SPRUCE POWER HOLDING CORP
For the period ended Dec 31, 2023. Filed Apr 9, 2024.
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FY2023 · Filed Apr 9, 2024
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Item 3.
| Years Ended December 31, | ||
|---|---|---|
| (In thousands) | 2023 | 2022 |
| Operating activities: | ||
| Net loss | $(66,610) | $(92,791) |
| Add back: Net loss from discontinued operations | 4,123 | 40,112 |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||
| Stock-based compensation | 2,885 | 9,996 |
| Bad debt expense | 1,841 | 1,839 |
| Amortization of deferred revenue | (91) | (34) |
| Depreciation and amortization expense | 21,586 | 6,456 |
| Accretion expense | 300 | — |
| Change in fair value of obligation to issue shares of common stock | — | (535) |
| Change in fair value of interest rate swaps | 4,816 | (5,554) |
| Change in fair value of warrant liabilities | (239) | (5,148) |
| Interest income related to SEMTH master lease agreement | (11,486) | — |
| Gain on extinguishment of debt | — | (4,527) |
| Gain on disposal of assets | (4,724) | (580) |
| Change in operating right-of-use assets | 120 | 134 |
| Amortization of debt discount and deferred financing costs | 5,863 | 1,482 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable, net | 85 | 553 |
| Deferred rent assets | (828) | (1,626) |
| Prepaid expenses and other current assets | (2,390) | (1,571) |
| Other assets | 126 | — |
| Accounts payable | (1,784) | (1,696) |
| Accrued expenses and other current liabilities | 13,624 | 5,278 |
| Other long-term liabilities | 5 | — |
| Deferred revenue | 1,064 | 495 |
| Net cash used in continuing operating activities | (31,714) | (47,717) |
| Net cash used in discontinued operating activities | (1,947) | (15,772) |
| Net cash used in operating activities | (33,661) | (63,489) |
| Investing activities: | ||
| Proceeds from sale of solar energy systems | 6,297 | 2,289 |
| Proceeds from investment related to SEMTH master lease agreement | 20,239 | — |
| Cash paid for acquisitions, net of cash acquired | (43,097) | (32,585) |
| Purchases of other property and equipment | (499) | — |
| Net cash used in continuing investing activities | (17,060) | (30,296) |
| Net cash provided by discontinued investing activities | 325 | 1,290 |
| Net cash used in investing activities | (16,735) | (29,006) |
| Financing activities: | ||
| Proceeds from issuance of long-term debt | 21,396 | — |
| Payment of deferred financing costs | (391) | — |
| Repayments of long-term debt | (32,843) | (9,302) |
| Repayments under financing leases | (165) | (238) |
|---|---|---|
| Proceeds from issuance of common stock | 150 | — |
| Proceeds from exercise of stock options | 1,004 | 630 |
| Share repurchases | (5,424) | — |
| Capital distributions to redeemable noncontrolling interests and noncontrolling interests | (479) | (1,895) |
| Buyout of redeemable non-controlling interest | (55) | (8,283) |
| Net cash used in continuing financing activities | (16,807) | (19,088) |
| Net cash used in discontinued financing activities | — | (99) |
| Net cash used in financing activities | (16,807) | (19,187) |
| Net change in cash and cash equivalents and restricted cash: | (67,203) | (111,682) |
| Cash and cash equivalents and restricted cash, beginning of period | 240,144 | 351,826 |
| Cash and cash equivalents and restricted cash, end of period | $172,941 | $240,144 |
| Supplemental disclosure of cash flow information: | ||
| Cash paid for interest | $37,482 | $12,367 |
| Supplemental disclosures of noncash investing and financing information: | ||
| Right-of-use assets obtained in exchange for lease liability | $933 | $1,850 |
| Settlement of operating lease liability | $436 | $685 |
| Settlement of finance lease liability | $43 | $— |
| Settlement of contingent liability through issuance of shares | $— | $186 |
Notes to Consolidated Financial Statements
Note 1. Organization and Description of Business
Description of Business
Spruce Power Holding Corporation and its subsidiaries (“Spruce Power” or the “Company”) is a leading owner and operator of distributed solar energy assets across the United States (the “U.S.”), offering subscription-based services to approximately 75,000 home solar assets and customer contracts, making renewable energy more accessible to everyone.
The Company is engaged in the ownership and maintenance of home solar energy systems for homeowners in the U.S. The Company provides clean, solar energy typically at savings compared to traditional utility energy. The Company’s primary customers are homeowners and the Company’s core solar service offerings generate revenues primarily through (i) the sale of electricity generated by its home solar energy systems to homeowners pursuant to long-term agreements, which requires the Company’s subscribers to make recurring monthly payments, (ii) third party contracts to sell solar renewable energy credits (“SRECs”) generated by the solar energy systems for fixed pricesand (iii) the servicing of those agreements for other institutional owners of home solar energy systems. In addition, the Company generates cash flows and earns interest income from an investment through a master lease agreement.
The Company holds subsidiary fund companies, defined below as the Funds, that own and operate portfolios of home solar energy systems, which are subject to solar lease agreements (“SLAs”) and power purchase agreements (“PPAs”, together with the SLAs, “Customer Agreements”) with residential customers who benefit from the production of electricity generated by the solar energy systems. The solar energy systems may qualify for subsidies, renewable energy credits and other incentives as provided by various states and local agencies. These benefits have generally been retained by the Company's subsidiaries that own the systems, with the exception of the investment tax credit (“ITCs”) under Section 48 of the Internal Revenue Code, as amended, (the “IRC”), which were generally passed through to the various financing partners of the solar energy systems.
The Company also offers services which include asset management services and operating and maintenance services for home solar energy systems.
Corporate History and Discontinued Operations
Historically, the Company had provided fleet electrification solutions for commercial vehicles in North America, offering its systems for vehicle electrification (the “Drivetrain” segment) and through its energy efficiency and infrastructure solutions business, offering and installing charging stations to enable customers to develop the charging infrastructure required for their electrified vehicles (the “XL Grid” segment). In the first quarter of 2022, the Company initiated a strategic review of its overall business operations which included assessing its offerings, strategy, processes and growth opportunities. As a result of the strategic review, in the first quarter of 2022, the Company made the following decisions relating to the restructuring of its Drivetrain business: (i) the elimination of a substantial majority of the Company’s hybrid drivetrain products; (ii) the elimination of its plug-in hybrid electric vehicles products; (iii) the reduction in the size of the Company’s workforce by approximately 50 employees; (iv) the closure of the Company’s production center and warehouse in Quincy, IL; (v) the closure of the Company’s engineering activities in its Boston office; and (vi) the termination of the Company’s partnership with eNow.
Following the strategic review, the Company decided to pursue transformational mergers and acquisition (“M&A”) opportunities, which included the implementation of a process to institutionalize the M&A effort, resulting in the formation of an investment committee comprised of senior members of the Company’s executive team and members of its Board of Directors. The objective of the investment committee was to continue the exploration of value-generative opportunities in the decarbonization and energy transition ecosystem, focused on three core requirements, (i) a business that makes an impact on decarbonization, (ii) a leader in an established, growing market segment and (iii) a company that generates positive earnings before interest, taxes, depreciation and amortization (“EBITDA”).
Notes to Consolidated Financial Statements
As a result of these efforts, on September 9, 2022, the Company acquired 100% of the membership interests of Spruce Holding Company 1 LLC, Spruce Holding Company 2 LLC, Spruce Holding Company 3 LLC and Spruce Manager LLC (collectively and together with their subsidiaries, “Legacy Spruce Power”) (See Note 3. Business Combinations). Legacy Spruce Power was a privately held owner and operator of home solar energy systems in the U.S. at the time of the transaction, with approximately 51,000 customer subscribers as of December 31, 2022. Spruce Power sells the power generated by solar energy systems to its homeowners pursuant to long-term agreements that require subscribers to make recurring monthly payments.
In November 2022, the Company changed its corporate name from “XL Fleet Corp.” to “Spruce Power Holding Corporation.” Additionally, the Company changed its ticker symbol from “XL” to “SPRU.”
With the completion of the acquisition of Legacy Spruce Power, the Company analyzed strategic alternatives related to its Drivetrain business. In December 2022, the Company commenced the exit of its Drivetrain business and sold a portion of the business for an immaterial amount to Shyft Group USA (“Shyft”), which closed in January 2023. Shyft also (i) acquired certain technical equipment and assumed the Company’s Wixom, Michigan facility, (ii) offered employment to certain engineers and other sales personnel and (iii) assumed completion of the Company’s pilot development agreement with the Department of Defense related to vehicle hybridization (with the Company retaining rights to potential future royalties from the program). In the fourth quarter of 2022, the Company also sold certain battery inventory and its legacy hybrid technology to RMA Group, an automotive and equipment supplier in Southeast Asia.
After the acquisition of Legacy Spruce Power, the Company also commenced a review of its XL Grid business to evaluate its strategic fit with Legacy Spruce Power, and in the fourth quarter of 2022, the Company entered into a non-binding letter of intent for the sale of World Energy Efficiency Services, LLC (“World Energy”) for an immaterial amount. The divestiture of World Energy closed in January 2023 and the Company subsequently ceased its XL Grid operations.
Both the Drivetrain and XL Grid operations are presented as discontinued operations in the consolidated financial statements.
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