ALTUS POWER, INC. The following discussion and analysis of financial condition and operating results forAltus Power, Inc. (as used in this section, "Altus" or the "Company") has been prepared by Altus' management. You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and our 2021 Annual Report on Form 10-K. Any references in this section to "we," "our" or "us" shall mean Altus. The following discussion and analysis of financial condition and operating results forAltus Power, Inc. (as used in this section, "Altus" or the "Company") has been prepared by Altus' management. You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and our 2021 Annual Report on Form 10-K. Any references in this section to "we," "our" or "us" shall mean Altus. In addition to historical information, this Quarterly Report on Form 10-Q for the period endedMarch 31, 2022 (this "Report"), including this management's discussion and analysis ("MD&A"), contains statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements do not convey historical information but relate to predicted or potential future events and financial results, such as statements of our plans, strategies and intentions, or our future performance or goals that are based upon management's current expectations. Our forward-looking statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "could," "will," "should," "plans," "projects," "forecasts," "seeks," "anticipates," "goal," "objective," "target," "estimate," "future," "outlook," "vision," or variations of such words or similar terminology. Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current estimations. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to the risks as described in the "Risk Factors" in our 2021 Annual Report on Form 10-K filed with theSecurities and Exchange Commission onMarch 24, 2022 (the "2021 Annual Report on Form 10-K." These risks and uncertainties, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks to circumstances only as of the date on which it is made. We are not obligated to update these forward-looking statements, even though our situation may change in the future. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outsideAltus Power's control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks, uncertainties, assumptions and other important factors include, but are not limited to: (1) the ability ofAltus Power to maintain its listing on theNew York Stock Exchange ; (2) the ability to recognize the anticipated benefits of the recently completed business combination and related transactions, which may be affected by, among other things, competition, the ability ofAltus Power to grow and manage growth profitably, maintain relationships with customers, business partners, suppliers and agents and retain its management and key employees; (3) changes in applicable laws or regulations; (4) the possibility thatAltus Power may be adversely affected by other economic, business, regulatory and/or competitive factors; and (5) the impact of COVID-19 onAltus Power's business. Overview Our mission is to create a clean electrification ecosystem, to drive the clean energy transition of our customers acrossthe United States while simultaneously enabling the adoption of corporate environmental, social and governance, or ESG, targets. In order to achieve our mission, we develop, own and operate solar generation and energy storage facilities. We have the in house expertise to develop, build and provide operations and maintenance and customer servicing for our assets. The strength of our platform is enabled by premier sponsorship from The Blackstone Group ("Blackstone"), which provides an efficient capital source and access to a network of portfolio companies, and CBRE Group, Inc. ("CBRE"), which provides direct access to their portfolio of owned and managed commercial and industrial ("C&I") properties. We are a developer, owner and operator of large-scale roof, ground and carport-based photovoltaic ("PV") and energy storage systems, serving commercial and industrial, public sector and community solar customers. We own systems acrossthe United States fromHawaii toVermont . Our portfolio consists of over 350 megawatts ("MW") of solar PV. We have long-term power purchase agreements ("PPAs") with over 300 C&I entities and contracts with over 5,000 residential customers which are serviced by approximately 40 megawatts of community solar projects currently in operation. We have agreements to install another approximately 55 megawatts of community solar projects. Our community solar projects are currently servicing customers in 6 states with projects in a 7th state currently under construction. We also participate in numerous renewable energy certificate ("REC") programs throughout the country. We have experienced significant growth in the last 12 months as a product of organic growth and targeted acquisitions and currently operate in 18 states, providing clean electricity to our customers equal to the consumption of approximately 30,000 homes, displacing 255,000 tons of CO2 emissions per annum. 22 --------------------------------------------------------------------------------
Comparability of Financial Information
Our historical operations and statements of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the recently completed business combination withCBRE Acquisition Holdings, Inc. as described in Note 1, "General," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (the "Merger"), recent acquisitions as described in Note 7, "Acquisitions," to our audited consolidated annual financial statements included in our 2021 Annual Report on Form 10-K, and the cost becoming a public company. As a result of becoming a public company, Altus is subject to additional rules and regulations applicable to companies listed on a national securities exchange and compliance and reporting obligations pursuant to the rules and regulations of theSEC . Altus expects to hire additional employees to meet these rules and obligations, and incur higher expenses for investor relations, accounting advisory, directors' and officers' insurance, legal and other professional services and will engage consultants and third party advisors to assist with the heightened requirements of being a public company.
Key Factors Affecting Our Performance
Our results of operations and our ability to grow our business over time could be impacted by a number of factors and trends that affect our industry generally, as well as new offerings of services and products we may acquire or seek to acquire in the future. Additionally, our business is concentrated in certain markets, putting us at risk of region-specific disruptions such as adverse economic, regulatory, political, weather and other conditions. See "Risk Factors" in our 2021 Annual Report on Form 10-K for further discussion of risks affecting our business. We believe the factors discussed below are key to our success:
Execution of Growth Strategies
We believe we are in the beginning stages of a market opportunity driven by a
secular megatrend of transitioning away from traditional energy sources to
renewable energy. We intend to leverage our competitive strengths and market
position to become customers' "one-stop-shop" for the clean energy transition by
1) Using our existing customer and developer networks to build out our electric
vehicle ("EV") charging and energy storage offerings and establish a position
comparable to that of our C&I solar market position through our existing
cross-sell opportunities and 2) partnering with Blackstone and CBRE to access
their client relationships, portfolio companies, and their strong brand
recognition, to increase the number of customers we can support.
Competition
We compete in the C&I scale renewable energy space with utilities, developers, independent power producers, pension funds and private equity funds for new investment opportunities. We expect to grow our market share because of the following competitive strengths:
•Development Capability: We have established an innovative approach to the development process. From site identification and customer origination through the construction phase, we've established a streamlined process enabling us to further create the scalability of our platform and significantly reduce the costs and time in the development process. Part of our attractiveness to our customers is our ability to ensure a high level of execution certainty. We anticipate that this ability to originate, source, develop and finance projects will ensure we can continue to grow and meet the needs of our customers. •Long-Term Revenue Contracts: Our C&I solar generation contracts have a typical length of 20 years or longer, creating long-term relationships with customers that allow us to cross-sell additional current and future products and services. The average remaining life of our current contracts is approximately 18 years. These long-term contracts are either structured at a fixed rate, often with an escalator, or floating rate pegged at a discount to the prevailing local utility rates. We refer to these latter contracts as variable rate, and as ofMarch 31, 2022 , make up approximately 60% of our current installed portfolio. •Flexible Financing Solutions: We have a market-leading cost of capital in an investment-grade rated scalable credit facility fromBlackstone , which enables us to be competitive bidders in asset acquisition and development. In addition to ourBlackstone term loan, we also have financing available through a construction to term loan facility. This facility has$200 million of committed capacity which as ofMarch 31, 2022 , carries a floating rate of 2.46%. •Leadership: We have a strong executive leadership teamwho has extensive experience in capital markets, solar development and solar construction, with over 20 years of experience each. Moreover, through the transaction structure, management and employees will continue to own a significant interest in the Company. 23 --------------------------------------------------------------------------------
•CBRE Partnership: Our partnership with CBRE, the largest global real estate services company, provides us with a clear path to creating new customer relationships. CBRE is the largest manager of data centers and 90% of the Fortune 100 are CBRE clients, providing a significant opportunity for us to expand our customer base.
Financing Availability
Our future growth depends in significant part on our ability to raise capital from third-party investors and lenders on competitive terms to help finance the origination of our solar energy systems. We have historically used a variety of structures including tax equity financing, construction loan financing, and term loan financing to help fund our operations. FromSeptember 4, 2013 , the inception of Legacy Altus, toMarch 31, 2022 , we have raised over$100 million of tax equity financing,$80 million in construction loan financing and$690 million of term loan financing. Our ability to raise capital from third-party investors and lenders is also affected by general economic conditions, the state of the capital markets, inflation levels and lenders' concerns about our industry or business.
Cost of Solar Energy Systems
Although the solar panel market has seen an increase in supply in the past few years, most recently, there has been upward pressure on prices due to lingering issues of the COVID-19 pandemic (further discussed below), growth in the solar industry, regulatory policy changes, tariffs and duties and an increase in demand. As a result of these developments, we have been experiencing higher prices on imported solar modules. The prices of imported solar modules have increased as a result of the COVID-19 pandemic and may increase as a result of theRussia invasion ofUkraine . If there are substantial increases, it may become less economical for us to serve certain markets. Attachment rates for energy storage systems have trended higher while the price to acquire has trended downward making the addition of energy storage systems a potential area of growth for us. Seasonality The amount of electricity our solar energy systems produce is dependent in part on the amount of sunlight, or irradiation, where the assets are located. Because shorter daylight hours in winter months and poor weather conditions due to rain or snow results in less irradiation, the output of solar energy systems will vary depending on the season and the overall weather conditions in a year. While we expect seasonal variability to occur, the geographic diversity in our assets helps to mitigate our aggregate seasonal variability. Another aspect of seasonality to consider is in our construction program, which is more productive during warmer weather months and generally results in project completion during fourth quarter. This is particularly relevant for our projects under construction in colder climates like the Northeast.
Pipeline
As ofMarch 31, 2022 , our pipeline of opportunities totaled over one gigawatt and is comprised of approximately 50% potential operating acquisitions and 50% projects under development. The operating acquisitions are dynamic with new opportunities being evaluated by our team each quarter. Approximately 25% of this segment are either single assets or batches of assets which we view as "ordinary course" acquisitions and which we have had a successful history of executing each year.
As of
Projects originated by our channel partners which we then develop, engineer and construct benefit from a shorter time from agreed terms to revenues, typically 6 to 9 months based on our historical experience. Projects that we are originating ourselves and self-developing, such as those with a lead from CBRE orBlackstone , would historically take 12 to 15 months from agreed terms to bring to commercial operation. Given the supply chain challenges and permitting and interconnection delays described above, as ofMarch 31, 2022 , these historical timelines are currently pushed out by approximately 3 to 6 months.
Government Regulations, Policies and Incentives
Our growth strategy depends in significant part on government policies and
incentives that promote and support solar energy and enhance the economic
viability of distributed solar. These incentives come in various forms,
including net metering, eligibility for accelerated depreciation such as
modified accelerated cost recovery system, solar renewable energy credits
("SRECs"), tax abatements, rebate and renewable target incentive programs and
tax credits, particularly the Section 48(a) investment tax credits ("ITC"). We
are a party to a variety of agreements under which we may be obligated to
indemnify the
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counterparty with respect to certain matters. Typically, these obligations arise
in connection with contracts and tax equity partnership arrangements, under
which we customarily agree to hold the other party harmless against losses
arising from a breach of warranties, representations, and covenants related to
such matters as title to assets sold, negligent acts, damage to property,
validity of certain intellectual property rights, non-infringement of
third-party rights, and certain tax matters including indemnification to
customers and tax equity investors regarding Commercial ITCs. The sale of SRECs
has constituted a significant portion of our revenue historically. A change in
the value of SRECs or changes in other policies or a loss or reduction in such
incentives could decrease the attractiveness of distributed solar to us and our
customers in applicable markets, which could reduce our growth opportunities.
Such a loss or reduction could also reduce our willingness to pursue certain
customer acquisitions due to decreased revenue or income under our solar service
agreements. Additionally, such a loss or reduction may also impact the terms of
and availability of third-party financing. If any of these government
regulations, policies or incentives are adversely amended, delayed, eliminated,
reduced, retroactively changed or not extended beyond their current expiration
dates or there is a negative impact from the recent federal law changes or
proposals, our operating results and the demand for, and the economics of,
distributed solar energy may decline, which could harm our business.
Impact of the COVID-19 Pandemic and Supply
In
Our business operations have continued to function effectively during the pandemic. We are continuously evaluating the pandemic and are taking necessary steps to mitigate known risks. We will continue to adjust our actions and operations as appropriate in order to continue to provide safe and reliable service to our customers and communities while keeping our employees and contractors safe. Although we have been able to mitigate to a certain extent the impact to the operations of the Company to date, given that COVID-19 infections remain persistent in many states where we do business and the situation is evolving, we cannot predict the future impact of COVID-19 on our business. We considered the impact of COVID-19 on the use of estimates and assumptions used for financial reporting and noted there were material impacts on our results of operations for the three months endedMarch 31, 2022 and 2021, as supply chain issues and logistical delays have materially impacted the timing of our construction schedules and will continue to have a material adverse effect on our business, operations, financial condition, results of operations, and cash flows The service and installation of solar energy systems has continued during the COVID-19 pandemic. This continuation of service reflects solar services' designation as an essential service in all of our service territories. Throughout the COVID-19 pandemic, we have seen some impacts to our supply chain affecting the timing of delivery of certain equipment, including, but not limited to, solar modules, inverters, racking systems, and transformers. Although we have largely been able to ultimately procure the equipment needed to service and install solar energy systems, we have experienced delays in such procurement. We have established a geographically diverse group of suppliers, which is intended to ensure that our customers have access to affordable and effective solar energy and storage options despite potential trade, geopolitical or event-driven risks. We do anticipate continuing impacts to our ability to source parts for our solar energy systems or energy storage systems, which we are endeavoring to mitigate via advanced planning and ordering from our diverse network of suppliers. However, if supply chains become even further disrupted due to additional outbreaks of the COVID-19 virus or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems could become more adversely impacted. There is considerable uncertainty regarding the extent and duration of governmental and other measures implemented to try to slow the spread of the COVID-19 virus, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Some states that had begun taking steps to reopen their economies experienced a subsequent surge in cases of COVID-19, causing these states to cease such reopening measures in some cases and reinstitute restrictions in others. Restrictions of this nature have caused, and may continue to cause, us to experience operational delays and may cause milestones or deadlines relating to various project documents to be missed. To date, we have not received notices from our dealers regarding significant performance delays resulting from the COVID-19 pandemic. However, worsening economic conditions could result in such outcomes over time, which would impact our future financial performance. Further, the effects of the economic downturn associated with the COVID-19 pandemic may reduce consumer credit ratings and credit availability, which may adversely affect new customer origination and our existing customers' ability to make payments on their solar service agreements. Periods of a lack of availability of credit may lead to increased delinquency and default rates. We have not experienced a significant increase in default or delinquency rates to date. However, if existing economic conditions continue for a prolonged period of time or worsen, delinquencies on solar service agreements could materialize, which would also negatively impact our future financial performance. Moreover, theRussia invasion ofUkraine may further exacerbate some of the supply chain issues.
We cannot predict the full impact the COVID-19 pandemic, the
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condition and results of operations at this time due to numerous uncertainties.
The ultimate impact will depend on future developments, including, among other
things, the ultimate duration of the COVID-19 virus, the duration of the Russia
invasion of Ukraine and associated sanctions, the distribution, acceptance and
efficacy of the vaccine, the depth and duration of the economic downturn and
other economic effects of the COVID-19 pandemic, the consequences of
governmental and other measures designed to prevent the spread of the COVID-19
virus, actions taken by governmental authorities, customers, suppliers, dealers
and other third parties, our ability and the ability of our customers, potential
customers and dealers to adapt to operating in a changed environment and the
timing and extent to which normal economic and operating conditions resume. For
additional discussion regarding risks associated with the COVID-19 pandemic, see
"Risk Factors" elsewhere in our 2021 Annual Report on Form 10-K.
Key Financial and Operational Metrics
We regularly review a number of metrics, including the following key operational and financial metrics, to evaluate our business, measure our performance and liquidity, identify trends affecting our business, formulate our financial projections and make strategic decisions.
Megawatts Installed
Megawatts installed represents the aggregate megawatt nameplate capacity of
solar energy systems for which panels, inverters, and mounting and racking
hardware have been installed on premises in the period. Cumulative megawatts
installed represents the aggregate megawatt nameplate capacity of solar energy
systems for which panels, inverters, and mounting and racking hardware have been
installed on premises.
As of March 31, 2022 As of March 31, 2021 Change
Megawatts installed 362 247 115
Cumulative megawatts installed increased from 247 MW as of
As of March 31, 2022 As of December 31, 2021 Change
Megawatts installed 362 362 -
Cumulative megawatts installed remained flat as of
Non-GAAP Financial Measures
Adjusted EBITDA
We define adjusted EBITDA as net income plus net interest expense, depreciation, amortization and accretion expense, income tax expense, acquisition and entity formation costs, non-cash compensation expense, and excluding the effect of certain non-recurring items we do not consider to be indicative of our ongoing operating performance such as, but not limited to, gain or loss on fair value remeasurement of contingent consideration, change in fair value of redeemable warrant liability, change in fair value of alignment shares liability, and other miscellaneous items of other income and expenses.
We define adjusted EBITDA margin as adjusted EBITDA divided by operating revenues.
Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures that
we use to measure out performance. We believe that investors and analysts also
use adjusted EBITDA in evaluating our operating performance. This measurement is
not recognized in accordance with GAAP and should not be viewed as an
alternative to GAAP measures of performance. The GAAP measure most directly
comparable to adjusted EBITDA is net income and to adjusted EBITDA margin is net
income over operating revenues. The presentation of adjusted EBITDA and adjusted
EBITDA margin should not be construed to suggest that our future results will be
unaffected by non-cash or non-recurring items. In addition, our calculation of
adjusted EBITDA and adjusted EBITDA margin are not necessarily comparable to
adjusted EBITDA as calculated by other companies and investors and analysts
should read carefully the components of our calculations of these non-GAAP
financial measures.
We believe adjusted EBITDA is useful to management, investors and analysts in
providing a measure of core financial performance adjusted to allow for
comparisons of results of operations across reporting periods on a consistent
basis. These adjustments are intended to exclude items that are not indicative
of the ongoing operating performance of the business.
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Adjusted EBITDA is also used by our management for internal planning purposes,
including our consolidated operating budget, and by our board of directors in
setting performance-based compensation targets. Adjusted EBITDA should not be
considered an alternative to but viewed in conjunction with GAAP results, as we
believe it provides a more complete understanding of ongoing business
performance and trends than GAAP measures alone. Adjusted EBITDA has limitations
as an analytical tool, and you should not consider it in isolation or as a
substitute for analysis of our results as reported under GAAP.
Three Months Ended
March 31,
2022 2021
(in thousands)
Reconciliation of Net income to Adjusted EBITDA:
Net income $ 60,135 $ 263
Income tax benefit (123) (1,037)
Interest expense, net 4,938 3,913
Depreciation, amortization and accretion expense 6,822 4,388
Non-cash compensation expense 1,305 37
Acquisition and entity formation costs 294 147
Loss (gain) on fair value of contingent consideration 169 (1,275)
Change in fair value of redeemable warrant liability (18,458) -
Change in fair value of alignment shares liability (46,346) -
Other expense (income), net 15 (111)
Adjusted EBITDA $ 8,751 $ 6,325
Three Months Ended
March 31,
2022 2021
(in thousands)
Reconciliation of Adjusted EBITDA margin:
Adjusted EBITDA $ 8,751 $ 6,325
Operating revenues, net 19,199 12,471
Adjusted EBITDA margin 46 % 51 %
Components of Results of Operations
The Company derives its operating revenues principally from power purchase agreements, net metering credit agreements, solar renewable energy credits, and performance based incentives. Approximately 60% of our combined power purchase agreements and net metering credit agreements are variable-rate contracts and 40% are fixed-rate contracts. Revenue under power purchase agreements. A portion of the Company's power sales revenues is earned through the sale of energy (based on kilowatt hours) pursuant to the terms of PPAs. The Company's PPAs typically have fixed or floating rates and are generally invoiced monthly. The Company applied the practical expedient allowing the Company to recognize revenue in the amount that the Company has a right to invoice which is equal to the volume of energy delivered multiplied by the applicable contract rate. As ofMarch 31, 2022 , PPAs have a weighted-average remaining life of 15 years. Revenue from net metering credit agreements. A portion of the Company's power sales revenues are obtained through the sale of net metering credits under net metering credit agreements ("NMCAs"). Net metering credits are awarded to the Company by the local utility based on kilowatt hour generation by solar energy facilities, and the amount of each credit is determined by the utility's applicable tariff. The Company currently receives net metering credits from various utilities including Eversource Energy, National Grid Plc, and Xcel Energy. There are no direct costs associated with net metering credits, and therefore, they do not receive an allocation of costs upon generation. Once awarded, these credits are then sold to third party offtakers pursuant to the terms of the offtaker agreements. The Company views each net metering credit in these arrangements as a distinct performance obligation satisfied at a point in time. Generally, the customer obtains control of net metering credits at the point in time when the utility assigns the generated credits to the Company account,who directs the utility to allocate to the customer based upon a schedule. The transfer of credits by the Company to the customer can be up to one month after the underlying power is generated. As a result, revenue related to NMCA is recognized upon delivery of net 27 --------------------------------------------------------------------------------
metering credits by the Company to the customer. As of
Solar renewable energy certificate revenue. The Company applies for and receives SRECs in certain jurisdictions for power generated by solar energy systems it owns. The quantity of SRECs is based on the amount of energy produced by the Company's qualifying generation facilities. SRECs are sold pursuant to agreements with third parties,who typically require SRECs to comply with state-imposed renewable portfolio standards. Holders of SRECs may benefit from registering the credits in their name to comply with these state-imposed requirements, or from selling SRECs to a party that requires additional SRECs to meet its compliance obligations. The Company receives SRECs from various state regulators includingNew Jersey Board of Public Utilities ,Massachusetts Department of Energy Resources , andMaryland Public Service Commission . There are no direct costs associated with SRECs and therefore, they do not receive an allocation of costs upon generation. The majority of individual SREC sales reflect a fixed quantity and fixed price structure over a specified term. The Company typically sells SRECs to different customers from those purchasing the energy under PPAs. The Company believes the sale of each SREC is a distinct performance obligation satisfied at a point in time and that the performance obligation related to each SREC is satisfied when each SREC is delivered to the customer.
Rental income. A portion of the Company's energy revenue is derived from long-term PPAs accounted for as operating leases under Accounting Standards Codification ("ASC") 840, Leases. Rental income under these lease agreements is recorded as revenue when the electricity is delivered to the customer.
Performance-Based Incentives. Many state governments, utilities, municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and operation of a renewable energy facility. Up-front rebates provide funds based on the cost, size or expected production of a renewable energy facility. Performance-based incentives provide cash payments to a system owner based on the energy generated by its renewable energy facility during a pre-determined period, and they are paid over that time period. The Company recognizes revenue from state and utility incentives at the point in time in which they are earned.
Other Revenue. Other revenue consists primarily of sales of power on wholesale electricity market which are recognized in revenue upon delivery.
Cost of Operations (Exclusive of Depreciation and Amortization). Cost of operations primarily consists of operations and maintenance expense, site lease expense, insurance premiums, property taxes and other miscellaneous costs associated with the operations of solar energy facilities. Altus expects its cost of operations to continue to grow in conjunction with its business growth. These costs as a percentage of revenue will decrease over time, offsetting efficiencies and economies of scale with inflationary increases of certain costs. General and Administrative. General and administrative expenses consist primarily of salaries, bonuses, benefits and all other employee-related costs, including stock-based compensation, professional fees related to legal, accounting, human resources, finance and training, information technology and software services, marketing and communications, travel and rent and other office-related expenses. Altus expects increased general and administrative expenses as it continues to grow its business but to decrease over time as a percentage of revenue. Altus also expects to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of theSEC . Further, Altus expects to incur higher expenses for investor relations, accounting advisory, directors' and officers' insurance, and other professional services. Depreciation, Amortization and Accretion Expense. Depreciation expense represents depreciation on solar energy systems that have been placed in service. Depreciation expense is computed using the straight-line composite method over the estimated useful lives of assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives or the remaining term of the lease. Amortization includes third party costs necessary to enter into site lease agreements, third party costs necessary to acquire PPA and NMCA customers and favorable and unfavorable rate revenues contracts. Third party costs necessary to enter into site lease agreements are amortized using the straight-line method ratably over 15-30 years based upon the term of the individual site leases. Third party costs necessary to acquire PPAs and NMCA customers are amortized using the straight-line method ratably over 15-25 years based upon the term of the customer contract. Estimated fair value allocated to the favorable and unfavorable rate PPAs and REC agreements are amortized using the straight-line method over the remaining non-cancelable terms of the respective agreements. Accretion expense includes over time increase of asset retirement obligations associated with solar energy facilities. 28 -------------------------------------------------------------------------------- Acquisition and Entity Formation Costs. Acquisition and entity formation costs represent costs incurred to acquire businesses and form new legal entities. Such costs primarily consist of professional fees for banking, legal, accounting and appraisal services. Fair Value Remeasurement of Contingent Consideration. In connection with the Solar Acquisition (as defined in Note 7, "Acquisitions," to our audited consolidated annual financial statements included in our Annual Report on Form 10-K), contingent consideration of up to an aggregate of$10.5 million may be payable upon achieving certain market power rates and actual power volumes generated by the acquired solar energy facilities. The Company estimated the fair value of the contingent consideration for future earnout payments using a Monte Carlo simulation model. Significant assumptions used in the measurement include the estimated volumes of power generation of acquired solar energy facilities during the 18-36-month period since the acquisition date, market power rates during the 36-month period, and the risk-adjusted discount rate associated with the business. Stock-Based Compensation. Stock-based compensation expense is recognized for awards granted under the Legacy Incentive Plans and Omnibus Incentive Plan, as defined in Note 12, "Stock-Based Compensation," to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Change in Fair Value of Redeemable Warrant Liability. In connection with the Merger, the Company assumed a redeemable warrant liability composed of publicly listed warrants (the "Redeemable Warrants") and warrants issued toCBRE Acquisition Sponsor, LLC in the private placement (the "Private Placement Warrants"). Redeemable Warrant Liability was remeasured as ofMarch 31, 2022 , and the resulting gain was included in the condensed consolidated statements of operations. As our Redeemable Warrants (other than the Private Placement Warrants) continue to trade separately on the NYSE following the Merger, the Company determines the fair value of the Redeemable Warrants based on the quoted trading price of those warrants. The Private Placement Warrants have the same redemption and make-whole provisions as the Redeemable Warrants. Therefore, the fair value of the Private Placement Warrants is equal to the Redeemable Warrants. The Company determines the fair value of the Redeemable Warrants, including Private Placement Warrants, based on the quoted trading price of the Redeemable Warrants. Change in Fair Value of Alignment Shares Liability. Alignment shares represent Class B common stock of the Company which were issued in connection with the Merger. Class B common stock, par value$0.0001 per share ("Alignment Shares") are accounted for as liability-classified derivatives, which were remeasured as ofMarch 31, 2022 , and the resulting gain was included in the condensed consolidated statements of operations. The Company estimates the fair value of outstanding Alignment Shares using a Monte Carlo simulation valuation model utilizing a distribution of potential outcomes based on a set of underlying assumptions such as stock price, volatility, and risk-free interest rates.
Other Expense (Income), Net. Other income and expenses primarily represent state grants and other miscellaneous items.
Interest Expense, Net. Interest expense, net represents interest on our borrowings under our various debt facilities, amortization of debt discounts and deferred financing costs, and unrealized gains and losses on interest rate swaps.
Income Tax Benefit. We account for income taxes under ASC 740, Income Taxes. As
such, we determine deferred tax assets and liabilities based on temporary
differences resulting from the different treatment of items for tax and
financial reporting purposes. We measure deferred tax assets and liabilities
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to reverse. Additionally, we must
assess the likelihood that deferred tax assets will be recovered as deductions
from future taxable income. We have a partial valuation allowance on our
deferred state tax assets because we believe it is more likely than not that a
portion of our deferred state tax assets will not be realized. We evaluate the
recoverability of our deferred tax assets on a quarterly basis.
Net Income Attributable to Noncontrolling Interests and Redeemable
Noncontrolling Interests. Net income attributable to noncontrolling interests
and redeemable noncontrolling interests represents third-party interests in the
net income or loss of certain consolidated subsidiaries based on Hypothetical
Liquidation at Book Value.
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Results of Operations - Three Months Ended
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Operating revenues, net $ 19,199 $ 12,471 $ 6,728 53.9 %
Operating expenses
Cost of operations (exclusive of depreciation and
amortization shown separately below) 4,064 2,920 1,144 39.2 %
General and administrative 6,384 3,226 3,158 97.9 %
Depreciation, amortization and accretion expense 6,822 4,388 2,434 55.5 %
Acquisition and entity formation costs 294 147 147 100.0 %
Loss (gain) on fair value remeasurement of
contingent consideration 169 (1,275) 1,444 (113.3) %
Stock-based compensation 1,305 37 1,268 3,427.0 %
Total operating expenses $ 19,038 $ 9,443 $ 9,595 101.6 %
Operating income 161 3,028 (2,867) (94.7) %
Other (income) expense
Change in fair value of redeemable warrant
liability (18,458) - (18,458) 100.0 %
Change in fair value of alignment shares
liability (46,346) - (46,346) 100.0 %
Other expense (income), net 15 (111) 126 (113.5) %
Interest expense, net 4,938 3,913 1,025 26.2 %
Total other (income) expense $ (59,851) $ 3,802 $ (63,653) (1,674.2) %
Income (loss) before income tax benefit $ 60,012 $ (774) $ 60,786 (7,853.5) %
Income tax benefit 123 1,037 (914) (88.1) %
Net income $ 60,135 $ 263 $ 59,872 22,765.0 %
Net income attributable to noncontrolling
interests and redeemable noncontrolling interests (284) (699) 415 (59.4) %
Net income attributable to
962 $ 59,457 6,180.6 %
Net income per share attributable to common
stockholders
Basic $ 0.39 $ 0.01 $ 0.38 3,553.4 %
Diluted $ 0.39 $ 0.01 $ 0.38 3,604.8 %
Weighted average shares used to compute net
income per share attributable to common
stockholders
Basic 152,662,512 88,741,089 63,921,423 72.0 %
Diluted 153,586,538 89,991,570 63,594,968 70.7 %
30
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Operating Revenues, Net
Three Months Ended
March 31, Change
2022 2021 Change %
(in thousands)
Revenue under power purchase agreements $ 4,182 $ 3,132 $ 1,050 33.5 %
Revenue from net metering credit agreements 3,910 2,944 966 32.8 %
Solar renewable energy certificate revenue 9,531 5,565 3,966 71.3 %
Rental income 644 114 530 464.9 %
Performance-based incentives 359 551 (192) (34.8) %
Other revenue 573 165 408 247.3 %
Total $ 19,199 $ 12,471 $ 6,728 53.9 %
Operating revenues, net increased by $6.7 million , or 53.9%, for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021
primarily due to the increased number of solar energy facilities as a result of
acquisitions and facilities placed in service subsequent to March 31, 2021 .
Cost of Operations
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Cost of operations (exclusive of
depreciation and amortization shown
separately below) $ 4,064 $ 2,920 $ 1,144 39.2 %
Cost of operations increased by $1.1 million , or 39.2%, during the three months
ended March 31, 2022 as compared to the three months ended March 31, 2021 ,
primarily due to the increased number of solar energy facilities as a result of
acquisitions and facilities placed in service subsequent to March 31, 2021 .
General and Administrative
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
General and administrative $ 6,384 $ 3,226 $ 3,158 97.9 %
General and administrative expense increased by $3.2 million , or 97.9%, during
the three months ended March 31, 2022 as compared to the three months ended
March 31, 2021 , primarily due to increase in general personnel costs resulting
from increased headcount in multiple job functions.
Depreciation, Amortization and Accretion Expense
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Depreciation, amortization and accretion
expense $ 6,822 $ 4,388 $ 2,434 55.5 %
Depreciation, amortization and accretion expense increased by $2.4 million , or
55.5%, during the three months ended March 31, 2022 as compared to the three
months ended March 31, 2021 , primarily due to the increased number of solar
energy facilities as a result of acquisitions and facilities placed in service
subsequent to March 31, 2021 .
31
--------------------------------------------------------------------------------Acquisition and Entity Formation Costs
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Acquisition and entity formation costs $ 294 $ 147 $ 147 100.0 %
Acquisition and entity formation costs increased by $0.1 million , or 100.0%,
during the three months ended March 31, 2022 , as compared to the three months
ended March 31, 2021 , primarily due to costs associated with the Merger.
Loss (gain) on fair value remeasurement of contingent consideration
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Loss (gain) on fair value remeasurement of
contingent consideration $ 169 $ (1,275) $ 1,444 (113.3) %
Loss (gain) on fair value remeasurement of contingent consideration is primarily
associated with the Solar Acquisition (as defined in Note 7, "Acquisitions," to
our audited consolidated annual financial statements included in our 2021 Annual
Report on Form 10-K) completed on December 22, 2020 . Loss on fair value
remeasurement was recorded for the three months ended March 31, 2022 , due to
changes in the values of significant assumptions used in the measurement,
including the estimated volumes of power generation of acquired solar energy
facilities.
Stock-based compensation
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Stock-based compensation $ 1,305 $ 37 $ 1,268 3,427.0 %
Stock-based compensation increased by $1.3 million during the three months ended
March 31, 2022 , as compared to the three months ended March 31, 2021 , primarily
due to restricted stock units granted under the Omnibus Incentive Plan (as
defined in Note 12, "Stock-Based Compensation," to our condensed consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q),
which was adopted on July 12, 2021 .
Change in fair value of redeemable warrant liability
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Change in fair value of redeemable warrant
liability $ (18,458) $ - $ (18,458) 100.0 %
In connection with the Merger, the Company assumed a redeemable warrant
liability which was remeasured as of March 31, 2022 , and the resulting gain was
included in the consolidated statement of operations. The gain was primarily
driven by the decrease in the quoted price of the Company's Redeemable Warrants
as of March 31, 2022 , compared to December 31, 2021 .
Change in fair value of alignment shares liability
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands)
Change in fair value of alignment shares
liability $ (46,346) $ - $ (46,346) 100.0 %
32-------------------------------------------------------------------------------- In connection with the Merger, the Company assumed a liability related to alignment shares, which was remeasured as ofMarch 31, 2022 , and the resulting gain was included in the consolidated statement of operations. The gain was primarily driven by the decrease in the Company's stock price as ofMarch 31, 2022 , compared toDecember 31, 2021 . Other Expense (Income), Net Three Months Ended March 31, Change 2022 2021 $ % (in thousands) Other expense (income), net$ 15 $ (111) $ 126 (113.5) % Other expense was approximately zero during the three months endedMarch 31, 2022 , as compared to other income of$0.1 million during the three months endedMarch 31, 2021 , due to miscellaneous other income and expense items during each period. Interest Expense, Net Three Months Ended March 31, Change 2022 2021 $ % (in thousands) Interest expense, net$ 4,938 $ 3,913 $ 1,025 26.2 % Interest expense increased by$1.0 million , or 26.2%, during the three months endedMarch 31, 2022 , as compared to the three months endedMarch 31, 2021 , primarily due to the increase of outstanding debt held by the Company during these periods but offset by a lower blended interest rate on the Amended Rated Term Loan Facility. Income Tax Benefit Three Months Ended March 31, Change 2022 2021 $ % (in thousands) Income tax benefit$ 123 $ 1,037 $ (914) (88.1) % For the three months endedMarch 31, 2022 , the Company recorded an income tax benefit of$0.1 million in relation to pretax income of$60.0 million , which resulted in an effective income tax rate of negative 0.2%. The effective income tax rate was primarily impacted by$13.6 million of income tax benefit related to fair value adjustments on redeemable warrants and alignment shares,$1.4 million of income tax expense associated with nondeductible compensation,$0.3 million of income tax expense from net losses attributable to noncontrolling interests and redeemable noncontrolling interests, and$0.1 million of state income tax benefit. Related to the$13.6 million of income tax benefit, the Company has issued redeemable warrants and alignment shares. These awards are liability classified awards forU.S. GAAP, and, as such, they are required to be remeasured to fair value each reporting period with the change in value included in operating income. The redeemable warrants and alignment shares are considered equity awards forU.S. tax purposes. Therefore, the change inU.S. GAAP value does not result in taxable income or deduction. TheU.S. GAAP change in fair value results in a permanent tax difference which impacts the Company's estimated annual effective tax rate. For the three months endedMarch 31, 2021 , the Company recorded an income tax benefit of$1.0 million in relation to a pretax loss of$0.8 million , which resulted in an effective income tax rate of negative 134.0%. The effective income tax rate was primarily impacted by$0.6 million of income tax benefit due to net losses attributable to noncontrolling interests and redeemable noncontrolling interests,$0.2 million of state income tax benefit, and$0.3 million of income tax benefit associated with the remeasurement of contingent consideration. 33 -------------------------------------------------------------------------------- Net Loss Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests Three Months Ended March 31, Change 2022 2021 $ % (in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests$ (284) $ (699) $ 415 (59.4) % Net loss attributable to redeemable noncontrolling interests and noncontrolling interests decreased by$0.4 million , or 59.4%, during the three months endedMarch 31, 2022 , as compared to the three months endedMarch 31, 2021 , primarily due a higher amount of taxable income attributable to noncontrolling interests in the current period.
Liquidity and Capital Resources
As ofMarch 31, 2022 , the Company had total cash and restricted cash of$322.5 million . For a discussion of our restricted cash, see Note 2, "Significant Accounting Policies, Cash and Restricted Cash," to our condensed consolidated financial statements. We seek to maintain diversified and cost-effective funding sources to finance and maintain our operations, fund capital expenditures, including customer acquisitions, and satisfy obligations arising from our indebtedness. Historically, our primary sources of liquidity included proceeds from the issuance of redeemable preferred stock, borrowings under our debt facilities, third party tax equity investors and cash from operations. Additionally, the Company received cash proceeds of$293 million as a result of the Merger. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy facilities. We will seek to raise additional required capital from borrowings under our existing debt facilities, third party tax equity investors and cash from operations. The solar energy systems that are in service are expected to generate a positive return rate over the useful life, typically 32 years. Typically, once solar energy systems commence operations, they do not require significant additional capital expenditures to maintain operating performance. However, in order to grow, we are currently dependent on financing from outside parties. The Company will have sufficient cash and cash flows from operations to meet working capital, debt service obligations, contingencies and anticipated required capital expenditures for at least the next 12 months. However, we are subject to business and operational risks that could adversely affect our ability to raise additional financing. If financing is not available to us on acceptable terms if and when needed, we may be unable to finance installation of our new customers' solar energy systems in a manner consistent with our past performance, our cost of capital could increase, or we may be required to significantly reduce the scope of our operations, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, our tax equity funds and debt instruments impose restrictions on our ability to draw on financing commitments. If we are unable to satisfy such conditions, we may incur penalties for non-performance under certain tax equity funds, experience installation delays, or be unable to make installations in accordance with our plans or at all. Any of these factors could also impact customer satisfaction, our business, operating results, prospects and financial condition.
Contractual Obligations and Commitments
We enter into service agreements in the normal course of business. These contracts do not contain any minimum purchase commitments. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly, to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. As ofMarch 31, 2022 , we do not expect to cancel these agreements.
The Company has operating leases for land and buildings and has contractual commitments to make payments in accordance with site lease agreements.
Off-Balance Sheet Arrangements
The Company enters into letters of credit and surety bond arrangements with lenders, local municipalities, government agencies, and land lessors. These arrangements relate to certain performance-related obligations and serve as security under the applicable agreements. As ofMarch 31, 2022 and 2021, the Company had outstanding letters of credit and surety bonds totaling$10.6 million . Our outstanding letters of credit are primarily used to fund the debt service reserve account associated with the 34 -------------------------------------------------------------------------------- Amended Rated Term Loan. We believe the Company will fulfill the obligations under the related arrangements and do not anticipate any material losses under these letters of credit or surety bonds.
Debt
Amended Rated Term Loan Facility
As part of the Blackstone Capital Facility,APA Finance, LLC ("APAF"), a wholly owned subsidiary of the Company, entered into a$251.0 million term loan facility withBlackstone Insurance Solutions ("BIS") through a consortium of lenders, which consists of investment grade-rated Class A and Class B notes (the "Rated Term Loan"). OnAugust 25, 2021 , APAF entered into an Amended and Restated Credit Agreement with BIS to refinance the Rated Term Loan (hereby referred to as the "Amended Rated Term Loan"). The Amended Rated Term Loan added an additional$135.6 million to the facility, bringing the aggregate facility to$503.0 million . The Amended Rated Term Loan has a weighted average 3.51% annual fixed rate, reduced from the previous weighted average rate of 3.70%, and matures onFebruary 29, 2056 ("Final Maturity Date"). The Amended Rated Term Loan amortizes at an initial rate of 2.5% of outstanding principal per annum for a period of 8 years at which point the amortization steps up to 4% per annum untilSeptember 30, 2031 ("Anticipated Repayment Date"). After the Anticipated Repayment Date, the loan becomes fully-amortizing, and all available cash is used to pay down principal until the Final Maturity Date. As ofMarch 31, 2022 , the outstanding principal balance of the Rated Term Loan was$496.6 million less unamortized debt discount and loan issuance costs totaling$8.2 million . As ofDecember 31, 2021 , the outstanding principal balance of the Rated Term Loan was$500.0 million less unamortized debt discount and loan issuance costs totaling$8.4 million . As ofMarch 31, 2022 , andDecember 31, 2021 , the Company was in compliance with all covenants, except the delivery of the APAF audited consolidated financial statements, for which the Company obtained a waiver to extend the financial statement reporting deliverable due dates. The Company expects to deliver the audited financial statements before the extended reporting deliverable due dates.
Construction Loan to Term Loan Facility
OnJanuary 10, 2020 ,APA Construction Finance, LLC ("APACF") a wholly-owned subsidiary of the Company, entered into a credit agreement with Fifth ThirdBank, National Association and Deutsche Bank AG New York Branch to fund the development and construction of future solar facilities ("Construction Loan to Term Loan Facility"). The Construction Loan to Term Loan Facility includes a construction loan commitment of$187.5 million and a letter of credit commitment of$12.5 million , which can be drawn untilJanuary 10, 2023 . The construction loan commitment can convert to a term loan upon commercial operation of a particular solar energy facility. In addition, the Construction Loan to Term Loan Facility accrued a commitment fee at a rate equal to .50% per year of the daily unused amount of the commitment. As ofMarch 31, 2022 , the outstanding principal balances of the construction loan and term loan were$5.6 million and$12.2 million , respectively. As ofDecember 31, 2021 , the outstanding principal balances of the construction loan and term loan were$5.6 million and$12.3 million , respectively. As ofMarch 31, 2022 , andDecember 31, 2021 , the Company had an unused borrowing capacity of$169.7 million . For the three months endedMarch 31, 2022 , and 2021 the Company incurred interest costs associated with outstanding construction loans totaling zero and$0.1 million , respectively, which were capitalized as part of property, plant and equipment. Also, onOctober 23, 2020 , the Company entered into an additional letters of credit facility withFifth Third Bank for the total capacity of$10.0 million . The Construction Loan to Term Loan Facility includes various financial and other covenants for APACF and the Company, as guarantor. As ofMarch 31, 2022 andDecember 31, 2021 , the Company was in compliance with all covenants.
Financing Lease Obligations
From time to time, the Company sells equipment to third parties and enters into
master lease agreements to lease the equipment back for an agreed-upon term. Due
to certain forms of continuous involvement provided by the master lease
agreements, sale leaseback accounting is prohibited under ASC 840. Therefore,
the Company accounts for these transactions using the financing method by
recognizing the sale proceeds as a financing obligation and the assets subject
to the sale-leaseback remain on the balance sheet of the Company and are being
depreciated. The aggregate proceeds have been recorded as long-term debt within
the condensed consolidated balance sheets.
35
--------------------------------------------------------------------------------
As of March 31, 2022 , the Company recorded a financing obligation of $36.6
million , net of $1.1 million of deferred transaction costs. As of December 31,
2021 , the Company recorded a financing obligation of $36.5 million , net of $1.1
million of deferred transaction costs. Payments of $0.2 million and zero were
made under financing obligations for the three months ended March 31, 2022 and
2021, respectively. Interest expense, inclusive of the amortization of deferred
transaction costs for the three months ended March 31, 2022 and 2021, was $0.4
million and zero, respectively.
Cash Flows
For the Three Months Ended
The following table sets forth the primary sources and uses of cash and restricted cash for each of the periods presented below:
Three Months Ended
March 31,
2022 2021
(in thousands)
Net cash provided by (used for):
Operating activities $ 3,499 $ 3,222
Investing activities (6,571) (8,671)
Financing activities (4,720) (8,201)
Net decrease in cash and restricted cash
Operating Activities
During the three months ended
During the three months ended
Investing Activities
During the three months ended
During the three months endedMarch 31, 2021 , net cash used in investing activities was$8.7 million , consisting of$2.2 million of capital expenditures,$5.0 million to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired, and$1.5 million to acquire businesses, net of cash and restricted cash acquired.
Financing Activities
Net cash used for financing activities was$4.7 million for the three months endedMarch 31, 2022 , which primarily consisted of$3.4 million to repay long-term debt,$0.7 million paid for equity issuance costs, and$0.6 million of distributions to noncontrolling interests. Net cash used for financing activities was$8.2 million for the three months endedMarch 31, 2021 , which consisted primarily of$6.7 million to repay long-term debt,$8.4 million of paid dividends and commitment fees on Series A preferred stock,$0.5 million of distributions to noncontrolling interests, and$0.1 million of paid contingent consideration. Cash used for financing activities was partially off-set by$7.4 million of proceeds from issuance of long-term debt. 36 --------------------------------------------------------------------------------
Critical Accounting Policies and Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As ofMarch 31, 2022 , there have been no significant changes to the accounting estimates that we have deemed critical. Our critical accounting estimates are more fully described in our 2021 Annual Report on Form 10-K. Other than the policies noted in Note 2, "Significant Accounting Policies," in the Company's notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes to its critical accounting policies and estimates as compared to those disclosed in its audited consolidated financial statements in our 2021 Annual Report on Form 10-K.
Emerging Growth Company Status
InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Altus has elected to use the extended transition period for new or revised accounting standards during the period in which we remain an EGC. We expect to remain an EGC until the earliest to occur of: (1) the last day of the fiscal year in which we, as applicable, have more than$1.07 billion in annual revenue; (2) the date we qualify as a "large accelerated filer," with at least$700 million of equity securities held by non-affiliates; (3) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1) of Regulation S-K. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our stock held by non-affiliates is greater than or equal to$250 million as of the end of that fiscal year's second fiscal quarter, or (ii) our annual revenues are greater than or equal to$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is greater than or equal to$700 million as of the end of that fiscal year's second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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