# Spruce Power Holding Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Spruce Power Holding Corp](/companies/spru.md) (CIK 1772720)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 17:07 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038677
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1772720/000162828023038677/spru-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1772720/000162828023038677/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $23.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $64.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $9.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $26.3m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $12.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $44.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$24.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$28.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$19.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$35.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.97 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.97 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 17,351,796 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 18,072,115 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $285.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $154.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $228.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $940.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $81.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $696.0m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $599.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $27.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $244.1m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 30,951 characters.

*The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion and analysis should be read together with our results of operations and financial condition and the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2023 (the “Annual Report”). In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q and under “Risk Factors” in Item 1A of the Annual Report.*

*Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.*

*As used in this discussion and analysis, references to “SPRU,” “the Company,” “we,” “us” or “our” refer only to Spruce Power Holding Corporation and its consolidated subsidiaries. Depending on the context, "Spruce Power" may refer to Legacy Spruce Power prior to its acquisition by the Company on September 9, 2022, or it may also refer to the operation of Legacy Spruce Power's business by the Company after such acquisition.*

### Overview

Spruce Power is a leading owner and operator of distributed solar energy assets across the United States, owning cash flows from approximately 75,000 home solar assets and contracts across the United States and making renewable energy more accessible to everyone. The Company generates revenues primarily through the sale of electricity generated by its home solar energy systems to homeowners pursuant to long-term agreements that obligate the Company’s subscribers to make recurring monthly payments, and the servicing of those agreements for other institutional owners of home solar energy systems. In addition, the Company also earns interest income from the investment made under the master lease with SS Holdings 2017, LLC and its subsidiaries ("SEMTH").

### Corporate Strategy

The Company’s corporate strategy has three key elements:

***Leveraging the Spruce Power platform to become a leading provider of subscription-based solutions for distributed energy resources:*** Spruce Power has more than a decade of experience owning and operating rooftop solar systems as well as energy efficiency upgrades. The Company believes that Spruce Power’s proven platform for managing home solar can be extended to other categories of distributed energy resources. Through leveraging the Spruce Power platform, the Company intends to grow its revenues by providing subscription-based solutions for rooftop solar, energy storage, EV charging and other energy-related products to homeowners and small businesses. The Company is focused on delivering best-in-class customer service, with investment into process and platform improvement for on-site monitoring, customer billing and working with qualified partners for field services.

***Profitably growing return on assets by focusing on channels with the lowest customer acquisition cost:*** The Company seeks to grow its subscriber revenues by focusing on the channels that have lowest customer acquisition costs and the ability to increase return on assets, including: acquiring existing systems from other companies or investment funds, selling additional services to existing subscribers, selling services to new customers online and partnering with selected independent installers to provide a subscription-based solution for their customers.

***Increasing shareholder value by delivering predictable revenues, profits and cash flow:*** By focusing on subscription-based solutions with long-term customer agreements, the Company seeks to generate consistent revenues, profits and cash flow.

### Background

The Company previously 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, including offering and installing charging stations to enable customers to effectively and cost-effectively 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, which resulted in various restructuring actions. Following the strategic review and restructuring, the Company announced its decision to pursue transformational M&A which ultimately resulted in the Company acquiring Legacy Spruce Power in September 2022. Legacy Spruce Power was the largest privately held owner and operator of home rooftop solar systems in the U.S. at the time of the transaction, with more than 51,000 customer subscribers, and has grown by acquiring portfolios of home solar systems from other companies and investors rather than selling individual systems to homeowners through a direct-to-consumer salesforce like many of its competitors. This approach allowed the company to keep its customer acquisition costs low and enabled it to generate consistent adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”).

In parallel with the change in strategy and acquisition of Legacy Spruce Power, the Company initiated a comprehensive review of strategic alternatives for its Drivetrain and XL Grid businesses with the goal of maximizing shareholder value which culminated in the discontinuing of the Company’s Drivetrain and XL Grid operations in December 2022.

### Recent Developments

### Reverse Stock Split

On October 6, 2023, we effected a one-for-eight reverse stock split with respect to our issued and outstanding shares of common stock (the “Reverse Stock Split”). The par value and the number of authorized shares of our common stock were not adjusted in connection with the Reverse Stock Split. No fractional shares of our common stock were issued in connection with the Reverse Stock Split. In late October 2023, certain stockholders entitled to fractional shares of our common stock upon the Reverse Stock Split received aggregate cash payments of approximately $0.01 million in lieu of receiving fractional shares.

### SP2 Facility Amendment

In August 2023, the Company entered into a second amendment to its existing SP2 Facility, resulting in incremental term loans of approximately $21.4 million, of which proceeds were primarily used to fund the Tredegar Acquisition (defined below). In addition, the Company entered into an interest rate swap agreement to hedge the floating rate of the incremental SP2 Facility term loans, which included a notional amount of $19.6 million, a fixed rate of 4.24% and a maturity date of January 31, 2032.

### Capital Investments, Acquisitions and Divestitures

In January 2023, the Company completed the exit of its legacy operations, including the Drivetrain and XL Grid businesses.

In March 2023, the Company completed the acquisition of all the issued and outstanding interests in SEMTH. Total consideration for the SEMTH acquisition included approximately $23.0 million of cash, net of cash received, and the assumption of $125.0 million of outstanding senior indebtedness held by SEMTH at the close of the acquisition.

In August 2023, the Company acquired 2,400 home solar assets and contracts for approximately $20.9 million (the “Tredegar Acquisition”). The Tredegar Acquisition was concurrently funded by term loan proceeds from the SP2 Facility Amendment.

### Common Share Repurchase Program

In May 2023, the Company’s Board of Directors approved a share repurchase program (the “Repurchase Program”) for the repurchase of up to $50.0 million of the Company’s outstanding common stock through May 15, 2025. The Company is not obligated to repurchase any specific number of shares or dollar amount and may discontinue the Repurchase Program at any time.

During the three months ended September 30, 2023, the Company repurchased 0.5 million shares of common stock under its Repurchase Program, for a total purchase price of $3.5 million, inclusive of transaction costs.

During the nine months ended September 30, 2023, the Company repurchased 0.7 million shares of common stock under its Repurchase Program, for a total purchase price of $5.1 million, inclusive of transaction cost.

### Key Factors Affecting Operating Results

The Company is a leading owner and operator of distributed solar energy assets across the United States, offering subscription-based solutions to homeowners for rooftop solar energy storage, EV chargers and other energy-related products. Additionally, the Company provides servicing functions for its assets and customers, as well as for other institutional owners of home solar energy systems. The Company’s operating results and ability to grow its business over time could be impacted by certain factors and trends that affect our industry, as well as elements of the Company’s strategy, such as:

### Development of Distributed Energy Assets

The Company’s future growth depends significantly on its ability to acquire operating home solar energy systems “in-bulk” from other companies. Industry data suggests there is a substantial existing base of operating home solar energy systems, providing the Company opportunity to pursue acquisitions. Over the long-term, the continued ability to pursue acquisitions is dependent on development of distributed energy assets, namely home solar energy systems, by third parties. This development may be impacted by numerous factors that influence homeowner demand for home solar energy systems including but not limited to macroeconomic dynamics, climate change impacts, and government policy and incentives.

### Availability of Financing

The Company’s ability to raise capital from third parties at reasonable terms is a critical element in supporting ownership of our existing home solar energy assets as well as enabling our future growth. The Company has historically utilized non-recourse, project-level debt as a primary source of capital for acquisitions. The Company’s ability to raise debt either as means to refinance existing indebtedness or for future acquisitions may be impacted by general macroeconomic conditions, the health of debt capital markets, the interest rate environment, and general concerns over its industry or specific concerns over its business.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2023 and Three Months Ended June 30, 2023

To enhance comparability and provide more meaningful insight for users of the financials, we have opted to compare the operating results of the current quarter with the previous quarter, considering the acquisition of Legacy Spruce Power and divestiture of existing business, as it offers a more relevant and accurate basis for analysis within Management’s Discussion and Analysis (“MD&A”). The full unaudited condensed consolidated statement of operations for the three months ended June 30, 2023 is contained in the Company's Quarterly Report on Form 10-Q filed with the SEC on August 11, 2023.

The results of operations related to the Company’s Drivetrain and XL Grid businesses, which were determined to be discontinued operations in the fourth quarter of 2022, are presented as net loss from discontinued operations in the Company’s unaudited condensed consolidated statements of operations. As a result, the continuing operational results reflect the operations related to the Company’s corporate functions and the results of operations for Spruce Power since its acquisition on September 9, 2022.

Information with respect to the unaudited condensed consolidated statements of operations for the three months ended September 30, 2023 and June 30, 2023 are presented below:

*(Amounts in thousands, except per share amounts)*

|  | Three Months Ended September 30, 2023 | June 30, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $23,250 | $22,813 | $437 | 2% |
| Operating expenses: |  |  |  |  |
| Cost of revenues | 9,810 | 8,594 | 1,216 | 14% |

42

|  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | 12,391 | 15,985 | (3,594) | (22)% |
| Litigation settlements, net | 26,339 | — | 26,339 | 100 |
| Gain on asset disposal | (773) | (794) | 21 | (3) |
| Loss from operations | (24,517) | (972) | (23,545) | 2422% |
| Other income, net | (5,554) | (2,759) | (2,795) | 101% |
| Net income (loss) from continuing operations | (18,963) | 1,787 | (20,750) | (1161)% |
| Net loss from discontinued operations | (204) | (183) | (21) | 11% |
| Net income (loss) | (19,167) | 1,604 | (20,771) | (1295)% |
| Less: Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests | 146 | (1,461) | 1,607 | (110)% |
| Net income (loss) attributable to stockholders | $(19,313) | $3,065 | $(22,378) | (730)% |
| **Net income (loss) per common share:** |  |  |  |  |
| Basic and diluted | $(1.11) | $0.02 | $(1.13) | (5665)% |

#### Revenues

Revenues increased by $0.4 million, or 2%, to $23.3 million in the three months ended September 30, 2023. The increase was primarily due to incremental revenues related to the Tredegar Acquisition and increased sales of solar renewable energy credits. This increase was partially offset by lower production in PPA contractual revenue streams due to seasonality factors, which is consistent with historical seasonality patterns.

#### Cost of Revenues

Cost of revenues increased by $1.2 million, or 14%, to $9.8 million in the three months ended September 30, 2023. The increase primarily relates to an increase in depreciation related to our solar energy systems, which includes solar assets acquired in the Tredegar Acquisition, and certain operation and maintenance costs, including meter spend.

#### Selling, General and Administrative

Selling, general and administrative expenses decreased by $3.6 million or 22%, to $12.4 million in the three months ended September 30, 2023. The decrease primarily relates to higher insurance recoveries related to litigation matters and decreases in certain professional fees during the current quarter.

#### Litigation Settlements, Net

Litigation settlements, net of $26.3 million for the three months ended September 30, 2023 relates to costs incurred for settlements on the SEC inquiry and shareholder lawsuits, net of related insurance recoveries from third parties, for which the Company is currently pursuing settlements.

#### Other Income, Net

Other income, net was $5.6 million for the three months ended September 30, 2023 compared to $2.8 million for the three months ended June 30, 2023. Other income, net for the three months ended September 30, 2023 includes primarily (i) $2.9 million of interest expense, net, of which approximately $6.3 million relates to interest income from the SEMTH master lease agreement executed in March 2023, and (ii) $8.1 million of income from the change in fair value of interest rate swaps utilized by the Company to reduce the effect of volatility of its variable interest rate debt. Both items primarily relate to debt and interest rate swap agreements the Company assumed with the September 2022 acquisition of Legacy Spruce Power and the acquisitions of SEMTH and Tredegar assets, both completed in 2023.

In comparison, other income, net for the three months ended June 30, 2023 primarily included (i) $7.2 million of interest expense, net, of which approximately $1.2 million relates to interest income from the SEMTH master lease agreement, and (ii) $9.2 million of income from the change in fair value of interest rate swaps utilized by the Company to reduce the effect of volatility of its variable interest rate debt.

### Comparison of the Three Months Ended September 30, 2023 and Three Months Ended September 30, 2022

Information with respect to the unaudited condensed consolidated statements of operations for the three months ended September 30, 2023 and 2022 are presented below:

*(Amounts in thousands, except per share amounts)*

|  | Three Months Ended September 30, 2023 | September 30, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $23,250 | $5,080 | $18,170 | 358% |
| Operating expenses: |  |  |  |  |
| Cost of revenues | 9,810 | 1,974 | 7,836 | 100% |
| Selling, general and administrative expenses | 12,391 | 27,018 | (14,627) | (54)% |
| Litigation settlements, net | 26,339 | — | 26,339 | 100% |
| (Gain) loss on asset disposal | (773) | 270 | (1,043) | (386)% |
| Loss from operations | (24,517) | (24,182) | (335) | 1% |
| Other income, net | (5,554) | (7,195) | 1,641 | (23)% |
| Net loss from continuing operations | (18,963) | (16,987) | (1,976) | 12% |
| Net loss from discontinued operations | (204) | (4,599) | 4,395 | (96)% |
| Net loss | (19,167) | (21,586) | 2,419 | (11)% |
| Less: Net income attributable to redeemable noncontrolling interests and noncontrolling interests | 146 | 419 | (273) | (65)% |
| Net loss attributable to stockholders | $(19,313) | $(22,005) | $2,692 | (12)% |
| **Net loss per common share:** |  |  |  |  |
| Basic and diluted | $(1.11) | $(1.23) | $0.12 | (10)% |

#### Revenues and Cost of Revenues

Revenues and cost of revenues represent the home solar energy revenues and related costs in connection with the acquisition of Legacy Spruce Power on September 9, 2022 and the Tredegar Acquisition completed on August 18, 2023. Revenues and cost of revenues related to the Company’s Drivetrain and XL Grid operations are included in net loss from discontinued operations.

#### Selling, General and Administrative

Selling, general and administrative expenses decreased by $14.6 million to $12.4 million in the three months ended

September 30, 2023 from $27.0 million for the three months ended September 30, 2022. Selling, general and administrative expenses for the three months ended September 30, 2023 include the ongoing operations of the Company’s home solar business and corporate functions, as well as certain remaining costs associated with the Company’s historic operations, including certain integration related costs. Selling, general and administrative expenses related to the Company’s Drivetrain and XL Grid operations are included in net loss from discontinued operations.

#### Litigation Settlements, Net

Litigation settlements, net of $26.3 million for the three months ended September 30, 2023 relates to costs incurred for settlements on the SEC inquiry and shareholder lawsuits, net of related insurance recoveries from third parties, for which the Company is currently pursuing settlements.

#### Other Income, Net

Other income, net of $5.6 million for the three months ended September 30, 2023 is net of the change in fair value of interest rate swaps and interest expense, net, which includes interest income related to the SEMTH master lease agreement discussed above, while a majority of the balance for the comparable period in 2022 related to a change in the fair value of the interest rate swaps.

### Comparison of the Nine Months Ended September 30, 2023 and Nine Months Ended September 30, 2022

Information with respect to the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2023 and 2022 are presented below:

*(Amounts in thousands, except per share amounts)*

|  | Nine Months Ended September 30, 2023 | September 30, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $64,158 | $5,080 | $59,078 | 1163% |
| Operating expenses: |  |  |  |  |
| Cost of revenues | 26,257 | 1,974 | 24,283 | 100% |
| Selling, general and administrative expenses | 44,093 | 44,534 | (441) | (1)% |
| Litigation settlements, net | 26,339 | — | 26,339 | 100% |
| (Gain) loss on asset disposal | (4,225) | 270 | (4,495) | (1665)% |
| Loss from operations | (28,306) | (41,698) | 13,392 | (32)% |
| Other (income) expense, net | 3,848 | (16,730) | 20,578 | (123)% |
| Net loss from continuing operations | (32,154) | (24,968) | (7,186) | 29% |
| Net loss from discontinued operations | (4,253) | (25,393) | 21,140 | (83)% |
| Net loss | (36,407) | (50,361) | 13,954 | (28)% |
| Less: Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests | (764) | 419 | (1,183) | (282)% |
| Net loss attributable to stockholders | $(35,643) | $(50,780) | $15,137 | (30)% |
| **Net loss per common share:** |  |  |  |  |
| Basic and diluted | $(1.97) | $(2.86) | $0.89 | (31)% |

#### Revenues and Cost of Revenues

Revenues and cost of revenues represent the home solar energy revenues and related costs in connection the acquisition of Legacy Spruce Power on September 9, 2022 and the Tredegar Acquisition completed on August 18, 2023. Revenues and cost of revenues related to the Company’s Drivetrain and XL Grid operations are included in the net loss from discontinued operations.

#### Selling, General and Administrative

Selling, general and administrative expenses decreased by $0.4 million to $44.1 million in the nine months ended September 30, 2023 from $44.5 million for the nine months ended September 30, 2022. Selling, general and administrative expenses for the nine months ended September 30, 2023 included the ongoing operations of the Company’s home solar business and corporate functions, as well as certain remaining costs associated with the Company’s historic operations including certain integration related costs, legal costs related to the SEC investigation and shareholder lawsuits. Selling, general and administrative expenses related to the Company’s previous Drivetrain and XL Grid segments are included in the net loss from discontinued operations.

#### Litigation Settlements, Net

Litigation settlements, net of $26.3 million for the nine months ended September 30, 2023 relates to costs incurred for settlements on the SEC inquiry and shareholder lawsuits, net of related insurance recoveries from third parties, for which the Company is currently pursuing settlements.

#### Other (Income) Expense, Net

Other expense, net of $3.8 million for the nine months ended September 30, 2023 includes primarily (i) $17.0 million of interest expense, net, of which approximately $7.7 million relates to interest income from the SEMTH master lease agreement executed in March 2023 and (ii) $11.7 million of income from the change in fair value of interest rate swaps. In comparison, other income, net of $16.7 million for the comparable period of 2022 primarily relates to income from the change in the fair value of interest rate swaps of $8.5 million, change in the fair value of warrant liabilities of $5.1 million and a gain on extinguishment of debt of $4.5 million, partially offset by interest expense, net of $2.1 million.

### Liquidity and Capital Resources

The Company’s cash requirements depend on many factors, including the execution of its business strategy. The Company remains focused on carefully managing costs, including capital expenditures, maintaining a strong balance sheet, and ensuring adequate liquidity. The Company’s primary cash needs are for debt service, acquisition of solar systems, operating expenses, working capital and capital expenditures to support the growth in its business. Working capital is impacted by the timing and extent of the Company’s business needs. As of September 30, 2023, the Company had net working capital of $146.8 million, including cash and cash equivalents and restricted cash of $192.7 million.

With the acquisition of Legacy Spruce Power in September 2022, the Company assumed all of the outstanding debt of Legacy Spruce Power, which had a principal balance of $542.5 million on the date of the acquisition. With the SEMTH acquisition in the first quarter of 2023, the Company assumed $125.0 million of debt. In addition, during the third quarter of 2023, the Company entered into a second amendment to its existing SP2 Credit Agreement resulting in incremental term loans of approximately $21.4 million, proceeds of which were used to primarily fund the Tredegar Acquisition. As of September 30, 2023, the Company had $627.3 million of long-term debt, including current portions. The Company is required to complete debt service coverage ratio calculations on a quarterly basis as part of its debt covenants. All debt covenant requirements were satisfied as of the September 30, 2023 analyses.

Based on the Company’s current liquidity, management believes that no additional capital will be needed to execute its current business plan over the next 12 months. The Company continually evaluates its cash needs to raise additional funds or seek alternative sources to invest in growth opportunities and other purposes.

### Cash Flows Summary

Presented below is a summary of our operating, investing and financing cash flows:

*(Amounts in thousands)*

| Net cash provided by (used in) | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| Continuing operating activities | $(10,737) | $(30,104) |
| Discontinued operating activities | (5,187) | (16,295) |
| Continuing investing activities | (25,126) | (32,336) |
| Discontinued investing activities | 325 | 803 |
| Continuing financing activities | (6,686) | (2,052) |
| Discontinued financing activities | — | (208) |
| Net change in cash and cash equivalents and restricted cash | $(47,411) | $(80,192) |

### Cash Flows Used in Operating Activities

The net cash used in continuing operations for the nine months ended September 30, 2023 consists of the operations of Legacy Spruce Power, Tredegar assets acquired, corporate costs and certain other costs that were not allocated to our discontinued operations. The decrease in cash used in continuing operating activities, as compared to the same period in the prior year, is a reflection of the positive impact of our home solar business.

### Cash Flows Used in Investing Activities

Cash used in investing activity related to continuing operations for the nine months ended September 30, 2023 primarily includes $43.1 million of aggregate net cash paid for acquisitions during 2023, consisting of $23.4 million for SEMTH and $19.7 million for the Tredegar assets, both partially offset by $13.2 million of proceeds from the SEMTH investment and $5.1 million of proceeds from the sale of solar energy systems.

### Cash Flows Used in Financing Activities

The net cash used in financing activities related to continuing operations for the nine months ended September 30, 2023 primarily includes $22.8 million for the repayment of long-term debt and $5.1 million of shares repurchased under our Repurchase Program, both offset by $21.4 million of proceeds from the issuance of long-term debt under the SP2 Facility Amendment to fund the Tredegar Acquisition.

### Off-Balance Sheet Arrangements

The Company did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.

### Critical Accounting Policies and Estimates

The unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles of the U.S. as set forth in the Financial Accounting Standards Board’s Accounting Standards Codification, and we evaluate the various staff accounting bulletins and other applicable guidance issued by the SEC. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the consolidated balance sheet date, as well as the reported expenses incurred during the reporting periods. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be material to our unaudited condensed consolidated financial statements.

The Company’s significant accounting policies are consistent with those discussed in Note 2. Summary of Significant Accounting Policies of the consolidated financial statements and the MD&A sections of the Company’s Annual Report on form 10-K and Note 2. Summary of Significant Accounting Policies to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The Company has identified the following accounting policies as its most critical since they require a greater degree of judgment and complexity:

- Deferred income taxes
- Warranty reserves
- Valuation of stock-based compensation
- Useful lives of certain assets and liabilities
- Valuation of redeemable noncontrolling interests and noncontrolling interests
- Allowance for current expected credit losses
- Asset acquisition transactions
- Valuation of business combinations, including the fair values and useful lives of acquired assets and assumed liabilities

### New and Recently Adopted Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on the Company's unaudited condensed consolidated financial statements, see Note 2. Summary of Significant Accounting Policies to the accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 151 characters.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

## Controls and procedures

As filed, 9,008 characters.

### Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as “controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.” The Company’s disclosure controls and procedures are designed to ensure that material information relating to the Company and its consolidated subsidiaries is accumulated and communicated to its Management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The Company’s Management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures as of March 31, 2023. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of that date, and subsequently as of September 30, 2023, due to the material weaknesses in internal control over financial reporting described below.

Notwithstanding the identified material weaknesses, Management believes that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company's financial position, results of operations, and cash flows as of and for the periods presented in accordance with U.S. GAAP

### Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis. These deficiencies could result in misstatements to the Company's consolidated financial statements that would be material and would not be prevented or detected on a timely basis.

As previously disclosed under “Item 9A – Controls and Procedures” in the Company’s Annual Report, Management concluded that its internal control over financial reporting was not effective based on the material weakness identified related to the ineffective design and implementation of Information Technology General Controls (“ITGC”). The Company’s ITGC deficiencies included improperly designed controls pertaining to user access rights and segregation of duties over systems that are critical to the Company’s system of financial reporting.

In the course of preparing the financial statements for the three months ended March 31, 2023, Management identified a material weakness in internal control over financial reporting, which relates to review and approval of manual journal entries and related segregation of duties. The Company has not designed and maintained effective controls over the review and approval of manual journal entries, including implementing appropriate segregation of duties.

In addition, Management identified a material weakness in internal control over financial reporting related to the accounting for complex transactions. Specifically, Management determined that the Company did not maintain an effective control environment as it did not have sufficient resources, resulting in the lack of effectively designed controls to account for complex transactions, inclusive of the accounting for the Company’s investment related to the SEMTH master lease agreement and the related interest income, which resulted in the out of period misstatement discussed in Note 4.

These deficiencies represent material weaknesses in the Company’s internal control over financial reporting as there is a reasonable possibility that a material misstatement with respect to the Company’s significant accounts and disclosures will not be prevented or detected on a timely basis.

### Remediation Plan

Management continues its efforts to integrate Legacy Spruce Power’s internal controls over financial reporting into the Company’s financial reporting framework and to enhance the Company’s remediation plan related to its ITGC material weakness. As disclosed in the Company’s Annual Report, with the acquisition of Legacy Spruce Power and the evaluation of strategic alternatives for the Company’s Drivetrain and XL Grid businesses, the Company exited the Drivetrain and XL Grid businesses and took certain restructuring actions to integrate and remove corporate function redundancies. Related to this integration, the Company has been evaluating all aspects of its internal control framework to identify and remediate any potential gaps and to identify any other opportunities to ensure the effectiveness of the Company’s internal controls. Additionally, Management continues its efforts to remediate the material weaknesses over the review and approval of manual journal entries and segregation of duties and accounting for complex transactions. The Company has engaged third-party experts to assist with the remediation effort as the Company continuously evaluates all aspects of its internal control framework to identify and remediate any potential gaps and to identify any other opportunities to ensure the effectiveness of the Company’s internal controls.

The material weaknesses will not be considered remediated until Management designs and implements effective controls that operate for a sufficient period of time and Management has concluded, through testing, that these controls are effective. Management will monitor the effectiveness of its integration and remediation plans and will make changes Management determines to be appropriate.

While Management believes that these efforts will improve the Company's internal controls over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

Management believes the Company is making progress toward achieving the effectiveness of its internal controls and disclosure controls. The actions that Management is taking are subject to ongoing Management review, as well as audit committee oversight. Management will not be able to conclude whether the steps it is taking will fully remediate these material weaknesses in the Company's internal control over financial reporting until Management has completed its remediation efforts and subsequent evaluation of their effectiveness. Management will continue to assess the effectiveness of its internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

### Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. The Principal Financial and Accounting Officer and Chief Financial Officer are the same individual. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgement and breakdowns resulting from human failures. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These include, for example, the possibility of human errors or mistakes, or of controls being circumvented by collusion or inappropriate management override. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Due to their inherent limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. It is possible to design safeguards to reduce, but not eliminate, this risk. However, these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

### Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 2,117 characters.

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, except as described below. Investors are encouraged to review these risk factors prior to making an investment in the Company and in conjunction with their review of this Quarterly Report on Form 10-Q.

***Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely impact our business, financial condition and results of operations.***

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. We maintain deposits at financial institutions as a part of doing business that could be at risk if another similar event were to occur. Our ongoing cash management strategy is to maintain the majority of our deposit accounts in large "money center" financial institutions, but there can be no assurance this strategy will be successful. Increasing concerns regarding the U.S. or international financial systems, including bank failures and bailouts, and their potential broader effects and potential systemic risk on the banking sector generally, may adversely affect our access to capital. Any decline in available funding or access to our cash and liquidity resources could, among other risks, limit our ability to meet our capital needs and fund future growth or fulfill our other obligations, or result in breaches of our financial and/or contractual obligations. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our business, financial condition and results of operations.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038677. Last ingested by Listed: Oct 30, 2026, 17:41 ET. No prices; not investment advice.