Altus Power(AMPS) - 2022 Q2 - Quarterly Report

Part I - Financial Information This section presents Altus Power's unaudited condensed consolidated financial statements and related notes for the interim periods Item 1. Financial Statements 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 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 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 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] - The company saw an increase in additional paid-in capital due to stock-based compensation and the exchange of warrants into common stock[16][20] Condensed Consolidated Statements of Cash Flows 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] - Non-cash investing and financing activities for H1 2022 included $7,303 thousand from the exchange of warrants into common stock[23] Notes to Financial Statements This section provides detailed explanations of Altus Power's significant accounting policies and other financial disclosures supporting the consolidated financial statements 1. General 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] - 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] - 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] 2. Significant Accounting Policies 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] - 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] 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] 3. Revenue and Accounts Receivable 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] 4. Acquisitions 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][49] - 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] - In 2021, the company acquired the Gridley portfolio of two solar facilities in California (4.3 MW) for $5.0 million[52] 5. Variable Interest Entity 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][54] 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] 6. Debt 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] - 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][64] 7. Fair Value Measurements 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][71] - 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] - Alignment shares liability decreased from $127,474 thousand to $64,408 thousand, driven by a fair value remeasurement gain of $63,051 thousand[83] - 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][85] 8. Equity 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] - No common stock dividends have been declared as of June 30, 2022[86] - The company had 1,207,500 shares of Class B common stock (Alignment Shares) outstanding, which are accounted for as liability-classified derivatives[86] 9. Redeemable Noncontrolling Interests 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] 10. Commitments and Contingencies 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] - 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] - 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] 11. Related Party Transactions 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] - 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] 12. Earnings per Share 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] 13. Stock-Based Compensation 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] - The increase is primarily due to restricted stock units (RSUs) granted under the Omnibus Incentive Plan, adopted on July 12, 2021[104][105] - 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] 14. Income Taxes 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][204][205] - 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][186] 15. Subsequent Events 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Altus Power's financial condition, operating results, growth strategies, and the impact of external events 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] - 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] - Strategic partnerships with Blackstone and CBRE provide efficient capital sources, access to portfolio companies, and direct access to C&I properties, supporting growth[114] Comparability of Financial Information 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] - 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] Key Factors Affecting Our Performance 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] - 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][121][122][123] - 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] - 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] - 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][129] - 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][135][136] Key Financial and Operational Metrics 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 | $30,084 | | Adjusted EBITDA margin | 56% | 58% | 52% | 55% | Components of Results of Operations This section explains the primary drivers of Altus Power's operating revenues, expenses, and the impact of non-cash fair value remeasurements - Operating revenues are primarily derived from power purchase agreements (PPAs), net metering credit agreements (NMCAs), solar renewable energy certificates (SRECs), rental income, and performance-based incentives[151] - Approximately 60% of combined PPAs and NMCAs are variable-rate contracts, 15% are fixed-rate with escalators, and 25% are fixed-rate[151] - Cost of operations includes operations and maintenance, site lease expense, insurance, and property taxes, expected to grow with business but decrease as a percentage of revenue over time[157] - General and administrative expenses are expected to increase due to business growth and public company operating costs, but decrease as a percentage of revenue[159] - Fair value remeasurement of contingent consideration, redeemable warrant liability, and alignment shares liability are non-cash items that significantly impact net income and are subject to changes in underlying assumptions like stock price and market rates[162][164][165] Results of Operations – Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021 (Unaudited) This section provides a comparative analysis of Altus Power's financial performance for the three months ended June 30, 2022, versus 2021 Key Financial Changes (Three Months Ended June 30, 2022 vs. 2021) (in thousands) | Metric | 2022 | 2021 | Change ($) | 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] - 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] - A significant gain of $16.7 million from the change in fair value of alignment shares liability and $4.7 million from redeemable warrant liability contributed to the substantial increase in income before income tax expense[181][182] Results of Operations – Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021 (Unaudited) This section provides a comparative analysis of Altus Power's financial performance for the six months ended June 30, 2022, versus 2021 Key Financial Changes (Six Months Ended June 30, 2022 vs. 2021) (in thousands) | Metric | 2022 | 2021 | Change ($) | 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] - General and administrative expenses rose by 73.9% to $12.94 million, primarily due to increased headcount and public company operating costs[194] - 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][200][201] Liquidity and Capital Resources 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] - 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] - 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][210] 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] - 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] Critical Accounting Policies and Use of Estimates 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] - No significant changes to critical accounting estimates were identified as of June 30, 2022[225] Emerging Growth Company Status 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] - 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] - 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] Recent Accounting Pronouncements 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Altus Power's exposure to interest rate and credit risks and its strategies for managing them Interest Rate Risk 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] - The company may use derivative instruments to hedge interest rate exposure on floating-rate debt, but not for trading or speculative purposes[232] - 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] Credit Risk 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] - 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] - Ongoing credit evaluations of customers are performed, and collateral is generally not required[233] Item 4. Controls and Procedures 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 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] Remediation Plan 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] - A SOX Manager has been hired to address the lack of a formalized risk assessment process and enhance internal controls over financial reporting[236] - Steps are being taken to remediate control activities through documentation of processes and controls, and deployment of a new enterprise resource planning system[236] Changes in Internal Control over Financial Reporting 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] - Other than the remediation measures, no material changes in internal control over financial reporting occurred during the six months ended June 30, 2022[238] Part II - Other Information This section provides additional disclosures on legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings 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] - No current pending matters are expected to have a material adverse effect on the company's financial position or results of operations[240] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon Altus Power's senior securities - There were no defaults upon senior securities[243] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to Altus Power's operations - Mine safety disclosures are not applicable[243] Item 5. Other Information This section states that there is no other information to report for Altus Power - No other information is reported in this section[243] Item 6. Exhibits 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][244] 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]