Altus Power, Inc. (NYSE:AMPS) Q4 2022 Earnings Conference Call March 30, 2023 8:30 AM ET Company Participants Chris Shelton - Head of Investor Relations Lars Norell - Co-Founder and Co-Chief Executive Officer, Altus Dustin Weber - Chief Financial Officer Gregg Felton - Co-Founder and Co-Chief Executive Officer, Altus Power Conference Call Participants Justin Clare - ROTH MKM Mark Strouse - JPMorgan Christopher Souther - B. Riley Operator Good morning, and welcome to the Altus Power Fourth Quarter and Year E ...

Company Overview - The company owns a portfolio of 470 megawatts (MW) of solar photovoltaic (PV) systems and has long-term power purchase agreements (PPAs) with over 300 commercial and industrial (C&I) entities[17]. - The company has agreements to install over 70 additional MW of community solar projects, which are in advanced stages of development, expanding its service to customers in 5 states with projects in two additional states under construction[17]. - The company has experienced significant growth, providing clean electricity equivalent to the consumption of approximately 60,000 homes and displacing 320,000 tons of CO2 emissions annually[17]. - The company operates in 22 states and has a robust pipeline of projects supported by a deep network of developers and channel partners[21]. - The company has long-term power purchase agreements (PPAs) with over 300 commercial and industrial (C&I) entities and contracts with over 5,000 residential customers[206]. - The company has experienced significant growth in the last 12 months due to organic growth and targeted acquisitions, operating in 22 states[206]. Market Potential - The total addressable market for electricity in the U.S. is approximately $400 billion annually, with $200 billion spent on C&I, and an additional $98 billion investment required to meet 2030 sustainability goals[25]. - The solar energy market has penetrated less than 5% of its total addressable market in the U.S. C&I sector, indicating significant growth potential[60]. - The company’s community solar projects increase accessibility to clean electricity for customers who cannot install on-site solar, thus expanding its total addressable market[19]. Financial Performance - The company reported net revenue of $101.2 million for the year ended December 31, 2022, compared to $71.8 million for 2021, representing an increase of approximately 40.5%[121]. - The company's net income for the year ended December 31, 2022, was $52.2 million, up from $13.0 million in 2021, indicating a growth of approximately 302%[121]. - The company has not paid any cash dividends on its common stock to date, with future payments dependent on revenues and earnings[201]. Regulatory Environment - The Inflation Reduction Act of 2022 extended the investment tax credit (ITC) for solar power facilities to 30% for installations from 2022 to 2032, which is expected to enhance the company's financial performance[41]. - The Inflation Reduction Act (IRA) signed into law on August 16, 2022, extends investment tax credits (ITCs) and production tax credits (PTCs) for qualifying solar energy projects, which the company expects to continue claiming[130]. - Changes in federal, state, and local regulations could significantly reduce demand for solar energy systems, impacting the company's financial condition and operations[137]. Operational Challenges - Altus faces intense competition from traditional utilities and other renewable energy companies, which may have greater financial and operational resources[57]. - The company is at risk of adverse effects from potential shortages or price increases of key components, such as solar panels, due to industry disruptions[63]. - Recent increases in the price of solar panels may harm Altus's financial results, reversing previous benefits from declining costs[51]. - The increase in solar panel and raw material costs may slow growth and negatively impact financial results, reversing previous benefits from declining costs[69]. - Future growth may be constrained by operational risks, including equipment failures and regulatory compliance issues, which could adversely affect financial performance[78]. - The company faces challenges in managing growth effectively, requiring improvements in operational and financial systems to support expansion[86]. Strategic Initiatives - The company is developing a next-generation proprietary software stack that will integrate AI/ML to enhance operational efficiency and support growth[32]. - The company aims to pursue acquisitions of operating solar power generation assets, although success in this strategy is uncertain[53]. - The company’s growth strategy relies on the widespread adoption of solar power technology, which is influenced by cost-effectiveness and government incentives[54]. - The company is investing in strategic relationships with third parties, including large retailers, to generate new customers, but these initiatives may not yield expected results[95]. - The company’s growth strategy includes the development of new technologies and products, but successful execution is critical to achieving financial and strategic goals[97]. Human Resources - As of December 31, 2022, Altus had 62 employees, with 59 being full-time[47]. - The company has designed compensation and benefits programs to attract and retain top talent in a competitive industry[48]. - The company plans to form a diversity and inclusion committee to enhance workplace culture and broaden recruitment efforts[49]. - The company’s ability to attract and retain skilled personnel is crucial for project completion and customer account management, with competition for talent increasing[98]. Risks and Liabilities - The company faces potential product liability claims that could lead to significant monetary damages and adverse publicity[144]. - The company may incur substantial costs related to legal proceedings and regulatory inquiries, which could distract from core business operations[141]. - The company is subject to potential audits of its income and sales taxes, which could adversely affect its financial condition and results of operations[117]. - The company has identified material weaknesses in its internal control over financial reporting, which could lead to material misstatements in its consolidated financial statements[164]. - The company is currently working on a remediation plan that includes hiring additional finance department employees and formalizing risk assessment processes[167]. Market Position - The company is positioned to capitalize on the shift to renewable energy, aiming to become a "one-stop-shop" for clean energy transition by expanding EV charging and energy storage offerings[210]. - The company has a competitive edge in the C&I scale renewable energy market due to its innovative development process, which reduces costs and time in project development[211]. - Long-term revenue contracts for C&I solar generation typically last 20 years or more, with an average remaining life of approximately 15 years, enhancing customer relationships and cross-selling opportunities[212]. - The company has a market-leading cost of capital through an investment-grade rated scalable credit facility from Blackstone, enhancing its competitiveness in asset acquisition[213]. Stock and Ownership - Approximately 33% of the outstanding shares of Class A common stock are beneficially owned by directors, executive officers, and their affiliates, giving them significant influence over corporate decisions[174]. - The market price of the company's common stock is expected to be volatile, influenced by factors such as operating results and changes in laws and regulations[178]. - The company may issue additional shares of Class A common stock without stockholder approval, which could dilute ownership interests and depress the market price of shares[182].

Financial Data and Key Metrics Changes - The third quarter of 2022 was the most profitable in the company's history, with record revenues of $30.4 million, a 51% increase over Q3 2021 [27] - Adjusted EBITDA reached $19.4 million, a 57% increase year-over-year, resulting in an adjusted EBITDA margin of 64% [27][28] - For the first nine months of 2022, revenues were $74.4 million, up 48% from $50.2 million in the same period of 2021, while adjusted EBITDA increased by 49% to $42.1 million [28][31] Business Line Data and Key Metrics Changes - The company reported strong performance in its commercial scale segment, benefiting from long-term contracted revenues and a majority of contracts structured to escalate over time [14][21] - The recent acquisition of approximately 97 megawatts of solar assets and an additional 88 megawatts from D.E. Shaw renewable investments are expected to contribute positively to long-term recurring revenue and cash flow [19][20] Market Data and Key Metrics Changes - The company operates in 22 states, with a diverse portfolio that allows it to benefit from rising power prices through variable rate contracts [27][46] - The company has seen a significant increase in power prices, which has positively impacted its revenue per megawatt hour generated, up about 25% [45] Company Strategy and Development Direction - The company focuses on the commercial scale segment of the solar market, which has more attractive unit economics and long-term contracted revenues [14] - The strategic partnership with Blackstone enhances the company's access to capital and supports its growth through securitization [16][17] - The company aims to achieve a throughput of 200 to 250 megawatts of new construction assets per year, working to reduce obstacles in permitting and component availability [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to thrive despite industry challenges, including supply chain issues and tightening financial conditions [11][12] - The company anticipates significant increases in recurring cash flow due to asset growth, which will support platform growth while maintaining attractive profit margins [15][18] Other Important Information - The company recorded a GAAP net loss of $97 million in Q3, primarily due to a non-cash loss related to the mark-to-market of redeemable warrants [29] - The company is focused on minimizing shareholder dilution and has redeemed public and private warrants to achieve this goal [31][32] Q&A Session Summary Question: Progress on assets in pre-construction and construction phases - Management indicated that some assets are expected to come online in late 2022 and early 2023, with ongoing efforts to overcome challenges related to permitting and component availability [34][35] Question: Timing of acquisitions and market environment - The company expects to close several transactions within months, maintaining a strong position in the market despite rising interest rates [37][39] Question: Accessibility of financing for new assets and acquisitions - Management highlighted diverse funding sources, including a new revolving credit facility, which provides flexibility in financing decisions [40][42] Question: Year-over-year rate among variable rate contracts - The company experienced increases in power prices, which, along with seasonality, were key drivers for Q3 margins [45][46] Question: Impact of IRA on pipeline and tax credits - Management noted that clients are currently more influenced by rising power prices than the IRA, but they are well-positioned to take advantage of potential tax credit adders in 2023 [58][62] Question: Update on CBRE relationship and storage integration - The partnership with CBRE is progressing well, with plans to integrate storage into solar projects where beneficial, particularly in markets with favorable rate structures [67][72]

Part I [Item 1. Financial Statements](index=4&type=section&id=Item%201%2E%20Financial%20Statements) This section presents Altus Power, Inc.'s unaudited condensed consolidated financial statements, showing revenue growth and a net loss from non-cash fair value adjustments [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Operating revenues grew significantly for both Q3 and YTD 2022, but a substantial net loss was recorded due to non-cash fair value adjustments Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Operating revenues, net** | **$30,438** | **$20,138** | **$74,399** | **$50,222** | | Operating income | $10,708 | $5,712 | $16,351 | $15,080 | | Total other expense | $105,372 | $9,555 | $28,722 | $18,045 | | **Net loss** | **$(96,628)** | **$(1,291)** | **$(14,919)** | **$(1,468)** | | Net loss per share (Basic & Diluted) | $(0.63) | $(0.01) | $(0.08) | $(0.01) | - The significant increase in net loss for Q3 2022 was primarily driven by a **$29.6 million** charge for the change in fair value of redeemable warrant liability and a **$72.4 million** charge for the change in fair value of alignment shares liability[6](index=6&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly increased to **$1.13 billion**, while total liabilities decreased and total equity increased as of September 30, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | As of Sep 30, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,130,330** | **$1,113,249** | | Cash and cash equivalents | $290,894 | $325,983 | | Property, plant and equipment, net | $788,132 | $745,711 | | **Total Liabilities** | **$750,668** | **$771,711** | | Long-term debt, net | $527,709 | $524,837 | | Redeemable warrant liability | $12,715 | $49,933 | | Alignment shares liability | $136,826 | $127,474 | | **Total Equity** | **$361,218** | **$326,011** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased, but net cash decreased due to significant investing and financing activities for the nine months ended September 30, 2022 Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,839 | $18,248 | | Net cash used for investing activities | $(44,911) | $(213,493) | | Net cash (used for) provided by financing activities | $(12,860) | $196,216 | | **Net (decrease) increase in cash** | **$(32,932)** | **$971** | [Notes to Financial Statements](index=12&type=section&id=Notes%20to%20Financial%20Statements) These notes detail accounting policies, revenue recognition, 2022 acquisitions, debt structure, fair value measurements, and a significant post-quarter acquisition - The company develops, owns, and operates large-scale solar energy and storage systems, selling electricity to commercial, industrial, public sector, and community solar customers under long-term contracts[26](index=26&type=chunk) Disaggregation of Revenue (in thousands) | Revenue Source | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Revenue under power purchase agreements | $18,058 | $12,341 | | Revenue from net metering credit agreements | $20,908 | $17,922 | | Solar renewable energy certificate revenue | $28,521 | $17,164 | | Other Revenue Streams | $7,212 | $2,795 | | **Total** | **$74,399** | **$50,222** | - In 2022, the company completed several asset acquisitions, including the Stellar NJ, Stellar HI 2, and Stellar NJ 2 portfolios, adding a combined **13.9 MW** of solar energy facilities[49](index=49&type=chunk)[50](index=50&type=chunk)[53](index=53&type=chunk) - Subsequent to the quarter end, on November 11, 2022, the company acquired approximately **88 MW** of operating solar facilities for a total consideration of about **$102.0 million**[119](index=119&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong revenue growth from acquisitions and new assets, detailing financial performance, key operational metrics, liquidity, and growth strategies leveraging partnerships - The company's portfolio grew to over **350 MW** of solar PV, serving over **300 C&I entities** and **5,000 residential customers** through community solar projects[124](index=124&type=chunk) - Growth strategies focus on leveraging partnerships with Blackstone for capital and CBRE for access to a large portfolio of commercial and industrial properties to expand its customer base[123](index=123&type=chunk)[129](index=129&type=chunk)[133](index=133&type=chunk) Key Operational Metrics | Metric | As of Sep 30, 2022 | As of Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Megawatts installed (Cumulative) | 377 MW | 262 MW | +115 MW | | Megawatt hours generated (Q3) | 139,000 MWh | 115,000 MWh | +24,000 MWh | | Megawatt hours generated (YTD) | 362,000 MWh | 287,000 MWh | +75,000 MWh | Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net loss | $(96,628) | $(14,919) | | Adjustments (Interest, Tax, D&A, etc.) | $115,018 | $56,974 | | **Adjusted EBITDA** | **$19,390** | **$42,055** | | Operating revenues, net | $30,438 | $74,399 | | **Adjusted EBITDA margin** | **64%** | **57%** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces modest interest rate risk due to fixed-rate debt and manages credit risk through high-quality financial institutions and customer evaluations - The company has modest exposure to interest rate risk as a significant portion of its debt is fixed-rate. It sometimes uses derivative instruments to hedge exposure on floating-rate debt[253](index=253&type=chunk) - Credit risk from cash and receivables is managed by using high-quality financial institutions and performing ongoing credit evaluations of customers[254](index=254&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses, and a remediation plan is underway to enhance financial controls - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to previously identified material weaknesses in internal control over financial reporting[256](index=256&type=chunk) - The company's remediation plan includes hiring additional finance and SOX personnel, formalizing the risk assessment process, and documenting and improving control activities, including deploying a new ERP system[257](index=257&type=chunk)[258](index=258&type=chunk) Part II [Item 1. Legal Proceedings](index=54&type=section&id=Item%201%2E%20Legal%20Proceedings) The company is involved in routine legal claims, none of which are expected to materially impact its financial position or operations - The company reports no material legal proceedings that are expected to have a significant adverse effect on its financial condition or operations[262](index=262&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A%2E%20Risk%20Factors) This section details key risks including intense competition, supply chain reliance, operational challenges, acquisition integration, and internal control weaknesses - The company faces significant competition from traditional utilities and other renewable energy companies, and its business could be harmed by reductions in retail electricity prices or changes in government incentives[263](index=263&type=chunk) - The company's growth strategy includes acquisitions, but it may not be successful in identifying or integrating them, which could disrupt business and management[266](index=266&type=chunk)[267](index=267&type=chunk) - Material weaknesses in internal control over financial reporting have been identified. Failure to remediate these weaknesses could result in material misstatements of financial statements or failure to meet reporting obligations[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) - The accounting for redeemable warrants and alignment shares as derivative liabilities can cause significant non-cash fluctuations in reported earnings, which may adversely affect the stock price[303](index=303&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued **1,111,243** Class A common shares in exchange for **4,630,163** redeemable warrants via private agreements, relying on a registration exemption - The company issued **1,111,243** shares of Class A common stock in exchange for **4,630,163** redeemable warrants through privately negotiated agreements, relying on a registration exemption[308](index=308&type=chunk)

Financial Data and Key Metrics Changes - The company reported revenues of $24.8 million for Q2 2022, a 41% increase compared to Q2 2021, and $44 million for the first half of 2022, reflecting a 46% increase year-over-year [27][28] - Adjusted EBITDA for Q2 2022 was $13.9 million, up 37% from $10.2 million in Q2 2021, with an adjusted EBITDA margin of 56% [28][29] - GAAP net income for Q2 2022 was $21.6 million, primarily due to a non-cash gain from the re-measurement of redeemable warrants [29] Business Line Data and Key Metrics Changes - The company sold 137 megawatt hours of clean electricity in Q2 2022, avoiding almost 100,000 equivalent metric tons of carbon emissions [10] - The operating portfolio reached 369 megawatts by the end of Q2 2022, with significant progress in both acquisition and development pipelines [16] Market Data and Key Metrics Changes - The company noted substantial utility rate increases for commercial customers, which are expected to continue due to elevated natural gas prices [26] - The Inflation Reduction Act is anticipated to enhance the economic argument for commercial-scale solar and accelerate battery storage additions [12] Company Strategy and Development Direction - The company aims to maintain profitability while scaling operations, focusing on cash flow positivity since 2017 [9] - A master services agreement with CBRE is expected to enhance project management efficiency and scale operations [21][23] - The company is focused on expanding its addressable market through community solar projects and leveraging the benefits of the Inflation Reduction Act [12][45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the 2022 adjusted EBITDA guidance of $57 million to $63 million, with a focus on maintaining high EBITDA margins [8][29] - The company is optimistic about the long-term benefits of the Inflation Reduction Act, viewing it as an accelerant for growth and market expansion [62] Other Important Information - The company issued its first sustainability report, highlighting its commitment to environmental, social, and governance (ESG) standards [11] - Total debt at the end of Q2 2022 was $538 million, with $295 million in unrestricted cash, indicating a well-capitalized balance sheet [29] Q&A Session Summary Question: Capacity outlook and project timelines - Management indicated that approximately 100 megawatts of project acquisitions are expected to close in one to three months, with ongoing negotiations for additional assets [35][36] Question: Bottlenecks in securing components - Management acknowledged improvements in securing interconnection permissions and permits, while also addressing component scarcity by maintaining inventory [40] Question: Impact of the Inflation Reduction Act on project economics - Management noted that while the investment tax credit (ITC) remains favorable for commercial projects, they will evaluate the potential benefits of the production tax credit (PTC) [43][44] Question: CBRE collaboration and its impact on the pipeline - Management confirmed that CBRE's engagement is expected to significantly enhance the project pipeline, with ongoing projects already in construction [52][53] Question: Employee growth and scaling the business - Management highlighted the importance of hiring in construction and engineering roles to support the growing number of assets in operation and construction [66] Question: Inventory strategy for switch gear and transformers - Management is actively purchasing inventory and working on designs to mitigate delays caused by component scarcity [69][70]

[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) This section presents Altus Power's unaudited condensed consolidated financial statements and related notes for the interim periods [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Altus Power, Inc.'s unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2022, and 2021 [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details Altus Power's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2022, and 2021 Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---|:---|:---| | Operating revenues, net | $24,762 | $17,613 | $43,961 | $30,084 | | Total operating expenses | $19,280 | $11,273 | $38,318 | $20,716 | | Operating income | $5,482 | $6,340 | $5,643 | $9,368 | | Total other (income) expense | $(16,799) | $4,688 | $(76,650) | $8,490 | | Income before income tax expense | $22,281 | $1,652 | $82,293 | $878 | | Net income (loss) | $21,574 | $(440) | $81,709 | $(177) | | Net income (loss) attributable to Altus Power, Inc. | $24,115 | $(1,189) | $84,534 | $(227) | | Basic EPS | $0.16 | $(0.01) | $0.55 | $— | | Diluted EPS | $0.16 | $(0.01) | $0.55 | $— | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents Altus Power's financial position, including assets, liabilities, and equity, as of June 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets (in thousands) | Metric | As of June 30, 2022 | As of December 31, 2021 | |:---|:---|:---| | Total current assets | $316,444 | $344,404 | | Total assets | $1,106,052 | $1,113,249 | | Total current liabilities | $27,575 | $32,891 | | Redeemable warrant liability | $19,476 | $49,933 | | Alignment shares liability | $64,408 | $127,474 | | Total liabilities | $671,229 | $771,711 | | Total stockholders' equity | $400,025 | $304,918 | | Total equity | $418,720 | $326,011 | Assets and Liabilities of Consolidated VIEs (in thousands) | Metric | As of June 30, 2022 | As of December 31, 2021 | |:---|:---|:---| | Total assets of consolidated VIEs | $386,668 | $385,892 | | Total liabilities of consolidated VIEs | $44,743 | $44,630 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement outlines the changes in Altus Power's stockholders' equity for the six months ended June 30, 2022, and 2021 Changes in Stockholders' Equity (in thousands) | Metric | As of June 30, 2022 | As of December 31, 2021 | |:---|:---|:---| | Total Stockholders' Equity | $400,025 | $304,918 | | Total Equity | $418,720 | $326,011 | | Common Shares Outstanding | 154,718,268 | 153,648,830 | | Additional Paid-in Capital | $416,832 | $406,259 | | Accumulated Deficit | $(16,822) | $(101,356) | - Net income attributable to Altus Power, Inc. for the six months ended June 30, 2022, was **$84,534 thousand**, significantly increasing total equity[20](index=20&type=chunk) - The company saw an increase in additional paid-in capital due to stock-based compensation and the exchange of warrants into common stock[16](index=16&type=chunk)[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes Altus Power's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022, and 2021 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---| | Net cash provided by operating activities | $11,869 | $9,485 | | Net cash used for investing activities | $(34,910) | $(13,371) | | Net cash used for financing activities | $(7,948) | $(2,170) | | Net decrease in cash, cash equivalents, and restricted cash | $(30,989) | $(6,056) | | Cash, cash equivalents, and restricted cash, end of period | $299,332 | $32,150 | - Capital expenditures increased significantly from **$6,277 thousand in H1 2021** to **$23,338 thousand in H1 2022**, reflecting increased investment in solar energy facilities[22](index=22&type=chunk) - Non-cash investing and financing activities for H1 2022 included **$7,303 thousand** from the exchange of warrants into common stock[23](index=23&type=chunk) [Notes to Financial Statements](index=13&type=section&id=Notes%20to%20Financial%20Statements) This section provides detailed explanations of Altus Power's significant accounting policies and other financial disclosures supporting the consolidated financial statements [1. General](index=13&type=section&id=1.%20General) This note describes Altus Power's business operations, recent business combination, and the impact of external factors like COVID-19 - Altus Power, Inc. develops, owns, constructs, and operates large-scale photovoltaic solar energy generation and storage systems, selling electricity to commercial, industrial, public sector, and community solar customers under long-term contracts[26](index=26&type=chunk) - The company completed a business combination with CBRE Acquisition Holdings, Inc. on December 9, 2021, resulting in CBAH changing its name to Altus Power, Inc[27](index=27&type=chunk) - COVID-19 has caused supply chain disruptions, logistical delays, and increased costs in the solar industry, materially impacting the company's operations, financial condition, and cash flows[28](index=28&type=chunk) [2. Significant Accounting Policies](index=13&type=section&id=2.%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing Altus Power's condensed consolidated financial statements - The company prepares its unaudited condensed consolidated financial statements in accordance with U.S. GAAP and SEC regulations for interim financial reporting, consolidating wholly-owned and partially-owned subsidiaries[29](index=29&type=chunk) - Altus Power operates as a single operating segment, deriving revenue from power purchase agreements, net metering credit agreements, solar renewable energy certificates, rental income, performance-based incentives, and other revenue[33](index=33&type=chunk) Cash, Cash Equivalents, and Restricted Cash (in thousands) | Category | As of June 30, 2022 | As of December 31, 2021 | |:---|:---|:---| | Cash and cash equivalents | $295,079 | $325,983 | | Current portion of restricted cash | $2,459 | $2,544 | | Restricted cash, noncurrent portion | $1,794 | $1,794 | | Total | $299,332 | $330,321 | - The company expects to adopt ASU No. 2016-02, Leases (Topic 842), in fiscal year 2022, which will primarily impact the recognition of right-of-use assets and lease liabilities on the balance sheet[41](index=41&type=chunk) [3. Revenue and Accounts Receivable](index=15&type=section&id=3.%20Revenue%20and%20Accounts%20Receivable) This note disaggregates Altus Power's revenue by type and details the composition of its accounts receivable Disaggregation of Revenue (in thousands) | Revenue Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---|:---|:---| | Power purchase agreements | $6,730 | $4,653 | $10,912 | $7,784 | | Net metering credit agreements | $7,822 | $7,155 | $11,722 | $10,465 | | Solar renewable energy certificate revenue | $7,975 | $4,900 | $17,506 | $10,099 | | Rental income | $785 | $539 | $1,429 | $760 | | Performance-based incentives | $295 | $260 | $654 | $811 | | Other revenue | $1,155 | $106 | $1,738 | $165 | | Total | $24,762 | $17,613 | $43,961 | $30,084 | Accounts Receivable (in thousands) | Receivable Type | As of June 30, 2022 | As of December 31, 2021 | |:---|:---|:---| | Power purchase agreements | $4,164 | $1,678 | | Net metering credit agreements | $3,154 | $3,322 | | Solar renewable energy certificates | $4,785 | $3,789 | | Total | $13,158 | $9,218 | - The allowance for uncollectible accounts remained stable at **$0.4 million** as of June 30, 2022, and December 31, 2021[47](index=47&type=chunk) [4. Acquisitions](index=16&type=section&id=4.%20Acquisitions) This note provides details on Altus Power's solar facility acquisitions completed during 2021 and the second quarter of 2022 - In Q2 2022, Altus Power acquired a **1.0 MW solar facility in New Jersey for $1.3 million** and a **4.6 MW portfolio of six solar facilities in Hawaii for $9.9 million**, including transaction costs[48](index=48&type=chunk)[49](index=49&type=chunk) - The Stellar HI 2 Acquisition included **$7.3 million** in property, plant and equipment and **$3.1 million** in intangible assets, with assumed intangible liabilities of **$0.5 million**[49](index=49&type=chunk) - In 2021, the company acquired the Gridley portfolio of two solar facilities in California (**4.3 MW**) for **$5.0 million**[52](index=52&type=chunk) [5. Variable Interest Entity](index=17&type=section&id=5.%20Variable%20Interest%20Entity) This note explains Altus Power's consolidation of variable interest entities, primarily through tax equity financing arrangements - Altus Power consolidates variable interest entities (VIEs) where it holds a variable interest and is the primary beneficiary, primarily through tax equity financing arrangements and partnerships[53](index=53&type=chunk)[54](index=54&type=chunk) Consolidated VIE Assets and Liabilities (in thousands) | Category | As of June 30, 2022 | As of December 31, 2021 | |:---|:---|:---| | Total assets of consolidated VIEs | $386,668 | $385,892 | | Total liabilities of consolidated VIEs | $44,743 | $44,630 | - The company consolidated twenty-five VIEs during the six months ended June 30, 2022, and the year ended December 31, 2021, none of which were deemed significant[57](index=57&type=chunk) [6. Debt](index=19&type=section&id=6.%20Debt) This note details Altus Power's long-term debt obligations, including term loans, construction loans, and financing lease obligations Long-term Debt (in thousands) | Debt Type | As of June 30, 2022 | As of December 31, 2021 | Interest Type | Weighted Average Interest Rate | |:---|:---|:---|:---|:---| | Amended rated term loan | $493,465 | $499,750 | Fixed | 3.51% | | Construction loans | $— | $5,593 | Floating | —% | | Term loans | $16,520 | $12,818 | Floating | 3.31% | | Financing lease obligations | $37,643 | $37,601 | Imputed | 3.65% | | Total principal due for long-term debt | $547,628 | $555,762 | | | | Long-term debt, less current portion | $522,604 | $524,837 | | | - The Amended Rated Term Loan, totaling **$503.0 million**, has a weighted average **3.51% annual fixed rate** and matures on February 29, 2056[60](index=60&type=chunk) - The Construction Loan to Term Loan Facility has a **$187.5 million** construction loan commitment and a **$12.5 million** letter of credit commitment, with **$171.3 million** unused borrowing capacity as of June 30, 2022[63](index=63&type=chunk)[64](index=64&type=chunk) [7. Fair Value Measurements](index=21&type=section&id=7.%20Fair%20Value%20Measurements) This note describes Altus Power's fair value measurements for certain assets and liabilities, including redeemable warrants and alignment shares - The company measures certain assets and liabilities at fair value using a hierarchy (Level 1, 2, 3) based on observable inputs[70](index=70&type=chunk)[71](index=71&type=chunk) - Redeemable warrant liability decreased from **$49,933 thousand to $19,476 thousand** for the six months ended June 30, 2022, primarily due to a fair value remeasurement gain of **$23,117 thousand** and warrant exchanges[77](index=77&type=chunk) - Alignment shares liability decreased from **$127,474 thousand to $64,408 thousand**, driven by a fair value remeasurement gain of **$63,051 thousand**[83](index=83&type=chunk) - Contingent consideration liability decreased from **$2.3 million to $1.8 million**, with a gain on fair value remeasurement of **$0.5 million** for the six months ended June 30, 2022, due to changes in power generation volumes and market rates[84](index=84&type=chunk)[85](index=85&type=chunk) [8. Equity](index=24&type=section&id=8.%20Equity) This note provides information on Altus Power's Class A and Class B common stock, shares outstanding, and dividend policy - As of June 30, 2022, Altus Power had **154,718,268 shares of Class A common stock** issued and outstanding, each entitling the holder to one vote[86](index=86&type=chunk) - No common stock dividends have been declared as of June 30, 2022[86](index=86&type=chunk) - The company had **1,207,500 shares of Class B common stock** (Alignment Shares) outstanding, which are accounted for as liability-classified derivatives[86](index=86&type=chunk) [9. Redeemable Noncontrolling Interests](index=25&type=section&id=9.%20Redeemable%20Noncontrolling%20Interests) This note details the changes in Altus Power's redeemable noncontrolling interests for the six months ended June 30, 2022, and 2021 Changes in Redeemable Noncontrolling Interests (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---| | Beginning balance | $15,527 | $18,311 | | Cash distributions | $(482) | $(496) | | Cash contributions | $1,087 | $— | | Net loss attributable to redeemable noncontrolling interest | $(29) | $(813) | | Ending balance | $16,103 | $16,898 | - Redeemable noncontrolling interests increased to **$16,103 thousand** as of June 30, 2022, primarily due to cash contributions[90](index=90&type=chunk) [10. Commitments and Contingencies](index=25&type=section&id=10.%20Commitments%20and%20Contingencies) This note outlines Altus Power's legal claims, governmental proceedings, and performance guarantees under PPA agreements - The company is involved in routine legal claims and governmental proceedings, but their outcomes are not expected to have a material adverse effect on its financial position or results of operations[91](index=91&type=chunk) - Altus Power guarantees minimum solar energy production under PPA agreements and has met these guarantees as of June 30, 2022, with no performance guarantee obligations recorded[92](index=92&type=chunk) - Site lease expenses for operating leases for land and buildings totaled **$2.4 million** for the six months ended June 30, 2022, an increase from **$1.8 million** in the prior year[93](index=93&type=chunk) [11. Related Party Transactions](index=25&type=section&id=11.%20Related%20Party%20Transactions) This note discloses Altus Power's transactions with related parties, including interest expense from Blackstone subsidiaries and the MSA with CBRE Group - Interest expense on the Amended Rated Term Loan from Blackstone subsidiaries was **$8.7 million** for the six months ended June 30, 2022, up from **$7.3 million** in the prior year[95](index=95&type=chunk) - Altus Power signed a Master Services Agreement (MSA) with CBRE Group, Inc. on June 13, 2022, to assist in developing clean energy projects, with no amounts paid as of June 30, 2022[97](index=97&type=chunk) [12. Earnings per Share](index=26&type=section&id=12.%20Earnings%20per%20Share) This note presents Altus Power's basic and diluted earnings per share calculations for the three and six months ended June 30, 2022, and 2021 Earnings per Share (in thousands, except share and per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---|:---|:---| | Net income (loss) attributable to Altus Power, Inc. | $24,115 | $(1,189) | $84,534 | $(227) | | Basic EPS | $0.16 | $(0.01) | $0.55 | $— | | Diluted EPS | $0.16 | $(0.01) | $0.55 | $— | | Basic Weighted Average Shares | 153,310,068 | 88,741,089 | 152,988,078 | 88,741,089 | | Diluted Weighted Average Shares | 153,954,843 | 88,741,089 | 153,771,992 | 88,741,089 | - Basic and diluted EPS significantly improved to **$0.16** for the three months ended June 30, 2022, and **$0.55** for the six months ended June 30, 2022, compared to losses in the prior year periods[99](index=99&type=chunk) [13. Stock-Based Compensation](index=26&type=section&id=13.%20Stock-Based%20Compensation) This note details Altus Power's stock-based compensation expense and unrecognized compensation related to restricted stock units - Stock-based compensation expense increased significantly to **$2.7 million** for the three months and **$4.0 million** for the six months ended June 30, 2022, compared to minimal amounts in 2021[100](index=100&type=chunk) - The increase is primarily due to restricted stock units (RSUs) granted under the Omnibus Incentive Plan, adopted on July 12, 2021[104](index=104&type=chunk)[105](index=105&type=chunk) - As of June 30, 2022, unrecognized share-based compensation expense related to unvested restricted units was **$37.1 million**, expected to be recognized over approximately five years[100](index=100&type=chunk) [14. Income Taxes](index=27&type=section&id=14.%20Income%20Taxes) This note explains Altus Power's income tax expense and effective tax rate, influenced by fair value adjustments on certain liabilities - Income tax expense for the six months ended June 30, 2022, was **$0.6 million**, with an effective tax rate of **0.7%**, primarily impacted by a **$19.0 million** income tax benefit from fair value adjustments on redeemable warrants and alignment shares[109](index=109&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - For the three months ended June 30, 2022, income tax expense was **$0.7 million**, with an effective tax rate of **3.2%**, influenced by a **$4.3 million** income tax benefit from fair value adjustments[185](index=185&type=chunk)[186](index=186&type=chunk) [15. Subsequent Events](index=28&type=section&id=15.%20Subsequent%20Events) This note confirms Altus Power's evaluation of events occurring after the balance sheet date and any required disclosures - The company evaluated subsequent events through August 15, 2022, and found no events requiring recording or disclosure in the condensed consolidated financial statements[110](index=110&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Altus Power's financial condition, operating results, growth strategies, and the impact of external events [Overview](index=29&type=section&id=Overview) This section outlines Altus Power's mission, operational scale, and strategic partnerships supporting its clean energy ecosystem - Altus Power's mission is to create a clean electrification ecosystem, driving the clean energy transition for customers across the U.S. and enabling corporate ESG targets[114](index=114&type=chunk) - The company develops, owns, and operates over **350 MW** of solar PV and energy storage systems, serving commercial, industrial, public sector, and community solar customers across 18 states[115](index=115&type=chunk) - Strategic partnerships with Blackstone and CBRE provide efficient capital sources, access to portfolio companies, and direct access to C&I properties, supporting growth[114](index=114&type=chunk) [Comparability of Financial Information](index=30&type=section&id=Comparability%20of%20Financial%20Information) This section discusses factors affecting the comparability of Altus Power's historical financial information, including the recent business combination and public company costs - Historical financial information may not be comparable due to the recent business combination with CBRE Acquisition Holdings, Inc., recent acquisitions, and costs associated with becoming a public company[116](index=116&type=chunk) - As a public company, Altus expects to incur higher expenses for investor relations, accounting advisory, directors' and officers' insurance, legal, and other professional services[117](index=117&type=chunk) [Key Factors Affecting Our Performance](index=30&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) This section identifies Altus Power's growth strategies, competitive strengths, and external factors like government policies, supply chain issues, and global events - Growth strategies include leveraging existing customer and developer networks to expand EV charging and energy storage offerings, and partnering with Blackstone and CBRE to access client relationships[119](index=119&type=chunk) - The company's competitive strengths include an innovative development capability, long-term revenue contracts (average **17 years remaining**), flexible financing solutions (investment-grade rated credit facility from Blackstone), and a strong executive leadership team[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - Future growth is significantly dependent on government policies and incentives promoting solar energy, such as net metering, accelerated depreciation, SRECs, and investment tax credits (ITC)[130](index=130&type=chunk) - Supply chain issues, inflationary pressures, and regulatory policy changes have led to higher prices for imported solar modules, potentially impacting the economics of serving certain markets[125](index=125&type=chunk) - The company's pipeline of opportunities totals over **one gigawatt**, split evenly between potential operating acquisitions and development projects, with historical project timelines currently extended by **3 to 6 months** due to supply chain and permitting delays[127](index=127&type=chunk)[129](index=129&type=chunk) - The COVID-19 pandemic and the Russia-Ukraine invasion continue to cause supply chain disruptions and volatility in capital markets, potentially impacting business, cash flows, and financial condition[132](index=132&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Key Financial and Operational Metrics](index=33&type=section&id=Key%20Financial%20and%20Operational%20Metrics) This section presents Altus Power's key performance indicators, including megawatts installed, megawatt hours generated, and Adjusted EBITDA Megawatts Installed (MW) | Metric | As of June 30, 2022 | As of June 30, 2021 | Change | |:---|:---|:---|:---| | Cumulative Megawatts Installed | 369 | 262 | 107 | | Metric | As of June 30, 2022 | As of December 31, 2021 | Change | |:---|:---|:---|:---| | Cumulative Megawatts Installed | 369 | 362 | 7 | Megawatt Hours Generated (MWh) | Period | 2022 (MWh) | 2021 (MWh) | Change | |:---|:---|:---|:---| | Three Months Ended June 30 | 137,000 | 109,000 | 28,000 | | Six Months Ended June 30 | 223,000 | 172,000 | 51,000 | Adjusted EBITDA and Adjusted EBITDA Margin (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:---|:---|:---|:---|:---| | Adjusted EBITDA | $13,914 | $10,157 | $22,665 | $16,485 | | Operating revenues, net | $24,762 | $17,613 | $43,961 | $30,084 | | Adjusted EBITDA margin | 56% | 58% | 52% | 55% | [Components of Results of Operations](index=35&type=section&id=Components%20of%20Results%20of%20Operations) This section explains the primary drivers of Altus Power's operating revenues, expenses, and the impact of non-cash fair value remeasurements - Operating revenues are primarily derived from power purchase agreements (PPAs), net metering credit agreements (NMCAs), solar renewable energy certificates (SRECs), rental income, and performance-based incentives[151](index=151&type=chunk) - Approximately **60%** of combined PPAs and NMCAs are variable-rate contracts, **15%** are fixed-rate with escalators, and **25%** are fixed-rate[151](index=151&type=chunk) - Cost of operations includes operations and maintenance, site lease expense, insurance, and property taxes, expected to grow with business but decrease as a percentage of revenue over time[157](index=157&type=chunk) - General and administrative expenses are expected to increase due to business growth and public company operating costs, but decrease as a percentage of revenue[159](index=159&type=chunk) - Fair value remeasurement of contingent consideration, redeemable warrant liability, and alignment shares liability are non-cash items that significantly impact net income and are subject to changes in underlying assumptions like stock price and market rates[162](index=162&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Results of Operations – Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021 (Unaudited)](index=38&type=section&id=Results%20of%20Operations%20%E2%80%93%20Three%20Months%20Ended%20June%2030%2C%202022%2C%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202021%20(Unaudited)) This section provides a comparative analysis of Altus Power's financial performance for the three months ended June 30, 2022, versus 2021 Key Financial Changes (Three Months Ended June 30, 2022 vs. 2021) (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | |:---|:---|:---|:---|:---| | Operating revenues, net | $24,762 | $17,613 | $7,149 | 40.6% | | Total operating expenses | $19,280 | $11,273 | $8,007 | 71.0% | | Operating income | $5,482 | $6,340 | $(858) | (13.5)% | | Income before income tax expense | $22,281 | $1,652 | $20,629 | 1,248.7% | | Net income (loss) attributable to Altus Power, Inc. | $24,115 | $(1,189) | $25,304 | (2,128.2)% | - Operating revenues increased by **40.6%** due to increased electricity generation from acquired and new solar energy facilities[173](index=173&type=chunk) - Stock-based compensation surged by **7,081.1%** to **$2.7 million**, primarily due to new restricted stock units granted under the Omnibus Incentive Plan[180](index=180&type=chunk) - A significant gain of **$16.7 million** from the change in fair value of alignment shares liability and **$4.7 million** from redeemable warrant liability contributed to the substantial increase in income before income tax expense[181](index=181&type=chunk)[182](index=182&type=chunk) [Results of Operations – Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021 (Unaudited)](index=43&type=section&id=Results%20of%20Operations%20%E2%80%93%20Six%20Months%20Ended%20June%2030%2C%202022%2C%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202021%20(Unaudited)) This section provides a comparative analysis of Altus Power's financial performance for the six months ended June 30, 2022, versus 2021 Key Financial Changes (Six Months Ended June 30, 2022 vs. 2021) (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | |:---|:---|:---|:---|:---| | Operating revenues, net | $43,961 | $30,084 | $13,877 | 46.1% | | Total operating expenses | $38,318 | $20,716 | $17,602 | 85.0% | | Operating income | $5,643 | $9,368 | $(3,725) | (39.8)% | | Income before income tax expense | $82,293 | $878 | $81,415 | 9,272.8% | | Net income (loss) attributable to Altus Power, Inc. | $84,534 | $(227) | $84,761 | (37,339.6)% | - Operating revenues increased by **46.1%** to **$43.96 million**, driven by higher electricity generation from new and acquired solar facilities[192](index=192&type=chunk) - General and administrative expenses rose by **73.9%** to **$12.94 million**, primarily due to increased headcount and public company operating costs[194](index=194&type=chunk) - Net income attributable to Altus Power, Inc. dramatically improved to **$84.53 million** from a loss of **$0.23 million**, largely due to significant gains from fair value remeasurements of redeemable warrant liability (**$23.12 million**) and alignment shares liability (**$63.05 million**)[190](index=190&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Altus Power's cash position, primary liquidity sources, and dependence on external financing for growth - As of June 30, 2022, the company had **$299.3 million** in total cash and restricted cash[208](index=208&type=chunk) - Primary liquidity sources include proceeds from redeemable preferred stock, debt facilities, third-party tax equity investors, and cash from operations, with **$293 million** received from the Merger[209](index=209&type=chunk) - The business model requires substantial outside financing for growth, and the company is dependent on raising additional capital from existing debt facilities, tax equity investors, and cash from operations[209](index=209&type=chunk)[210](index=210&type=chunk) Cash Flow Summary (Six Months Ended June 30) (in thousands) | Activity | 2022 | 2021 | |:---|:---|:---| | Operating activities | $11,869 | $9,485 | | Investing activities | $(34,910) | $(13,371) | | Financing activities | $(7,948) | $(2,170) | | Net decrease in cash, cash equivalents, and restricted cash | $(30,989) | $(6,056) | - Net cash used in investing activities increased to **$34.9 million** in H1 2022, primarily due to **$23.3 million** in capital expenditures and **$11.6 million** for acquiring renewable energy facilities[221](index=221&type=chunk) - Net cash used for financing activities increased to **$7.9 million** in H1 2022, mainly due to debt repayment, equity issuance costs, and distributions to noncontrolling interests, partially offset by contributions from noncontrolling interests[222](index=222&type=chunk) [Critical Accounting Policies and Use of Estimates](index=50&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section highlights the significant accounting policies and management estimates crucial to Altus Power's financial statement preparation - The preparation of financial statements requires management to make estimates and judgments, particularly for items like inventories, long-lived assets, goodwill, intangible assets, contingent consideration liabilities, and deferred income tax valuation allowances[225](index=225&type=chunk) - No significant changes to critical accounting estimates were identified as of June 30, 2022[225](index=225&type=chunk) [Emerging Growth Company Status](index=50&type=section&id=Emerging%20Growth%20Company%20Status) This section explains Altus Power's status as an emerging growth company and the associated accounting and disclosure elections - Altus Power has elected to use the extended transition period for new or revised accounting standards as an 'emerging growth company' (EGC) under the JOBS Act[227](index=227&type=chunk) - The company expects to remain an EGC until it meets certain thresholds related to annual revenue, market value of equity securities, or non-convertible debt issuance[228](index=228&type=chunk) - As a 'smaller reporting company,' Altus may present only two most recent fiscal years of audited financial statements and has reduced disclosure obligations regarding executive compensation[229](index=229&type=chunk) [Recent Accounting Pronouncements](index=50&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for details on recently issued accounting pronouncements impacting Altus Power's financial statements - A description of recently issued accounting pronouncements that may impact financial position and results of operations is disclosed in Note 2 to the condensed consolidated financial statements[230](index=230&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses Altus Power's exposure to interest rate and credit risks and its strategies for managing them [Interest Rate Risk](index=51&type=section&id=Interest%20Rate%20Risk) This section describes Altus Power's exposure to interest rate fluctuations on its floating-rate debt and potential hedging strategies - A significant portion of the company's debt has a fixed interest rate, but some borrowings bear floating rates based on LIBOR plus a specified margin, creating modest interest rate risk[232](index=232&type=chunk) - The company may use derivative instruments to hedge interest rate exposure on floating-rate debt, but not for trading or speculative purposes[232](index=232&type=chunk) - A hypothetical **10%** increase in interest rates on variable debt facilities is not expected to have a material impact on the company's cash, debt, net income, or cash flows[232](index=232&type=chunk) [Credit Risk](index=51&type=section&id=Credit%20Risk) This section addresses Altus Power's credit risk related to financial instruments and customer receivables, along with its mitigation policies - Altus Power's financial instruments, particularly cash and restricted cash, are subject to credit risk[233](index=233&type=chunk) - The company's investment policy requires cash and restricted cash to be placed with high-quality financial institutions and limits credit risk from any single issuer[233](index=233&type=chunk) - Ongoing credit evaluations of customers are performed, and collateral is generally not required[233](index=233&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of Altus Power's disclosure controls and internal control over financial reporting, including remediation efforts [Evaluation of Disclosure Controls and Procedures](index=51&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section states that Altus Power's disclosure controls and procedures were not effective due to previously identified material weaknesses - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting previously disclosed in the 2021 Annual Report on Form 10-K[235](index=235&type=chunk) [Remediation Plan](index=51&type=section&id=Remediation%20Plan) This section outlines Altus Power's plan to remediate material weaknesses by hiring finance personnel and enhancing internal controls and systems - The company is remediating material weaknesses by hiring additional finance department employees with expertise (Technical Accounting Manager, Accounts Payable Manager, Tax Director)[236](index=236&type=chunk) - A SOX Manager has been hired to address the lack of a formalized risk assessment process and enhance internal controls over financial reporting[236](index=236&type=chunk) - Steps are being taken to remediate control activities through documentation of processes and controls, and deployment of a new enterprise resource planning system[236](index=236&type=chunk) [Changes in Internal Control over Financial Reporting](index=52&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on the implementation of a new accounting system and other changes in Altus Power's internal control over financial reporting - An accounting system was implemented during the six months ended June 30, 2022, to enable a more efficient financial statements closing process[238](index=238&type=chunk) - Other than the remediation measures, no material changes in internal control over financial reporting occurred during the six months ended June 30, 2022[238](index=238&type=chunk) [Part II - Other Information](index=53&type=section&id=Part%20II%20-%20Other%20Information) This section provides additional disclosures on legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) This section states that Altus Power is involved in routine legal claims and governmental proceedings not expected to materially affect its financial position - The company is a party to ordinary, routine legal claims and governmental proceedings, as well as disputes with vendors and customers in the normal course of business[240](index=240&type=chunk) - No current pending matters are expected to have a material adverse effect on the company's financial position or results of operations[240](index=240&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in Altus Power's 2021 Annual Report on Form 10-K - No material changes to the company's risk factors have occurred since their disclosure in the 2021 Annual Report on Form 10-K[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details Altus Power's privately negotiated warrant exchange agreements in May and June 2022, and the resulting financial impact - In May and June 2022, Altus Power entered into warrant exchange agreements, issuing **1,067,417 shares of Class A common stock** in exchange for **4,447,555 redeemable warrants**[242](index=242&type=chunk) - The exchange resulted in a **$4.1 million** gain on fair value remeasurement of the redeemable warrants, which was reclassified to additional paid-in capital[242](index=242&type=chunk) [Item 3. Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon Altus Power's senior securities - There were no defaults upon senior securities[243](index=243&type=chunk) [Item 4. Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to Altus Power's operations - Mine safety disclosures are not applicable[243](index=243&type=chunk) [Item 5. Other Information](index=53&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report for Altus Power - No other information is reported in this section[243](index=243&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with Altus Power's Quarterly Report on Form 10-Q, including certifications and XBRL documents - The exhibits include certifications from Co-Chief Executive Officers and Chief Financial Officer, as well as XBRL instance, schema, calculation, definition, and label linkbase documents[243](index=243&type=chunk)[244](index=244&type=chunk) [Signatures](index=55&type=section&id=Signatures) This section provides the names and titles of the Altus Power executives who signed the report and the date of signing - The report was signed on August 15, 2022, by Gregg J. Felton (Co-Chief Executive Officer), Lars R. Norell (Co-Chief Executive Officer), and Dustin L. Weber (Chief Financial Officer)[247](index=247&type=chunk)

Altus Power, Inc. (NYSE:AMPS) Q1 2022 Results Conference Call May 16, 2022 8:30 AM ET Company Participants Chris Shelton - Head of Investor Relations Lars Norell - Co-Founder and Co-CEO Gregg Felton - Co-Founder and Co-CEO Dustin Weber - Chief Financial and Operating Officer Conference Call Participants Justin Clare - ROTH Capital Partners Ryan Levine - Citi Operator Good morning and welcome to the Altus Power First Quarter 2022 Conference Call. As a reminder, today's call is being recorded and participants ...