EDGAR 10-K Filing

Company CIK: 1772720
Filing Year: 2024
Filename: 1772720_10-K_2024_0001628280-24-015334.json

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ITEM 1. BUSINESS
Item 1.
Business

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ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters is located in leased office space in Denver, Colorado. Our Chief Executive Officer and several key members of the leadership team are located in Denver. We also lease office space in Houston, Texas, where our accounting and finance, human resources, customer operations, asset operations and business development, and information technology functions are located.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
See Note 15. Commitments and Contingencies in Part II, Item 8. Financial Statements and Supplementary Data for a description of our material pending legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not Applicable.
Part II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Common Stock is currently listed on the NYSE under the symbol “SPRU.”
Holders
As of April 3, 2024, there were approximately 51 holders of record of our Common Stock. This figure does not include shareholders whose certificates are held in the name of their broker-dealers or other nominees.
Dividends
We have not paid any cash dividends on our Common Stock to date. We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, and other factors that our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. We do not anticipate declaring any cash dividends to holders of our Common Stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III of this Annual Report on Form 10-K regarding information about securities authorized for issuance under our equity compensation plans.
Recent Sales of Unregistered Securities
We had no sales of unregistered equity securities during the period covered by this Annual Report on Form 10-K that were not previously reported in a Current Report on Form 8-K or Quarterly Report on Form 10-Q.
Issuer Purchases of Equity Securities
In May 2023, our Board of Directors approved a share repurchase program for the repurchase of up to $50.0 million of our outstanding common stock through May 15, 2025 (the “Repurchase Program”). We are not obligated to repurchase any specific number of shares or dollar amount and may discontinue the Repurchase Program at any time.
The following table provides information with respect to shares of our Common Stock we repurchased under the Repurchase Program during the three months ended December 31, 2023:
Period Total Number
of Shares Purchased Average Price Paid
per Share Total Number
of Shares Purchased as
Part of Publicly
Announced Plan or
Program
Approximate Dollar Value
of Shares that May Yet Be Purchased
Under the Plan or Program (in '000s)
October 1 - October 31, 2023 - $ - - $ 44,881
November 1 - November 30, 2023 - $ - - $ 44,881
December 1 - December 31, 2023 69,903 $ 4.35 69,903 $ 44,694
69,903 69,903
The IRA introduced a 1% excise tax on all stock repurchases effective January 2023. In relation to the Repurchase Program, this excise tax had no material impact on our financial position, results of operations or cash flows as of and for the year ended December 31, 2023.
Future share repurchases under our Repurchase Program are subject to the business judgment of our Board of Directors or Management, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, current economic environment and other factors considered relevant. As of December 31, 2023, we had approximately $44.7 million available under the Repurchase Program. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within this Annual Report on Form 10-K for additional information on our share repurchases.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Refer to 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, including those set forth under “Risk Factors” or elsewhere in this Annual Report on Form 10-K.
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 consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Company Overview
We are a leading owner and operator of distributed solar energy assets across the U.S., offering subscription-based services to approximately 75,000 home solar assets and customer contracts, making renewable energy more accessible to everyone. We offer asset management services and operating and maintenance services for home solar energy systems in our portfolio and approximately 5,000 systems owned by other companies. Refer to Item 1, “Business” within this Annual Report for additional information on our corporate history and background.
Restructuring Actions
Subsequent to the acquisition of Legacy Spruce Power, we commenced the evaluation of personnel and processes of various corporate functions between Spruce Power and legacy XL Fleet to optimize our future corporate structure and implemented certain restructuring actions. As a result of exiting the Drivetrain business and the restructuring actions, we recognized, in the aggregate, restructuring and related charges of approximately $21.6 million during the year ended December 31, 2022, which included (i) $4.4 million of severance charges paid in 2022, (ii) $5.0 million impact of accelerated vesting of certain equity awards and (iii) $12.3 million of charges related to inventory obsolescence. During the year ended December 31, 2023, we recognized incremental severance charges of approximately $0.7 million, all of which were paid in 2023. Inventory obsolescence charges are included in net loss from discontinued operations within our consolidated statements of operations for the year ended December 31, 2022. Severance charges and accelerated vesting of equity awards are included in selling, general and administrative expenses within our consolidated statements of operations for the years ended December 31, 2023 and 2022.
Recent Developments
Capital Investments, Acquisitions and Divestitures
In January 2023, we completed the sale of our legacy operations, including the Drivetrain and XL Grid businesses, each for an immaterial amount. Both businesses are presented as discontinued operations within our consolidated financial statements.
In March 2023, we completed the acquisition of all the issued and outstanding interests of SEMTH to acquire the rights of the SEMTH Master Lease. 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, we completed the Tredegar Acquisition acquiring 2,400 home solar assets and contracts for approximately $20.9 million. The Tredegar Acquisition was concurrently funded by term loan proceeds from the SP2 Facility Amendment (defined below).
SP2 Facility Amendment
In August 2023, we entered into a second amendment to our existing credit agreement with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (the “SP2 Facility Amendment”), resulting in incremental term loans of approximately $21.4 million, of which proceeds were primarily used to fund the Tredegar Acquisition. In addition, we 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 $19.0 million, a fixed rate of 4.24% and a maturity date of January 31, 2032.
Common Share Repurchase Program
In May 2023, our Board of Directors approved the Repurchase Program for the repurchase of up to $50.0 million of our outstanding common stock through May 15, 2025. During the year ended December 31, 2023, we repurchased 0.8 million shares of common stock under the Repurchase Program, for a total purchase price of $5.4 million, inclusive of transaction costs.
Reverse Stock Split
On October 6, 2023, we effected the Reverse Stock Split with respect to our issued and outstanding shares of common stock. Excluding the par value and the number of authorized shares of our common stock, all share, per share amounts, and the values of our common stock outstanding and related effect on additional paid in capital included in this Form 10-K have been retrospectively presented as if the Reverse Stock Split had been effective from the beginning of the earliest period presented. 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.
Reportable Segments
Segment reporting is based on the management approach, following the method Management organizes our reportable segments for which separate financial information is made available to and evaluated regularly by our chief operating decision maker (“CODM”) in allocating resources and in assessing performance. Our CODM is our Chief Executive Officer. Our CODM does not evaluate operating segments using asset or liability information.
In December 2022, we determined both our Drivetrain and XL Grid operations were discontinued operations, which have been presented as such within our consolidated financial statements. As of December 31, 2023, we have one reportable segment, which constitutes selling electricity through approximately 75,000 home solar systems or through residual ownership in master lease agreements in 18 states. In addition to providing management services to our own portfolio, we also provide management services to approximately 5,000 systems owned by other companies. These services include (i) billing and collections, (ii) account management services, (iii) financial reporting, (iv) homeowner support and (v) maintenance monitoring and dispatch.
Key Factors Affecting Operating Results
We are a leading owner and operator of distributed solar energy assets across the U.S., offering subscription-based solutions to homeowners for rooftop solar energy storage, EV chargers and other energy-related products. Additionally, we provide servicing functions for our assets and customers, as well as for other institutional owners of home solar energy systems. Our operating results and ability to grow our business over time could be impacted by certain factors and trends that affect our industry, as well as elements of our strategy, including the following factors, as well as the risk factors and other factors set forth under “Risk Factors” or elsewhere in this Annual Report on Form 10-K:
Development of Distributed Energy Assets
Our future growth depends significantly on our 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 us the opportunity to pursue acquisitions. Over the long-term, our continued ability to pursue acquisitions will be 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, utility rates, climate change impacts and government policy and incentives.
Availability of Financing
Our 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. We have historically utilized non-recourse, project-level debt as a primary source of capital for acquisitions. Our 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 our business.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
The results of operations related to our 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 our consolidated statements of operations. As a result, the continuing operational results reflect the operations related to our corporate functions and the results of operations for Legacy Spruce Power since its acquisition on September 9, 2022.
Information with respect to the consolidated statements of operations for the years ended December 31, 2023 and 2022 are presented below:
Years Ended December 31,
2023 2022 $
Change %
Change
(in thousands, except per share amounts)
Revenues $ 79,859 $ 23,194 $ 56,665 244 %
Operating expenses:
Cost of revenues 37,813 9,949 27,864 280 %
Selling, general and administrative expenses 56,122 73,118 (16,996) (23) %
Litigation settlements, net 27,465 - 27,465 100%
Gain on asset disposal (4,724) (580) (4,144) 714 %
Total operating expenses 116,676 82,487 34,189 41 %
Loss from operations (36,817) (59,293) 22,476 (38) %
Other (income) expense:
Interest income (19,534) (1,339) (18,195) 1359 %
Interest expense, net 41,936 11,401 30,535 268 %
Other (income) expense, net 3,268 (16,676) 19,944 (120) %
Net loss from continuing operations (62,487) (52,679) (9,808) 19 %
Net loss from discontinued operations (4,123) (40,112) 35,989 (90) %
Net loss (66,610) (92,791) 26,181 (28) %
Less: Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests (779) 1,140 (1,919) (168) %
Net loss attributable to stockholders $ (65,831) $ (93,931) $ 28,100 (30) %
Revenues
Revenues increased by $56.7 million, or 244.3%, to $79.9 million in 2023 as compared to 2022. The increase was due to a full year of PPA and SLA revenues from Legacy Spruce Power assets in 2023 compared to the prior year which included revenues for approximately four months subsequent to the acquisition of those assets effective September 9, 2022. The increase in revenue was also driven by incremental revenues related to the Tredegar Acquisition effective in August 2023, intangibles amortization related to unfavorable solar renewable energy agreements, and increased sales of SRECs in 2023. Revenues related to our Drivetrain and XL Grid operations are included in net loss from discontinued operations.
Cost of Revenues
Cost of revenues increased by $27.9 million, or 280.1%, to $37.8 million in 2023 as compared to 2022. The increase in cost of revenue correlates with the increase in revenues discussed above, in addition to increase in depreciation expense and certain operation and maintenance costs, including meter upgrade spend. Cost of revenues related to our Drivetrain and XL Grid operations are included in net loss from discontinued operations.
Selling, General and Administrative
Selling, general and administrative expenses decreased by $17.0 million, or 23.2%, to $56.1 million in 2023. The decrease was primarily due to the reduction of bonus expense, severance charges and other restructuring expenses in 2023 as compared to 2022. Selling, general and administrative expenses related to our Drivetrain and XL Grid businesses are included in net loss from discontinued operations.
Litigation Settlements, Net
Litigation settlements, net of $27.5 million incurred in 2023 relates to costs incurred for settlements on the SEC inquiry, shareholder lawsuits, and a breach of contract lawsuit, net of related insurance recoveries from third parties, for which we are currently pursuing settlements. See Note 15. Commitments and Contingencies in Part II, Item 8. Financial Statements and Supplementary Data for a description of our material pending legal proceedings.
Interest Income
Interest income of $19.5 million for 2023 relates to $11.5 million of interest income from the SEMTH Master Lease executed in March 2023 and $8.0 million of interest earned on U.S. Treasury securities. In comparison, interest income of $1.3 million for 2022 primarily related to interest earned on U.S. Treasury securities.
Interest Expense, Net
Interest expense, net of $41.9 million for 2023 primarily relates to (i) $49.6 million of interest expense related to the principal amounts of our debt instruments and (ii) $5.9 million related to the amortization of debt discount and deferred financing costs, both partially offset by $13.7 million of net realized gains from the change in fair value of interest rate swaps. In comparison, interest expense, net of $11.4 million for 2022 consisted of $13.5 million of interest expense related to the principal amounts of our debt instruments, partially offset by $2.1 million of net realized gains from the change in fair value of interest rate swaps. Interest expense related to the principal amounts of our outstanding debt increased in 2023 as compared to 2022 due to new debt assumed concurrently with the SEMTH Acquisition in March 2023 and incremental term loans from the SP2 Facility Amendment in August 2023. See Note 8. Non-Recourse Debt in Part II, Item 8. Financial Statements and Supplementary Data for further information on our debt.
Other (Income) Expense, Net
Other expense, net of $3.3 million for 2023 consists of $4.8 million of unrealized losses from the change in fair value of interest rate swaps, partially offset by $1.3 million of other income, net and $0.2 million of change in fair value of warrant liabilities, while other income, net of $16.7 million for 2022 primarily consisted of $5.6 million of unrealized gains from the change in fair value of interest rate swaps, $5.1 million of change in fair value of warrant liabilities and $4.5 million gain on the extinguishment of debt related to the wind-down of the New Market Tax Credit obligation.
Net Loss from Discontinued Operations
Net loss from discontinued operations of $4.1 million in 2023 and $40.1 million in 2022 includes the discontinued operations of our Drivetrain and XL Grid businesses. The net loss from discontinued operations in 2023 consists of a net loss from the Drivetrain business of $4.1 million. The net loss from discontinued operations in 2022 consists of a net loss from the Drivetrain business of $30.4 million, a net loss from the XL Grid business of $1.1 million and an impairment of goodwill of $8.6 million.
Liquidity and Capital Resources
Our cash requirements depend on many factors, including the execution of our business strategy and plan. We remain focused on carefully managing costs, including capital expenditures, maintaining a strong balance sheet and ensuring adequate liquidity. Our primary cash needs are debt service, acquisition of solar energy portfolios, operating expenses, working capital and capital expenditures to support the growth in our business. Working capital is impacted by the timing and extent of our business needs. As of December 31, 2023, we had working capital of $131.6 million, including cash and cash equivalents and restricted cash of $172.9 million. We had net losses attributable to stockholders of $65.8 million and $93.9 million for the years ended December 31, 2023 and 2022, respectively.
With the acquisition of Legacy Spruce Power in September 2022, we 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. As of December 31, 2023, our debt balance was $618.8 million, net of $27.6 million of unamortized fair value adjustment and $0.3 million of unamortized deferred financing costs. Our debt consists of four senior debt facilities and a subordinate facility, of which the loan agreements require quarterly principal payments and the earliest maturity date is April 2026. For additional information on our debt, refer to Note 8. Non-Recourse Debt included within the accompanying audited consolidated financial statements.
Based on our current liquidity, we believe no additional capital will be needed to execute our current business plan over the next 12 months. We continually evaluate our 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:
Years Ended December 31,
(Amounts in thousands) 2023 2022
Net cash provided by (used in)
Continuing operating activities $ (31,714) $ (47,717)
Discontinued operating activities (1,947) (15,772)
Continuing investing activities (17,060) (30,296)
Discontinued investing activities 325 1,290
Continuing financing activities (16,807) (19,088)
Discontinued financing activities - (99)
Net change in cash and cash equivalents and restricted cash $ (67,203) $ (111,682)
Cash Flows Used in Operating Activities
Historically and prior to the acquisition of Legacy Spruce Power, our cash flows from operating activities were significantly affected by our cash investments to support the growth of the business in areas such as research and development, selling, general and administrative expense and working capital. Prior to the acquisition of Legacy Spruce Power, operating cash inflows included cash from fleet electrification and related servicing, customer deposits and delivery of turnkey energy efficiency and electric vehicle charging stations. Subsequent to the acquisition of Legacy Spruce Power on September 9, 2022, operating cash inflows further included cash from power generated by our home solar energy systems and the servicing of long-term agreements for other institutional owners of home solar energy systems. These operating cash inflows were primarily offset by payments to suppliers for production materials and parts used in the manufacturing process, operating expenses, operating lease payments and interest payments on our outstanding debt. In the fourth quarter of 2022, we discontinued our Drivetrain and XL Grid businesses, of which the related cash flows are reflected as discontinued activities for the years presented.
The net cash used in continuing operating activities in 2023 was $31.7 million. Cash used in continuing operations decreased in 2023 compared to 2022 by $16.0 million primarily due to decreased stock-based compensation expenses, change in fair value of derivative instruments, offset primarily by increases in depreciation expense, accrued expenses and other current liabilities and interest income related to the SEMTH Master Lease.
The net cash used in continuing operating activities in 2022 was $47.7 million, which primarily consisted of high operating expenditures primarily due to legal fees, restructuring expenses and transaction expenses related to the acquisition of Legacy Spruce Power and the divestiture of the Drivetrain business. In addition, there were lower collections of accounts receivables due to reduced revenues in 2022, which were partially offset by lower purchases of inventory.
Cash Flows Used in Investing Activities
The net cash used in continuing investing activities in 2023 was $17.1 million, which primarily relates to (i) $43.1 million of aggregate net cash paid for acquisitions during 2023, consisting of $23.0 million for the SEMTH Acquisition and $20.1 million, net for the Tredegar Acquisition, partially offset by (ii) $20.2 million of proceeds from our investments under the SEMTH Master Lease and (iii) $6.3 million of proceeds from the sale of solar energy systems.
The net cash used in continuing investing activities in 2022 was $30.3 million, which consisted of cash paid for Legacy Spruce Power, net of cash acquired, of $32.6 million, partially offset by $2.3 million of proceeds from the sale of solar energy systems.
Cash Flows Used in Financing Activities
The net cash used in continuing financing activities in 2023 was $16.8 million, which primarily relates to (i) $32.8 million for the repayment of long-term debt and (ii) $5.4 million of shares repurchased under our Repurchase Program, both offset by (iii) $21.4 million of proceeds from the issuance of long-term debt under the SP2 Facility Amendment to fund the Tredegar Acquisition.
The net cash used in continuing financing activities in 2022 was $19.1 million, which primarily consisted of $9.3 million of long-term debt principal repayments, $8.3 million related to the buyout of redeemable non-controlling interest and $1.9 million of capital distributions to non-controlling interests, partially offset by $0.6 million of proceeds from the exercise of stock options in 2022.
Related Parties
We were party to a noncancelable lease agreement for office, research and development, and vehicle development and installation facilities with a holder of more than 5% of our Common Stock. The lease expired in the third quarter of 2022 and the related rent expense under the operating lease for the year ended December 31, 2022 was $0.1 million.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our most critical accounting policies and estimates are those most important to the portrayal of its financial condition and results of operations and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We have identified the following as its most critical accounting policies and judgments. Although Management believes that its estimates and assumptions are reasonable, they are based on information available when they are made and, therefore, may differ from estimates made under different assumptions or conditions.
Our significant accounting policies are discussed in Note 2. Summary of Significant Accounting Policies, included in accompanying audited consolidated financial statements, and should be reviewed in connection with the following discussion of accounting policies that require difficult, subjective and complex judgments.
Acquisitions
All acquisitions, regardless of whether a business combination or asset acquisition, are evaluated to determine whether or not the acquired entity is a variable interest entity (“VIE”), including an evaluation of whether there is sufficient equity at risk.
Business combinations are accounted for using the acquisition method of accounting. The purchase price of a business combination is measured at the estimated fair value of the assets acquired, equity instruments issued and liabilities assumed at the acquisition date. Any noncontrolling interests acquired are also initially measured at fair value. Costs that are directly attributable to the acquisition are expensed as incurred to general and administrative expense. Goodwill is recognized if the aggregate fair value of the total purchase consideration and the noncontrolling interests is in excess of the aggregate fair value of the assets acquired and liabilities assumed.
Asset acquisitions are measured based on the cost to us, including transaction costs. Asset acquisition costs, or the consideration transferred, are assumed to be equal to the fair value of the net assets acquired. If the consideration transferred is cash, measurement is based on the amount of cash paid to the seller, as well as transaction costs incurred. Consideration given in the form of non-monetary assets, liabilities incurred or equity instruments issued is measured based on either the cost to us or the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is allocated to the assets acquired based on their estimated fair values. Goodwill is not recognized in an asset acquisition. The Company concluded that SEMTH does not meet the definition of a business or variable interest entity.
The fair values of the assets acquired and liabilities assumed are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. Significant estimates include, but are not limited to, discount rates and forecasted cash flows. These estimates are inherently uncertain and unpredictable.
Revenue Recognition
The Company’s revenue is derived from our home solar energy portfolio, which primarily generates revenue through the sale to homeowners of power generated by our home solar energy systems pursuant to long-term agreements, the rental of solar equipment by homeowners pursuant to long-term agreements, and the sale of solar renewable energy credits to third parties. Previously, we also derived revenue from the Drivetrain operations which generated revenue from the sales of hybrid electric powertrain systems, and the XL Grid operations which generated revenues through turnkey energy efficiency, renewable technology and other energy solutions. As of and for the years ended December 31, 2023 and 2022, the Drivetrain business and XL Grid business are reported as discontinued operations.
Energy generation
Customers purchase electricity under PPAs or SLAs. Revenue is recognized from contracts with customers as performance obligations are satisfied at a transaction price reflecting an amount of consideration based upon an estimated rate of return which is expressed as the solar rate per kilowatt hour or a flat rate per month as defined in the customer contracts.
•PPAs - Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), PPA revenue is recognized when generated based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the PPAs.
•SLAs - We have SLAs, which do not meet the definition of a lease under ASC 842, Leases, and are accounted for as contracts with customers under ASC 606. Revenue is recognized on a straight-line basis over the contract term as the obligation to provide continuous access to the solar energy system is satisfied. The amount of revenue recognized may not equal customer cash payments because the performance obligation has been satisfied ahead of cash receipt or evenly as continuous access to the solar energy system has been provided. The differences between revenue recognition and cash payments received are reflected in accounts receivable, other assets or deferred revenue, as appropriate.
Solar renewable energy credit revenues
We enter into contracts with third parties to sell SRECs generated by the solar energy systems for fixed prices. Certain contracts that meet the definition of a derivative may be exempted as normal purchase or normal sales transactions (“NPNS”). NPNS are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Certain SREC contracts meet these requirements and are designated as NPNS contracts. Such SRECs are exempted from the derivative accounting and reporting requirements, and we recognize revenues in accordance with ASC 606. We recognize revenue for SRECs based on pricing predetermined within the respective contracts at a point in time when the SRECs are transferred. As SRECs can be sold separate from the actual electricity generated by the renewable-based generation source, we account for the SRECs it generates from its solar energy systems as governmental incentives with no costs incurred to obtain them and do not consider those SRECs output of the underlying solar energy systems.
Investment related to SEMTH master lease agreement and interest income
We account for our investment related to the SEMTH master lease agreement in accordance with Accounting Standards Codification (“ASC”) 325-40, Investments-Other-Beneficial Interests in Securitized Financial Assets. We recognize accretable yield as interest income over the life of the related beneficial interest using the effective yield method, which is reflected within interest income in our consolidated statements of operations. On a recurring basis, we evaluate changes in the cash flows expected to be collected from the cash flows previously projected, and when favorable or adverse changes are deemed other than temporary, we prospectively update our expected cash flows accordingly.
Impairment of long-lived assets
We review long-lived assets, including solar energy systems, property and equipment, and intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that an asset group’s carrying amount may not be recoverable. We group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value.
In the fourth quarter of 2022, we determined there was an indicator of impairment for intangible assets in our discontinued operations of the Drivetrain and XL Grid businesses and concluded the asset was not recoverable. Comparing the carrying value of the asset to the fair value, we determined the entire asset was impaired and recognized an impairment charge of $0.9 million, which is included in our discontinued operations results for the year ended December 31, 2022. There was no long-lived asset impairment charge during the year ended December 31, 2023.
Goodwill
Goodwill represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is not amortized but instead is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired.
We perform our annual goodwill impairment assessment at October 1 each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. An assessment can be performed by first completing a qualitative assessment on our single reporting unit. We can also bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of the reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill.
If we believe that, as a result of our qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to earnings in the period the goodwill is determined to be impaired. The income tax effect associated with an impairment of tax- deductible goodwill is also considered in the measurement of the goodwill impairment. Any goodwill impairment is limited to the total amount of goodwill.
We evaluate the fair value of our reporting unit using the market and income approach. Under the market approach, we use multiples of EBITDA or revenues of the comparable guideline public companies by selecting a population of public companies with similar operations and attributes. Using this guideline public company data, a range of multiples of enterprise value to EBITDA or revenue is calculated. The income approach of computing fair value is based on the present value of the expected future economic benefits generated by the asset or business, such as cash flows or profits which will then be compared to its book value.
In the first quarter of 2022, we believed there were indicators that the carrying amount of its goodwill may be impaired due to a decline in our stock price and market capitalization. As a result, we performed an assessment of our goodwill for impairment. We elected to forego the qualitative test and proceeded to perform a quantitative test. We compared the book value of our single reporting unit to the fair value of its public float. The market capitalization was below our fair value by an amount in excess of our reported value of goodwill. As a result, we recorded a charge of $8.6 million to fully impair goodwill related to XL Fleet, which is included in our discontinued operations results for the year ended December 31, 2022. There was no goodwill impairment charge during the year ended December 31, 2023.
It is likely we may recognize further goodwill impairment losses in the future if, among other factors there is a decline in our overall financial performance such as declining cash flows or revenues, or there is a decline in our market capitalization or stock price.
Valuation of deferred tax assets
We account for income taxes using the asset and liability method, under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Deferred income taxes are provided for the temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss carry-forwards and credits. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statements of operations in the period in which the enactment rate changes.
The ultimate recovery of deferred tax assets is dependent upon the amount and timing of future taxable income and other factors such as the taxing jurisdiction in which the asset is to be recovered. A high degree of judgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets. We have provided valuation allowances as of December 31, 2023 and 2022 aggregating $74.9 million and $69.4 million, respectively, against such assets based on our assessment of past operating results, estimates of future taxable income and the feasibility of tax planning strategies. Although we believe that our approach to estimates and judgments as described herein is reasonable, actual results could differ and we may be exposed to increases or decreases in income taxes that could be material.
Redeemable noncontrolling interests and noncontrolling interests
Noncontrolling interests represent third-party interests in the net assets of certain consolidated subsidiaries. We consolidate any VIE of which we are the primary beneficiary. We formed or acquired VIEs which are partially funded by tax equity investors in order to facilitate the funding and monetization of certain attributes associated with solar energy systems. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. A variable interest holder is required to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. We do not consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We evaluate our relationships with the VIEs on an ongoing basis to determine if we are the primary beneficiary.
Our investments in Volta Solar Owner II, LLC and ORE HoldCo, LLC as of December 31, 2023 (collectively, the “Funds”) were determined to be VIEs upon investment. As of December 31, 2022, we had investments in the Funds and Level Solar Fund IV LLC (collectively, the “Prior Funds”), which were individually determined to be VIEs upon investment. We subsequently purchased 100% of the membership interests in Level Solar Fund IV LLC during 2023 and it ceased being a VIE upon purchase.
We considered the provisions within the contractual arrangements that grant us power to manage and make decisions that affect the operation of the VIEs, including determining the solar energy systems contributed to the VIEs, and the operation and maintenance of the solar energy systems. We consider the rights granted to the other investors under the contractual arrangements to be more protective in nature rather than substantive participating rights. As such, we were determined to be the primary beneficiary, and the assets, liabilities and activities of the Funds and Prior Funds (before any ceased being a VIE) were consolidated by us. The distribution rights and priorities for the Funds and Prior Funds (before any ceased being a VIE) as set forth in their respective operating agreements differ from the underlying percentage ownership interests of the members. As a result, we allocate income or loss to the noncontrolling interest holders of the Funds and Prior Funds (before any ceased being a VIE) utilizing the hypothetical liquidation of book value (“HLBV”) method, in which income or loss is allocated based on the change in each member's claim on the net assets at the end of each reporting period, adjusted for any distributions or contributions made during such periods. The HLBV method is commonly applied to investments where cash distribution percentages vary at different points in time and are not directly linked to an equity member's ownership percentage.
The HLBV method is a balance sheet-focused approach. Under this method, a calculation is prepared at each reporting date to determine the amount that each member would receive if the entity were to liquidate all of its assets and distribute the resulting proceeds to its creditors and members based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is used to derive each member's share of the income or loss for the period. Factors used in the HLBV calculation include GAAP income (loss), taxable income (loss), capital contributions, ITCs, distributions and the stipulated targeted investor return specified in the subsidiaries' operating agreements. Changes in these factors could have a significant impact on the amounts that investors would receive upon a hypothetical liquidation. The use of the HLBV method to allocate income (loss) to the noncontrolling interest holders may create volatility in the consolidated statements of operations as the application of HLBV can drive changes in net income or loss attributable to noncontrolling interests from period to period. We classify certain noncontrolling interests with redemption features that are not solely within our control outside of permanent equity in the consolidated balance sheets. Redeemable noncontrolling interests are reported using the greater of the carrying value at each reporting date as determined by the HLBV method or the estimated redemption value at the end of each reporting period. Estimating the redemption value of the redeemable noncontrolling interests requires the use of significant assumptions and estimates, such as projected future cash flows.
Interest Rate Swaps
We utilize interest rate swaps to manage interest rate risk on existing and planned future debt issuances. These swaps are not designated as cash flow hedges or fair value hedges. The fair value of the interest rate swaps are calculated by discounting the future net cash flows to the present value based on the terms and conditions of the agreements and the forward interest rate curves. As these inputs are based on observable data and valuations of similar instruments, the interest rate derivatives are primarily categorized as Level 2 in the fair value hierarchy. The fair value of interest rate swaps are recorded on the consolidated balance sheets. Realized gains and losses on interest rate swaps are recognized in interest expense, net on the consolidated statements of operations. Unrealized gains and losses on interest rate swaps are reflected in the consolidated statements of operations and as a non-cash reconciling item in operating activities on the consolidated statements of cash flows.
New and Recently Adopted Accounting Pronouncements
Refer to Note 2. Summary of Significant Accounting Policies to the consolidated financial statements, included below in Item 8. Financial Statements and Supplementary Data.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements are presented beginning on page following this caption.
Index to Consolidated Financial Statements
Page No.
Reports of Independent Registered Public Accounting Firms for Deloitte & Touche LLP (PCAOB ID No .34) and Marcum LLP (PCAOB ID No. 688)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Spruce Power Holding Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Spruce Power Holding Corporation (the "Company") as of December 31, 2023, the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
The consolidated financial statements of the Company for the year ended December 31, 2022, before the effects of the adjustments to retrospectively apply the reverse stock split discussed in Note 2 to the financial statements, were audited by other auditors whose report, dated March 30, 2023, expressed an unqualified opinion on those statements. We have also audited the adjustments to the 2022 consolidated financial statements to retrospectively apply the reverse stock split in 2023, as discussed in Note 2 to the financial statements. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2022 consolidated financial statements of the Company other than with respect to the retrospective adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2022 consolidated financial statements taken as a whole.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
SEMTH Acquisition - Refer to Note 4 to the Financial Statements
Critical Audit Matter Description
In March 2023, the Company completed the acquisition of SS Holdings 2017, LLC and its subsidiaries (“SEMTH”) resulting in the acquisition of 20-year use rights to customer payment streams. The Company concluded that SEMTH does not meet the definition of a business or a variable interest entity.
We identified the SEMTH Acquisition as a critical audit matter because of the significant judgment made by the Company to determine that SEMTH has sufficient equity at risk and thus was not a variable interest entity. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve specialists and senior members of the engagement team.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate the accounting treatment of the SEMTH Acquisition included the following, among others:
•With the assistance of professionals in our firm having expertise in business combinations and consolidation, we evaluated the Company’s conclusion that SEMTH does not meet the definition of a business per ASC 805, Business Combinations, or a variable interest entity per ASC 810, Consolidation.
•With the assistance of fair value specialists, we evaluated the reasonableness of the assumptions used in the cash flows used in the equity at risk analysis, including testing the mathematical accuracy of the calculation.
•We evaluated the reasonableness of the Company’s projections of revenue by comparing the assumptions used in the projections to long-term agreements and historical data.
Revenue - Refer to Note 2 to the Financial Statements
Critical Audit Matter Description
The Company’s revenue is primarily derived from the sale of solar energy to residential homeowners pursuant to long-term agreements, the rental of solar equipment to residential homeowners pursuant to long-term agreements, and the sale of solar renewable energy credits to third-parties. The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers.
We identified revenue as a critical audit matter as it required an increased extent of effort, including the need to involve senior members of the engagement team.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to evaluate revenue included the following, among others:
•We performed detail testing procedures to evaluate the Company’s conclusion regarding the application of ASC 606 for contracts related to energy generation, both the sale of solar energy and the rental of solar equipment, and solar renewable energy credits.
•We obtained the Company’s assessment of whether there have been significant changes in facts or circumstances that require a reassessment of the accounting treatment under ASC 606.
◦We evaluated the Company’s assessment of any significant changes in facts or circumstances, including the Company’s policy related to the collectability of consideration.
◦We tested the Company’s identification of contracts that were concluded to no longer be collectable under ASC 606.
◦We tested the mathematical accuracy of the impact to revenue for those contracts that were concluded to no longer being collectable under ASC 606.
•We performed detail testing procedures to test revenue recorded for energy generation, both the sale of solar energy and the rental of solar equipment, and solar renewable energy credits.
/s/ Deloitte & Touche LLP
Houston, TX
April 8, 2024
We have served as the Company's auditor since 2023.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Spruce Power Holding Corporation
(formerly known as XL Fleet Corp.)
Opinion on the Financial Statements
We have audited, before the effects of the adjustments to retrospectively apply the reverse stock split described in Note 2, the accompanying consolidated balance sheet of Spruce Power Holding Corporation (formerly known as XL Fleet Corp.) (the “Company”) as of December 31, 2022, the related consolidated statements of operations, stockholders’ equity and cash flows the year then ended, and the related notes (the 2022 financial statements before the effects of the reverse stock split discussed in Note 2 are not presented herein) (collectively referred to as the “financial statements”). In our opinion, the 2022 financial statements before the effects of the reverse stock split discussed in Note 2, present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the reverse stock split described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Initial measurement of fair value of assets related to a business combination
The Company completed the acquisition of all of the membership interests of Spruce Holding Company 1 LLC, Spruce Holding Company 2 LLC, Spruce Holding Company 3 LLC, and Spruce Manager LLC The Company has accounted for this acquisition as a business combination under ASC Topic 805 “Business Combinations.” Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values.
We identified the initial fair value measurement of intangible assets as a critical audit matter because of the significant estimates and assumptions management makes to fair value these assets for purposes of recording the acquisition. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s initial estimates of cash flows including the need to involve our fair value specialists.
Our audit procedures related to these forecasts included the following, among others:
-Testing the source information underlying the estimates
-With the assistance of our fair value specialists:
-Evaluating the reasonableness of the valuation methodology
-Developing a range of independent estimates for the discount rates and comparing those to the discount rates selected by management
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor from 2020 to 2023.
Melville, NY
March 30, 2023
PCAOB: 688
Spruce Power Holding Corporation
Consolidated Balance Sheets
As of December 31,
(In thousands, except share and per share amounts) 2023 2022
Assets
Current assets
Cash and cash equivalents $ 141,354 $ 220,321
Restricted cash 31,587 19,823
Accounts receivable, net of allowance of $1.7 million and $12.2 million as of December 31, 2023 and 2022, respectively
9,188 8,336
Interest rate swap assets, current 11,333 10,183
Prepaid expenses and other current assets 9,879 5,316
Current assets of discontinued operations - 10,977
Total current assets 203,341 274,956
Investment related to SEMTH master lease agreement 143,095 -
Property and equipment, net 484,406 396,168
Interest rate swap assets, non-current 16,550 22,069
Intangible assets, net 10,196 -
Deferred rent assets 2,454 1,626
Right-of-use assets, net 5,933 2,802
Goodwill 28,757 128,548
Other assets 257 383
Long-term assets of discontinued operations 32 -
Total assets $ 895,021 $ 826,552
Liabilities, redeemable noncontrolling interests and stockholders’ equity
Current liabilities
Accounts payable $ 1,120 $ 2,904
Non-recourse debt, current 27,914 25,314
Accrued expenses and other current liabilities 40,634 21,509
Deferred revenue, current 878 39
Lease liability, current 1,166 834
Current liabilities of discontinued operations - 9,097
Total current liabilities 71,712 59,697
Non-recourse debt, non-current 590,866 474,441
Deferred revenue, non-current 1,858 452
Lease liability, non-current 5,731 2,426
Warrant liabilities 17 256
Unfavorable solar renewable energy agreements, net 6,108 -
Interest rate swap liabilities, non-current 843 -
Other long-term liabilities 3,047 10
Long-term liabilities of discontinued operations
170 294
Total liabilities 680,352 537,576
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests - 85
Stockholders’ equity:
Common stock, $0.0001 par value; 350,000,000 shares authorized at December 31, 2023 and 2022; 19,093,186 and 18,292,536 shares issued and outstanding at December 31, 2023, respectively, and 18,046,903 issued and outstanding at December 31, 2022
2 2
Additional paid-in capital 475,654 473,289
Accumulated deficit (257,888) (193,342)
Treasury stock at cost, 800,650 shares and 0 at December 31, 2023 and 2022, respectively
(5,424) -
Noncontrolling interests 2,325 8,942
Total stockholders’ equity 214,669 288,891
Total liabilities, redeemable noncontrolling interests and stockholders’ equity $ 895,021 $ 826,552
See Notes to Consolidated Financial Statements.
Spruce Power Holding Corporation
Consolidated Statements of Operations
Years Ended December 31,
(In thousands, except per share and share amounts) 2023 2022
Revenues $ 79,859 $ 23,194
Operating expenses:
Cost of revenues 37,813 9,949
Selling, general and administrative expenses 56,122 73,118
Litigation settlements, net 27,465 -
Gain on asset disposal (4,724) (580)
Total operating expenses 116,676 82,487
Loss from operations (36,817) (59,293)
Other (income) expense:
Interest income (19,534) (1,339)
Interest expense, net 41,936 11,401
Gain on extinguishment of debt - (4,527)
Change in fair value of obligation to issue shares of common stock to sellers of World Energy - (535)
Change in fair value of warrant liabilities (239) (5,148)
Change in fair value of interest rate swaps 4,816 (5,554)
Other income, net (1,309) (912)
Net loss from continuing operations (62,487) (52,679)
Net loss from discontinued operations
(including loss on disposal of $3,083 for the year ended December 31, 2023)
(4,123) (40,112)
Net loss (66,610) (92,791)
Less: Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests (779) 1,140
Net loss attributable to stockholders $ (65,831) $ (93,931)
Net loss from continuing operations per share, basic and diluted $ (3.40) $ (2.95)
Net loss from discontinued operations per share, basic and diluted $ (0.22) $ (2.25)
Net loss attributable to stockholders per share, basic and diluted $ (3.58) $ (5.27)
Weighted-average shares outstanding, basic and diluted 18,391,436 17,836,500
See Notes to Consolidated Financial Statements.
Spruce Power Holding Corporation
Consolidated Statements of Changes in Stockholders’ Equity
Year Ended December 31, 2023
Redeemable Noncontrolling Interests Common Stock Additional
Paid-In
Capital Accumulated
Deficit Treasury Stock Non controlling Interests Total Stockholders’
Equity
(In thousands, except share data) Shares Amount Shares Amount
Balance at December 31, 2022 $ 85 18,046,903 $ 2 $ 473,289 $ (193,342) - $ - $ 8,942 $ 288,891
Exercise of stock options - 489,436 - 1,004 - - - - 1,004
Purchase accounting measurement period adjustments 240 - - (1,813) - - - (5,490) (7,303)
Issuance of restricted stock - 531,029 - - - - - - -
Issuance of common stock - 25,818 - 150 - - - - 150
Share repurchases - - - - - 800,650 (5,424) - (5,424)
Cumulative-effect adjustment of ASC 326 adoption - - - - 1,285 - - - 1,285
Stock-based compensation expense - - - 2,885 - - - - 2,885
Net income (loss) 3 - - - (65,831) - - (782) (66,613)
Buyout of redeemable noncontrolling interests (55) - - - - - - - -
Capital distributions to noncontrolling interests (134) - - - - - - (345) (345)
Equity related to buyout of redeemable noncontrolling interest (139) - - 139 - - - - 139
Balance at December 31, 2023 $ - 19,093,186 $ 2 $ 475,654 $ (257,888) 800,650 $ (5,424) $ 2,325 $ 214,669
Year Ended December 31, 2022
Redeemable Noncontrolling Interests Common Stock Additional
Paid-in
Capital Accumulated
Deficit Treasury Stock Non controlling Interests Total Stockholders’
Equity
(In thousands, except share data) Shares Amount Shares Amount
Balance at December 31, 2021 $ - 17,567,584 $ 2 $ 461,219 $ (99,411) - $ - $ - $ 361,810
Exercise of stock options - 333,764 - 630 - - - - 630
Issuance of restricted stock - 133,055 - - - - - - -
Issuance of shares as contingent consideration relating to Quantum business acquisition - 12,500 - 186 - - - - 186
Stock-based compensation expense - - - 9,996 - - - - 9,996
Net income (loss) 846 - - - (93,931) - - 294 (93,637)
Noncontrolling interests related to acquisition of Legacy Spruce Power 7,159 - - - - - - 12,164 12,164
Buyout of noncontrolling interests (6,517) - - 1,258 - - - (3,024) (1,766)
Capital distributions to noncontrolling interests (1,403) - - - - - - (492) (492)
Balance at December 31, 2022 $ 85 18,046,903 $ 2 $ 473,289 $ (193,342) - $ - $ 8,942 $ 288,891
See Notes to Consolidated Financial Statements.
Spruce Power Holding Corporation
Consolidated Statements of Cash Flows
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
See Notes to Consolidated Financial Statements.
Spruce Power Holding Corporation
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 prices and (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”).
Spruce Power Holding Corporation
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.
Note 2. Summary of Significant Accounting Policies
Basis of consolidated financial statement presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of its wholly owned subsidiaries and variable interest entities (“VIEs”), for which the Company was the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the Company’s presentation as of and for the year ended December 31, 2023 and such reclassifications had no effect on the Company’s previously reported financial position, results of operations, or cash flows.
On March 28, 2023, the Company was notified by the New York Stock Exchange (the “NYSE”) that it was not in compliance with certain listing requirements since the average closing price of its common stock was less than $1.00 over a consecutive 30 day trading period. Subsequently, on October 6, 2023, the Company effected a 1-for-8 reverse stock split with respect to its issued and outstanding shares of common stock (the “Reverse Stock Split”). Excluding the par value and the number of authorized shares of the Company’s common stock, all share, per share amounts, and the values of the common stock outstanding and related effect on additional paid in capital included in this Form 10-K have been retrospectively presented as if the Reverse Stock Split had been effective from the beginning of the earliest period presented.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of expenses during the reporting period. The Company’s most significant estimates and judgments involve (i) inventory reserves, (ii) deferred income taxes, (iii) warranty reserves, (iv) valuation of stock-based compensation, (v) valuation of warrant liability, (vi) the useful lives of certain assets and liabilities, (vii) the allowance for current expected credit losses and (viii) the valuation of business combinations, including the fair values and useful lives of acquired assets and assumed liabilities, goodwill and the fair value of purchase consideration of asset acquisitions. 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 the Company’s financial statements.
Variable interest entities
The Company consolidates any variable interest entity (“VIE”) of which it is the primary beneficiary. The Company formed or acquired VIEs which are partially funded by tax equity investors in order to facilitate the funding and monetization of certain attributes associated with solar energy systems. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. A variable interest holder is required to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company does not consolidate a VIE in which it has a majority ownership interest when the Company is not considered the primary beneficiary. The Company evaluates its relationships with the VIEs on an ongoing basis to determine if it is the primary beneficiary.
As of December 31, 2022, the Company had its initial investment in Level Solar Fund IV LLC (“Level Solar Fund IV”) and similar investments in the Funds as defined below (collectively, the “Prior Funds”), which were each determined to be a VIE upon investment. During 2023, the Company purchased 100% of the membership interests in Level Solar Fund IV (See Note 13. Redeemable Noncontrolling Interests and Noncontrolling Interests) and it ceased being a VIE upon purchase. As of December 31, 2023, the Company had its investments in Volta Solar Owner II, LLC and ORE HoldCo, LLC (collectively, the “Funds”).
The Company considered the provisions within the contractual arrangements that grant it power to manage and make decisions that affect the operation of the VIEs, including determining the solar energy systems contributed to the VIEs, and the operation and maintenance of the solar energy systems. The Company considers the rights granted to the other investors under the contractual arrangements to be more protective in nature rather than substantive participating rights. As such, the Company was determined to be the primary beneficiary and the assets, liabilities and activities of the Funds and Prior Funds were consolidated by the Company.
Redeemable noncontrolling interests and noncontrolling interests
The distribution rights and priorities for the Funds and Prior Funds (before any ceased being a VIE) as set forth in their respective operating agreements differ from the underlying percentage ownership interests of the members. As a result, the Company allocates income or loss to the noncontrolling interest holders of the Funds and Prior Funds (before any ceased being a VIE) utilizing the hypothetical liquidation of book value (“HLBV”) method, in which income or loss is allocated based on the change in each member's claim on the net assets at the end of each reporting period, adjusted for any distributions or contributions made during such periods. The HLBV method is commonly applied to investments where cash distribution percentages vary at different points in time and are not directly linked to an equity member's ownership percentage.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The HLBV method is a balance sheet-focused approach. Under this method, a calculation is prepared at each reporting date to determine the amount that each member would receive if the entity were to liquidate all of its assets and distribute the resulting proceeds to its creditors and members based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is used to derive each member's share of the income or loss for the period. Factors used in the HLBV calculation include GAAP income (loss), taxable income (loss), capital contributions, ITCs, capital distributions and the stipulated targeted investor return specified in the subsidiaries' operating agreements. Changes in these factors could have a significant impact on the amounts that investors would receive upon a hypothetical liquidation.
The Company classifies certain noncontrolling interests with redemption features that are not solely within the Company’s control outside of permanent equity in the consolidated balance sheets. Redeemable noncontrolling interests are reported using the greater of the carrying value at each reporting date as determined by the HLBV method or the estimated redemption value at the end of each reporting period. Estimating the redemption value of the redeemable noncontrolling interests requires the use of significant assumptions and estimates, such as projected future cash flows. Subsequent to the purchase of 100% of the membership interests in Level Solar Fund IV in 2023, the Company had no redeemable noncontrolling interest as of December 31, 2023.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks, money market accounts and U.S. Treasury securities. Cash equivalents are carried at cost, which approximates fair value due to their short-term nature. The Company’s cash and cash equivalents are placed with high-credit quality financial institutions and issuers, and at times exceed federally insured limits. To date, the Company has experienced no credit losses relating to its cash and cash equivalents.
Concentration of credit risks and revenue
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. At times, such cash may be in excess of the FDIC limit. At December 31, 2023 and 2022, the Company had cash in excess of the $250,000 federally insured limit. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents as most of the balances are kept in treasury bills, which are government backed securities.
As of and for the year ended December 31, 2023 and 2022, the Company had no customers that represented at least 10% of the Company’s revenues or its accounts receivable balances.
Restricted cash
Restricted cash held at December 31, 2023 and 2022 of $31.6 million and $19.8 million, respectively, primarily consists of cash that is subject to restriction due to provisions in the Company's financing agreements and the operating agreements of the Funds and Prior Funds. The carrying amount reported in the consolidated balance sheets for restricted cash approximates its fair value.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reflected on the consolidated balance sheets to the total amounts shown within the consolidated statements of cash flows for each year:
As of December 31,
(Amounts in thousands) 2023 2022
Cash and cash equivalents $ 141,354 $ 220,321
Restricted cash 31,587 19,823
Total cash, cash equivalents and restricted cash $ 172,941 $ 240,144
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Accounts receivable, net
Accounts receivable primarily represent amounts due from the Company’s customers. Accounts receivable is recorded net of allowance for expected credit losses in accordance with the current expected credit losses standard (“CECL”), defined below, which is determined by the Company’s assessment of the collectability of customer accounts based on the best available data at the time of the assessment. Management reviews the allowance by considering factors such as historical experience, contractual term, aging category and current economic conditions that may affect customers. The following table presents the changes in the allowance for credit losses recorded within accounts receivable, net on the consolidated balance sheets:
As of December 31,
(Amounts in thousands) 2023
Balance at the beginning of the period $ 12,164
Impact of ASC 326 adoption (1,285)
Write-off of uncollectible accounts (11,447)
Provision recognized upon valuation of assets acquired
Provision for current expected credit losses 1,841
Balance at the end of the period $ 1,693
Derivative instruments and hedging activities
The Company utilizes interest rate swaps to manage interest rate risk on existing and planned future debt issuances. The fair value of all derivative instruments are recognized as assets or liabilities at the balance sheet date on the consolidated balance sheets. The fair value of the interest rate swaps are calculated by discounting the future net cash flows to the present value based on the terms and conditions of the agreements and the forward interest rate curves. As these inputs are based on observable data and valuations of similar instruments, the interest rate derivatives are primarily categorized as Level 2 in the fair value hierarchy.
Prepaid expenses and other current assets
Prepaid expenses and other current assets include prepaid insurance, prepaid rent, and supplies, which are expected to be recognized or realized within the next 12 months.
Investment related to SEMTH master lease agreement and interest income
The Company accounts for its investment related to the SEMTH, as defined below, master lease agreement in accordance with Accounting Standards Codification (“ASC”) 325-40, Investments-Other-Beneficial Interests in Securitized Financial Assets. The Company recognizes accretable yield as interest income over the life of the related beneficial interest using the effective yield method, which is reflected within interest income in the consolidated statements of operations in the amount of $11.5 million for the year ended December 31, 2023. On a recurring basis, the Company evaluates changes in the cash flows expected to be collected from the cash flows previously projected, and when favorable or adverse changes are deemed other than temporary, the Company prospectively updates its expectation of cash flows to be collected and recalculates the amount of accretable yield for the related beneficial interest.
Property and equipment, net
Property and equipment, net consists of solar energy systems and other property and equipment.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Solar energy systems, net
Solar energy systems, net consists of home solar energy systems which are subject to long-term Customer Agreements and asset retirement costs (“ARC”). Solar energy systems are recorded at their fair value upon acquisition, while ARCs are capitalized as part of the carrying amount of the solar energy systems and depreciated over the remaining useful life. Subsequently, any impairment charges that may arise are recognized and the impairment loss reduces the carrying amount of the asset to its recoverable amount. For all acquired systems, the Company calculates depreciation using the straight-line method over the remaining useful life as of the acquisition date based on a 30-year useful life from the date the asset was placed in service. When a solar energy system is sold or otherwise disposed of, a gain (or loss) is recognized for the amount of cash received in excess of the net book value of the solar energy system (or vice versa), at which time the related solar energy system is removed from the consolidated balance sheets.
Other property and equipment, net
Other property and equipment, net is stated at cost less accumulated depreciation, or if acquired in a business combination, at fair value as of the date of acquisition. Depreciation is calculated using the straight-line method, based upon the following estimated useful lives:
Equipment 5 years
Furniture and fixtures 3 years
Computer and related equipment 2 years
Software 2 years
Vehicles 5 years
Leasehold improvements Lesser of useful life of the asset or remaining life of the lease
Leasehold improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the life of the respective asset, are expensed as incurred. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the consolidated statements of operations as a component of other income, net.
Intangible assets, net
The Company’s intangible assets include solar renewable energy credit agreements, performance based incentive agreements, and a trade name. The Company amortizes its intangible assets that have finite lives based on the pattern in which the economic benefit of the asset is expected to be utilized. The useful life of the Company’s intangible assets generally range between three years and 30 years. The useful life of intangible assets are assessed and assigned based on the facts and circumstances specific to the assets. The Company recognizes the amortization of (i) solar renewable energy credit agreements and performance based incentive agreements as a reduction to revenue and (ii) the trade name as amortization expense within selling, general and administrative expenses.
Impairment of long-lived assets
The Company reviews long-lived assets, including solar energy systems, other property and equipment, and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that an asset group’s carrying amount may not be recoverable. The Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluates the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset group is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
In the fourth quarter of 2022, the Company determined there was an indicator of impairment for intangible assets in its discontinued operations of the Drivetrain and XL Grid businesses and concluded the asset was not recoverable. Comparing the carrying value of the asset to its fair value, the Company determined the entire asset was impaired and recognized an impairment charge of $0.9 million, which is reflected within net loss from discontinued operations in the consolidated statements of operations for the year ended December 31, 2022 (See Note 20. Discontinued Operations). There was no long-lived asset impairment charge during the year ended December 31, 2023.
Leases
The Company determines if an arrangement is a lease, or contains a lease, at the inception of the arrangement and evaluates whether the lease is an operating lease or a finance lease at the commencement date. The Company’s assessment is based on: (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset.
The Company recognizes lease right-of-use (“ROU”) assets and lease liabilities for operating and finance leases with initial terms greater than 12 months. ROU assets represent the Company’s right to use an asset for the lease term, while lease liabilities represent the Company’s obligation to make the related lease payments. The ROU assets for all leases are recognized based on the present value of fixed lease payments over the lease term at the lease commencement date. The lease liabilities of all leases are calculated as the present value of fixed payments not yet paid at the measurement date, however subsequent to the measurement date, the finance lease liabilities are presented at amortized cost using the effective interest method.
The Company generally uses its incremental borrowing rate as the discount rate for leases unless an interest rate is implicitly stated in the leases. The Company’s incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The lease term for all of the Company’s leases includes the noncancelable period of the lease, in addition to any additional periods covered by either the Company’s option to extend the lease, which the Company is reasonably certain to exercise, or the option to extend the lease controlled by the lessor. All ROU assets are reviewed periodically for impairment.
Lease expense for operating leases consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term. Lease expense for finance leases consists of the amortization of the asset on a straight-line basis over the shorter of the lease term or its useful life and interest expense determined on an amortized cost basis, with the lease payments allocated between a reduction of the lease liability and interest expense. Variable lease payments that are not based on an index or a rate, such as common area maintenance fees, taxes and insurance, are expensed as incurred.
Asset retirement obligations
Asset retirement obligations (“ARO”) can arise from contractual or regulatory requirements to perform certain asset retirement activities at the time the solar energy systems are to be disposed. The Company recognizes AROs at the point an obligating event takes place. The liability is initially measured at fair value based on the present value of estimated removal costs and subsequently adjusted for changes in the underlying assumptions and accretion expense. The corresponding ARCs are considered retired when permanently taken out of service, such as, through a sale or disposal. The Company may revise the ARO based on actual experiences, changes in certain customer-specific estimates and other cost estimate changes. If there are changes in estimated future costs, those changes will be recorded as either a reduction or addition in the carrying amount of the remaining unamortized ARC and the ARO will either increase or decrease in depreciation and accretion expense amounts prospectively. Inherent in the calculation of the fair value of AROs are numerous assumptions and judgments, including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, and timing of settlement. As of December 31, 2023 and 2022, ARO was $3.0 million and $0 million, respectively. For the years ended December 31, 2023 and 2022, accretion expenses were $0.3 million and $0 million, respectively.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Asset acquisitions
The Company accounts for assets acquired based on the consideration transferred by the Company, including direct and incremental transaction costs incurred by the Company as a result of the acquisition. An asset acquisition’s cost or the consideration transferred by the Company is assumed to be equal to the fair value of the net assets acquired. If the consideration transferred is cash, measurement is based on the amount of cash the Company paid to the seller, as well as transaction costs incurred by the Company. Consideration given in the form of nonmonetary assets, liabilities incurred or equity interests issued is measured based on either the cost to the Company or the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is allocated to the net assets acquired based on their estimated relative fair values. The Company engages third-party appraisal firms to assist in the fair value determination, however management is responsible for, and ultimately determines the fair value. Goodwill is not recognized in an asset acquisition.
Business combinations
The Company accounts for the acquisition of a business using the acquisition method of accounting. Amounts paid to acquire a business are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. The Company engages third-party appraisal firms to assist in the fair value determination, which management uses to determine the fair value. The Company determines the fair value of purchase price consideration, including contingent consideration, and acquired intangible assets based on valuations received from the appraisal firm that used information and assumptions provided by Management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The results of operations of acquired businesses are included in the Company's financial statements from the date of acquisition forward. Acquisition-related costs are expensed in periods in which the costs are incurred.
Impairment of goodwill
Goodwill represents the excess of cost over the fair market value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is not amortized, however it is annually tested for impairment, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. The Company has historically recorded goodwill in connection with its business combinations.
The Company performs its annual goodwill impairment assessment on October 1 of each fiscal year, or more frequently if events or circumstances arise which indicate that goodwill may be impaired. An assessment can be performed by first completing a qualitative assessment of the Company’s single reporting unit. The Company can also bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test, and then resume the qualitative assessment in any subsequent period. Qualitative indicators that may trigger the need for annual or interim quantitative impairment testing include, among other things, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of the reporting unit. Additionally, a significant change in business climate, a loss of a significant customer, increased competition, a sustained decrease in share price, or a decrease in estimated fair value below book value may trigger the need for interim impairment testing of goodwill.
If the Company believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment test is required. The quantitative test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recorded as a reduction to goodwill with a corresponding charge to earnings in the period the goodwill is determined to be impaired. The income tax effect associated with an impairment of tax-deductible goodwill is also considered in the measurement of the goodwill impairment. Any goodwill impairment is limited to the total amount of goodwill.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The Company evaluates the fair value of the Company’s reporting unit using the market and income approach. Under the market approach, the Company uses multiples of EBITDA or revenues of the comparable guideline public companies by selecting a population of public companies with similar operations and attributes. Using this guideline public company data, a range of multiples of enterprise value to EBITDA or revenue is calculated. The income approach of computing fair value is based on the present value of the expected future economic benefits generated by the asset or business, such as cash flows or profits which will then be compared to its book value.
In the first quarter of 2022, the Company believed there were indicators that the carrying amount of its goodwill may be impaired due to a decline in the Company’s stock price and market capitalization. As a result, the Company performed an assessment of its goodwill for impairment. The Company elected to forego the qualitative test and proceeded to perform a quantitative test. The Company compared the book value of its single reporting unit to the fair value of its public float. The market capitalization was below the fair value of the Company by an amount in excess of its reported value of goodwill. As a result, the Company recorded a charge of $8.6 million to fully impair its goodwill related to XL Fleet Corp., which is reflected within net loss from discontinued operations in the consolidated statements of operations for the year ended December 31, 2022 (See Note 20. Discontinued Operations). There was no goodwill impairment charge during the year ended December 31, 2023.
Warranties
Customers who purchased the Company's Drivetrain systems were provided limited-assurance-type warranties for equipment and work performed under the contracts. The warranty period typically extends for three years following transfer of control of the equipment. The warranties solely relate to correction of product defects during the warranty period, which is consistent with similar warranties offered by competitors. Customers of XL Grid were provided limited-assurance-type warranties for a term of one year for installation work performed under its contracts.
The Company accrued the estimated cost of product warranties for unclaimed charges based on historical experiences and expected results. Should product failure rates and material usage costs differ from these factors, estimated revisions to the estimated warranty liability will be required. The Company periodically assesses the adequacy of its recorded product warranty liabilities and adjusts the balances as required. Warranty expense is recorded as a component of discontinued operations in the consolidated statements of operations. With the Company’s exit from the Drivetrain business and the subsequent sale of World Energy, the Company will not enter into any additional warranty obligations and expects the existing warranty obligation to substantially run-off over the subsequent 15-month period.
The following is a roll forward of the Company’s accrued warranty liability:
As of December 31,
(Amounts in thousands) 2023 2022
Balance at the beginning of the period $ 1,125 $ 2,547
Accrual for warranties issued - 116
Transfer of inventory to servicers (498) -
Accrual related to World Energy (25) -
Changes in estimates for preexisting warranties - (955)
Warranty fulfillment charges - (583)
Balance at the end of the period $ 602 $ 1,125
The Company’s warranty liability is included in accrued expenses and other current liabilities on the consolidated balance sheets.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Warrant liabilities
As of December 31, 2023 and 2022, the Company had outstanding private warrants, which are related to the December 2020 merger and organization of legacy XL Hybrids Inc. (“Legacy XL”) to become XL Fleet Corp. With the merger, the Company assumed private placement warrants to purchase 529,167 shares of common stock, with an exercise price of $92.00 per share (the “Private Warrants”). The Private Warrants do not meet the criteria for equity classification and must be recorded as liabilities. As the Private Warrants met the definition of a derivative, they were measured at fair value at inception and at each reporting date with changes in fair value recognized in the consolidated statements of operations. The Private Warrants were valued using a Black-Scholes model, with significant inputs consisting of risk-free interest rate, remaining term, expected volatility, exercise price, and the Company’s stock price (See Note 11. Fair Value Measurements).
Unfavorable solar renewable energy agreements
The Company amortizes its unfavorable solar renewable energy agreements that have finite lives based on the pattern in which the economic benefit of the liability is relieved. The useful life of the Company’s liabilities generally range between three years and six years. The useful life of these liabilities are assessed and assigned based on the facts and circumstances specific to the agreement. The Company recognizes the amortization of unfavorable solar renewable energy agreements as revenues in the consolidated statements of operations.
Contingencies
The Company is unable to anticipate the ultimate outcome of all pending legal proceedings. When it is probable that a loss has occurred and the loss amount can be reasonably estimated, the Company records liabilities for loss contingencies. In certain cases, the Company may be covered by one or more corporate insurance policies, resulting in insurance loss recoveries. When such recoveries are in excess of a loss recognized in the Company’s financial statements, the Company recognizes a gain contingency at the earlier of when the gain has been realized or when it is realizable, however when the Company expects recovery of proceeds up to the amount of the loss recognized, a receivable, which offsets the related loss contingency, is recognized when realization of the claim for recovery is determined to be probable.
Fair value measurements
The fair value of the Company’s financial assets and liabilities reflects Management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair value measurement as follows:
•Level 1: Observable inputs that reflect unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
•Level 2: Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy must be determined based on the lowest level input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, net, accounts payable, accrued expenses and other current liabilities, long-term debt, interest rate swaps and warrant liabilities. The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities each approximates fair value due to the short-term nature of those instruments. See Note 11. Fair Value Measurements for additional information on assets and liabilities measured at fair value.
Stock-based compensation
The Company grants stock-based awards to certain employees, directors and non-employee consultants. Awards issued under the Company’s stock-based compensation plans include stock options and restricted stock units. For transactions in which the Company obtains employee services in exchange for an award of equity instruments, the cost of the services are measured based on the grant date fair value of the award. The Company recognizes the cost over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). Costs related to plans with graded vesting are generally recognized using a straight-line method.
Stock Options
The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based awards and recognizes the compensation cost on a straight line basis over the requisite service period of the awards for employee, which is typically the four-year vesting period of the award, and effective contract period specified in the award agreement for non-employee. The fair value of common stock is determined based on the closing price of the Company’s common stock on the NYSE at each award grant date.
The determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility, expected life, risk- free interest rate and expected dividends. The Company does not have a significant history of trading its common stock as it was not a public company until December 21, 2020, and as such expected volatility was estimated using historical volatilities of comparable public entities. The expected life of the awards is estimated based on a simplified method, which uses the average of the vesting term and the original contractual term of the award. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected life of the awards. The dividend yield assumption is based on history and expectation of paying no dividends. Forfeitures are accounted for as they occur.
Restricted Stock Units
Restricted stock units generally vest over the requisite service periods (vesting on a straight-line basis). The fair value of a restricted stock unit award is equal to the closing price of the Company’s common stock on the NYSE on the grant date. The Company accounts for the forfeiture of equity awards as they occur.
Revenues
The Company’s revenue is derived from its home solar energy portfolio, which primarily generates revenue through the sale to homeowners of power generated by the home solar energy systems and the rental of solar equipment by certain homeowners, pursuant to long-term agreements. Pursuant to ASC 606 defined below, the Company has elected the “right to invoice” practical expedient, and revenues for the performance obligations related to energy generation and servicing revenue are recognized as services are rendered based upon the underlying contractual arrangements.
The following table presents the detail of the Company’s revenues as reflected within the consolidated statements of
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
operations for the years ended December 31, 2023 and 2022:
Years Ended December 31,
(Amounts in thousands) 2023 2022
PPA revenues $ 36,360 $ 8,756
SLA revenues 28,462 11,270
Solar renewable energy credit revenues 7,219 1,576
Government incentives 254 245
Servicing revenues 767 770
Intangibles amortization, unfavorable solar renewable energy agreements 3,593 -
Other revenue 3,204 577
Total $ 79,859 $ 23,194
Energy generation
Customers purchase solar energy from the Company under PPAs or SLAs, both defined above. Revenue is recognized from contracts with customers as performance obligations are satisfied at a transaction price reflecting an amount of consideration based upon an estimated rate of return which is expressed as the solar rate per kilowatt hour or a flat rate per month as defined in the customer contracts.
•PPA revenues - Under ASC 606, Revenue from Contracts with Customers (“ASC 606”) issued by the Financial Accounting Standards Board (“FASB”), PPA revenue is recognized when generated based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the PPAs.
•SLA revenues - The Company has SLAs, which do not meet the definition of a lease under ASC 842, Leases, and are accounted for as contracts with customers under ASC 606. Revenue is recognized on a straight-line basis over the contract term as the obligation to provide continuous access to the solar energy system is satisfied. The amount of revenue recognized may not equal customer cash payments due to the performance obligation being satisfied ahead of cash receipt or evenly as continuous access to the solar energy system has been provided. The differences between revenue recognition and cash payments received are reflected as deferred rent assets on the consolidated balance sheets.
Solar renewable energy credit revenues
The Company enters into contracts with third parties to sell SRECs generated by the solar energy systems for fixed prices. Certain contracts that meet the definition of a derivative may be exempted as normal purchase or normal sales transactions (“NPNS”). NPNS are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Certain SREC contracts meet these requirements and are designated as NPNS contracts. Such SRECs are exempted from the derivative accounting and reporting requirements, and the Company recognizes revenues in accordance with ASC 606. The Company recognizes revenue for SRECs based on pricing predetermined within the respective contracts at a point in time when the SRECs are transferred. As SRECs can be sold separate from the actual electricity generated by the renewable-based generation source, the Company accounts for the SRECs it generates from its solar energy systems as governmental incentives with no costs incurred to obtain them and do not consider those SRECs output of the underlying solar energy systems. The Company classifies these SRECs as inventory held until sold and delivered to third parties. As the Company did not incur costs to obtain these governmental incentives, the inventory carrying value for the SRECs was $0 as of December 31, 2023 and 2022.
Government incentives
The Company participates in residential solar investment programs, which offer a performance-based incentive (“PBI”) for certain of its solar energy systems that are associated with the programs (“eligible systems”). PBIs are accounted for under ASC 606 and are earned based upon the actual electricity produced by the eligible systems.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Servicing revenues
The Company earns operating and maintenance revenue from third-party solar fund customers at pre-determined rates for various operating and maintenance and asset management services as specified in Maintenance Service Agreements (“MSAs”) and Operating Service Agreements (“OSAs”). The MSAs and OSAs contain multiple performance obligations, including routine maintenance, nonroutine maintenance, renewable energy certificate management, inventory management, delinquent account collections and customer account management.
Deferred revenue
Deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met and includes prepayments received for unfulfilled performance obligations that will be recognized on a straight-line basis over the remaining term of the respective customer agreements. Deferred revenue, in the aggregate, as of December 31, 2023 and 2022 was $2.7 million and $0.5 million, respectively. During the year ended December 31, 2023, the Company recognized revenues of less than $0.1 million related to deferred revenue as of December 31, 2022.
Cost of revenues
Cost of revenues primarily consists of the depreciation expense relating to the solar energy systems, costs of third parties used to service the systems and any cost associated with meter swaps.
Income taxes
The Company accounts for income taxes using the asset and liability method under which deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss and tax credit carryforwards. Deferred income taxes are provided for the temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and net operating loss carry-forwards and credits. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which the differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period in which the enactment rate changes. The ultimate recovery of deferred tax assets is dependent upon the amount and timing of future taxable income and other factors, such as the taxing jurisdiction in which the asset is to be recovered. Deferred tax assets and liabilities are reduced through the establishment of a valuation allowance if, based on available evidence, it is more likely than not that the deferred tax assets will not be realized.
Uncertain tax positions taken or expected to be taken in a tax return are accounted for using the more likely than not threshold for financial statement recognition and measurement. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. For the years ended December 31, 2023 and 2022, there were no uncertain tax positions taken or expected to be taken in the Company’s tax returns.
In the normal course of business, the Company is subject to regular audits by U.S. federal and state and local tax authorities. With few exceptions, the Company is no longer subject to federal, state or local tax examinations by tax authorities in its major jurisdictions for tax years prior to 2020. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities.
The Company did not recognize any tax related interest or penalties during the periods presented in the accompanying consolidated financial statements, however, would record any such interest and penalties as a component of the provision for income taxes.
There has historically been no federal or state provision for income taxes since the Company has historically incurred net operating losses and maintains a full valuation allowance against its net deferred tax assets. For the years ended December 31, 2023 and 2022, the Company recognized no provision for income taxes consistent with its losses incurred and the valuation allowance against its deferred tax assets. As a result, the Company's effective income tax rate was 0% for the years ended December 31, 2023 and 2022.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Net income (loss) per share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock and potentially dilutive securities outstanding during the period determined using the treasury stock and if-converted methods. For purposes of the diluted income (loss) per share calculation, stock options, restricted stock units, restricted stock unit awards and warrants are considered to be potentially dilutive securities. Potentially dilutive securities are excluded from the calculation of diluted income (loss) per share when their effect would be anti-dilutive.
Segment reporting
Segment reporting is based on the management approach, following the method that management organizes the Company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the Company’s chief operating decision maker (“CODM”) in allocating resources and in assessing performance. The Company’s CODM is its Chief Executive Officer (“CEO”). In the fourth quarter of 2022, the Company determined that the Drivetrain and XL Grid operations were discontinued operations, which resulted in the Company having only one reportable segment.
Related parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, the board of directors, members of the immediate families of principal owners of the Company, its management, the board of directors and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or that has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, (“ASU 2023-09”), which requires enhancements regarding the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for the Company on December 31, 2025. The Company will adopt this ASU as of December 31, 2025 and will prospectively apply its requirements to income tax disclosures presented in the notes to the consolidated financial statements in the period of adoption.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvement to Reportable Segment Disclosures, (“ASU 2023-07”), which requires enhanced disclosures for reportable segments, primarily in relation to significant segment expenses, even in the event an entity has a single reportable segment in accordance with Topic 280. ASU 2023-07 is effective for the Company on December 31, 2024. The Company will adopt this ASU as of December 31, 2024 and will retrospectively apply its requirements to all prior periods based on the significant segment expense categories identified and disclosed in its consolidated financial statements in the period of adoption.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, (“ASU 2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC 606. ASU 2021-08 is effective for the Company beginning January 1, 2023. The Company adopted this ASU effective January 1, 2023 and has prospectively accounted for its customer contracts acquired in business combinations in accordance with ASC 606.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, (“ASU 2016-13” or “CECL”) which, together with subsequent amendments, amended the requirement on the measurement and recognition of expected credit losses for financial assets held, replaced the incurred loss model for financial assets measured at amortized cost, and required entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 is effective for the Company beginning January 1, 2023. The Company adopted this ASU effective January 1, 2023 using the modified retrospective approach for its trade accounts receivable, which resulted in a cumulative-effect adjustment to stockholders' equity of approximately $1.3 million as of that date. Results for reporting periods prior to January 1, 2023 continue to be presented in accordance with previously applicable GAAP, while results for subsequent reporting periods are presented under ASC 326.
The following table presents the impact of the adoption of ASU 2016-13 on the consolidated balance sheets as of January 1, 2023:
(Amounts in thousands) Accounts Receivable, Net
Balance at the beginning of the period (pre-ASC 326 adoption) $ 8,336
Impact of ASC 326 adoption 1,285
Balance at the beginning of the period (post-ASC 326 adoption) $ 9,621
Note 3. Business Combination
Legacy Spruce Power
On September 9, 2022 (the “Acquisition Date”), the Company acquired Legacy Spruce Power for $32.6 million, which consisted of cash payments of $61.8 million less cash and restricted cash acquired of $29.2 million. Management evaluated which entity should be considered the accounting acquirer in the transaction by giving consideration to the form of consideration transferred, the composition of the equity holders, the composition of voting rights of the Board of Directors, continuity of management structure, and size of the respective organizations. Based on the evaluation of the applicable factors, Management noted that all factors, with the exception of the relative size of organization, were indicators that the Company was the acquiring entity resulting in Management’s conclusion that for accounting purposes, the Company acquired Legacy Spruce Power.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The acquisition was accounted for as a business combination. The Company allocated the Legacy Spruce Power purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the Acquisition Date. The excess of the purchase price over those fair values was recorded as goodwill.
The Company’s evaluations of the facts and circumstances available as of the Acquisition Date, to assign fair values to assets acquired and liabilities, remained ongoing subsequent to the Acquisition Date. As the Company completed further analysis of assets including solar systems, intangible assets, as well as noncontrolling interests and debt, additional information on the assets acquired and liabilities assumed became available. Changes in information related to the value of net assets acquired changed the amount of the purchase price initially assigned to goodwill, and as a result, the fair values set forth below were subject to adjustments as additional information was obtained and valuations completed. These provisional adjustments were recognized during the reporting period in which the adjustments were determined. The Company has finalized its purchase price allocation as of September 8, 2023.
Accounting for business combinations requires management to make significant estimates and assumptions, especially at the Acquisition Date, including the Company’s estimates of the fair value of solar systems, production based incentives, solar renewable energy agreements, non-controlling interest, trade name and debt, where applicable. The Company believes the assumptions and estimates are based on information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing solar systems under the income approach include future expected cash flows and discount rate. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
The following table summarizes the purchase price allocation of the fair value of assets acquired and liabilities assumed in the acquisition of Legacy Spruce Power, as adjusted, during the measurement period:
(Amounts in thousands) Initial Purchase Price Allocation Measurement Period Adjustments Updated Purchase Price Allocation
Total purchase consideration:
Cash, net of cash acquired, and restricted cash $ 32,585 $ - $ 32,585
Allocation of consideration to assets acquired and liabilities assumed:
Accounts receivable, net 10,995 - 10,995
Prepaid expenses and other current assets 6,768 (2,405) 4,363
Solar energy systems 406,298 89,268 495,566
Other property and equipment 337 - 337
Intangible assets - 11,980 11,980
Interest rate swap assets 26,698 - 26,698
Right-of-use asset 3,279 (328) 2,951
Other assets 358 (102) 256
Goodwill 158,636 (129,879) 28,757
Accounts payable (2,620) (22) (2,642)
Unfavorable solar renewable energy agreements - (10,500) (10,500)
Accrued expenses (13,061) (241) (13,302)
Lease liability (3,382) 42 (3,340)
Long-term debt (510,002) 2,772 (507,230)
Other liabilities (335) 292 (43)
Redeemable noncontrolling interests and noncontrolling interests (51,384) 39,123 (12,261)
Total assets acquired and liabilities assumed $ 32,585 $ - $ 32,585
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
As reflected in the preceding table, as a result of third party valuation reports received in the first quarter of 2023, the Company adjusted solar energy systems and intangible assets with corresponding changes to goodwill. In the first quarter of 2023, due to a change in the provisional amounts assigned to intangible assets and solar energy systems, the Company recognized $0.4 million of revenue, $1.9 million of depreciation expense and $0.4 million of trade name amortization, of which $0.5 million of revenue, $0.9 million of depreciation expense and $0.3 million of trade name amortization related to the previous year.
During the first quarter of 2023, the Company adjusted the fair value of its noncontrolling interest and its redeemable noncontrolling interest in the Company's financials, which resulted in related downward revision of $5.5 million and upward revision of $0.2 million, respectively. Additional paid in capital was also downward revised by $1.8 million, which included the fair value adjustment associated with the purchase of 100% of the membership interests in Ampere Solar Owner IV, LLC, OREA HoldCo, LLC, ORE HoldCo, LLC, RPV Fund 11 LLC and RPV Fund 13 LLC, Sunserve Residential Solar I, LLC's and Level Solar Fund III, LLC in 2022.
The gross intangibles acquired are amortized over their respective estimated useful lives as follows:
(Amounts in thousands) Asset Liability Estimated Life (in years)
Solar renewable energy agreements $ 340 $ 10,500 3 to 6
Performance based incentives agreements 3,240 - 13
Trade name 8,400 - 30
Total intangibles acquired $ 11,980 $ 10,500
The weighted-average useful life of the intangibles identified above is approximately 16 years, which approximates the period over which the Company expects to gain the estimated economic benefits.
Goodwill represents the excess of the purchase consideration over the estimated fair value of the net assets acquired. Goodwill is primarily attributable to the Company's ability to leverage and use its existing capital and access to capital markets along with Legacy Spruce Power's established operations and M&A capabilities to grow the Spruce Power business.
Supplemental disclosure of pro forma information
The following unaudited pro forma financial information represents the combined results of the operations of the Company, including Legacy Spruce Power, as if the acquisition of Legacy Spruce Power on the Acquisition Date had occurred as of January 1, 2021. 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. The unaudited pro forma revenues and pro forma net income (loss) reflect the continuing operational results of the Company’s corporate functions and the results of operations for Legacy Spruce Power. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations actually would have been had the respective acquisitions been completed on January 1, 2021. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The following table presents the Company’s pro forma combined results of operations for the year ended December 31, 2022:
Year Ended December 31,
(Amounts in thousands, except per share data) 2022
Revenues $ 79,253
Net loss from continuing operations
$ (28,870)
Net loss from discontinued operations (40,112)
Net loss
$ (68,982)
Per share amounts:
Net loss from continuing operations - basic and diluted
$ (1.62)
Net loss from discontinued operations - basic and diluted
$ (2.25)
Note 4. Acquisitions
SEMTH Master Lease Agreement
In furtherance of its growth strategy, on March 23, 2023, the Company completed the acquisition of all the issued and outstanding interests in SEMTH from certain funds, pursuant to a membership interest purchase and sale agreement dated March 23, 2023 (the “SEMTH Acquisition”). The SEMTH related asset includes 20-year use rights to customer payment streams of approximately 22,500 home SLAs and PPAs (the “SEMTH Master Lease”). The Company acquired SEMTH for approximately $23.0 million of cash, net of cash received, and assumed $125.0 million of outstanding senior indebtedness (See Note 8. Non-Recourse Debt) and interest rate swaps with Deutsche Bank AG, New York Bank (See Note 9. Interest Rate Swaps) held by SEMTH and its subsidiaries at the close of the acquisition.
The Company concluded that SEMTH does not meet the definition of a business or variable interest entity. The purchase of SEMTH's future revenue has been accounted for as an acquisition of financial assets. Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed based on their relative fair value. All fair value measurements of assets acquired and liabilities assumed were based on significant estimates and assumptions, including Level 3 (unobservable) inputs, which require judgment. Estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting risk inherent in future cash flows and future utility prices.
For the purposes of establishing the fair value of the Company's investment in the SEMTH Master Lease, its analysis considered cash flows beginning in March 2023 (the effective date of the transaction). The Company estimated the fair value of its investment in the SEMTH Master Lease to be approximately $146.9 million on the transaction date.
Tredegar Acquisition
On August 18, 2023, the Company acquired approximately 2,400 home solar assets and contracts from a publicly traded, regulated utility company for $20.9 million (the “Tredegar Acquisition”). The home solar assets acquired have an average remaining contract life of approximately 11 years. The Tredegar Acquisition was funded by term loans from the concurrent amendment of the Company’s existing debt facility as of the acquisition date (See Note 8. Non-Recourse Debt).
The Tredegar Acquisition has been accounted for as an acquisition of assets, wherein the total consideration paid was allocated to the assets acquired and liabilities assumed based on their relative fair value. The Company’s determination of the fair value of assets acquired and liabilities assumed was based on an independent third-party valuation, which involved significant estimates and assumptions, including Level 3 (unobservable) inputs, using the income method approach to value long-lived assets. The Company engages third-party appraisal firms to assist in the fair value determination, however management is responsible for, and ultimately determines the fair value. The Company estimated the fair value of the Tredegar Acquisition to be approximately $21.2 million, inclusive of transaction costs of $0.3 million, of which $19.6 million was allocated to the solar energy systems.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Note 5. Property and Equipment, Net
Property and equipment consisted of the following as of December 31, 2023 and 2022:
As of December 31,
(Amounts in thousands) 2023 2022
Solar energy systems $ 513,526 $ 401,754
Less: Accumulated depreciation (29,594) (5,928)
Solar energy systems, net $ 483,932 $ 395,826
Equipment $ 157 $ 48
Furniture and fixtures 461 294
Computers and related equipment 218 222
Software 8 6
Leasehold improvements 59 65
Gross other property and equipment 903 635
Less: Accumulated depreciation (429) (293)
Other property and equipment, net $ 474 $ 342
Property and equipment, net $ 484,406 $ 396,168
Depreciation expense related to solar energy systems is included within cost of revenues in the consolidated statements of operations, and for the years ended December 31, 2023 and 2022 was $23.8 million and $6.5 million, respectively. Depreciation expense related to other property and equipment is included within selling, general and administrative expenses in the consolidated statements of operations, and for the years ended December 31, 2023 and 2022 was $0.4 million and $0.8 million, respectively.
Note 6. Intangible Assets, Net
The following table presents the detail of intangible assets, net as recorded in the consolidated balance sheets as of December 31, 2023:
As of December 31,
(Amounts in thousands) 2023
Intangible assets:
Solar renewable energy agreements $ 340
Performance based incentives agreements 3,240
Trade name 8,400
Gross intangible assets 11,980
Less: Accumulated amortization (1,784)
Intangible assets, net $ 10,196
Amortization of intangible assets for the year ended December 31, 2023 was $1.8 million, of which $0.8 million and $1.0 million were recorded within revenues and selling, general and administrative expenses, respectively. As of December 31, 2023, expected amortization of intangible assets for each of the five succeeding fiscal years and thereafter is as follows:
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
As of December 31,
(Amounts in thousands) 2023
2024 $ 1,483
2025 1,039
2026 1,091
2027 950
2028 853
Thereafter
4,780
Total
$ 10,196
Note 7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of December 31, 2023 and 2022:
As of December 31,
(Amounts in thousands) 2023 2022
Accrued interest $ 8,587 $ 6,586
Professional fees 2,386 1,749
Accrued contingencies (See Note 15 Commitments and Contingencies)
21,300 2,300
Accrued compensation and related benefits 3,237 6,526
Accrued expenses, other 4,372 3,696
Accrued taxes, stock-based compensation 752 -
Accrued settlements - 451
Deferred purchase price consideration, World Energy - 201
Accrued expenses and other current liabilities
$ 40,634 $ 21,509
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Note 8. Non-Recourse Debt
The following table provides a summary of the Company’s debt as of December 31, 2023 and 2022:
As of December 31,
(Amounts in thousands) Due 2023 2022
SVB Credit Agreement, SP1 Facility (1)
April 2026 $ 214,803 $ 232,786
Second SVB Credit Agreement, SP2 Facility (1)
May 2027 85,231 70,314
KeyBank Credit Agreement, SP3 Facility (1)
November 2027 58,962 64,181
Second KeyBank Credit Agreement (1)
April 2030 162,725 165,887
Deutsche Bank Credit Agreement, SP4 Facility August 2025 125,000 -
Less: Unamortized fair value adjustment (1)
(27,600) (33,413)
Less: Unamortized deferred financing costs (341) -
Total debt
618,780 499,755
Less: Non-recourse debt, current (27,914) (25,314)
Non-recourse debt, non-current $ 590,866 $ 474,441
(1) In connection with the acquisition of Legacy Spruce Power effective September 9, 2022, the Company assumed long-term debt instruments valued at approximately $507.2 million as of that date. In connection with accounting for the business combination, the Company adjusted the carrying value of this long-term debt to its fair value as of the Acquisition Date. This fair value adjustment resulted in a reduction of the carrying value of the debt by $35.2 million. This adjustment to fair value is being amortized to interest expense over the life of the related debt instruments using the effective interest method. Amortization expense for the fair value adjustment for the years ended December 31, 2023 and 2022 was $5.9 million and $1.8 million, respectively.
SVB Credit Agreement
The SVB Credit Agreement (the “SP 1 Facility”), executed with Silicon Valley Bank (“SVB”), a division of First-Citizens Bank & Trust Company, includes a debt service reserve letter of credit (the “SP 1 LC”) with related amounts outstanding of $6.1 million as of December 31, 2023. Amounts outstanding under the SP 1 LC bear interest of 2.25% per annum and unused amounts bear interest at 0.50% per annum. The term loans under the SP 1 Facility require quarterly principal payments, paid a month in arrears, with the remaining balance due in a single payment in April 2026 and bear interest at the Secured Overnight Financing Rate (the “SOFR”) plus the applicable margin. The applicable margin is 2.25% per annum for the first three years, 2.375% per annum from the third anniversary through the sixth anniversary and 2.5% per annum starting on the sixth anniversary. The effective interest rate on the SP 1 Facility as of December 31, 2023 was 7.96%.
The obligations of the Company under the SP 1 Facility are secured by substantially all of the assets and equity interest in the Company. The SP 1 Facility requires the Company to be in compliance with various covenants, including debt service coverage ratios and as of December 31, 2023, the Company was in compliance with the required covenants under the SP 1 Facility.
Second SVB Credit Agreement
The Second SVB Credit Agreement (the “SP 2 Facility”) includes a debt service reserve letter of credit (the “SP 2 LC”). Amounts outstanding under the SP 2 LC bear interest of 2.30% per annum and unused amounts bear interest at 0.50% per annum. The term loans under the SP 2 Facility require quarterly principal payments, mature in April 2027 and bear interest at the SOFR plus the applicable margin. The applicable margin is 2.30% per annum for the first three years, 2.425% per annum from the third anniversary through the sixth anniversary and 2.55% per annum starting on the sixth anniversary.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
On August 18, 2023, the Company entered into a second amendment to the SP2 Facility with SVB, which provided the Company (i) incremental term loans with a principal amount of approximately $21.4 million, of which proceeds were primarily used to fund the Tredegar Acquisition (See Note 4. Acquisition) and (ii) incremental letters of credit in the aggregate amount of approximately $2.7 million (collectively, the “SP2 Facility Amendment”). Excluding the aforementioned amounts, all other terms of the original SP2 Facility remain unchanged. The SP2 Facility Amendment was treated as a debt modification under ASC 470-50, Debt-Modifications and Extinguishments. The Company also incurred related $0.4 million of deferred financing costs, which is being amortized to interest expense over the term of the loan. Related unamortized deferred financing costs were $0.3 million as of December 31, 2023.
Amounts outstanding under the SP 2 LC, as amended, were $7.0 million as of December 31, 2023. The effective interest rate on the SP 2 Facility as of December 31, 2023 was 8.04%. The obligations of the Company under the SP 2 Facility are secured by substantially all of the assets and equity interest in one of the Company’s subsidiaries. The SP 2 Facility requires the Company to be in compliance with various covenants, including debt service coverage ratios, and as of December 31, 2023, the Company was in compliance with the required covenants under the SP 2 Facility.
Key Bank Credit Agreement
The Key Bank Credit Agreement (the “SP 3 Facility”), executed with KeyBank National Association, includes a debt service reserve letter of credit (the “SP 3 LC”) with related amounts outstanding of $4.1 million as of December 31, 2023. Amounts outstanding under the SP 3 LC bear interest of 3.00% per annum. The term loans under the SP 3 Facility require quarterly principal payments, mature in November 2027 and bear interest at the SOFR plus the applicable margin. The applicable margin is 3.00% per annum for the first three years, 3.125% per annum from the third anniversary through the fifth anniversary and 3.25% per annum starting on the fifth anniversary. The effective interest rate on the SP 3 Facility as of December 31, 2023 was 8.66%.
The obligations of the Company under the SP 3 Facility are secured by substantially all of the assets and equity interest in one of the Company’s subsidiaries. The SP 3 Facility requires the Company to be in compliance with various covenants, including debt service coverage ratios, and as of December 31, 2023, the Company was in compliance with those required covenants under the SP 3 Facility.
Second Key Bank Credit Agreement
The Second Key Bank Credit Agreement, executed with Key Bank National Association as the administrative agent and certain third parties as the lenders, includes term loans which require quarterly principal payments, mature in April 2030 and bear interest at 8.25% per annum. The effective interest rate on term loans under the Second Key Bank Agreement as of December 31, 2023 was 8.25%. The obligations of the Company under the Second Key Bank Agreement are secured by substantially all of the assets and equity interest in certain of the Company’s subsidiaries. The Second Key Bank Credit Agreement requires the Company to be in compliance with various covenants, including debt service coverage ratios, and as of December 31, 2023, the Company was in compliance with those required covenants under the Second Key Bank Credit Agreement.
Deutsche Bank Credit Agreement
As part of the acquisition of SEMTH (See Note 4. Acquisition) in March 2023, the Company assumed debt with Deutsche Bank AG, New York Bank (“Deutsche Bank”). Prior to the SEMTH Acquisition, SET Borrower 2022, LLC (“SET Borrower”), a wholly owned subsidiary of SEMTH, entered into a credit agreement effective June 10, 2022 (the “Closing Date”) with Deutsche Bank as the facility agent, which consisted of a term loan of $125.0 million (the “SP4 Facility”) and is collateralized by all of the assets and property of SET Borrower. The term loan bears interest at the SOFR rate, plus the applicable margin. For the period from the Closing Date through the first twelve months, the applicable margin is 2.25% per annum, 2.50% for the following six months, and 2.75% for the next six months, and 3.00% through the maturity date. The effective interest rate on the SP4 Facility as of December 31, 2023 was 7.09%. The term loan requires quarterly payments, which began on August 17, 2022 and should the outstanding loan balance exceed the borrowing base on such calculation date, the remaining balance would become due in a single payment in August 2025.
The SP4 Facility requires the Company to be in compliance with various affirmative and negative covenants and as of December 31, 2023, the Company was in compliance with the covenants under the SP 4 Facility.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
As of December 31, 2023, the principal maturities of the Company’s debt were as follows:
As of December 31,
(Amounts in thousands) 2023
2024 $ 27,915
2025 153,566
2026 191,982
2027 110,533
2028 -
Thereafter
162,725
Total
$ 646,721
Note 9. Interest Rate Swaps
In connection with the acquisition of Legacy Spruce Power, the Company assumed interest rate swaps from agreements Legacy Spruce Power executed with four financial institutions. The purpose of the swap agreements is to convert the floating interest rate on the Company's debt obligation under its credit agreements to a fixed rate. As of December 31, 2023 and 2022, the notional amount of the interest rate swaps covers approximately 95% and 97% of the balance of the Company’s floating rate term loans, respectively.
As of December 31, 2023, the following interest rate swaps are outstanding (in thousands):
# Notional Amount Fixed Rate Effective Date Early Termination Date Maturity Date Total Fair Value Asset (Liability)
1 $ 12,459 0.78 % 4/30/2020 4/30/2026 1/31/2031 $ 1,231
2 12,459 0.75 % 4/30/2020 4/30/2026 1/31/2031 1,243
3 12,459 0.73 % 4/30/2020 4/30/2026 1/31/2031 1,273
4 4,406 1.57 % 10/31/2019 4/30/2026 1/31/2031 332
5 7,711 1.62 % 10/31/2019 4/30/2026 1/31/2031 564
6 7,711 1.56 % 10/31/2019 4/30/2026 1/31/2031 587
7 7,711 1.59 % 10/31/2019 4/30/2026 1/31/2031 572
8 41,464 2.39 % 7/31/2019 4/30/2026 10/31/2031 1,914
9 41,464 2.33 % 7/31/2019 4/30/2026 10/31/2031 2,029
10 23,693 2.34 % 7/31/2019 4/30/2026 10/31/2031 1,144
11 41,464 2.36 % 7/31/2019 4/30/2026 10/31/2031 1,962
12 28,837 0.69 % 01/31/2023 11/13/2027 10/31/2032 3,646
13 28,837 0.73 % 01/31/2023 11/13/2027 10/29/2032 3,601
14 17,647 2.83 % 07/12/2022 5/14/2027 04/30/2032 554
15 44,418 0.40 % 07/12/2022 5/14/2027 10/31/2031 5,557
16 (1)
110,151 3.27 % 06/14/2022 8/18/2025 11/17/2033 1,288
17 (1)
18,998 4.24 % 08/18/2023 - 01/31/2032 (457)
$ 461,889 $ 27,040
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
(1) The amounts reflect, respectively, the Deutsche Bank swap assumed by the Company as part of the SEMTH Acquisition and an additional swap related to the SP2 Facility Amendment transacted concurrently with the Tredegar Acquisition to hedge the floating rate of the incremental term loans (See Note 8. Non-Recourse Debt).
During the year ended December 31, 2023, the aggregate change in the fair value of the interest rate swaps was $8.9 million, of which $4.8 million related to unrealized losses as reflected in the consolidated statements of operation and $13.7 million related to realized gains and is recognized within interest expense, net.
During the year ended December 31, 2022, the aggregate change in the fair value of the interest rate swaps was $7.7 million, of which $5.6 million related to unrealized gains as reflected in the consolidated statements of operation and $2.1 million related to realized gains and is recognized within interest expense, net in the consolidated statements of operations.
See Note 11. Fair Value Measurements for further information on the Company’s determination of the fair value of its interest rate swaps.
Note 10. Right-of-Use Assets and Lease Liabilities
The Company’s operating leases are primarily office space, while finance leases are certain office equipment. The Company’s related Right-of-Use (“ROU”) assets and lease liabilities are comprised of the following as of each period end:
As of December 31,
(Amounts in thousands) 2023 2022
Operating leases:
Right-of-use assets $ 5,933 $ 2,686
Lease liability, current 1,166 781
Lease liability, non-current 5,731 2,365
Finance leases:
Right-of-use assets $ - $ 116
Lease liability, current - 53
Lease liability, non-current - 61
Other information related to leases is presented below:
Years Ended December 31,
(Amounts in thousands) 2023 2022
Other information:
Operating lease cost $ 1,451 $ 297
Variable lease cost 518 -
Sublease income 542 -
Operating cash flows from operating right-of-use assets 1,969 352
Initial recognition of operating right-of-use assets 933 -
Remeasurement of operating right-of-use assets 1,280 -
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
During the year ended December 31, 2023, the Company (i) recognized $0.9 million of operating right-of-use assets and lease liabilities due to a new lease for the relocation of its corporate office in September 2023, (ii) remeasured its operating right-of-use assets due to changes in the lease terms of certain underlying leases, resulting in an aggregate increase in the related right-of-use assets and lease liabilities of approximately $1.3 million, and (iii) settled certain operating leases, which were either terminated or assumed by a third party, in the amount of approximately $0.4 million (presented in the consolidated statements of cash flows) and a related net gain of less than $0.1 million included within (gain) loss on asset disposal in the consolidated statements of operations.
In addition, during the year ended December 31, 2023, the Company purchased the equipment related to its existing finance leases for approximately $0.1 million, thereby settling all outstanding finance lease liabilities as of December 31, 2023. The Company also recognized a related loss of approximately $0.1 million included within (gain) loss on asset disposal in the consolidated statements of operations.
The Company was a party to a noncancelable lease agreement for office, research and development, and vehicle development and installation facilities with a holder of more than 5% of the Company’s Common Stock, of which the lease expired in the third quarter of 2022. The related operating lease costs for the year ended December 31, 2022 was $0.1 million.
As of December 31,
2023 2022
Weighted-average remaining lease term - operating leases (in months) 68.3 49.8
Weighted-average discount rate - operating leases 7.2 % 2.9 %
As of December 31, 2023, the annual minimum lease payments of the Company’s operating lease liabilities were as follows (in thousands):
As of December 31,
(Amounts in thousands) 2023
$ 1,616
2025 1,269
2026 1,206
2027 1,258
2028 1,397
Thereafter 1,768
Total future minimum lease payments, undiscounted 8,514
Less: Imputed interest (1,617)
Present value of future minimum lease payments $ 6,897
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Note 11. Fair Value Measurements
The Company uses various assumptions and methods in estimating the fair values of its financial instruments.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Private Warrants are valued using a Black-Scholes model, pursuant to the inputs provided in the table below:
Assumptions for Assets and Liabilities Measured at Fair Value on a Recurring Basis
Input December 31, 2023 December 31, 2022
Risk-free rate 4.242 % 1.11 %
Remaining term in years 1.98 3.98
Expected volatility 82.0 % 88.8 %
Exercise price $ 92.00 $ 92.00
Fair value of common stock $ 4.42 $ 26.48
The Company’s interest rate swaps are not traded on a market exchange and the fair values are determined using a valuation model based on a discounted cash flow analysis. This analysis reflects the contractual terms of the interest rate swap agreements and uses observable market-based inputs, including estimated future SOFR interest rates. The fair value of the Company's interest rate swap is the net difference in the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates and are observable inputs available to a market participant. The interest rate swap valuation is classified as Level 2 of the fair value hierarchy.
The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:
Fair Value Measurements as of
December 31, 2023
(Amounts in thousands) Level I Level II Level III Total
Asset:
Interest rate swaps $ - $ 27,883 $ - $ 27,883
Money market accounts 21,475 - - 21,475
U.S. Treasury securities
108,964 - - 108,964
Total $ 130,439 $ 27,883 $ - $ 158,322
Liabilities:
Debt $ - $ 628,177 $ - $ 628,177
Private Warrants - - 17 17
Total $ - $ 628,177 $ 17 $ 628,194
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Fair Value Measurements as of
December 31, 2022
(Amounts in thousands) Level I Level II Level III Total
Asset:
Interest rate swaps $ - $ 32,252 $ - $ 32,252
Money market accounts 164 - - 164
U.S. Treasury securities 211,027 - - 211,027
Total $ 211,191 $ 32,252 $ - $ 243,443
Liabilities:
Debt $ - $ 533,168 $ - $ 533,168
Private Warrants - - 256 256
Fair value of obligation to issue shares of common stock to sellers of World Energy - - 151 151
Total $ - $ 533,168 $ 407 $ 533,575
The following is a roll forward of the Company’s Level 3 liability instruments:
Years Ended December 31,
2023 2022
Balance at the beginning of the period $ 407 $ 8,895
Fair value adjustments - warrant liability (239) (5,148)
Fair value adjustments and settlements of liability, net - World Energy (1)
(151) (1,390)
Fair value adjustment of contingent consideration and settlements of liability, net - Quantum contingent consideration (1)
- (1,950)
Balance at the end of the period $ 17 $ 407
(1) Related to discontinued operations.
Note 12. Stock-Based Compensation Expense
Stock-based compensation expense for stock options and restricted stock units for the years ended December 31, 2023 and 2022 was $2.9 million and $10.0 million, respectively. As of December 31, 2023, there was $7.1 million of unrecognized compensation cost, respectively, related to stock options and restricted stock units which is expected to be recognized over the remaining vesting periods, with a weighted-average period of 2.8 years.
Stock Options
The Company grants stock options to certain employees that will vest over a period of one to four years. A summary of stock option award activity for the years ended December 31, 2023 and 2022 was as follows:
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Options Shares
Weighted Average
Exercise Price Weighted Average Remaining Contractual Term
Outstanding at December 31, 2021 1,217,161 $ 11.20 7.2
Granted 5,435 15.60
Exercised (333,102) 1.92
Cancelled or forfeited (128,086) 35.36
Outstanding at December 31, 2022
761,408 $ 11.12 2.7
Granted - -
Exercised (489,436) 1.94
Cancelled or forfeited (78,816) 51.48
Outstanding at December 31, 2023
193,156 $ 17.89 5.8
Exercisable at December 31, 2023
191,635 $ 17.50 5.8
The aggregate intrinsic value of stock options outstanding as of December 31, 2023 and 2022 was $0.3 million and $3.3 million, respectively. Cash received from options exercised for the years ended December 31, 2023 and 2022 was approximately $0.9 million and $0.6 million, respectively.
There were no stock options issued during the year ended December 31, 2023. The fair value of stock options issued during the year ended December 31, 2022 was measured with the following assumptions:
Expected volatility 78.1-88.2%
Expected term (in years) 6.25
Risk-free interest rate 0.1-1.3%
Expected dividend yield 0.0 %
Restricted Stock Units
The Company grants restricted stock units to certain employees that will generally vest over a period of four years. The fair value of restricted stock unit awards is estimated by the fair value of the Company’s common stock at the date of grant. Restricted stock units activity during the years ended December 31, 2023 and 2022 was as follows:
Number of
Shares Weighted Average Grant Date Fair Value Per Share
Non-vested, at December 31, 2021
75,554 $ 48.48
Granted 1,404,870 9.60
Vested (132,792) 14.40
Cancelled or forfeited (118,543) 21.60
Non-vested, at December 31, 2022
1,229,089 $ 10.40
Granted 693,506 6.36
Vested (531,029) 12.55
Cancelled or forfeited (289,471) 10.10
Non-vested, at December 31, 2023
1,102,095 $ 7.74
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Restricted Stock Award Modifications
In connection with the sale of the Company’s Drivetrain business to Shyft which closed in January 2023, the Company modified certain stock awards to employees of the Drivetrain business who were terminated in December 2022 and subsequently commenced employment at Shyft. The modification consisted of the acceleration of the vesting of all awards including stock options and restricted stock units scheduled to vest in 2023, which would have otherwise been forfeited. The vesting date of these awards was accelerated to December 31, 2022, resulting in an incremental stock based compensation expense of $0.3 million in 2022.
CEO's Ladder Restricted Stock Unit Award
On September 9, 2022, in connection with the acquisition of Legacy Spruce Power and his appointment as the Company's President, the Company granted to its CEO a restricted stock unit award (the “Ladder RSUs”) of 208,333 shares of common stock. The Ladder RSUs vest in 10% increments on the dates the Plan administrator certifies the applicable milestone stock prices have been achieved or exceeded, provided that the CEO remains employed on the date of certification and such achievement occurs within ten years of the date of the grant.
The Company used a Monte Carlo simulation valuation model to determine the fair value of the award as of the Acquisition Date, which is presently accounted for as a liability. The following inputs were used in the simulation: grant date stock price of $9.36 per share, annual volatility of 85.0%, risk-free interest rate of 3.3% and dividend yield of 0.0%. For each tranche, a fair value was calculated as well as a derived service period which represents the median number of years it is expected to take for the Ladder RSUs to meet their corresponding milestone stock price excluding the simulation paths that result in the Ladder RSUs not vesting within the 10-year term of the agreement. Each tranche's fair value will be amortized ratably over the respective derived service period.
The fair value and derived service period of each tranche was as follows:
Stock Price Tranche Fair Value Derived Service Period (in years)
$25.84 $8.88 1.72
42.96 8.48 2.71
60.00 8.24 3.30
77.12 7.92 3.70
94.16 7.76 4.11
111.28 7.52 4.42
128.32 7.28 4.64
145.44 7.12 4.78
162.48 6.96 5.00
179.60 6.80 5.10
The Company recognized expense related to the Ladder RSUs of approximately $0.5 million and $0.1 million for the years ended December 31, 2023 and 2022.
Note 13. Redeemable Noncontrolling Interest and Noncontrolling Interests
In November 2022, the Company purchased the remaining membership interests in Ampere Solar Owner IV, LLC, RPV Fund 13, LLC and Level Solar Fund III, LLC for aggregate cash payments of $4.6 million. In August 2023, the Company also purchased the remaining membership interests in Level Solar Fund IV for approximately $0.1 million, thereby owning 100% of the membership interests and eliminating its only remaining redeemable noncontrolling interest upon the purchase.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The following table summarizes the Company’s noncontrolling interests as of December 31, 2023:
Tax Equity Entity Date Class A Member Admitted
ORE Holdco, LLC August 2014
Volta Solar Owner II, LLC August 2017
The tax equity entities were structured at inception so that the allocations of income and loss for tax purposes will flip at a future date. The terms of the tax equity entities' operating agreements contain allocations of taxable income (loss), Section 48(a) ITCs and cash distributions that vary over time and adjust between the members on an agreed date (referred to as the flip date). The operating agreements specify either a date certain flip date or an internal rate of return (“IRR”) flip date. The date certain flip date is based on the passage of a fixed period of time as defined in the operating agreements for each entity. The IRR flip date is the date on which the tax equity investor has achieved a contractual rate of return. From inception through the flip date, the Class A members' allocation of taxable income (loss) and Section 48(a) ITCs is generally 99% and the Class B members' allocation of taxable income (loss) and Section 48(a) ITCs is generally 1%. After the related flip date (or, if the tax equity investor has a deficit capital account, typically after such deficit has been eliminated), the Class A members' allocation of taxable income (loss) will typically decrease to 5% (or, in some cases, a higher percentage if required by the tax equity investor) and the Class B members' allocation of taxable income (loss) will increase by an inverse amount.
The historical redeemable noncontrolling interests and noncontrolling interests are comprised of Class A units, which represent the tax equity investors' interest in the tax equity entities. Both the Class A members and Class B members may have call options to allow either member to redeem the other member's interest in the tax equity entities upon the occurrence of certain contingent events, such as bankruptcy, dissolution/liquidation and forced divestitures of the tax equity entities. Additionally, the Class B members may have the option to purchase all Class A units, which is typically exercisable at any time during the periods specified under their respective governing documents, and, in regards to the tax equity entities historically classified as redeemable noncontrolling interests, they had the contingent obligation to purchase all Class A units if the Class A members exercise their right to withdraw, which is typically exercisable at any time during the nine-month period commencing upon the applicable flip date. The carrying values of the Company’s historical redeemable noncontrolling interests were equal to or greater than the estimated redemption values as of December 31, 2022. The Company had no redeemable noncontrolling interests as of December 31, 2023.
Total assets on the consolidated balance sheets include $38.0 million as of December 31, 2023 and $47.8 million as of December 31, 2022 of assets held by the Company's VIEs, which can only be used to settle obligations of the VIEs.
Total liabilities on the consolidated balance sheets include $0.8 million as of December 31, 2023 and $0.8 million as of December 31, 2022 of liabilities that are the obligations of the Company's VIEs.
Note 14. Restructuring
Subsequent to the acquisition of Legacy Spruce Power, the Company commenced the evaluation of personnel and processes of various corporate functions between Spruce Power and legacy XL Fleet Corp. to optimize the Company’s future corporate structure and implemented certain restructuring actions.
As a result of exiting the Drivetrain business and corporate restructuring actions, the Company recognized, in the aggregate, restructuring and related charges of approximately $21.6 million during the year ended December 31, 2022, which included (i) $4.4 million of severance charges paid in 2022 or 2023, (ii) $5.0 million impact of accelerated vesting of certain equity awards and (iii) $12.3 million of charges related to inventory obsolescence. During the year ended December 31, 2023, the Company recognized incremental restructuring charges of approximately $0.7 million related to severance charges, all of which were paid in 2023. The severance charges and accelerated vesting of equity awards are included in selling, general and administrative expenses within the Company’s consolidated statements of operations for the years ended December 31, 2023 and 2022. Inventory obsolescence charges are included in net loss from discontinued operations within the Company’s consolidated statements of operations for the year ended December 31, 2022.
The following table summarizes the activity during the years ended December 31, 2023 and 2022 for the Company's restructuring liability:
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Years Ended December 31,
(Amounts in thousands) 2023 2022
Balance at the beginning of the period $ 3,428 $ -
Employee termination charges 719 4,435
Payments made during the period (4,147) (1,007)
Balance at the end of the period $ - $ 3,428
Note 15. Commitments and Contingencies
Sponsorship Commitment
In February 2021, the Company agreed to a sponsorship agreement with several entities related to the UBS Arena, Belmont Park and the NY Islanders Hockey Club. Pursuant to that agreement, the Company was designated an “Official Electric Transportation Partner of UBS Arena” with various associated marketing and branding rights, including the development of electric vehicle charging stations. The sponsorship agreement had a term of three years with a sponsor fee of approximately $0.5 million per year, of which approximately $0.3 million and $0.2 million were paid in June 2021 and January 2022, respectively. One of the Company’s directors is a co-owner of the NY Islanders Hockey Club. During the second quarter of 2022, the Company exercised its option to terminate the final two years of the agreement and incurred no further sponsor fees.
Legal Proceedings
The Company is periodically involved in legal proceedings and claims arising in the normal course of business, including proceedings relating to intellectual property, employment and other matters. Management believes the outcome of these proceedings will not have a significant adverse effect on the Company’s financial position, operating results, or cash flows.
Securities Class Action Proceedings
On March 8, 2021, two putative securities class action complaints were filed against the Company, and certain of its current and former officers and directors in the federal district court for the Southern District of New York. Those cases were ultimately consolidated under C.A. No. 1:21-cv-2002, and a lead plaintiff was appointed in June 2021. On July 20, 2021, an amended complaint was filed alleging that certain public statements made by the defendants between October 2, 2020, and March 2, 2021, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Following negotiations with a mediator, in September 2023, the Company and the plaintiffs agreed on a settlement in principle in the aggregate amount of $19.5 million (the “Settlement Amount”), and on December 6, 2023, the lead plaintiff and the defendants entered into a stipulation and agreement of settlement requiring the Company to pay the Settlement Amount to resolve the class action litigation and the related legal fees and administration costs. Furthermore, on January 18, 2024, the court preliminarily approved the proposed settlement as being fair, reasonable, and adequate, and scheduled a hearing for April 30, 2024, to, among other things, consider whether to approve the proposed settlement. The Company expects the Settlement Amount to be offset by approximately $4.5 million of related loss recoveries from the Company’s directors and officers liability insurance policies with third parties, which the amount is included in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2023. The Company accrued for the $19.5 million Settlement Amount as of December 31, 2023 (See Note 7. Accrued Expenses and Other Current Liabilities) and paid the $15.0 million net settlement amount to the settlement claims administrator in February 2024.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
On September 20, 2021, and October 19, 2021, two class action complaints were filed in the Delaware Court of Chancery against certain of the Company’s current officers and directors, and the Company’s sponsor of its special purpose acquisition company merger, Pivotal Investment Holdings II LLC. These actions were consolidated as in re XL Fleet Corp. (Pivotal) Stockholder Litigation, C.A. No. 2021-0808, and an amended complaint was filed on January 31, 2022. The amended complaint alleges various breaches of fiduciary duty against the Company and/or its officers, several allegedly misleading statements made in connection with the merger, and aiding and abetting breaches of fiduciary duty in connection with the negotiation and approval of the December 21, 2020 merger and organization of Legacy XL to become XL Fleet Corp. The Company believes the allegations asserted in both class action complaints are without merit and is vigorously defending the lawsuit. At this time, the Company is unable to estimate potential losses, if any, related to the lawsuit.
Shareholder Derivative Actions
On June 23, 2022, the Company received a shareholder derivative complaint filed in the U.S. District Court for the District of Massachusetts, captioned Val Kay derivatively on behalf of nominal defendant XL Fleet Corp., against all current directors and former officers and directors, C.A. No. 1:22-cv-10977. The action was filed by a shareholder purportedly on XL Fleet Corp.’s behalf, and raises claims for contribution, as well as claims for breach of fiduciary duty, waste of corporate assets, unjust enrichment, and abuse of control. On December 8, 2023, the parties submitted a joint status report advising the court that they had reached a settlement-in-principle to settle this action, the Reali v. Griffin, et al. action, the Tucci v. Ledecky, et al. action, and a stockholder litigation demand (collectively, the “Derivative Matters”). Plaintiffs filed a motion for preliminary approval of the settlement on March 1, 2024, which is pending a decision from the court. The settlement provides for certain corporate governance enhancements and no monetary payments. Plaintiffs also intend to submit a petition for attorneys’ fees, which defendants intend on opposing. At this time, the Company is unable to estimate potential losses, if any, related to the potential fee petition.
In March 2023, two shareholder derivative actions were filed in the U.S. District Court for the District of Delaware (the “Delaware Derivative Actions”). One action is captioned Reali v. Griffin, et al., C.A. No. 1:23-cv-00289 and the other action is captioned Tucci v. Ledecky, et al., C.A. 1:23-cv-00322. These actions were consolidated and captioned In re Spruce Power Holding Corporation Shareholder Derivative Litigation, C.A. No. 1:23-cv-00289. As noted above, the consolidated action is part of a settlement agreement that has been filed in the U.S. District Court for the District of Massachusetts.
In August 2023, an additional derivative action was filed in the U.S. District Court for the Southern District of New York, captioned Boyce v. Ledecky, et al., C.A. No. 1:23-cv-8591. On March 11, 2024, all defendants filed motions to dismiss the complaint in its entirety, which are pending before the court. The settlement agreement for the Derivative Matters described above contains a release that would apply to claims in this action if the settlement agreement is approved by the U.S. District Court for the District of Massachusetts. On March 22, 2024, Boyce agreed to voluntarily dismiss the lawsuit.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Securities and Exchange Commission Civil Enforcement Action
On January 6, 2022, the Company received a subpoena from the Division of Enforcement of the SEC requesting, among other things, information and documents concerning the XL Fleet Corp. business combination with Legacy XL, the Company’s sales pipeline and revenue projections, California Air Resources Board approvals, and other related matters. In June 2023, the SEC proposed an Offer of Settlement for the purpose of resolving the proposed SEC action against the Company. Following negotiations with the SEC staff, in September 2023, the Company reached a settlement with the SEC pursuant to which the Company did not admit or deny the SEC’s allegations regarding the above-referenced issues. In connection with the settlement, in October 2023, the Company (among other things) paid a civil monetary penalty of $11.0 million which, subject to the discretion of the SEC, will be made available to eligible legacy shareholders through a Fair Fund, termed and administered by the SEC.
US Bank
On February 9, 2023, US Bank, through its affiliate, Firstar Development, LLC (“Firstar”), filed a motion for summary judgment in lieu of a complaint in New York Supreme Court (the trial level in New York) alleging that the Company failed to fulfill its reimbursement obligations under a 2019 tax recapture guaranty agreement between the parties arising from the alleged recapture by the Internal Revenue Service of tax credits taken by Firstar as an investor in the Company’s subsidiary, Ampere Solar Owner I, LLC. On May 23, 2023, the Company reached a settlement agreement with Firstar, as the plaintiff, for $2.3 million whereby the plaintiff discharged all claims filed against the Company.
BMZ USA, Inc.
On February 11, 2022, BMZ USA Inc. (“BMZ”), a battery manufacturer, sued Legacy XL for breach of contract, alleging that Legacy XL failed to timely purchase the full allotment of batteries required under a certain master supply agreement between the parties. In January 2024, BMZ obtained a judgment for $3.9 million against XL Hybrids, Inc. The Company is appealing the ruling while simultaneously pursuing a settlement. The Company currently estimates the potential loss to be approximately $1.2 million, which has been accrued for as of December 31, 2023 (See Note 7. Accrued Expenses and Other Current Liabilities).
Plastic Omnium
Plastic Omnium is the assignee of the contractual rights of Actia Corp. under a certain battery purchase order between Legacy XL and Actia Corp. On March 17, 2023, Plastic Omnium sued Legacy XL and the Company for breach of contract, alleging that Legacy XL ordered a total of 1,000 batteries from Plastic Omnium, paid for 455 of those batteries, and then reneged on 545 of those products. While Plastic Omnium admits it never actually delivered the remaining 545 products, it claims it purchased materials to complete the order, and as a result, Legacy XL and the Company are liable for at least approximately $2.5 million. The Company believes the allegations asserted in this action lack substantial merit, and as a result, is vigorously defending the lawsuit. At this time, the Company is unable to estimate potential losses, if any, related to the lawsuit.
Master SREC Purchase and Sale Agreement
The Company has forward sales agreements, which are related to a certain number of SRECs, to be generated from the Company’s solar energy systems located in Maryland, Massachusetts, Delaware, and New Jersey to be sold at fixed prices over varying terms of up to 20 years. In the event the Company does not deliver such SRECs to the counterparty, the Company could be forced to pay additional penalties and fees as stipulated within the contracts.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Guarantees
In connection with the acquisition of RPV Holdco 1, LLC, a wholly owned subsidiary of the Company, guaranty agreements were established in May 2020 by and between Spruce Holding Company 1, LLC, Spruce Holding Company 2, LLC, and Spruce Holding Company 3, LLC (“Spruce Guarantors”) and the investor members in certain of the Funds and Prior Funds. The Spruce Guarantors entered into guarantees in favor of the tax equity investors wherein they guaranteed the payment and performance of Solar Service Experts, LLC, a wholly owned subsidiary of the Company, under the Spruce Power 2 Maintenance Services Agreement and the Class B Member under the Limited Liability Company Agreement (“LLCA”). These guaranties are subject to a maximum of the aggregate amount of capital contributions made by the Class A Member under the LLCA.
Indemnities and Guarantees
During the normal course of business, the Company has made certain indemnities and guarantees under which it may be required to make payments in relation to certain transactions. The duration of the Company’s indemnities and guarantees varies, however the majority of these indemnities and guarantees are limited in duration. Historically, the Company has not been obligated to make significant payments for such obligations, does not anticipate future payments, and as such, no liabilities have been recorded for these indemnities and guarantees as of December 31, 2023 and 2022.
ITC Recapture Provisions
The IRS may disallow and recapture some, or all, of the ITCs due to improperly calculated basis after a project has been placed in service (“Recapture Event”). If a Recapture Event occurs, the Company is obligated to pay the applicable Class A Member a recapture adjustment, which includes the amounts the Class A Members are required to repay the IRS, including interest and penalties, as well as any third-party legal and accounting fees incurred by the Class A Members in connection with the Recapture Event, as specified in the operating agreements. Such a payment by the Company to the Class A Members is not to be considered a capital contribution to the fund per the operating agreements, nor would it be considered a distribution to the Class A Members. With the exception of the tax matter related to Ampere Solar Owner I, LLC noted above, a Recapture Event was not deemed probable by the Company, therefore no related accrual has been recorded as of December 31, 2023 and 2022.
Insurance Claims and Recoveries related to Maui Fires
In August 2023, a series of wildfires broke out in Hawaii, predominantly on the island of Maui, resulting in real and personal property and natural resource damage, personal injuries and loss of life and widespread power outages. The Company is currently assessing the impact of these wildfires on its home solar systems and customer contracts in the area; however, the Company has not been able to validate the extent of the related damage due to limited access to the area. Based on the Company’s current assessment, the Company wrote off approximately $0.1 million during the year ended December 31, 2023, which is reflected within gain (loss) on asset disposal in the consolidated statements of operations. No material loss claims have been reported to date or recognized within the consolidated financial statements as of December 31, 2023. In addition, the Company has not recorded any related insurance recoveries as of December 31, 2023. The Company does not expect this event to have a material impact on its financial position, operating results or cash flows.
Note 16. Stockholders’ Equity
Common Stock
As of December 31, 2023 and 2022, the Company had 350,000,000 authorized shares of Common Stock. The holders of Common Stock are entitled to vote on all matters and are entitled to the number of votes equal to the number of shares of Common Stock held. Common stockholders are entitled to dividends when and if declared by the Board of Directors.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The following shares of Common Stock are reserved for future issuance as of December 31, 2023:
Warrants issued and outstanding 529,931
Restricted stock units issued and outstanding 1,102,094
Stock options issued and outstanding 193,156
Total 1,825,181
Reverse Stock Split
On October 6, 2023, the Company effected the Reverse Stock Split. Prior to the effective time of the Reverse Stock Split, the Company had 151,441,768 and 145,595,792 shares of common stock issued and outstanding, respectively, and upon the Reverse Stock Split, the Company had approximately 18,930,196 and 18,199,449 shares of common stock issued and outstanding, respectively. The par value and the number of authorized shares of the common stock were not adjusted in connection with the Reverse Stock Split. The value of the Company’s common stock outstanding and the related effect on additional paid in capital, all references to stock options, restricted stock units, private warrants, per share data, and related information contained within these consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. Subsequent to the Reverse Stock Split, each stockholder’s percentage ownership interest in the Company and proportional voting power remained unchanged.
No fractional shares of the Company’s common stock were issued in connection with the Reverse Stock Split. In late October 2023, certain stockholders entitled to fractional shares as a result of the Reverse Stock Split received aggregate cash payments of approximately $0.01 million in lieu of receiving fractional shares.
Share Repurchase Program
On May 9, 2023, the Company's Board of Directors authorized 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 shares may be repurchased from time to time in open market transactions or privately negotiated transactions at the Company's discretion, subject to market conditions and other factors, including regulatory considerations.
The Repurchase Program does not require the Company to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice. During the year ended December 31, 2023, the Company repurchased 0.8 million shares of common stock under the Repurchase Program in open market transactions at a weighted-average price of $6.77 per share for an aggregate purchase price of $5.4 million, inclusive of transaction costs. As of December 31, 2023, $44.7 million remained available for future share repurchases under the Repurchase Program.
Note 17. Net Loss Per Share
The following is a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share for the years ended December 31, 2023, and 2022:
Years Ended December 31,
(Amounts in thousands, except share data) 2023 2022
Numerator:
Net loss attributable to stockholders $ (65,831) $ (93,931)
Denominator:
Weighted average shares outstanding, basic and diluted 18,391,436 17,836,500
Net loss attributable to stockholders per share, basic and diluted $ (3.58) $ (5.27)
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
For the years presented, potentially dilutive outstanding securities, which include stock options, restricted stock units and warrants, have been excluded from the computation of diluted net loss per share as their effect would be anti-dilutive for each year presented. As such, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share are the same for each year presented.
Note 18. Income Taxes
Net deferred income tax assets consist of the following components as of December 31, 2023 and 2022:
As of December 31,
(Amounts in thousands) 2023 2022
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 114,028 $ 70,296
Accrued settlements 5,216 -
Pass-through equity interests 8,830 -
Fair market value adjustments (12,763) -
Tax credit carryforwards 1,643 1,643
Reserves 3,429 3,352
Stock-based compensation 2,350 2,843
Depreciation and amortization (55,130) (19,109)
Interest expense carryforward 6,979 8,697
Right of use assets 442 179
Other (156) 1,452
Total deferred tax assets, net 74,868 69,353
Less valuation allowance (74,868) (69,353)
Net deferred tax assets $ - $ -
A reconciliation of the provision for income taxes with the amounts computed by applying the statutory Federal income tax to income before provision for income taxes is as follows:
Years Ended December 31,
2023 2022
U.S. federal statutory rate 21.0 % 21.0 %
State taxes, net of federal benefit 6.4 % 4.9 %
Change in fair value of warrant liability 0.1 % 1.6 %
Option and RSU expense 0.4 % 0.2 %
Other (8.6) % (1.5) %
True-up to prior years' return 7.8 % 0.8 %
Change in valuation allowance (9.2) % (37.1) %
Purchase accounting (17.9) % 10.1 %
Effective tax rate - % - %
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse.
The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In Management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. For the years ended December 31, 2023 and 2022, no liability for unrecognized tax benefits was required to be reported.
The Company has provided a full valuation allowance against its net deferred tax assets since realization of any future benefit from deductible temporary differences and net operating loss cannot be sufficiently assured. Management of the Company has evaluated the positive and negative evidence bearing upon the reliability of its deferred tax assets, which are comprised principally of net operating loss carryforwards and research and development credits. Under the applicable accounting standards, Management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. During the years ended December 31, 2023 and 2022, the Company increased its valuation allowance by $5.5 million and $34.4 million, respectively.
As of December 31, 2023, the Company had federal and state net operating loss (“NOL”) carryforwards of $434.7 million and $395.9 million, respectively, and approximately $31.3 million of the federal NOL carryforward will expire at various dates commencing on 2029 and through 2037 and approximately $403.4 million were generated between the years ended December 31, 2018 and 2022 and have an indefinite life. At December 31, 2023, the Company has federal tax credits of approximately $1.6 million. These federal tax credits are available to reduce future taxable income and expire at various dates commencing 2031 through 2041. Utilization of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the IRC due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not determined whether an ownership change under section 382 has occurred or whether such limitation exists.
The Company files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2020. The Company follows a comprehensive model for the recognition, measurement, presentation and disclosure in consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements as of December 31, 2023 and 2022.
Note 19. Defined Contribution Plan
The Company has adopted a 401(k) plan to provide all eligible employees a means to accumulate retirement savings on a tax-advantaged basis. The 401(k) plan requires participants to be at least 21 years old. In addition to the traditional 401(k), eligible employees are given the option of making an after- tax contribution to a Roth 401(k) or a combination of both. Plan participants may make before-tax elective contributions up to the maximum percentage of compensation and dollar amount allowed under the IRC. Participants are allowed to contribute, subject to IRS limitations on total annual contributions from 1% to 90% of eligible earnings. The plan provides for automatic enrollment at a 3% deferral rate of an employee’s eligible wages. The Company provides safe harbor matching contributions equal to 100% on the first 3% of an employee’s eligible earnings deferred and an additional 50% on the next 2% of an employee’s eligible earnings deferred. Employee elective deferrals and safe harbor matching contributions are 100% vested at all times.
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
In connection with the acquisition of Legacy Spruce Power, the Company adopted the Spruce Power 401(k) plan which contains features similar to those of the XL Fleet Corp. 401(k) plan, except that (i) Participants are allowed to contribute, subject to IRS limitations, on total annual contributions from 1% to 80% of eligible earnings and (ii) the safe harbor non-elective contribution is equal to 3% of employee’s compensation.
The Company recognized expenses related to its 401(k) plans of approximately $0.7 million and $0.8 million for the years ended December 31, 2023 and 2022, respectively.
Note 20. Discontinued Operations
In the fourth quarter of 2022, the Company discontinued the operations of its Drivetrain and XL Grid operations. The following table provides supplemental details of the Company’s discontinued operations contained within the consolidated statements of operations for the years ended December 31, 2023 and 2022:
Years Ended December 31,
(Amounts in thousands) 2023 2022
Net loss from discontinued operations:
XL Grid $ - $ (1,092)
Drivetrain (4,123) (30,414)
Impairment of goodwill - (8,606)
Total $ (4,123) $ (40,112)
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
XL Grid
The following table presents financial results of XL Grid operations:
Years Ended December 31,
(Amounts in thousands) 2023 2022
Revenues $ 149 $ 12,279
Operating expenses:
Cost of revenues - inventory and other direct costs 148 8,577
Selling, general, and administrative expenses 743 4,794
Gain on asset disposal (742) -
Total operating expenses 149 13,371
Net loss from discontinued operations $ - $ (1,092)
Drivetrain
The following table presents financial results of Drivetrain operations:
Years Ended December 31,
(Amounts in thousands) 2023 2022
Revenues $ 42 $ 2,419
Operating expenses:
Cost of revenues - inventory and other direct costs 106 14,038
Engineering, research, and development - 9,819
Selling, general, and administrative expenses - 8,041
Loss on asset disposal 4,071 935
Other (income) (12) -
Total operating expenses 4,165 32,833
Net loss from discontinued operations $ (4,123) $ (30,414)
The following table presents aggregate carrying amounts of assets and liabilities of discontinued operations contained within the consolidated balance sheets:
As of December 31,
(Amounts in thousands) 2023 2022
Assets from discontinued operations:
Drivetrain $ 32 $ 3,604
XL Grid - 7,373
Total assets from discontinued operations $ 32 $ 10,977
Liabilities from discontinued operations:
Drivetrain $ 170 $ 5,743
XL Grid - 3,648
Total liabilities from discontinued operations $ 170 $ 9,391
Spruce Power Holding Corporation
Notes to Consolidated Financial Statements
Note 21. Subsequent Events
Management has reviewed all events subsequent to December 31, 2023 and prior to the filing of these consolidated financial statements, and except as referenced within the notes to the consolidated financial statements, the Company has determined there have been no events that have occurred that would require adjustments or disclosures within the consolidated financial statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as promulgated by Rules 13a-15(e) and 15d-15(e) of the Exchange Act under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. 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, due to the material weaknesses in internal control over financial reporting described below.
The Company did not maintain an effective control environment based on the criteria established in the Committee of Sponsoring Organizations (“COSO”) Framework, and its relevant components, which resulted in deficiencies that constitute material weaknesses, either individually or in the aggregate.
Control Environment
The Company failed to maintain a sufficient complement of qualified personnel to perform control activities. The lack of sufficient appropriately qualified personnel contributed to our failure to: (i) design and implement certain risk-mitigating internal controls; and (ii) consistently operate our internal controls. The control environment material weaknesses contributed to material weaknesses within our system of internal control over financial reporting in the Control Activities component of the COSO Framework.
Control Activities
The Company did not maintain effective control activities based on the criteria established in the COSO Framework and identified the following control deficiencies that constitute material weaknesses from the lack of effectively designed and implemented controls, either individually or in the aggregate:
•review and approval of manual journal entries, including implementing appropriate segregation of duties
•complex transactions, inclusive of accounting for business combinations and the Company’s investment related to the SEMTH master lease agreement and the related interest income
•revenue recognition, including the review of the contracts upon inception and/or acquisition and the accounting for revenue recognition under ASC 606, Revenue from Contracts with Customers.
These deficiencies in control activities contributed to the potential for there to have been material accounting errors in multiple financial statement account balances and disclosures that would not have been prevented or detected timely.
However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that were performed to ensure that the Company’s consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with GAAP, management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP.
Remediation Plan
The Company is committed to maintaining strong internal control over financial reporting. In response to the material weaknesses described above, management, with the oversight of the Audit Committee, is taking comprehensive actions to remediate the above material weaknesses. The remediation plan includes the following:
•developing a training program and educating control owners concerting financial statement risk and principles of the Internal Control - Integrated Framework issued by COSO;
•hired and are continuing to hire professionals with the appropriate skills to perform control activities, including those involving complex and/or non-routine transactions;
•designing and implementing additional and/or enhanced controls in the areas of account reconciliations, contract accounting, revenue recognition, and financial statement analysis prepared in conformity with GAAP and manual journal entries; and
•designing and implementing controls to address the identification, accounting, review and reporting of complex and/or non-routine transactions.
•enhancing system controls to address and enforce Segregation of Duties Framework;
While Management believes that these efforts will improve the Company's internal control 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 continue to assess the effectiveness of its internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.
Remediation of Previously-Identified Material Weakness in Internal Control over Financial Reporting Related to Information Technology General Controls
The Company previously disclosed in its December 31, 2022 Annual Report a material weakness in internal control over financial reporting, 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. Based upon remediation efforts implemented during the year, Management has concluded that the design and implementation of ITGC to be operating effectively as of December 31, 2023.
Changes in Internal Control over Financial Reporting
Other than the material weaknesses and the remediation of the general IT control material weakness discussed above, there have been no other changes in our internal control over financial reporting during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or a combination of control deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 based on the criteria established by the COSO Framework.
As a result of the material weaknesses described above, Management has concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was ineffective.
Report of Independent Registered Public Accounting Firm
Because Spruce Power is a non-accelerated filer, the Company's independent registered public accounting firm is not required to express an opinion on the effectiveness of the Company's internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this Item will be set forth in the sections headed “Management and Corporate Governance” and “Delinquent Section 16(a) Reports” in the Proxy Statement for the 2024 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference.
The Company has adopted a code of ethics for directors, officers (including its principal executive officer, principal financial officer and principal accounting officer) and employees, known as Our Corporate Code of Conduct and Ethics and Whistleblower Policy. A copy of Our Corporate Code of Conduct and Ethics and Whistleblower Policy is available on the Company's website at www.sprucepower.com under the Governance, Documents and Charters section of our Investors page. The Company will promptly disclose on its website (i) the nature of any amendment to the policy that applies to the Company's principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver.
The Audit Committee of the Company’s Board of Directors is an “audit committee” for purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are John P. Miller (Chair), Christopher Hayes and Jonathan Ledecky.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this Item will be set forth in the section headed “Executive Officer and Director Compensation” in the Proxy Statement for the 2024 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this Item will be set forth in the section headed “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement for the 2024 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference.
Information regarding the Company's equity compensation plans will be set forth in the section headed “Executive Officer and Director Compensation - Equity Compensation Plan Information” in the Proxy Statement for the 2024 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth in the sections headed “Certain Relationships and Related Person Transactions” and “Management and Corporate Governance - Our Board of Directors” in the Proxy Statement for the 2024 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information required by this Item will be set forth in the section headed “Proposal No. 2 - Ratification of Selection of Independent Registered Public Accounting Firm” in the Proxy Statement for the 2024 annual meeting of stockholders which will be filed within 120 days after the end of the fiscal year and is incorporated in this report by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)Documents filed as part of this report.
1.The following financial statements of Spruce Power Holding Corporation and Reports of Deloitte & Touche LLP and Marcum LLP, Independent Registered Public Accounting Firms, are included in this report:
Page No.
Reports of Independent Registered Public Accounting Firms for Deloitte & Touche LLP (PCAOB ID No .34) and Marcum LLP (PCAOB ID No. 688)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
2.List of financial statement schedules:
All schedules have been omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.
3.List of Exhibits required by Item 601 of Regulation S-K. See part (b) below.
(b)Exhibits.
Exhibit No. Description Included Form Filing Date
2.1 Membership Interest Purchase and Sale Agreement, dated as of September 9, 2022, by and between the Company, SF Solar Blocker 2 LLC, SF Solar Blocker 3 LLC, Spruce Holding Company 3 Holdco LLC and HPS Investment Partners, LLC
By Reference 8-K September 15, 2022
3.1 Second Amended and Restated Certificate of Incorporation.
By Reference 8-K December 23, 2020
3.2 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation
By Reference 8-K October 6, 2023
3.3 Certificate of Amendment changing name of Registrant to Spruce Power Holding Corporation
By Reference 8-K November 14, 2022
3.4 Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation
By Reference
8-K
October 6, 2023
3.5 Amended and Restated Bylaws, as amended as of November 10, 2022
By Reference 8-K November 14, 2022
4.1 Description of Registered Securities
By Reference 10-K March 31, 2021
10.1 Amended and Restated Credit Agreement, dated August 18, 2023 among Spruce Power 2, LLC, as Borrower, Silicon Valley Bank, a division of First-Citizens Bank & Trust Company as Administrative Agent and the Issuing Bank, and the lenders from time to time party thereto.
By Reference
10-Q
November 13, 2023
Exhibit No. Description Included Form Filing Date
10.2†
Supply Agreement, dated as of July 19, 2019, by and between XL Hybrids, Inc. and Parker-Hannifin Corporation.
By Reference S-4/A November 10, 2020
10.3 Form of Subscription Agreement.
By Reference 8-K September 18, 2020
10.4 Registration Rights Agreement.
By Reference S-4 October 2, 2020
10.5 Spruce Power Holding Corp. 2020 Equity Incentive Plan.
Herewith
10.6 Spruce Power Holding Corp. 2020 Equity Incentive Plan Form of Stock Option Agreement.
Herewith
10.7 Spruce Power Holding Corp. 2020 Equity Incentive Plan Form of Restricted Stock Unit Agreement.
Herewith
10.8 Form of Indemnification Agreement between the Registrant and each officer and director.
By Reference 8-K December 23, 2020
10.9 Amended and Restated Credit Agreement, dated October 29, 2019, among Kilowatt Systems, LLC, Volta MH Owner II, LLC, Greenday Finance I LLC and SpruceKismet, LLC, as Co-Borrowers, Silicon Valley Bank, as Administrative Agent, ING Capital LLC and Silicon Valley Bank as Issuing Banks, and the financial institutions from time to time party thereto as lenders, as conformed for each of Omnibus Amendment and Consent, dated as of March 5, 2020, Amendment to Credit Agreement, dated as of May 29, 2020, and Omnibus Amendment and Consent, dated March 18, 2021.
By Reference 8-K September 15, 2022
10.10 Amended and Restated Credit Agreement, dated July 12, 2022, among Spruce Power 2, LLC, as Borrower, Silicon Valley Bank, as Administrative Agent and the Issuing Bank, and the lenders from time to time party thereto.
By Reference 8-K September 15, 2022
10.11 Credit Agreement, dated November 13, 2020, among Spruce Power 3, LLC, as Borrower, KeyBank National Association, as Administrative Agent and Issuing Bank, and the lenders from time to time party thereto.
By Reference 8-K September 15, 2022
10.12 Omnibus Amendment and Accession dated April 8, 2022, among KWS Solar Term Parent 1 LLC, KWS Solar Term Parent 2 LLC and KWS Solar Term Parent 3 LLC, as Co-Borrowers, KeyBank National Association, as Administrative Agent, and the lenders from time to time party thereto.
By Reference 8-K September 15, 2022
10.13 Waiver and Second Amendment to Amended and Restated Credit Agreement, dated July 12, 2022, among KWS Solar Term Parent 1 LLC, KWS Solar Term Parent 2 LLC, KWS Solar Term Parent 3 LLC and Spruce Power 3 Holdco, LLC, as Co-Borrowers, KeyBank National Association, as Administrative Agent, and the lenders from time to time party thereto.
By Reference 8-K September 15, 2022
10.14 Executive Employment Agreement, dated September 9, 2022, by and between XL Fleet Corp. and Christian Fong.
By Reference 8-K September 15, 2022
10.15 Restricted Stock Award Grant under the Registrant’s 2020 Equity Incentive Plan, dated September 9, 2022, to Christian Fong by XL Fleet Corp.
By Reference 8-K September 15, 2022
10.16 Offer Letter, dated October 25, 2018, by and between Spruce Lending Inc. and Sarah Weber Wells
By Reference 8-K May 11, 2023
Exhibit No. Description Included Form Filing Date
10.17 Enhanced Severance Letter, dated April 27, 2022, between the Company and Sarah Weber Wells
By Reference 8-K May 11, 2023
10.18 Offer Letter, dated as of May 18, 2022, by and between XL Fleet Corp. and Stacey Constas
By Reference
10-K
March 30, 2023
10.19 Severance Letter, dated October 26, 2022, between the Company and Stacey Constas
By Reference 8-K October 28, 2022
10.20 Executive Severance Policy
By Reference 10-Q August 9, 2022
21 Subsidiaries of the Registrant
Herewith
23.1* Consent of Marcum LLP, independent registered public accounting firm
Herewith
23.2*
Consent of Deloitte & Touche LLP, independent registered public accounting firm
Herewith
31.1* Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Herewith
31.2* Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Herewith
32.1^* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Herewith
32.2^* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Herewith
97*
Spruce Power Holding Corporation Clawback Policy
Herewith
101.INS* Inline XBRL Instance Document
Herewith
101.SCH* Inline XBRL Taxonomy Extension Schema Document
Herewith
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
Herewith
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
Herewith
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
Herewith
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document Herewith
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Herewith
*Filed herewith
*+Schedule and exhibits to this exhibit omitted pursuant to Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
†Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
# Indicates management contract or compensatory plan or arrangement.
^ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933 except to the extent that the registrant specifically incorporates it by reference.