UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-04321

ALTUS POWER, INC.

(Exact name of registrant as specified in its charter)

Delaware		85-3448396
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2200 Atlantic Street, Sixth Floor
Stamford,	CT	06902
(Address of Principal Executive Offices)		(Zip Code)

(203)-698-0090

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	AMPS	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ☒   No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes   ☐     No  ☒

As of May 13, 2023, there were 158,989,953 shares of Class A common stock outstanding and 1,006,250 shares of Class B common stock outstanding.

Table of Contents

Part I - Financial Information
Item 1. Financial Statements	4
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income	5
Condensed Consolidated Balance Sheets	6
Condensed Consolidated Statements of Changes in Stockholders' Equity	8
Condensed Consolidated Statements of Cash Flows	9
Notes to Financial Statements	11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk	49
Item 4. Controls and Procedures	50
Part II - Other Information
Item 1. Legal Proceedings	51
Item 1A. Risk Factors	51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3. Defaults Upon Senior Securities	51
Item 4. Mine Safety Disclosures	51
Item 5. Other Information	51
Item 6. Exhibits	51
Signatures	52

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Part I. Financial Statements

Item 1. Financial Statements

Altus Power, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except share and per share data)

	Three Months Ended March 31,
	2023		2022
Operating revenues, net	$	29,378	$	19,199
Operating expenses
Cost of operations (exclusive of depreciation and amortization shown separately below)	5,976		4,064
General and administrative	7,362		6,384
Depreciation, amortization and accretion expense	11,376		6,822
Acquisition and entity formation costs	1,491		294
Loss on fair value remeasurement of contingent consideration	50		169
Stock-based compensation	2,872		1,305
Total operating expenses	$	29,127	$	19,038
Operating income	251		161
Other (income) expense
Change in fair value of redeemable warrant liability	—		(18,458)
Change in fair value of alignment shares liability	(17,018)		(46,346)
Other expense, net	90		15
Interest expense, net	12,446		4,938
Total other income	$	(4,482)	$	(59,851)
Income before income tax (expense) benefit	$	4,733	$	60,012
Income tax (expense) benefit	(888)		123
Net income	$	3,845	$	60,135
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(1,772)		(284)
Net income attributable to Altus Power, Inc.	$	5,617	$	60,419
Net income per share attributable to common stockholders
Basic	$	0.04	$	0.39
Diluted	$	0.03	$	0.39
Weighted average shares used to compute net income per share attributable to common stockholders
Basic	158,621,674		152,662,512
Diluted	161,003,402		153,586,538

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Altus Power, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(In thousands)

	Three Months Ended March 31,
	2023		2022
Net income	$	3,845	$	60,135
Other comprehensive income (loss)
Foreign currency translation adjustment	9		—
Unrealized loss on a cash flow hedge, net of tax	(771)		—
Other comprehensive loss, net of tax	$	(762)	$	—
Total comprehensive income	$	3,083	$	60,135
Comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests	(1,772)		(284)
Comprehensive income attributable to Altus Power, Inc.	$	4,855	$	60,419

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Altus Power, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share data)

	As of March 31, 2023		As of December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	69,450	$	193,016
Current portion of restricted cash	3,376		2,404
Accounts receivable, net	16,116		13,443
Other current assets	4,440		6,206
Total current assets	93,382		215,069
Restricted cash, noncurrent portion	11,355		3,978
Property, plant and equipment, net	1,371,674		1,005,147
Intangible assets, net	47,770		47,627
Operating lease asset	122,719		94,463
Derivative assets	2,184		3,953
Other assets	8,277		6,651
Total assets	$	1,657,361	$	1,376,888
Liabilities, redeemable noncontrolling interests, and stockholders' equity
Current liabilities:
Accounts payable	$	5,568	$	2,740
Construction payable	19,720		9,038
Interest payable	5,640		4,436
Purchase price payable, current	14,454		12,077
Due to related parties	213		112
Current portion of long-term debt, net	32,549		29,959
Operating lease liability, current	3,704		3,339
Contract liability, current	4,223		2,590
Other current liabilities	10,210		3,937
Total current liabilities	96,281		68,228
Alignment shares liability	49,116		66,145
Long-term debt, net of unamortized debt issuance costs and current portion	835,729		634,603
Intangible liabilities, net	15,461		12,411
Purchase price payable, noncurrent	7,287		6,940
Asset retirement obligations	13,512		9,575
Operating lease liability, noncurrent	129,609		94,819
Contract liability, noncurrent	7,036		5,397
Deferred tax liabilities, net	11,329		11,011
Other long-term liabilities	1,805		4,700
Total liabilities	$	1,167,165	$	913,829
Commitments and contingent liabilities (Note 11)
Redeemable noncontrolling interests	24,343		18,133
Stockholders' equity
Common stock $0.0001 par value; 988,591,250 shares authorized as of March 31, 2023, and December 31, 2022; 158,989,953 and 158,904,401 shares issued and outstanding as of March 31, 2023, and December 31, 2022	16		16
Additional paid-in capital	474,202		470,004
Accumulated deficit	(40,302)		(45,919)
Accumulated other comprehensive loss	(762)		—
Total stockholders' equity	$	433,154	$	424,101
Noncontrolling interests	32,699		20,825
Total equity	$	465,853	$	444,926
Total liabilities, redeemable noncontrolling interests, and stockholders' equity	$	1,657,361	$	1,376,888

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The following table presents the assets and liabilities of the consolidated variable interest entities (Refer to Note 4).

(In thousands)	As of March 31, 2023		As of December 31, 2022
Assets of consolidated VIEs, included in total assets above:
Cash	$	14,034	$	11,652
Current portion of restricted cash	861		1,152
Accounts receivable, net	7,569		2,952
Other current assets	1,930		678
Restricted cash, noncurrent portion	1,762		1,762
Property, plant and equipment, net	705,171		401,711
Intangible assets, net	6,011		5,308
Operating lease asset	60,154		36,211
Other assets	591		591
Total assets of consolidated VIEs	$	798,083	$	462,017
Liabilities of consolidated VIEs, included in total liabilities above:
Accounts payable	$	787	$	454
Construction payable	1,447		—
Purchase price payable, current	1,636		—
Operating lease liability, current	1,266		2,742
Current portion of long-term debt, net	3,027		2,336
Contract liability	475		—
Other current liabilities	2		199
Long-term debt, net of unamortized debt issuance costs and current portion	40,323		33,332
Intangible liabilities, net	2,374		1,899
Asset retirement obligations	7,431		4,438
Operating lease liability, noncurrent	64,608		33,204
Contract liability	3,999		—
Other long-term liabilities	1		565
Total liabilities of consolidated VIEs	$	127,376	$	79,169

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Altus Power, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited)

(In thousands, except share data)

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity		Non Controlling Interests		Total Equity
	Shares	Amount
As of December 31, 2021	153,648,830	$	15	$	406,259	$	—	$	(101,356)	$	304,918	$	21,093	$	326,011
Stock-based compensation	—	—		1,305		—		—		1,305		—		1,305
Cash distributions to noncontrolling interests	—	—		—		—		—		—		(330)		(330)
Equity issuance costs	—	—		(712)		—		—		(712)		—		(712)
Conversion of alignment shares to Class A Common Stock and exercised warrants	—	—		15		—		—		15		—		15
Net income (loss)	—	—		—		—		60,419		60,419		(402)		60,017
As of March 31, 2022	153,648,830	15		406,867		—		(40,937)		365,945		20,361		386,306

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity		Non Controlling Interests		Total Equity
	Shares	Amount
As of December 31, 2022	158,904,401	$	16	$	470,004	$	—	$	(45,919)	$	424,101	$	20,825	$	444,926
Stock-based compensation	83,541	—		2,813		—		—		2,813		—		2,813
Cash distributions to noncontrolling interests	—	—		—		—		—		—		(526)		(526)
Cash contributions from noncontrolling interests	—	—		—		—		—		—		1,737		1,737
Conversion of alignment shares to Class A Common Stock and exercised warrants	2,011	—		11		—		—		11		—		11
Noncontrolling interests assumed through acquisitions	—	—		—		—		—		—		13,296		13,296
Redemption of redeemable noncontrolling interests	—	—		1,374		—		—		1,374		—		1,374
Other comprehensive loss	—	—		—		(762)		—		(762)		—		(762)
Net income (loss)	—	—		—		—		5,617		5,617		(2,633)		2,984
As of March 31, 2023	158,989,953	$	16	$	474,202	$	(762)	$	(40,302)	$	433,154	$	32,699	$	465,853

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Altus Power, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net income	$	3,845	$	60,135
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, amortization and accretion	11,376		6,822
Non-cash lease expense	112		—
Deferred tax expense (benefit)	888		(130)
Amortization of debt discount and financing costs	753		711
Change in fair value of redeemable warrant liability	—		(18,458)
Change in fair value of alignment shares liability	(17,018)		(46,346)
Remeasurement of contingent consideration	50		169
Stock-based compensation	2,813		1,305
Other	138		283
Changes in assets and liabilities, excluding the effect of acquisitions
Accounts receivable	1,685		724
Due to related parties	101		—
Derivative assets	1,769		(901)
Other assets	1,206		769
Accounts payable	2,828		(1,197)
Interest payable	1,204		(99)
Contract liability	152		—
Other liabilities	2,323		(288)
Net cash provided by operating activities	14,225		3,499
Cash flows used for investing activities
Capital expenditures	(24,844)		(6,571)
Payments to acquire businesses, net of cash and restricted cash acquired	(288,241)		—
Payments to acquire renewable energy facilities from third parties, net of cash and restricted cash acquired	(6,350)		—
Net cash used for investing activities	(319,435)		(6,571)
Cash flows used for financing activities
Proceeds from issuance of long-term debt	204,687		—
Repayment of long-term debt	(7,724)		(3,411)
Payment of debt issuance costs	(1,976)		(29)
Payment of deferred purchase price payable	(4,531)		—
Payment of equity issuance costs	—		(712)
Contributions from noncontrolling interests	1,737		—
Redemption of redeemable noncontrolling interests	(1,098)		—
Distributions to noncontrolling interests	(1,102)		(568)
Net cash provided by (used for) financing activities	189,993		(4,720)
Net decrease in cash, cash equivalents, and restricted cash	(115,217)		(7,792)
Cash, cash equivalents, and restricted cash, beginning of period	199,398		330,321
Cash, cash equivalents, and restricted cash, end of period	$	84,181	$	322,529

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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	Three Months Ended March 31,
	2023		2022
Supplemental cash flow disclosure
Cash paid for interest	$	6,509	$	4,935
Non-cash investing and financing activities
Asset retirement obligations	$	3,847	$	—
Debt assumed through acquisitions	8,100		—
Noncontrolling interest assumed through acquisitions	13,296		—
Redeemable noncontrolling interest assumed through acquisitions	8,100		—
Acquisitions of property and equipment included in construction payable	10,872		—
Acquisitions of property, plant and equipment included in other current liabilities	—		1,066
Conversion of alignment shares into common stock	11
Deferred purchase price payable	7,069		—

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Altus Power, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

1.General

Company Overview

Altus Power, Inc., a Delaware corporation (the “Company” or "Altus Power"), headquartered in Stamford, Connecticut, develops, owns, constructs and operates large-scale roof, ground and carport-based photovoltaic solar energy generation and storage systems, for the purpose of producing and selling electricity to credit worthy counterparties, including commercial and industrial, public sector and community solar customers, under long-term contracts. The Solar energy facilities are owned by the Company in project specific limited liability companies (the “Solar Facility Subsidiaries”).

On December 9, 2021 (the "Closing Date"), CBRE Acquisition Holdings, Inc. ("CBAH"), a special purpose acquisition company, consummated the business combination pursuant to the terms of the business combination agreement entered into on July 12, 2021 (the "Business Combination Agreement"), whereby, among other things, CBAH Merger Sub I, Inc. ("First Merger Sub") merged with and into Altus Power, Inc. (f/k/a Altus Power America, Inc.) ("Legacy Altus") with Legacy Altus continuing as the surviving corporation, and immediately thereafter Legacy Altus merged with and into CBAH Merger Sub II, Inc. ("Second Merger Sub") with Second Merger Sub continuing as the surviving entity and as a wholly owned subsidiary of CBAH (together with the merger with the First Merger Sub, the “Merger”). In connection with the closing of the Merger, CBAH changed its name to "Altus Power, Inc." and CBAH Merger Sub II (after merger with Legacy Altus) changed its name to "Altus Power, LLC."

2.Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company prepares its unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial reporting. The Company’s condensed consolidated financial statements include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022 filed with the Company’s 2022 annual report on Form 10-K on March 30, 2023, and the related notes which provide a more complete discussion of the Company’s accounting policies and certain other information. The information as of December 31, 2022, included in the condensed consolidated balance sheets was derived from the Company’s audited consolidated financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of March 31, 2023, and the results of operations and cash flows for the three months ended March 31, 2023, and 2022. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the full year or any other future interim or annual period.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year financial statement presentation. Such reclassifications have no impact on previously reported net income, stockholders' equity, or cash flows. For the year ended December 31, 2022, $2.6 million was reclassified from other current liabilities to contract liability, current on the condensed consolidated balance sheet. This change had no impact on total current liabilities reported in the consolidated balance sheet. Further, for the three months ended March 31, 2022, $0.9 million was reclassified from unrealized gain on interest rate swaps in the adjustments to reconcile net income to net cash from operating activities section of the condensed consolidated statements of cash flows to derivative assets in the changes in assets, and liabilities, excluding the effect of acquisitions section of the condensed consolidated cash flows. This change had no impact on cash provided by operating activities in the consolidated statement of cash flows.

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Altus Power, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available. Estimates are used for such items as the fair value of net assets acquired in connection with accounting for business combinations, the useful lives of the solar energy facilities, and inputs and assumptions used in the valuation of asset retirement obligations (“AROs”), contingent consideration, and alignment shares.

Segment Information

Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makers are the co-chief executive officers. Based on the financial information presented to and reviewed by the chief operating decision makers in deciding how to allocate the resources and in assessing the performance of the Company, the Company has determined it operates as a single operating segment and has one reportable segment, which includes revenue under power purchase agreements, revenue from net metering credit agreements, solar renewable energy credit revenue, rental income, performance based incentives and other revenue. The Company’s principal operations, revenue and decision-making functions are located in the United States.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents includes all cash balances on deposit with financial institutions and readily marketable securities with original maturity dates of three months or less at the time of acquisition and are denominated in U.S. dollars. Pursuant to the budgeting process, the Company maintains certain cash and cash equivalents on hand for possible equipment replacement related costs.

The Company records cash that is restricted as to withdrawal or use under the terms of certain contractual agreements as restricted cash. Restricted cash is included in current portion of restricted cash and restricted cash, noncurrent portion on the condensed consolidated balance sheets and includes cash held with financial institutions for cash collateralized letters of credit pursuant to various financing and construction agreements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets. Cash, cash equivalents, and restricted cash consist of the following:

	As of March 31, 2023		As of December 31, 2022
Cash and cash equivalents	$	69,450	$	193,016
Current portion of restricted cash	3,376		2,404
Restricted cash, noncurrent portion	11,355		3,978
Total	$	84,181	$	199,398

Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts which, at times, may exceed Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash balances.

The Company had one customer that individually accounted for 15.6% of total accounts receivable as of March 31, 2023, and one customer that individually accounted for 15.0% of total revenue for the three months ended March 31, 2023.

The Company had one customer that individually accounted for 28.0% of total accounts receivable as of December 31, 2022, and one customer that individually accounted for 11.7% of total revenue for the three months ended March 31, 2022.

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Altus Power, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

Accounting Pronouncements

As a public company, the Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as non-public business entities, including early adoption when permissible. The Company expects to elect to adopt new or revised accounting guidance within the same time period as non-public business entities, as indicated below.

Recent Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and has since released various amendments including ASU No. 2019-04. The new standard generally applies to financial assets and requires those assets to be reported at the amount expected to be realized. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2023 and the adoption did not have a material impact on the condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Accounting Standards Codification ("ASC") 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, and was adopted by the Company on January 1, 2023. The Company applied the provisions of ASU 2021-08 to account for the True Green II Acquisition (defined in Note 5, "Acquisitions"), and recognized $3.5 million of contract liability assumed through the business combination.

3.Revenue and Accounts Receivable

Disaggregation of Revenue

The following table presents the detail of revenues as recorded in the unaudited condensed consolidated statements of operations:

	Three Months Ended March 31,
	2023		2022
Power sales under PPAs	$	8,986	$	4,182
Power sales under NMCAs	6,836		3,910
Power sales on wholesale markets	356		573
Total revenue from power sales	16,178		8,665
Solar renewable energy credit revenue	10,067		9,531
Rental income	626		644
Performance based incentives	2,098		359
Revenue recognized on contract liabilities	409		—
Total	$	29,378	$	19,199

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Altus Power, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

Accounts receivable

The following table presents the detail of receivables as recorded in accounts receivable in the unaudited condensed consolidated balance sheets:

	As of March 31, 2023		As of December 31, 2022
Power sales under PPAs	$	4,127	$	4,092
Power sales under NMCAs	6,088		3,183
Power sales on wholesale markets	143		223
Total power sales	10,358		7,498
Solar renewable energy credits	4,988		5,387
Rental income	582		429
Performance based incentives	188		129
Total	$	16,116	$	13,443

Payment is typically received within 30 days for invoiced revenue as part of power purchase agreements (“PPAs”) and net metering credit agreements (“NMCAs”). Receipt of payment relative to invoice date varies by customer for renewable energy credits ("SRECs"). As of both March 31, 2023, and December 31, 2022, the Company determined that the allowance for uncollectible accounts is $0.4 million.

The Company recognizes contract liabilities related to long-term agreements to sell SRECs that are prepaid by customers before SRECs are delivered. The Company will recognize revenue associated with the contract liabilities as SRECs are delivered to customers through 2037. As of March 31, 2023, the Company had current and non-current contract liabilities of $4.2 million and $7.0 million, respectively. As of December 31, 2022, the Company had current and non-current contract liabilities of $2.6 million and $5.4 million, respectively. The Company does not have any other significant contract asset or liability balances related to revenues.

4.Variable Interest Entities

The Company consolidates all variable interest entities (“VIEs”) in which it holds a variable interest and is deemed to be the primary beneficiary of the variable interest entity. Generally, a VIE is an entity with at least one of the following conditions: (a) the total equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support, or (b) the holders of the equity investment at risk, as a group, lack the characteristics of having a controlling financial interest. The primary beneficiary of a VIE is required to consolidate the VIE and to disclose certain information about its significant variable interests in the VIE. The primary beneficiary of a VIE is the entity that has both 1) the power to direct the activities that most significantly impact the entity’s economic performance and 2) the obligations to absorb losses or receive benefits that could potentially be significant to the VIE.

The Company participates in certain partnership arrangements that qualify as VIEs. Consolidated VIEs consist primarily of tax equity financing arrangements and partnerships in which an investor holds a noncontrolling interest and does not have substantive kick-out or participating rights. The Company, through its subsidiaries, is the primary beneficiary of such VIEs, because as the manager, it has the power to direct the day-to-day operating activities of the entity. In addition, the Company is exposed to economics that could potentially be significant to the entity given its ownership interest, therefore, has consolidated the VIEs as of March 31, 2023, and December 31, 2022. No VIEs were deconsolidated during the three months ended March 31, 2023 and 2022.

The obligations of the consolidated VIEs discussed in the following paragraphs are nonrecourse to the Company. In certain instances where the Company establishes a new tax equity structure, the Company is required to provide liquidity in accordance with the contractual agreements. The Company has no requirement to provide liquidity to purchase assets or guarantee performance of the VIEs unless further noted in the following paragraphs. The Company made certain contributions during the three months ended March 31, 2023 and 2022, as determined in the respective operating agreement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

The carrying amounts and classification of the consolidated VIE assets and liabilities included in condensed consolidated balance sheets are as follows:

	As of March 31, 2023		As of December 31, 2022
Current assets	$	24,394	$	16,434
Non-current assets	773,689		445,583
Total assets	$	798,083	$	462,017
Current liabilities	$	8,640	$	5,731
Non-current liabilities	118,736		73,438
Total liabilities	$	127,376	$	79,169

The amounts shown in the table above exclude intercompany balances which are eliminated upon consolidation. All of the assets in the table above are restricted for settlement of the VIE obligations, and all of the liabilities in the table above can only be settled using VIE resources.

The Company has not identified any VIEs during the three months ended March 31, 2023 and 2022, for which the Company determined that it is not the primary beneficiary and thus did not consolidate.

The Company considered qualitative and quantitative factors in determining which VIEs are deemed significant. During each of the three months ended March 31, 2023 and the year ended December 31, 2022, the Company consolidated thirty-five and twenty-six VIEs, respectively. No VIEs were deemed significant as of March 31, 2023 and December 31, 2022.

As discussed in Note 5, on January 11, 2023, the Company completed the Stellar MA Acquisition through obtaining a controlling financial interest in a VIE which owns and operates a single 2.7 MW solar generating facility. The Company acquired a controlling financial interest by entering into an asset management agreement which provides the Company with the power to direct the operating activities of the VIE and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. Concurrent with the asset management agreement, the Company entered into a Membership Interest Purchase Agreement ("MIPA") to acquire all of the outstanding equity interests in the VIE on May 30, 2023 (the "Closing Date"). The entire purchase price of $3.8 million was paid on January 11, 2023 and the equity interests in the entity will transfer to the Company on the Closing Date. As a result of this acquisition, the Company recognized property, plant and equipment of $3.9 million, $0.7 million of operating lease asset, $0.7 million of operating lease liability, and asset retirement obligations of $0.1 million in the unaudited condensed consolidated balance sheet.

As discussed in Note 5, on February 15, 2023 the Company completed the True Green II Acquisition through its purchase of all outstanding membership interests in APAF III Operating, LLC from True Green Capital Fund III, L.P. Through the True Green II Acquisition, the Company acquired eleven VIEs that consist primarily of tax equity financing arrangements and partnerships in which an investor holds a noncontrolling interest and does not have substantive kick-out or participating rights. The Company, through its subsidiaries, is the primary beneficiary of these VIEs because as the manager, it has the power to direct the day-to-day operating activities of the entity, and is exposed to economics that could potentially be significant to the entities through its ownership interests. As of March 31, 2023 the VIEs acquired through the True Green II Acquisition comprised of $10.7 million of current assets, $336.6 million of non-current assets, $4.5 million of current liabilities, and $46.0 million of non-current liabilities.

5.Acquisitions

2023 Acquisitions

Stellar MA Acquisition

On January 11, 2023, the Company acquired a 2.7 MW solar energy facility located in Massachusetts (the "Stellar MA Acquisition") from a third party for a total purchase price of $3.8 million. The acquisition was accounted for as an acquisition of a variable interest entity that does not constitute a business, refer to Note 4, "Variable Interest Entities." The Company acquired

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

$3.9 million of property, plant and equipment, and $0.7 million of operating lease asset, and assumed $0.1 million of asset retirement obligations and $0.7 million of operating lease liability, noncurrent.

True Green II Acquisition

On February 15, 2023, APA Finance III, LLC ("APAF III"), a wholly-owned subsidiary of the Company, acquired a 220 MW portfolio of 55 operating and 3 in development solar energy facilities located across eight US states (the “True Green II Acquisition”). The portfolio was acquired from True Green Capital Fund III, L.P. (“True Green”) for total consideration of approximately $299.9 million. The purchase price and associated transaction costs were funded by the proceeds from the APAF III Term Loan (as defined in Note 6, "Debt") and cash on hand. The True Green II Acquisition was made pursuant to the purchase and sale agreement (the "PSA") dated December 23, 2022, and entered into by the Company to grow its portfolio of solar energy facilities. Pursuant to the PSA, the Company acquired 100% ownership interest in APAF III Operating, LLC, a holding entity that owns the acquired solar energy facilities.

The Company accounted for the True Green II Acquisition under the acquisition method of accounting for business combinations. Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed on February 15, 2023, based on their estimated fair value. All fair value measurements of assets acquired and liabilities assumed, including the noncontrolling interests, were based on significant estimates and assumptions, including Level 3 (unobservable) inputs, which require judgment. Estimates and assumptions include the estimates of future power generation, commodity prices, operating costs, and appropriate discount rates.

The assets acquired and liabilities assumed are recognized provisionally on the condensed consolidated balance sheet at their estimated fair values as of the acquisition date. The initial accounting for the business combination is not complete as the Company is in the process of obtaining additional information for the valuation of acquired tangible and intangible assets. The provisional amounts are subject to change to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Under U.S. GAAP, the measurement period shall not exceed one year from the acquisition date and the Company will finalize these amounts no later than February 15, 2024.

The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values on February 15, 2023:

Assets
Accounts receivable	$	4,358
Property, plant and equipment	334,958
Intangible assets	850
Operating lease asset	32,053
Other assets	1,739
Total assets acquired	373,958
Liabilities
Long-term debt(1)	8,100
Intangible liabilities	4,100
Asset retirement obligation	3,795
Operating lease liability	37,723
Contract liability(2)	3,534
Total liabilities assumed	57,252
Redeemable non-controlling interests	8,100
Non-controlling interests	13,296
Total fair value of consideration transferred, net of cash acquired	$	295,310

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

The fair value of consideration transferred, net of cash acquired, as of February 15, 2023, is determined as follows:

Cash consideration paid to True Green on closing	$	212,850
Cash consideration paid to settle debt and interest rate swaps on behalf of True Green	76,046
Cash consideration in escrow accounts(3)	3,898
Purchase price payable(4)	7,069
Total fair value of consideration transferred	299,863
Restricted cash acquired	4,553
Total fair value of consideration transferred, net of cash acquired	$	295,310

(1) Acquired long-term debt relates to financing obligations recognized in failed sale leaseback transactions. Refer to Note 6, "Debt" for further information.

(2) Acquired contract liabilities relate to long-term agreements to sell renewable energy credits that were fully prepaid by the customer prior to the acquisition date. The Company will recognize revenue associated with the contract liabilities as renewable energy credits are delivered to the customer through 2036.

(3) Represents the portion of the consideration transferred that is held in escrow accounts as security for general indemnification claims.

(4) Purchase price payable represents the portion of the total hold back amount that was earned by True Green as of February 15, 2023, based on the completion of construction milestones related to assets in development.

The Company incurred approximately $1.5 million in acquisition related costs related to the True Green III Acquisition, which are recorded as part of Acquisition and entity formation costs in the condensed consolidated statement of operations for the three months ended March 31, 2023.

The impact of the True Green III Acquisition on the Company's revenue and net income in the condensed consolidated statement of operations was an increase of $5.4 million and $3.6 million, respectively, for the three months ended March 31, 2023.

Intangibles at Acquisition Date

The Company attributed the intangible asset and liability values to favorable and unfavorable rate revenue contracts to sell power and RECs. The following table summarizes the estimated fair values and the weighted average amortization periods of the acquired intangible assets and assumed intangible liabilities as of the acquisition date:

	Fair Value (thousands)	Weighted Average Amortization Period
Favorable rate revenue contracts – PPA	800	19 years
Favorable rate revenue contracts – REC	50	16 years
Unfavorable rate revenue contracts – PPA	(800)	17 years
Unfavorable rate revenue contracts – REC	(3,300)	3 years

Unaudited Pro Forma Combined Results of Operations

The following unaudited pro forma combined results of operations give effect to the True Green II Acquisition as if it had occurred on January 1, 2022. The unaudited pro forma combined results of operations are provided for informational purposes only and do not purport to represent the Company’s actual consolidated results of operations had the True Green II Acquisition occurred on the date assumed, nor are these financial statements necessarily indicative of the Company’s future consolidated results of operations. The unaudited pro forma combined results of operations do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

	For the three months ended March 31, 2023 (unaudited)		For the three months ended March 31, 2022 (unaudited)
Operating revenues	$	32,848	$	29,472
Net income	6,429		62,568

2022 Acquisitions

Acquisition of DESRI II & DESRI V

On November 11, 2022, APA Finance II, LLC, a wholly-owned subsidiary of the Company, acquired a 88 MW portfolio of nineteen solar energy facilities operating across eight US states. The portfolio was acquired from D.E. Shaw Renewables Investments L.L.C. ("DESRI") for total consideration of $100.8 million ("DESRI Acquisition"). The DESRI Acquisition was made pursuant to membership interest purchase agreements (the "MIPAs") dated September 26, 2022, and entered into by the Company to grow its portfolio of solar energy facilities. Pursuant to the MIPAs, the Company acquired 100% ownership interest in holding entities that own the acquired solar energy facilities. The Company accounted for the DESRI Acquisition under the acquisition method of accounting for business combinations. Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed on November 11, 2022, based on their estimated fair value. All fair value measurements of assets acquired and liabilities assumed, including the noncontrolling interests, were based on significant estimates and assumptions, including Level 3 (unobservable) inputs, which require judgment. Estimates and assumptions include the estimates of future power generation, commodity prices, operating costs, and appropriate discount rates.

The assets acquired and liabilities assumed are recognized provisionally on the consolidated balance sheet at their estimated fair values as of the acquisition date. The initial accounting for the business combination is not complete as the Company is in process of obtaining additional information for the valuation of acquired tangible and intangible assets. The provisional amounts are subject to change to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Under U.S. GAAP, the measurement period shall not exceed one year from the acquisition date and the Company will finalize these amounts no later than November 11, 2023.

The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values on November 11, 2022 (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

Assets
Accounts receivable	$	2,001
Derivative assets	2,462
Other assets	432
Property, plant and equipment	179,500
Operating lease asset	17,831
Intangible assets	29,479
Total assets acquired	231,705
Liabilities
Accounts payable	275
Accrued liabilities	746
Long-term debt	105,346
Intangible liabilities	771
Operating lease liability	20,961
Contract liability(1)	7,200
Asset retirement obligation	1,508
Total liabilities assumed	136,807
Non-controlling interests	184
Total fair value of consideration transferred, net of cash acquired	$	94,714

The fair value of consideration transferred, net of cash acquired, as of November 11, 2022, is determined as follows:

Cash consideration to the seller on closing	$	82,235
Fair value of purchase price payable(2)	19,017
Working capital adjustment	(469)
Total fair value of consideration transferred	100,783
Cash acquired	1,220
Restricted cash acquired	4,849
Total fair value of consideration transferred, net of cash acquired	$	94,714

(1) Acquired contract liabilities related to long-term agreements to sell renewable energy credits that were fully prepaid by the customer prior to the acquisition date. The Company will recognize revenue associated with the contract liabilities as renewable energy credits are delivered to the customer through December 31, 2028.

(2) Purchase price outstanding as of December 31, 2022 is payable in three installments in two, twelve and eighteen months following the acquisition date, subject to the accuracy of general representations and warranty provisions included in MIPAs. During the three months ended March 31, 2023, the Company paid DESRI $5.0 million of the outstanding purchase price payable net of $0.5 million working capital adjustment.

Intangibles at Acquisition Date

The Company attributed the intangible asset and liability values to favorable and unfavorable rate revenue contracts to sell power. The following table summarizes the estimated fair values and the weighted average amortization periods of the acquired intangible assets and assumed intangible liabilities as of the acquisition date:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

	Fair Value (thousands)		Weighted Average Amortization Period
Favorable rate revenue contracts – PPA	$	29,479	8 years
Unfavorable rate revenue contracts – PPA	(771)		12 years

6. Debt

	As of March 31, 2023		As of December 31, 2022		Interest Type	Weighted average interest rate
Long-term debt
APAF Term Loan	$	484,037	$	487,179	Fixed	3.51	%
APAF II Term Loan	121,745		125,668		Floating	SOFR + 1.475%
APAF III Term Loan	193,000		—		Fixed	5.62	%
APAG Revolver	20,000		—		Floating	SOFR + 2.60%
Other term loans	28,384		28,483		Fixed and floating	5.18	%
Financing obligations recognized in failed sale leaseback transactions	44,344		36,724		Imputed	3.98	%
Total principal due for long-term debt	891,510		678,054
Unamortized discounts and premiums	(8,207)		(2,088)
Unamortized deferred financing costs	(15,025)		(11,404)
Less: Current portion of long-term debt	32,549		29,959
Long-term debt, less current portion	$	835,729	$	634,603

APAF Term Loan

On August 25, 2021, APA Finance, LLC (“APAF”), a wholly owned subsidiary of the Company, entered into a $503.0 million term loan facility with Blackstone Insurance Solutions ("BIS") through a consortium of lenders, which consists of investment grade-rated Class A and Class B notes (the “APAF Term Loan”). The APAF Term Loan has a weighted average 3.51% annual fixed rate and matures on February 29, 2056 (“Final Maturity Date”).

The APAF Term Loan amortizes at an initial rate of 2.5% of outstanding principal per annum for a period of 8 years at which point the amortization steps up to 4% per annum until September 30, 2031 (“Anticipated Repayment Date”). After the Anticipated Repayment Date, the loan becomes fully-amortizing, and all available cash is used to pay down principal until the Final Maturity Date. The APAF Term Loan is secured by membership interests in the Company's subsidiaries.

As of March 31, 2023, the outstanding principal balance of the APAF Term Loan was $484.0 million less unamortized debt discount and loan issuance costs totaling $7.4 million. As of December 31, 2022, the outstanding principal balance of the APAF Term Loan was $487.2 million less unamortized debt discount and loan issuance costs totaling $7.6 million.

As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants under the APAF Term Loan.

APAF II Term Loan

On December 23, 2022, APA Finance II, LLC (“APAF II”), a wholly owned subsidiary of the Company, entered into a $125.7 million term loan facility (the “APAF II Term Loan”) with KeyBank National Association ("KeyBank") and The Huntington Bank ("Huntington") as lenders. The proceeds of the APAF II Term Loan were used to repay the outstanding amounts under

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

certain project-level loans. The APAF II Term Loan matures on December 23, 2027, and has a variable interest rate based on SOFR plus a spread of 1.475%. Simultaneously with entering into the APAF II Term Loan, the Company entered into interest rate swaps for 100% of the amount of debt outstanding, which effectively fixed the interest rate at 4.885% (see Note 7, "Fair Value Measurements," for further details).

As of March 31, 2023, the outstanding principal balance of the APAF II Term Loan was $121.7 million, less unamortized debt issuance costs of $2.6 million. As of December 31, 2022, the outstanding principal balance of the APAF II Term Loan was $125.7 million, less unamortized debt issuance costs of $2.7 million. As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants under the APAF II Term Loan.

APAF III Term Loan

On February 15, 2023, the Company, through its subsidiaries, APA Finance III Borrower, LLC (the “Borrower”), and APA Finance III Borrower Holdings, LLC (“Holdings”) entered into a new long-term funding facility under the terms of a Credit Agreement, among the Borrower, Holdings, Blackstone Asset Based Finance Advisors LP, which is an affiliate of the Company, U.S. Bank Trust Company, N.A., as administrative agent, U.S. Bank N.A., as document custodian, and the lenders party thereto (the “APAF III Term Loan”).

This funding facility provides for a term loan of $204.0 million at a fixed rate of 5.62%. The term loan has an anticipated repayment date of June 30, 2033. The maturity date of the term loan is October 31, 2047. Upon lender approval, the Borrower has the right to increase the funding facility to make additional draws for certain solar generating facilities, as set forth in the Credit Agreement. On February 15, 2023, the Company borrowed $193.0 million from this facility to fund the True Green II Acquisition and the associated costs and expenses, and expects to borrow the remaining $10.6 million upon the completion of certain development assets of the True Green II Acquisition when they are placed in service.

As of March 31, 2023, the outstanding principal balance of the APAF III Term Loan was $193.0 million, less unamortized debt issuance costs and discount of $10.2 million. As of March 31, 2023, the Company was in compliance with all covenants under the APAF III Term Loan.

APAG Revolver

On December 19, 2022, APA Generation, LLC (“APAG”), a wholly owned subsidiary of the Company, entered into revolving credit facility with Citibank, N.A. with a total committed capacity of $200.0 million (the "APAG Revolver"). Outstanding amounts under the APAG Revolver have a variable interest rate based on a base rate and an applicable margin. The APAG Revolver matures on December 19, 2027. As of March 31, 2023, and December 31, 2022, outstanding under the APAG Revolver were $20.0 million and zero, respectively. As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants under the APAG Revolver.

Other Term Loans - Construction to Term Loan Facility

On January 10, 2020, APA Construction Finance, LLC (“APACF”) a wholly-owned subsidiary of the Company, entered into a credit agreement with Fifth Third Bank, National Association and Deutsche Bank AG New York Branch to fund the development and construction of future solar facilities (“Construction Loan to Term Loan Facility”). The Construction Loan to Term Loan Facility included a construction loan commitment of $187.5 million, which expired on January 10, 2023.

The construction loan commitment can convert to a term loan upon commercial operation of a particular solar energy facility. In addition, the Construction Loan to Term Loan Facility accrued a commitment fee at a rate equal to 0.50% per year of the daily unused amount of the commitment. As of March 31, 2023, the outstanding principal balances of the construction loan and term loan were zero and $15.8 million, respectively. As of December 31, 2022, the outstanding principal balances of the construction loan and term loan were zero and $15.9 million, respectively. As of March 31, 2023, and December 31, 2022, the Company had an unused borrowing capacity of zero and $171.6 million, respectively. Outstanding amounts under the Construction to Term Loan Facility are secured by a first priority security interest in all of the property owned by APACF and each of its project companies. The Construction Loan to Term Loan Facility includes various financial and other covenants for APACF and the Company, as guarantor. As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants under the Construction to Term Loan Facility.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

Other Term Loans - Project-Level Term Loan

In conjunction with an acquisition of assets on August 29, 2022, the Company assumed a project-level term loan with an outstanding principal balance of $14.1 million and a fair value discount of $2.2 million. The term loan is subject to scheduled semi-annual amortization and interest payments, and matures on September 1, 2029.

As of March 31, 2023, the outstanding principal balance of the term loan is $12.6 million, less unamortized debt discount of $2.1 million. As of December 31, 2022, the outstanding principal balance of the term loan is $12.6 million, less unamortized debt discount of $2.2 million.

The term loan is secured by an interest in the underlying solar project assets and the revenues generated by those assets. As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants under the Project-Level Term Loan.

Letter of Credit Facilities and Surety Bond Arrangements

The Company enters into letters of credit and surety bond arrangements with lenders, local municipalities, government agencies, and land lessors. These arrangements relate to certain performance-related obligations and serve as security under the applicable agreements. The table below shows the total letters of credit outstanding and unused capacities under our letter of credit facilities as of March 31, 2023, and December 31, 2022 (in millions):

	As of March 31, 2023				As of December 31, 2022
	Letters of Credit Outstanding		Unused Capacity		Letters of Credit Outstanding		Unused Capacity
Deutsche Bank	$	0.7	$	11.8	$	0.7	$	11.8
Fifth Third Bank	12.1		—		12.1		—
CIT Bank, N.A.	0.5		—		0.6		—
KeyBank and Huntington	0.2		15.6		—		15.6
Citibank, N.A.	5.5		69.5		—		75.0
Total	$	19.0	$	96.9	$	13.4	$	102.4

Additionally, as of March 31, 2023, and December 31, 2022, the Company had outstanding surety bonds of $4.4 million and $2.0 million, respectively.

To the extent liabilities are incurred as a result of the activities covered by the letters of credit or surety bonds, such liabilities are included on the accompanying condensed consolidated balance sheets. From time to time, the Company is required to post financial assurances to satisfy contractual and other requirements generated in the normal course of business. Some of these assurances are posted to comply with federal, state or other government agencies’ statutes and regulations. The Company sometimes uses letters of credit to satisfy these requirements and these letters of credit reduce the Company’s borrowing facility capacity.

Financing Obligations Recognized in Failed Sale Leaseback Transactions

From time to time, the Company sells equipment to third parties and enters into master lease agreements to lease the equipment back for an agreed-upon term. The Company has assessed these arrangements and determined that the transfer of assets should not be accounted for as a sale in accordance with ASC 842. Therefore, the Company accounts for these transactions using the financing method by recognizing the consideration received as a financing obligation, with the assets subject to the transaction remaining on the balance sheet of the Company and depreciated based on the Company's normal depreciation policy. The aggregate proceeds have been recorded as long-term debt within the condensed consolidated balance sheets.

As of March 31, 2023, the Company's recorded financing obligations were $43.3 million, net of $1.0 million of deferred transaction costs. As of December 31, 2022, the Company's recorded financing obligations were $35.6 million, net of $1.1 million of deferred transaction costs. Payments of $0.2 million were made under financing obligations for the three months ended March 31, 2023 and 2022. Interest expense, inclusive of the amortization of deferred transaction costs for the three months ended March 31, 2023 and 2022, was $0.4 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Dollar amounts in thousands, except per share data, unless otherwise noted)

During the three months ended March 31, 2023, the Company paid $0.5 million to extinguish financing obligations of $0.6 million, resulting in a gain on extinguishment of debt of $0.1 million.

The table below shows the payments required under the failed sale-leaseback financing obligations for the years ended:

2023	$	2,795
2024	3,021
2025	3,023
2026	2,995
2027	2,986