Spruce Power (SPRU) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Q1 2023 reflect the company's transition to residential solar, showing increased assets, a net loss, and significant cash used in investing activities Condensed Consolidated Balance Sheets As of March 31, 2023, total assets increased to $926.4 million driven by the SEMTH acquisition, while total liabilities rose to $661.0 million due to increased long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $172,797 | $220,321 | | Investment under SEMTH master lease agreement | $146,889 | $— | | Property and equipment, net | $482,328 | $396,168 | | Goodwill | $28,757 | $128,548 | | Total Assets | $926,393 | $826,552 | | Liabilities & Equity | | | | Total current liabilities | $52,078 | $59,697 | | Long-term debt, net of current portion | $594,395 | $474,441 | | Total Liabilities | $661,006 | $537,576 | | Total Stockholders' Equity | $265,209 | $288,891 | Condensed Consolidated Statements of Operations For Q1 2023, the company reported $18.1 million in residential solar revenues, resulting in a $19.4 million net loss attributable to stockholders, including a $3.9 million loss from discontinued operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $18,095 | $— | | Cost of revenues | $7,853 | $— | | Loss from operations | ($5,475) | ($7,734) | | Net loss from continuing operations | ($14,978) | ($134) | | Net loss from discontinued operations | ($3,866) | ($15,943) | | Net loss attributable to stockholders | ($19,395) | ($16,077) | | Net loss per share, basic & diluted | ($0.13) | ($0.11) | Condensed Consolidated Statements of Cash Flows In Q1 2023, net cash used in continuing operating activities was $3.7 million, with $20.4 million used in investing activities primarily for the SEMTH acquisition, leading to a $34.2 million decrease in total cash Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in continuing operating activities | ($3,678) | ($10,476) | | Net cash used in continuing investing activities | ($20,377) | $— | | Net cash (used in) provided by continuing financing activities | ($5,916) | $248 | | Net change in cash, cash equivalents, and restricted cash | ($34,219) | ($18,215) | - Cash paid to acquire SEMTH assets, net of cash acquired, was $23.1 million[23] Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's transformation to a distributed solar energy owner, including the SEMTH acquisition, discontinued operations, $620.1 million in debt, legal proceedings, and a $50 million stock repurchase program - The company is now a leading owner and operator of distributed solar energy assets, serving approximately 72,000 customers; its former Drivetrain and XL Grid segments are presented as discontinued operations[26][37] - On March 23, 2023, the company acquired SEMTH for approximately $23 million in cash and assumed $125 million of senior debt, adding a master lease covering about 22,500 residential solar agreements[116][117] - The company is involved in several legal proceedings, including putative securities class actions and an SEC subpoena related to its 2020 merger and business practices[150][151][153] - Subsequent to the quarter end, the Board of Directors authorized a share repurchase program for up to $50 million of common stock, effective through May 15, 2025[166] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to distributed solar assets, highlighting $18.1 million in Q1 2023 residential solar revenue, increased SG&A, and $182.7 million in working capital, with sufficient liquidity for the next 12 months - The company's corporate strategy focuses on leveraging its platform for subscription-based distributed energy solutions, profitably growing assets through low customer acquisition cost channels, and increasing shareholder value via predictable revenues and cash flow[172] - In January 2023, the company completed the exit from its legacy XL Fleet (Drivetrain and XL Grid) operations, and in March 2023, it acquired SEMTH, adding approximately 22,500 solar contracts[176][177] Results of Operations Comparison (in thousands) | Metric | Q1 2023 | Q1 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $18,095 | $— | $18,095 | N.M. | | Selling, general and administrative expenses | $15,717 | $7,734 | $7,983 | 103% | | Loss from operations | ($5,475) | ($7,734) | $2,259 | (29)% | | Net loss attributable to stockholders | ($19,395) | ($16,077) | ($3,318) | 21% | - As of March 31, 2023, the company had $620.1 million of long-term debt and was in compliance with all debt covenants, with management believing current liquidity is sufficient for the next 12 months[191][192] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Spruce Power is exempt from providing quantitative and qualitative disclosures about market risk[203] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2023, due to three material weaknesses in IT general controls, manual journal entry review, and complex transaction accounting, with remediation ongoing - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023[205] - Material weaknesses were identified in three areas: Information Technology General Controls (ITGC) related to user access and segregation of duties, ineffective controls over review and approval of manual journal entries, and lack of sufficient resources to account for complex transactions[207][208][209] - A remediation plan is in progress, focusing on integrating Legacy Spruce Power's controls and addressing identified deficiencies, but the material weaknesses will not be considered remediated until new controls are implemented and tested over a sufficient period[211][212] PART II – OTHER INFORMATION Legal Proceedings Material pending legal proceedings are incorporated by reference from Note 15 of the unaudited condensed consolidated financial statements - Details on material pending legal proceedings are incorporated by reference from Note 15, which includes information on securities class action lawsuits and an SEC subpoena[219][149] Risk Factors No material changes to risk factors from the 2022 Form 10-K, except for a new risk concerning adverse developments in the financial services industry that could impact liquidity and access to capital - No material changes from the risk factors in the 2022 Form 10-K, except for one new addition[220] - A new risk factor was added concerning adverse developments in the financial services industry, such as liquidity issues or bank failures, which could impact the company's access to its cash and ability to fund growth[221] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[222] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[222] Mine Safety Disclosures This item is not applicable to the company - Not applicable[222] Other Information This item is not applicable - Not applicable[223] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act of 2002[224] - Inline XBRL data files are included as exhibits 101 and 104[224]