Spruce Power (SPRU) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Presents unaudited condensed consolidated financial statements for Q1 2021, including balance sheets, operations, equity, and cash flows Condensed Consolidated Financial Statements Q1 2021 saw cash increase to $404.1 million, net income of $61.9 million (due to warrant gain), and revenue decrease to $0.675 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $404,132 | $329,641 | | Total current assets | $420,425 | $345,320 | | Total assets | $427,510 | $347,013 | | Liabilities & Equity | | | | Warrant liabilities | $23,537 | $143,295 | | Total liabilities | $42,859 | $158,117 | | Total stockholders' equity | $384,651 | $188,896 | Condensed Consolidated Statement of Operations (in thousands) | Account | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Revenues | $675 | $1,232 | | Gross profit (loss) | $(716) | $(52) | | Loss from operations | $(10,086) | $(3,557) | | Change in fair value of warrant liability | $(72,005) | - | | Net income (loss) | $61,914 | $(6,454) | | Net income (loss) per share, diluted | $0.42 | $(0.08) | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,962) | $(4,511) | | Net cash used in investing activities | $(1,104) | $(94) | | Net cash provided by financing activities | $85,557 | $8,134 | | Net increase in cash | $74,491 | $3,529 | Notes to Condensed Consolidated Financial Statements Details accounting policies, COVID-19 impact, customer concentration, warrant accounting, legal proceedings, and a recent acquisition - The company is a provider of fleet electrification solutions for commercial vehicles in North America, with over 4,300 systems sold as of March 31, 2021[20] - The COVID-19 pandemic has adversely impacted operations, causing reduced production at vehicle OEMs and limitations on travel, with the full future impact remaining uncertain[23][24][26] - Significant customer concentration exists, with one customer accounting for approximately 80% of accounts receivable as of March 31, 2021, and three customers accounting for 79% of revenues for the quarter[30] - On May 17, 2021, the company acquired World Energy Efficiency Services, LLC for $8.0 million in cash and $7.0 million in company stock to expand its XL Grid business[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 financial results, highlighting revenue decrease, increased expenses, warrant gain, and strong liquidity - The company's vision is to become the world leader in fleet electrification solutions, expanding from its current hybrid and plug-in hybrid systems to full battery electric (XL ELECTRIC™), hydrogen fuel cell systems, and charging solutions (XL GRID™)[112][115] - The company expects to incur additional annual expenses as a public company for directors' and officers' liability insurance, director fees, and increased audit and legal fees[124] - Key challenges include interruptions in OEM vehicle supply due to a worldwide microchip shortage, which has caused OEMs to stop taking fleet orders and could adversely impact 2021 operating results[127][133] Results of Operations Q1 2021 revenue decreased 45.2% to $0.7 million due to microchip shortage, leading to a $61.9 million net income from warrant gain Comparison of Results of Operations (in thousands) | Account | Q1 2021 | Q1 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $675 | $1,232 | $(557) | (45.2)% | | Gross profit (loss) | $(716) | $(52) | $(664) | 1,276.9% | | Research and development | $1,412 | $1,014 | $398 | 39.3% | | Selling, general and administrative | $7,958 | $2,491 | $5,467 | 219.5% | | Loss from operations | $(10,086) | $(3,557) | $(6,529) | 183.6% | | Net income (loss) | $61,914 | $(6,454) | $68,368 | (1,059.3)% | - The decrease in revenue was primarily due to interruptions in OEM vehicle supply amid a worldwide microchip shortage[133] - The increase in SG&A expenses was driven by approximately $2.9 million in professional fees, $1.6 million in employee compensation (including $0.4 million in stock-based compensation), and $0.8 million in infrastructure costs related to being a public company[138] Liquidity and Capital Resources Company maintains strong liquidity with $404.1 million cash, bolstered by $85.6 million from warrant exercises, sufficient for 12 months - The company's cash and cash equivalents stood at $404.1 million as of March 31, 2021[140] - The company generated cash proceeds of approximately $85.6 million from the exercise of 7,441,020 public warrants during the first quarter of 2021[141] Summary of Cash Flows (in thousands) | Activity | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Operating activities | $(9,962) | $(4,511) | | Investing activities | $(1,104) | $(94) | | Financing activities | $85,557 | $8,134 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company qualifies as a smaller reporting company - Disclosure is not required for smaller reporting companies[165] Item 4. Controls and Procedures Disclosure controls were ineffective as of March 31, 2021, due to a material weakness in warrant accounting - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were not effective as of March 31, 2021[167] - A material weakness was identified in internal controls related to the accounting for warrants, which did not result in the proper classification of certain warrants issued in July 2019[168] PART II – OTHER INFORMATION Item 1. Legal Proceedings Company faces two class-action lawsuits alleging Securities Exchange Act violations, which it intends to vigorously defend - Two putative class action complaints were filed against the company and certain officers and directors in March 2021, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934[101] - The company believes the allegations are without merit and intends to vigorously defend both lawsuits[101] Item 1A. Risk Factors Updates risks including warrant accounting re-evaluation, material weakness in internal controls, and acquisition strategy challenges - Following an SEC statement on April 12, 2021, the company re-evaluated its warrants and determined they should be classified as derivative liabilities measured at fair value, which could cause significant fluctuations in quarterly financial results[175][176] - A material weakness was identified in internal control over financial reporting as of December 31, 2020. If not remediated, this could prevent accurate and timely financial reporting and adversely affect investor confidence[178][179] - The company's growth strategy includes acquisitions, such as the recent purchase of World Energy. This strategy involves risks related to integration, realizing expected benefits, and potential customer concentration, as World Energy relied on one customer for 73% of its 2020 revenue[185][189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the quarter ended March 31, 2021 - No unregistered sales of equity securities occurred during the quarter[190] Item 3. Defaults Upon Senior Securities None - None[191] Item 4. Mine Safety Disclosures Not applicable - Not applicable[192] Item 5. Other Information Not applicable - Not applicable[193] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act[194]