | | 13 years |
| Unfavorable rate revenue contracts – PPA | (6,635) | | | 12 years |
| Unfavorable rate revenue contracts – SREC | (3,470) | | | 2 years |
Upon the adoption of ASC 842 on January 1, 2022, as discussed in Note 2, "Significant Accounting Policies," the intangible asset associated with the in-place lease contract was derecognized and included in the calculation of operating lease asset.
Unaudited Pro Forma Combined Results of Operations
The following unaudited pro forma combined results of operations give effect to the TrueGreen Acquisition as if it had occurred on January 1, 2020. The unaudited pro forma combined results of operations are provided for informational purposes only and do not purport to represent the Company’s actual consolidated results of operations had the TrueGreen Acquisition occurred on the date assumed, nor are these financial statements necessarily indicative of the Company’s future consolidated results of operations. The unaudited pro forma combined results of operations do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.
| | | | | | | | | | | |
| For the year ended December 31, 2021
(unaudited) | | For the year ended December 31, 2020
(unaudited) |
| Operating revenues | $ | 88,431 | | | $ | 68,702 | |
| Net income | 20,020 | | | 3,174 | |
Acquisition of Beaver Run
On October 22, 2021, APA Finance, LLC, a wholly-owned subsidiary of the Company, acquired a solar energy facility located in New Jersey (the “Beaver Run Acquisition”) with a nameplate capacity of 9.9 MW from a third party for a total purchase price of $13.5 million. This transaction was accounted for as an acquisition of assets, whereby the Company acquired $13.5 million of property, plant and equipment, $0.4 million of other assets, and assumed $0.4 million of asset retirement obligations.
Acquisition of Stellar HI
On October 28, 2021, the Company acquired a 3.1 MW portfolio of seventeen solar projects and a 2.1 MW battery energy storage system located in Hawaii (the "Stellar HI Acquisition") from a third party for a total purchase price of $6.4 million. The Company accounted for the Stellar HI Acquisition under the acquisition method of accounting for business combinations. Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, which equaled the consideration paid. Of the total purchase price, $10.6 million was allocated to property, plant and equipment, $0.2 million to cash, $0.3 million to restricted cash, $0.2 million to accounts receivable, $4.1 million to financing lease obligations, $0.7 million to intangible liabilities, and $0.1 million to asset retirement obligations. The purchase accounting for the Stellar HI Acquisition was finalized as of December 31, 2021.
The Company incurred approximately $0.1 million in acquisition costs related to the Stellar HI Acquisition, which are recorded as part of Acquisition and entity formation costs in the consolidated statements of operations for the year ended December 31, 2021.
The Company attributed the intangible liability values to unfavorable rate revenue contracts to sell power generated by acquired solar generating facilities. As of the acquisition date, estimated fair values and the weighted average amortization period of the assumed intangible liabilities were $0.7 million and 11 years, respectively.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
The impact of the Stellar HI Acquisition on the Company’s revenue and net income in the consolidated statements of operations was an increase of $0.2 million and zero for the year ended December 31, 2021, respectively.
Unaudited Pro Forma Combined Results of Operations
The following unaudited pro forma combined results of operations give effect to the Stellar HI Acquisition as if it had occurred on January 1, 2020. The unaudited pro forma combined results of operations are provided for informational purposes only and do not purport to represent the Company’s actual consolidated results of operations had the Stellar HI Acquisition occurred on the date assumed, nor are these financial statements necessarily indicative of the Company’s future consolidated results of operations. The unaudited pro forma combined results of operations do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.
| | | | | | | | | | | |
| For the year ended December 31, 2021
(unaudited) | | For the year ended December 31, 2020
(unaudited) |
| Operating revenues | $ | 73,088 | | | $ | 46,268 | |
| Net income (loss) | 13,199 | | | (1,704) | |
Acquisition of Landmark
On December 31, 2021, the Company acquired a solar energy facility located in Illinois (the "Landmark Acquisition") with a nameplate capacity of 2.6 MW from a third party for a total purchase price of $3.6 million. The transaction was accounted for as an acquisition of a variable interest entity that did not meet the definition of a business, therefore the assets acquired and liabilities assumed were recorded at their fair values, which equaled the consideration paid. Of the total purchase price, $3.6 million was allocated to property, plant and equipment, $0.2 million to other assets, $0.1 million to asset retirement obligations, and $0.3 million to redeemable non-controlling interest.
8.Variable Interest Entities
The Company consolidates all 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 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 and, therefore, has consolidated the VIEs as of December 31, 2022 and 2021. No VIEs were deconsolidated during the years ended December 31, 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 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 years ended December 31, 2022 and 2021 as determined in the respective operating agreement.
The carrying amounts and classification of the consolidated VIE assets and liabilities included in consolidated balance sheets are as follows:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| Current assets | $ | 16,434 | | | $ | 13,131 | |
| Non-current assets | 445,583 | | | 372,761 | |
| Total assets | $ | 462,017 | | | $ | 385,892 | |
| Current liabilities | $ | 5,731 | | | $ | 3,652 | |
| Non-current liabilities | 73,438 | | | 40,978 | |
| Total liabilities | $ | 79,169 | | | $ | 44,630 | |
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
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 years ended December 31, 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 the years ended December 31, 2022 and December 31, 2021, the Company consolidated twenty-six and twenty-five VIEs, respectively. No VIEs were deemed significant as of December 31, 2022 and December 31, 2021.
As discussed in Note 7, "Acquisitions" on August 29, 2022, the Company completed the Stellar NJ 2 Acquisition, including the acquisition of a controlling financial interest in a VIE which owns and operates a single 1.1 MW solar generating facility. The Company acquired a controlling financial interest by entering into an asset management agreement which provides the Company with the power to direct the operating activities of the VIE and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. The asset management agreement also includes a call and put option to acquire the equity interest in June 2023 and January 2024, respectively. As a result of this acquisition, the Company recognized property, plant and equipment of $2.6 million, intangible liability $0.2 million, and noncontrolling interest of $2.1 million in the consolidated balance sheet.
9.Debt
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, | | Interest Type | | Weighted average interest rate |
| 2022 | | 2021 | | |
| Long-term debt | | | | | | | |
| Amended Rated Term Loan | $ | 487,179 | | | $ | 499,750 | | | Fixed | | 3.51 | % |
| APAF II Term Loan | 125,668 | | | — | | | Floating | | SOFR + 1.475% |
| Construction loans | — | | | 5,593 | | | Floating | | — | % |
| Other term loans | 28,483 | | | 12,818 | | | Fixed and floating | | 4.87 | % |
| Financing obligations recognized in failed sale leaseback transactions | 36,724 | | | 37,601 | | | Imputed | | 3.65 | % |
| Total principal due for long-term debt | 678,054 | | | 555,762 | | | | | |
| Unamortized discounts and premiums | (2,088) | | | (176) | | | | | |
| Unamortized deferred financing costs | (11,404) | | | (9,606) | | | | | |
| Less: current portion of long-term debt | 29,959 | | | 21,143 | | | | | |
| Long-term debt, less current portion | $ | 634,603 | | | $ | 524,837 | | | | | |
Amended Rated Term Loan
As part of the Blackstone Credit Facility, APA Finance, LLC (“APAF”), a wholly owned subsidiary of the Company, entered into a $251 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 (the “Amended Rated Term Loan”). The Amended Rated Term Loan added $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 a rate of 2.5% of initial 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. The Amended Rated Term Loan is secured by the membership interests in the Company's subsidiaries.
As of December 31, 2022, the outstanding principal balance of the Amended Rated Term Loan was $487.2 million, less unamortized debt discount and loan issuance costs totaling $7.6 million. As of December 31, 2021, the outstanding principal balance of the Rated Term Loan was $499.8 million, less unamortized debt discount and loan issuance costs totaling $8.4 million.
As of December 31, 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
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
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.
DESRI Loans and APAF II Term Loan
In conjunction with the DESRI Acquisition, the Company assumed five project-level term loans with a total outstanding principal of $106.3 million and a fair value discount of $1.0 million (the "DESRI Loans"). From November 11, 2022 (the date of the DESRI Acquisition) to December 23, 2022 (the date the loans were repaid, as discussed below), the Company incurred interest costs of $0.9 million associated with the DESRI Loans.
On December 23, 2022, APA Finance II, LLC (“APAF II”), a wholly owned subsidiary of the Company, entered into a $125.7 million term loan facility (the “APAF II Term Loan”) with KeyBank National Association ("KeyBank") and The Huntington Bank as lenders. The proceeds of the APAF II Term Loan were used to repay the outstanding amounts under the DESRI Loans. The APAF II Term Loan matures on December 23, 2027, and has a variable interest rate based on SOFR plus a spread of 1.475%. Simultaneously with entering into the Term Loan, the Company entered into interest rate swaps for 100% of the amount of debt outstanding, which effectively fixed the interest rate at 4.885% (see Note 10, "Fair Value Measurements," for further details). The Company incurred $1.2 million of issuance costs related to the APAF II Term Loan, which have been deferred and recorded as a reduction to the outstanding principal balance and are amortized as interest expense on a straight-line basis until the loan's maturity date.
The repayment of the DESRI Loans was accounted for as a debt extinguishment. As a result, the Company recognized a loss on extinguishment of debt of $2.3 million in the consolidated statements of operations for the year ended December 31, 2022.
As of December 31, 2022, the outstanding principal balance of the APAF II Term Loan was $125.7 million, less unamortized debt issuance costs of $2.7 million. As of December 31, 2022, the Company was in compliance with all covenants.
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, 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 .50% per year of the daily unused amount of the commitment. As of December 31, 2022, the outstanding principal balances of the construction loan and term loan were zero and $15.9 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 December 31, 2022 and 2021, the Company had an unused borrowing capacity of $171.6 million and $169.7 million, respectively. For the years ended December 31, 2022 and 2021, the Company incurred interest costs associated with outstanding construction loans totaling zero and $0.3 million, respectively, which were capitalized as part of property, plant and equipment. Outstanding amounts under the Construction to Term Loan Facility are secured by a first priority security interest in all of the property owned by APACF and each of its project companies, including all of the solar energy facility assets under construction a first priority security interest in all of the property owned by APACF and each of its project companies, including all of the solar energy facility assets under construction. The Construction Loan to Term Loan includes various financial and other covenants for APACF and the Company, as guarantor. As of December 31, 2022 and 2021, the Company was in compliance with all covenants.
Project-Level Term Loan
In conjunction with the Stellar NJ 2 Acquisition, the Company assumed a project-level term loan with an outstanding principal balance of $14.1 million and a fair value discount of $2.2 million. The term loan is subject to scheduled semi-annual amortization and interest payments, and matures on September 1, 2029.
As of December 31, 2022, the outstanding principal balance of the term loan is $12.6 million, less unamortized debt discount of $2.1 million. During the year ended December 31, 2022, the Company incurred interest costs associated with the term loan of $0.2 million.
The term loan is secured by an interest in the underlying solar project assets and the revenues generated by those assets. As of December 31, 2022, the Company was in compliance with all covenants.
APAG Revolver
On December 19, 2022, APA Generation, LLC (“APAG”), a wholly owned subsidiary of the Company, entered into revolving credit facility with Citibank, N.A. with a total committed capacity of $200 million (the "APAG Revolver"). Outstanding amounts
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
under the APAG Revolver have a variable interest rate based on a base rate and an applicable margin. The APAG Revolver matures on December 19, 2027. As of December 31, 2022, there were no amounts outstanding under the APAG Revolver.
Letter of Credit Facilities and Surety Bond 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. The table below shows the total letters of credit outstanding and unused capacities under our letter of credit facilities as of December 31, 2022 and 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 | | As of December 31, 2021 |
| Letters of Credit Outstanding | | Unused Capacity | | Letters of Credit Outstanding | | Unused Capacity |
| Deutsche Bank | $ | 0.7 | | | $ | 11.8 | | | $ | 0.6 | | | $ | 11.9 | |
| Fifth Third Bank | 12.1 | | | — | | | 10.0 | | | — | |
| CIT Bank, N.A. | 0.6 | | | — | | | — | | | — | |
| KeyBank and The Huntington Bank | — | | | 15.6 | | | — | | | — | |
| Citibank, N.A. | — | | | 75.0 | | | — | | | — | |
| Total | 13.4 | | | 102.4 | | | 10.6 | | | 11.9 | |
Additionally, as of December 31, 2022, the Company had outstanding surety bonds of $2.0 million.
To the extent liabilities are incurred as a result of the activities covered by the letters of credit or surety bonds, such liabilities are included on the accompanying 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 Obligations Recognized in Failed Sale Leaseback Transactions
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. The Company has assessed these arrangements and determined that the transfer of assets should not be accounted for as a sale in accordance with ASC 842. Therefore, the Company accounts for these transactions using the financing method by recognizing the consideration received as a financing obligation, with the assets subject to the transaction remaining on the balance sheet of the Company and depreciated based on the Company's normal depreciation policy. The aggregate proceeds have been recorded as long-term debt within the consolidated balance sheets.
As of December 31, 2022 and 2021, the Company's recorded financing obligations were $35.6 million, net of $1.1 million of deferred transaction costs, and $36.5 million, net of $1.1 million of deferred transactions costs, respectively. Payments of $2.2 million and $0.5 million were made under the financing obligation for the years ended December 31, 2022 and 2021, respectively. Interest expense, inclusive of the amortization of deferred transaction costs for the years ended December 31, 2022 and 2021, was $1.5 million and $0.4 million, respectively.
The table below shows the payments required under the failed sale-leaseback financing obligations for the years ended:
| | | | | |
| 2023 | $ | 2,336 | |
| 2024 | 2,340 | |
| 2025 | 2,353 | |
| 2026 | 2,336 | |
| 2027 | 2,322 | |
| Thereafter | 12,671 | |
Total | $ | 24,358 | |
The difference between the outstanding financing obligation of $36.7 million and $24.4 million of contractual payments due, including the residual value guarantee, is due to $13.2 million of investment tax credits claimed by the Counterparty, less $2.6 million of the implied interest on financing obligation included in the contractual payments. The remaining difference is due to $1.6 million of interest accrued and a $0.1 million difference between the required contractual payments and the fair value of financing obligations acquired.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Principal Maturities of Long-Term Debt
As of December 31, 2022, the principal maturities of the Company’s long-term debt, excluding financing obligations from failed sale-leaseback transactions, were as follows:
| | | | | |
| 2023 | $ | 27,623 | |
| 2024 | 25,115 | |
| 2025 | 25,246 | |
| 2026 | 25,850 | |
| 2027 | 96,597 | |
| Thereafter | 440,899 | |
| Total principal payments | $ | 641,330 | |
10.Fair Value Measurements
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. The Company’s money market funds are classified as Level 1 because they are valued using quoted market prices.
The following table provides the financial instruments measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market fund | $ | 101,842 | | | $ | — | | | $ | — | | | $ | 101,842 | |
| Derivative assets: | | | | | | | |
| Interest rate swaps | — | | | 3,953 | | | — | | | 3,953 | |
| Total assets at fair value | 101,842 | | | 3,953 | | | — | | | 105,795 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Alignment Shares liability | — | | | — | | | 66,145 | | | 66,145 | |
| Other long-term liabilities: | | | | | | | |
| Contingent consideration liability | — | | | — | | | 2,875 | | | 2,875 | |
| Total liabilities at fair value | — | | | — | | | 69,020 | | | 69,020 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | | | | | | | |
| Redeemable warrant liability | $ | 25,861 | | | $ | 24,072 | | | $ | — | | | 49,933 | |
| Alignment Shares liability | — | | | — | | | 127,474 | | | 127,474 | |
| Other long-term liabilities: | | | | | | | |
| Contingent consideration liability | — | | | — | | | 2,300 | | | 2,300 | |
| Total liabilities at fair value | 25,861 | | | 24,072 | | | 129,774 | | | 179,707 | |
Long-term debt
The estimated fair value of the long-term debt, including current portion, as of December 31, 2022 and 2021 was $588.8 million and $562.1 million, respectively, using a discounted cash flow analysis of both outstanding principal and future interest payments until such time the Company has the ability to repay the loan. The long-term debt is considered a Level 2 financial liability under the fair value hierarchy.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
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 were 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 were 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, were 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 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. As the inputs were observable and reflected 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 had the same redemption and make-whole provisions as the Redeemable Warrants. Therefore, the fair value of the Private Placement Warrants was 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.
On May 31, 2022, June 15, 2022, and August 17, 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 1,111,243 shares of Class A common stock to the holders of Redeemable Warrants in exchange for the surrender and cancellation of an aggregate of 4,630,163 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 exchanged shares of common stock, resulting in a gain on fair value remeasurement of $4.1 million within operating income in the consolidated statements of operations for the year ended December 31, 2022, and a redeemable warrant liability of $7.8 million, which was then reclassified to additional paid-in capital in the consolidated balance sheet as of December 31, 2022.
On September 15, 2022, the Company issued a notice for redemption of all 14,798,981 of the Company's outstanding Redeemable Warrants at 5:00 p.m. New York City time on October 17, 2022 (the “Redemption Date”) for a redemption price of $0.10 per Warrant (the “Redemption Price”). Holders could elect to exercise their Warrants on a “cashless basis” and surrender the Redeemable Warrants for that number of shares of Class A Common Stock that is determined by reference to the table set forth in Section 6.2 of the Warrant Agreement based on the Redemption Date and the Redemption Fair Market Value of $10.98. Given the Redemption Fair Market Value and the Redemption Date, the number of shares of Class A Common Stock to be issued for each Redeemable Warrant that is exercised through a cashless exercise is 0.2763.
As of the Redemption Date, holders of 8,462 Redeemable Warrants exercised their Redeemable Warrants with the payment of cash and the Company received $93,082 of cash proceeds. Holders of 14,690,310 Redeemable Warrants exercised their Redeemable Warrants on a cashless basis in exchange for 4,058,845 shares of Class A Common Stock per Redeemable Warrants. A total of 100,209 Warrants remained unexercised as of the Redemption Date, and the Company redeemed those Warrants for an aggregate redemption price of $10,021. Immediately prior to the exercise and redemption, the Redeemable Warrants were remeasured to fair value based on the trading price of the exchanged shares of common stock, resulting in a loss on fair value remeasurement of $9.7 million in the consolidated statements of operations for the year ended December 31, 2022, and a redeemable warrant liability of $47.7 million, which was then reclassified to additional paid-in capital in the consolidated balance sheet as of December 31, 2022.
The Redeemable Warrants have been delisted from the NYSE, and there are no Redeemable Warrants left outstanding subsequent to the Redemption Date.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
| | | | | | | | | | | |
| For the year ended
December 31, 2022 |
| Units | | $ |
| Redeemable warrants, beginning balance | 19,429,167 | | | $ | 49,933 | |
| Warrants exercised | (14,698,782) | | | (47,742) | |
| Exchange of warrants into common stock | (4,630,163) | | | (7,828) | |
| Forfeiture of fractional warrants | (13) | | | — | |
| Warrants redeemed | (100,209) | | | (10) | |
| Fair value remeasurement | — | | | 5,647 | |
| Redeemable warrants, ending balance | — | | | $ | — | |
Alignment Shares Liability
As of December 31, 2022, 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 70% and risk-free interest rate of 3.99% 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.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended
December 31, 2022 | | For the year ended December 31, 2021 |
| Shares | | $ | | Shares | | $ |
| Beginning balance | 1,408,750 | | | $ | 127,474 | | | — | | | $ | — | |
| Alignment Shares assumed upon the Merger | — | | | $ | — | | | 1,408,750 | | | $ | 132,487 | |
| Alignment Shares converted | (201,250) | | | (15) | | | — | | | — | |
| Fair value remeasurement | — | | | (61,314) | | | — | | | (5,013) | |
| Ending balance | 1,207,500 | | | $ | 66,145 | | | 1,408,750 | | | $ | 127,474 | |
Interest Rate Swaps
The Company’s derivative instruments consist of interest rate swaps that are not designated as cash flow hedges or fair value hedges under accounting guidance. The Company uses interest rate swaps to manage its net exposure to interest rate changes. These instruments are custom, over-the-counter contracts with various bank counterparties that are not traded on an active market but valued using readily observable market inputs and the overall fair value measurement is classified as Level 2. As of December 31, 2022 and 2021, the notional amounts were $141.6 million and $12.3 million respectively. The change in fair value of interest rate swaps resulted in a gain of $3.0 million, which was recorded as interest expense in the consolidated statements of operations for the year ended December 31, 2022. The change in fair value of interest rate swaps for the year ended December 31, 2021 was not material.
Contingent Consideration
Solar Acquisition
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
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 $3.1 million may be payable upon achieving certain market power rates and $7.4 million upon achieving certain 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 associated with production volumes expired on June 30, 2022 and the Company remeasured its fair value to zero with $1.1 million gain on fair value remeasurement recognized in the consolidated statement of operations for the year ended December 31, 2022. Liability for the contingent consideration associated with power rates is included in other long-term liabilities in the consolidated balance sheets at the estimated fair value of $2.9 million and $1.2 million as of December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, the Company recorded a loss on fair value remeasurement of contingent consideration associated with power rates of $1.7 million within operating income in the consolidated statements of operations. For the year ended December 31, 2021, the Company recorded $0.3 million and $2.5 million gain on fair value remeasurement of contingent consideration associated with power rates and production volumes, respectively, in the consolidated statements of operations. Gain and loss 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 consolidated statements of operations for the year ended December 31, 2022. No gain or loss on fair value remeasurement of contingent consideration was recorded for the year ended December 31, 2021.
11.Equity
As of December 31, 2022, the Company had authorized and issued 988,591,250 and 158,904,401 of Class A common stock, respectively. As of December 31, 2021, authorized and outstanding common stock of 988,591,250 and 153,648,830 shares, respectively. Class A common stock entitles the holder to one vote on all matters submitted 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 December 31, 2022 and 2021, no common stock dividends have been declared.
As of December 31, 2022, and 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 10, "Fair Value Measurements," for further details.
12.Redeemable Preferred Stock
GSO Preferred Stock
As discussed in Note 3, "Reverse Recapitalization," immediately prior to the consummation of the Merger, the Company redeemed outstanding Series A preferred stock issued by Legacy Altus in full for cash. As Series A preferred stock does not represent the capital of the legal parent (the accounting acquiree) the Company retroactively restated redeemable preferred stock with the corresponding adjustment to additional paid-in capital on the consolidated balance sheets.
During the year ended December 31, 2021, the Company recorded total Series A preferred stock dividends and commitment fees of $17.8 million and $0.3 million, respectively. During the year ended December 31, 2021, the Company paid $21.8 million of dividends, of which $4.0 million related to the dividends accrued as of December 31, 2020, and $0.4 million of commitment fees, of which $0.1 million were accrued as of December 31, 2020. respectively. As of December 31, 2021, all Series A preferred stock, including accrued dividends and commitment fees, were redeemed.
Preferred stock of Altus Power Inc.
The Company had also authorized for issuance 10,000,000 of preferred stock but as of December 31, 2022, no stock was issued.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
13.Redeemable Noncontrolling Interests
The changes in the components of redeemable noncontrolling interests are presented in the table below:
| | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 |
| Redeemable noncontrolling interest, beginning balance | $ | 15,527 | | | $ | 18,311 | |
| Cash contributions | 1,087 | | | — | |
| Cash distributions | (1,022) | | | (1,087) | |
| Assumed noncontrolling interest through business combination | 2,126 | | | 254 | |
| Redemption of redeemable noncontrolling interests | (228) | | | (1,630) | |
| Net income (loss) attributable to noncontrolling interest | 643 | | | (321) | |
| Redeemable noncontrolling interest, ending balance | $ | 18,133 | | | $ | 15,527 | |
14.Leases
The Company has lease agreements for land and building rooftops on which our solar energy facilities operate, as well as a lease agreement for a corporate office. The leases expire on various terms through 2058.
The Company adopted ASC 842 on January 1, 2022, using the optional transition method. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption. For the comparative period prior to adoption, the Company presents the disclosures which were previously required under ASC 840. The adoption of ASC 842 resulted in the recognition of operating lease assets of $76.9 million and operating lease liabilities of $77.2 million as of January 1, 2022.
The Company elected the package of practical expedients for leases existing prior to the adoption date. The Company did not reassess whether existing contracts are or contain leases, leases retained their historical lease classification and initial direct costs were not reassessed for capitalization under the new standard. Operating lease assets and liabilities were recognized based on the present value of minimum rental payments under ASC 840 over the remaining lease term as of the adoption date.
At the inception of a contractual arrangement, the Company determines whether it contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding right-of-use asset upon lease commencement. The Company's leases include various renewal options which are included in the lease term when the Company has determined it is reasonably certain of exercising the options based on consideration of all relevant factors that create an economic incentive for the Company as lessee. Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term using an appropriate discount rate. Right-of-use assets include any lease payments made at or before lease commencement and any initial direct costs incurred and exclude any lease incentives received. Right-of-use assets also include an adjustment to reflect favorable or unfavorable terms of the lease when compared to market terms, when applicable. Certain leases include variable lease payments associated with production of the solar facility or other variable payments such as real estate taxes and common area maintenance. As the Company has elected not to separate lease and non-lease components for all classes of underlying assets, all variable costs associated with leases are expensed in the period incurred and presented and disclosed as variable lease expense.
The Company’s lease agreements do not contain any residual value guarantees or restrictive financial covenants. The Company does not have any leases that have not yet commenced that create significant rights and obligations for the lessee.
The discount rate used is the rate that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. At the lease commencement date, the Company’s incremental borrowing rate is used as the discount rate. Discount rates are reassessed when there is a new lease or a modification to an existing lease.
The Company records operating lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease payments. The Company records its operating lease right-of-use assets as long-term assets.
The following table presents the components of operating lease cost for the year ended December 31, 2022:
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
| | | | | |
| For the year ended December 31, 2022 |
| Operating lease expense | $ | 6,798 | |
| Variable lease expense | $ | 1,185 | |
| Total lease expense | $ | 7,983 | |
The following table presents supplemental information related to our operating leases:
| | | | | |
| For the year ended December 31, 2022 |
| Operating cash flows from operating leases | $ | 6,501 | |
| Operating lease assets obtained in exchange for new operating lease liabilities | $ | 21,123 | |
| Weighted-average remaining lease term, years | 19.7 years |
| Weighted average discount rate | 4.78% |
Maturities of operating lease liabilities as of December 31, 2022, are as follows:
| | | | | |
| 2023 | $ | 8,042 | |
| 2024 | 8,134 | |
| 2025 | 8,115 | |
| 2026 | 8,187 | |
| 2027 | 8,322 | |
| Thereafter | 116,328 | |
| Total | $ | 157,128 | |
| Less: Present value discount | (58,970) | |
| Lease liability | $ | 98,158 | |
Minimum future rental payments previously disclosed under ASC 840 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, were as follows:
| | | | | |
| 2022 | $ | 6,035 | |
| 2023 | 6,486 | |
| 2024 | 6,578 | |
| 2025 | 6,564 | |
| 2026 | 6,620 | |
| Thereafter | 85,494 | |
| Total lease payments | $ | 117,777 | |
For the year ended December 31, 2021, the Company recorded site lease expenses under its lease agreements totaling $4.4 million, which is recorded in cost of operations (exclusive of depreciation and amortization) in the consolidated statements of operations. As of December 31, 2021, $2.1 million has been recorded as other long-term liabilities on the consolidated balance sheet relating to the difference between actual lease payments and straight-line lease expense.
15.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 and customers. The outcomes of these 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
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
at each reporting period end. As of December 31, 2022 and 2021, the guaranteed minimum solar energy production has been met and the Company has recorded no performance guarantee obligations.
Purchase Commitments
In the ordinary course of business, the Company makes various commitments to purchase goods and services from specific suppliers. As of December 31, 2022, the Company had approximately $29.5 million of outstanding non-cancellable commitments to purchase solar modules, which are all expected to be completed during the year ended December 31, 2023.
16.Related Party Transactions
There was $0.1 million due to related parties, as discussed below, and no amounts due from related parties as of December 31, 2022. There were no amounts due to or from related parties as of 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. During the years ended December 31, 2022 and 2021 the total related party interest expense on the Rated Term Loan was $17.6 million and $14.9 million, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. As of December 31, 2022 and 2021, interest payable of $4.4 million and $4.5 million, respectively, due under the Amended Rated Term Loan was recorded as interest payable on the accompanying consolidated balance sheets.
Commercial Collaboration Agreement with CBRE
In connection with the Merger, the Company and CBRE entered into a commercial collaboration agreement (the “Commercial Collaboration Agreement”) effective upon the Merger, pursuant to which, among other things, CBRE will invite the Company to join CBRE’s strategic supplier program and CBRE will promote the Company as its preferred clean energy renewable provider/partner, CBRE and the Company will create a business opportunity referral program with CBRE’s brokers, CBRE will reasonably collaborate with the Company to develop and bring to market new products and/or bundles for Company’s customers, the Company will consider in good faith inviting CBRE to become a solar tax equity partner for the Company, on a non-exclusive basis, on market terms to be mutually agreed and CBRE will provide, at no cost to the Company, reasonable access to data-driven research and insights prepared by CBRE (subject to certain exceptions). The Commercial Collaboration Agreement continues for a period of seven years, with automatic one-year renewal period, unless earlier terminated by either party in accordance with the terms set forth therein.
On December 9, 2022, the Company amended the Commercial Collaboration Agreement to update the business arrangement and associated fee approach, which provides that CBRE employees, including brokers, non-brokers and other employees who partnered with the Company to bring clean electrification solutions to CBRE’s client base, who met certain minimum criteria (“Qualified Referral”) and who documented such Qualified Referral via an executed Development Agreement, would receive a development fee of between $0.015/watt to $0.030/watt depending on the business segment and teams of such CBRE employees. For the year ended December 31, 2022, the Company incurred and paid $0.3 million associated with the development of specific solar energy facilities and recorded them as part of property, plant, and equipment on the consolidated balance sheet as of December 31, 2022.
Master Services Agreement with CBRE
On June 13, 2022, the Company, through its wholly-owned subsidiary, entered into a Master Services Agreement ("MSA") with CBRE under which CBRE assists the Company in developing solar energy facilities. For the year ended December 31, 2022, the Company incurred $0.1 million for development services provided under the MSA which were accrued for as of December 31, 2022.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
17.Earnings per Share
The calculation of basic and diluted earnings per share for the years ended December 31, 2022 and 2021 was as follows (in thousands, except share and per share amounts):
| | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 |
| Net income attributable to Altus Power, Inc. | $ | 55,437 | | | $ | 5,906 | |
Income attributable to participating securities(1) | (433) | | | (90) | |
Net income attributable to common stockholders - basic and diluted | 55,004 | | | 5,816 | |
| Class A Common Stock | | | |
Weighted average shares of common stock outstanding - basic(2) | 154,648,788 | | | 92,751,839 | |
| Dilutive RSUs | 536,284 | | | 2,596,702 | |
| Dilutive restricted stock | 523,921 | | | 1,254,887 | |
| Weighted average shares of common stock outstanding - diluted | 155,708,993 | | | 96,603,428 | |
| Net income attributable to common stockholders per share - basic | $ | 0.36 | | | $ | 0.06 | |
| Net income attributable to common stockholders per share - diluted | $ | 0.35 | | | $ | 0.06 | |
(1) Represents the income attributable to 1,207,500 and 1,408,750 Alignment Shares outstanding as of December 31, 2022 and 2021, respectively.
(2) For the years ended December 31, 2022 and 2021, the calculation of basic weighted average shares of common stock outstanding excludes 542,511 and 1,259,887 shares, respectively, of the Company's Class A common stock provided to holders of Legacy Altus common stock, including shares that were subject to vesting conditions.
18.Asset Retirement Obligations
AROs consist primarily of costs to remove solar energy system assets at the end of their useful lives and costs to restore the solar energy system sites to the original condition, which are estimated based on current market rates. The following table presents the changes in AROs as recorded in other long-term liabilities in the consolidated balance sheets:
| | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 |
Balance at beginning of year | $ | 7,628 | | | $ | 4,446 | |
Additional obligations incurred | 1,681 | | | 3,024 | |
| Accretion expense | 266 | | | 174 | |
Liabilities settled or disposed in the current year | — | | | (16) | |
Balance at end of year | $ | 9,575 | | | $ | 7,628 | |
19.Stock-based Compensation
The Company recognized $9.4 million and $0.1 million of stock-based compensation expense for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the Company had $33.2 million and $0.2 million, respectively, of unrecognized stock-based compensation expense related to unvested restricted units, which the Company expects to recognize over a weighted-average remaining period of approximately 3 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 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 December 31, 2022 and 2021, zero and 244,328 shares of Class A Common Stock were restricted under the APAM Plan, respectively. As of December 31, 2022 and 2021, 542,511 and 840,000 shares of Class A Common Stock were restricted under the Holdings Plan, respectively. No further awards will be made under the Legacy Incentive Plans.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
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 5, 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 (i.e., on each of the third anniversary, the fourth anniversary, and the fifth anniversary of the date of grant, the stock price performance hurdle shall be $19.53, $24.41, $30.51, respectively).
As of December 31, 2022, there were 23,047,325 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 2023 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. The number of shares authorized for issuance under the Incentive Plan increased by 5% of outstanding shares as described in the foregoing on January 1, 2022.
For the year ended December 31, 2022, the Company recognized $9.4 million of stock compensation expense in relation to the incentive plan and the following table summarizes the RSU activity:
| | | | | | | | | | | |
| Number of RSUs Outstanding | | Weighted-Average Grant Date Fair Value Per Share |
Balances as of December 31, 2021 | — | | | — | |
| RSUs granted | 8,105,539 | | 5.27 | |
| RSUs forfeited | (65,650) | | | 7.40 | |
Balances as of December 31, 2022 | 8,039,889 | | 5.25 | |
Fair value of performance-based RSUs was estimated using the Monte Carlo model utilizing a distribution of potential outcomes based on expected volatility of 70% and risk-free interest rate of 1.94%.
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 December 31, 2022, there were 3,072,976 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 2023 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. For the year ended December 31, 2022, 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. The number of shares authorized for issuance under the ESPP increased by 1% of outstanding shares as described in the foregoing on January 1, 2022.
20.Income Taxes
Income tax expense is composed of the following:
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
| | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 |
| Current: | | | |
| Federal | $ | — | | | $ | — | |
| State | (2) | | | 76 | |
| Total current expense | (2) | | | 76 | |
| Deferred: | | | |
| Federal | 1,051 | | | (1,518) | |
| State | 27 | | | 1,737 | |
| Total deferred expense | $ | 1,078 | | | $ | 219 | |
| Income tax expense | $ | 1,076 | | | $ | 295 | |
The following table presents a reconciliation of the income tax benefit computed at the U.S. federal statutory rate and the Company’s income tax expense (benefit):
| | | | | | | | | | | | | | |
| For the year ended December 31, | |
| 2022 | | 2021 | |
| Income tax benefit – computed as 21% of pretax loss | $ | 11,181 | | | $ | 2,793 | | |
| Effect of noncontrolling interests and redeemable noncontrolling interests | 691 | | | (1,491) | | |
| State tax, net of federal benefit | (138) | | | 1,138 | | |
| State valuation allowance | 158 | | | 294 | | |
| Transaction costs related to the Merger | (12) | | | (1,713) | | |
| Transaction costs related to the Merger (return to provision) | (678) | | | — | | |
| Effect of tax credits | (75) | | | (28) | | |
| Stock Based Compensation | 1,614 | | | — | | |
| Change in fair value of redeemable warrant and Alignment Shares liability | (11,690) | | | (563) | | |
| Other | 25 | | | (135) | | |
| Income tax expense | $ | 1,076 | | | $ | 295 | | |
| Effective income tax rate | 2.0% | | 2.2% | |
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of December 31, 2022 and 2021, the Company’s deferred tax assets and liabilities are comprised of the following:
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
| Deferred tax assets: | | | |
| Net operating losses | $ | 65,128 | | | $ | 42,814 | |
| Intangible liabilities | 594 | | | 807 | |
| Deferred financing costs | 3,029 | | | 271 | |
| Tax credits | 690 | | | 615 | |
| Operating lease liability | 17,830 | | | 528 | |
| Asset retirement obligation | 2,490 | | | 2,018 | |
| Stock-based compensation | 609 | | | 73 | |
| Sec. 163(j) interest limitation | 16,749 | | | 11,776 | |
| Total deferred tax assets | $ | 107,119 | | | $ | 58,902 | |
| Valuation allowance | (795) | | | (633) | |
| Net deferred tax assets | $ | 106,324 | | | $ | 58,269 | |
| Deferred tax liabilities: | | | |
| Property, plant and equipment | $ | (58,040) | | | $ | (34,918) | |
| Intangible assets | (692) | | | (784) | |
| Operating lease asset | (16,868) | | | — | |
| Derivative asset | (876) | | | — | |
| Investments in partnerships | (40,859) | | | (32,170) | |
| Total deferred tax liabilities | (117,335) | | | (67,872) | |
| Net deferred tax liability | $ | (11,011) | | | $ | (9,603) | |
As of December 31, 2022 and 2021, the Company had US federal net operating loss carryforwards of $262.4 million and $177.4 million, respectively, available to offset future federal taxable income which will begin to expire in 2034. The Company has federal net operating loss carryforwards of $225.3 million, which can be carried forward indefinitely. As of December 31, 2022 and 2021, the Company had $48.4 million of US federal net operating loss subject to limitation under Internal Revenue Code Section 382. As of December 31, 2022 and 2021, the Company had state net operating loss $155.4 million and $87.7 million, respectively, which will begin to expire in 2023, if not utilized.
The Company regularly assesses the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. The Company evaluates and weighs all available positive and negative evidence such as historic results, future reversals of existing deferred tax liabilities, projected future taxable income, as well as prudent and feasible tax-planning strategies. As of December 31, 2022 and 2021, the Company has recorded a valuation allowance of $0.8 million and $0.6 million, respectively, for its deferred tax assets associated with state net operating losses that are more likely than not to expire.
As of December 31, 2022 and 2021, the Company had, under IRC Sec. 163(j), a gross interest expense limitation carryforward of $66.1 million and $45.4 million, respectively with an indefinite carryforward period.
The Company applies the applicable authoritative guidance which prescribes a comprehensive model for a manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2022, the Company has no uncertain tax positions. No amounts of interest and penalties were recognized in the Company’s financial statements and the Company’s policy is to present interest and penalties as a component of income tax expense.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted and signed into law in the United States. The CARES Act includes measures to assist companies, including temporary changes to income and non-income-based tax laws. The Company did not receive a stimulus payment related to the CARES Act and the new law did not have a significant impact on the Company’s consolidated financial statements.
The Inflation Reduction Act (the “IRA Act") was passed into law on August 16, 2022. The key provisions from the IRA include the implementation of a 15% alternative book income minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. The Company evaluated the key provisions under the IRA and concluded that the provisions are not applicable for year ended December 31, 2022 and will continue to monitor their impact on future periods.
Altus Power, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data, unless otherwise noted)
The Company files federal income tax returns and state income tax returns in multiple jurisdictions. The statute of limitation remains open for tax years after 2014.
21.Subsequent Events
The Company has evaluated subsequent events from December 31, 2022 through March 30, 2023, which is the date the audited consolidated financial statements were available to be issued. Other than the subsequent events disclosed below, there are no subsequent events requiring recording or disclosure in the consolidated financial statements.
True Green II Acquisition
On February 15, 2023, the Company, through its wholly-owned subsidiary, APA Finance III, LLC ("APAF III"), closed its previously announced purchase of approximately 220 MW of solar assets (the “True Green II Acquisition”) of True Green Capital Fund III, L.P. (“True Green”) through acquisitions of the membership interests of APAF III Operating, LLC. The base purchase price is approximately $293.0 million, subject to customary working capital adjustments. The base purchase price and associated costs and expenses was funded by $193.0 million from the APAF III Term Loan (as defined below) and the remainder with cash. The Company also held back an aggregate $10.9 million as security for indemnification claims which are expected to be paid within nine months after closing, contingent upon completion of development assets.
APAF III Term Loan
On February 15, 2023, the Company, through its subsidiaries, APA Finance III Borrower, LLC (the “Borrower”), and APA Finance III Borrower Holdings, LLC (“Holdings”) entered into a new long-term funding facility under the terms of a Credit Agreement, among the Borrower, Holdings, Blackstone Asset Based Finance Advisors LP, which is an affiliate of the Company, U.S. Bank Trust Company, N.A., as administrative agent, U.S. Bank N.A., as document custodian, and the lenders party thereto (the “APAF III Term Loan”).
This funding facility provides for a term loan of $204.0 million at a fixed rate of 5.62%. The term loan has an anticipated repayment date of June 30, 2033. The maturity date of the term loan is October 31, 2047. Upon lender approval, the Borrower has the right to increase the funding facility to make additional draws for certain acquisitions of solar assets that otherwise satisfy the criteria for Permitted Acquisitions, as set forth in the Credit Agreement. On February 15, 2023, the Company borrowed $193.0 million from this facility to fund the True Green II Acquisition and the associated costs and expenses, and expects to borrow the remaining $10.6 million upon the completion of certain development assets of the True Green II Acquisition when they are placed in service.
Forward Starting Interest Rate Swap
On January 31, 2023, the Company, through its wholly-owned subsidiary, APAG, entered into a forward starting interest rate swap with a notional amount of $250.0 million (the "Forward Starting Swap"), which was designated as a cash flow hedge. The Forward Starting Swap hedges borrowings of the Company at a fixed rate of 3.00% relative to 10-year SOFR and has a termination date of January 31, 2035.
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