sunl-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to________________

Commission File Number:

001-39739

Sunlight Financial Holdings Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-2599566

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

101 North Tryon Street, Suite 1000, Charlotte, NC

28246

(Address of principal executive offices)

(Zip Code)

(888) 315-0822

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s):

Name of each exchange on which registered:

Class A Common Stock, par value $0.0001 per share

SUNL

New York Stock Exchange

Warrants, each whole warrant is exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share

SUNL.WS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 7, 2022, 82,026,904 shares of Class A Common stock, $0.0001 par value, and 47,291,500 shares of Class C common stock, par value $0.0001 per share, were outstanding.

SUNLIGHT FINANCIAL HOLDINGS INC.

FORM 10-Q

INDEX


			PAGE
Part I. Financial Information
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets			1
Unaudited Condensed Consolidated Statements of Operations			2
Unaudited Condensed C onsolidated Statements of Changes in Equity			3
Unaudited Condensed C onsolidated Statements of Cash Flows			5
Notes to Unaudited Condensed Consolidated Financial Statements			6
Note 1 - Organization and Business			6
Note 2 - Summary of Significant Accounting Policies			6
Note 3 - Financing Receivables			22
Note 4 - Derivatives			26
Note 5 - Debt Obligations			27
Note 6 - Equity and Earnings per Share			28
Note 7 - Fair Value Measurement			37
Note 8 - Taxes			39
Note 9 - Transactions with Affiliates and Affiliated Entities			40
Note 10 - Commitments and Contingencies			41
Note 11 - Subsequent Events			44

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			45
Item 3. Quantitative and Qualitative Disclosures About Market Risk			80
Item 4. Controls and Procedures			80

Part II. Other Information
Item 1. Legal Proceedings			82
Item 1A. Risk Factors			83
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			111
Item 3. Defaults Upon Senior Securities			111
Item 4. Mine Safety Disclosures			111
Item 5. Other Information			111
Item 6. Exhibits			112
Signatures			113

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNLIGHT FINANCIAL HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	Successor
	September 30, 2022		December 31, 2021
	(Unaudited)
Assets
Cash and cash equivalents	$	70,569	$	91,882
Restricted cash	1,228		2,018
Advances (net of allowance for credit losses of $7,458 and $238)	56,608		66,839
Financing receivables (net of allowance for credit losses of $186 and $148)	3,581		4,313
Goodwill	61,377		445,756
Intangible assets, net	327,673		365,839
Property and equipment, net	1,681		4,069


Other assets	30,849		21,531

Total assets	$	553,566	$	1,002,247

Liabilities and Stockholders' Equity

Liabilities
Accounts payable and accrued expenses	$	24,931	$	23,386
Funding commitments	21,411		22,749
Debt	20,613		20,613


Deferred tax liabilities	25,338		36,686

Warrants, at fair value	3,691		19,007
Other liabilities	13,433		843

Total liabilities	109,417		123,284

Commitments and Contingencies (Note 10)







Stockholders' Equity

Preferred stock; $0.0001 par value; 35,000,000 shares authorized; none issued and outstanding as of September 30, 2022 and December 31, 2021	—		—
Class A common stock; $0.0001 par value; 420,000,000 shares authorized; 83,330,932 and 86,373,596 issued; and 81,722,949 and 84,803,687 outstanding as of September 30, 2022 and December 31, 2021, respectively	8		9

Class C common stock; $0.0001 par value; 65,000,000 shares authorized; 47,595,455 issued and outstanding as of September 30, 2022 and December 31, 2021	—		—
Additional paid-in capital	759,105		764,366
Accumulated deficit	(459,706)		(186,022)
Total capital	299,407		578,353
Treasury stock, at cost; 1,607,983 and 1,569,909 Class A shares as of September 30, 2022 and December 31, 2021, respectively	(15,671)		(15,535)

Total stockholders' equity	283,736		562,818
Noncontrolling interests in consolidated subsidiaries	160,413		316,145
Total equity	444,149		878,963
Total liabilities and stockholders' equity	$	553,566	$	1,002,247

See notes to unaudited condensed consolidated financial statements.

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)


	Successor				Predecessor			Successor			Predecessor
	For the Three Months Ended September 30, 2022		For the Period July 10, 2021 to September 30, 2021			For the Period July 1, 2021 to July 9, 2021			For the Nine Months Ended September 30, 2022			For the Period January 1, 2021 to July 9, 2021


Revenue	$	33,265	$	26,520		$	2,074		$	91,086		$	53,064
Costs and Expenses
Cost of revenues (exclusive of items shown separately below)	5,619		4,841			365			16,621			10,556
Compensation and benefits	16,378		32,782			1,042			43,641			17,162
Selling, general, and administrative	4,504		3,330			330			15,522			3,450
Property and technology	2,069		1,502			162			5,981			2,790
Depreciation and amortization	8,572		20,541			78			40,713			1,688
Provision for losses	37,247		254			—			41,927			1,172
Goodwill impairment	384,379		—			—			384,379			—
Management fees to affiliate	—		—			4			—			204
	458,768		63,250			1,981			548,784			37,022
Operating income (loss)	(425,503)		(36,730)			93			(457,698)			16,042
Other Income (Expense), Net
Interest income	189		77			9			360			262
Interest expense	(375)		(291)			(32)			(931)			(604)
Change in fair value of warrant liabilities	6,590		10,116			(1,439)			15,316			(5,504)
Change in fair value of contract derivatives, net	(2,340)		489			125			(2,247)			(662)
Realized gains (losses) on contract derivatives, net	(278)		1,377			6			3,686			2,992
Other realized losses, net	(196)		—			—			(569)			—
Other income (expense)	(839)		(60)			(5)			(1,667)			616
Business combination expenses	—		(1,093)			(529)			—			(7,011)
	2,751		10,615			(1,865)			13,948			(9,911)
Net Income (Loss) Before Income Taxes	(422,752)		(26,115)			(1,772)			(443,750)			6,131
Income tax benefit (expense)	7,299		5,684			—			11,350			—
Net Income (Loss)	(415,453)		(20,431)			(1,772)			(432,400)			6,131
Noncontrolling interests in loss of consolidated subsidiaries	151,389		9,108			—			158,478			—
Net Income (Loss) Attributable to Class A Shareholders	$	(264,064)	$	(11,323)		$	(1,772)		$	(273,922)		$	6,131

Loss Per Class A Share
Net loss per Class A share
Basic	$	(3.16)	$	(0.13)					$	(3.25)
Diluted	$	(3.16)	$	(0.15)					$	(3.25)
Weighted average number of Class A shares outstanding
Basic	83,049,291		84,833,808						84,157,718
Diluted	83,049,291		131,088,438						84,157,718

See notes to unaudited condensed consolidated financial statements.

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(dollars in thousands)


	Successor
	Shares		Preferred Stock	Common Stock						Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Class A	Class C		Class A		Class B		Class C
June 30, 2022	85,928,364	47,595,455	—	$	9	$	—	$	—	$	765,284	$	(195,642)	$	(15,638)	$	554,013	$	309,655	$	863,668
Equity-based compensation	—	—	—	—		—		—		2,995		—		—		2,995		1,607		4,602
Shares withheld related to net share settlement of equity awards	—	—	—	—		—		—		(187)		—		(33)		(220)		—		(220)
Equity repurchase	(2,597,432)	—	—	(1)		—		—		(8,447)		—		—		(8,448)		—		(8,448)
Dilution	—	—	—	—		—		—		(540)		—		—		(540)		540		—



Net loss	—	—	—	—		—		—		—		(264,064)		—		(264,064)		(151,389)		(415,453)

September 30, 2022	83,330,932	47,595,455	—	$	8	$	—	$	—	$	759,105	$	(459,706)	$	(15,671)	$	283,736	$	160,413	$	444,149

December 31, 2021	86,373,596	47,595,455	—	$	9	$	—	$	—	$	764,366	$	(186,022)	$	(15,535)	$	562,818	$	316,145	$	878,963
Equity-based compensation	—	—	—	—		—		—		7,425		—		—		7,425		3,362		10,787
Shares withheld related to net share settlement of equity awards	—	—	—	—		—		—		(187)		—		(136)		(323)		—		(323)
Equity repurchase	(3,042,664)	—	—	(1)		—		—		(10,451)		—		—		(10,452)		—		(10,452)
Dilution	—	—	—	—		—		—		(2,048)		—		—		(2,048)		2,048		—
Distribution	—	—	—	—		—		—		—		—		—		—		(2,705)		(2,705)

Cumulative ASC 842 adoption effect	—	—	—	—		—		—		—		238		—		238		41		279
Net loss	—	—	—	—		—		—		—		(273,922)		—		(273,922)		(158,478)		(432,400)

September 30, 2022	83,330,932	47,595,455	—	$	8	$	—	$	—	$	759,105	$	(459,706)	$	(15,671)	$	283,736	$	160,413	$	444,149

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

(dollars in thousands)


	Successor
	Shares		Preferred Stock		Common Stock						Additional Paid-in Capital		Accumulated Deficit		Treasury Stock		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Class A	Class C			Class A		Class B		Class C
July 10, 2021	86,373,596	47,595,455	$	—	$	9	$	—	$	—	$	720,840	$	(26,466)	$	—	$	694,383	$	427,010	$	1,121,393
Equity-based compensation	—	—	—		—		—		—		4,101		—		—		4,101		12,029		16,130
Shares withheld related to net share settlement of equity awards	—	—	—		—		—		—		—		—		(15,447)		(15,447)		—		(15,447)
Net loss	—	—	—		—		—		—		—		(11,323)		—		(11,323)		(9,108)		(20,431)
September 30, 2021	86,373,596	47,595,455	$	—	$	9	$	—	$	—	$	724,941	$	(37,789)	$	(15,447)	$	671,714	$	429,931	$	1,101,645

	Predecessor
	Units						Temporary Equity								Units		Members' Equity
	Class A-3 Units	Class A-2 Units	Class A-1 Units		Common Units		Class A-3 Units		Class A-2 Units		Class A-1 Units		Common Units		Other Ownership Interests		Other Ownership Interests		Accumulated Deficit		Total Members' Equity
June 30, 2021	403,946	242,512	317,989		78,717		$	338,620	$	213,218	$	279,554	$	68,296	56,461		$	1,457	$	(850,611)	$	(849,154)
Preferred distributions, paid in-kind	1,444	867	1,137		—		1,209		778		1,020		—		—		—		(3,007)		(3,007)
Change in temporary equity redemption value	—	—	—		—		3,995		4,273		5,627		2,300		—		—		(16,195)		(16,195)

Net loss	—	—	—		—		—		—		—		—		—		—		(1,772)		(1,772)
July 9, 2021	405,390	243,379	319,126		78,717		$	343,824	$	218,269	$	286,201	$	70,596	56,461		$	1,457	$	(871,585)	$	(870,128)








December 31, 2020	376,395	225,972	296,302		78,717		$	260,428	$	154,286	$	202,045	$	47,757	53,105		$	1,439	$	(623,342)	$	(621,903)
Preferred distributions, paid in-kind	28,995	17,407	22,824		—		24,061		14,994		19,654		—		—		—		(58,709)		(58,709)
Change in temporary equity redemption value	—	—	—		—		59,335		48,989		64,502		22,839		—		—		(195,665)		(195,665)
Equity-based compensation	—	—	—		—		—		—		—		—		3,356		18		—		18
Net income	—	—	—		—		—		—		—		—		—		—		6,131		6,131
July 9, 2021	405,390	243,379	319,126		78,717		$	343,824	$	218,269	$	286,201	$	70,596	56,461		$	1,457	$	(871,585)	$	(870,128)

See notes to unaudited condensed consolidated financial statements.

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)


	Successor				Predecessor

	For the Nine Months Ended September 30, 2022		For the Period July 10, 2021 to September 30, 2021			For the Period January 1, 2021 to July 9, 2021

Cash Flows From Operating Activities
Net income (loss)	$	(432,400)	$	(20,431)		$	6,131
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	40,713		20,541			1,782
Goodwill impairment	384,379		—			—
Provision for losses	41,927