Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies (Tables)

v3.21.2
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
Fair value measurement, GAAP hierarchy GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.
Level Measurement
1 Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
2 Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability.
3 Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Sunlight follows this hierarchy for its financial instruments, with classifications based on the lowest level of input that is significant to the fair value measurement. The following summarizes Sunlight’s financial instruments hierarchy at September 30, 2021:

Level Financial Instrument Measurement
1 Cash and cash equivalents and restricted cash Estimates of fair value are measured using observable, quoted market prices, or Level 1 inputs
Public Warrants Estimates of fair value are measured using observable, quoted market prices of Sunlight’s warrants.
3 Loans and loan participations, held-for-investment Estimated fair value is generally determined by discounting the expected future cash flows using inputs such as discount rates.
Contract derivative Estimated fair value based upon discounted expected future cash flows arising from the contract.
Private Placement Warrants Estimated fair value based upon quarterly valuation estimates of warrant instruments, based upon quoted prices of Sunlight’s Class A shares and warrants thereon as well as fair value inputs provided by an independent valuation firm.
Intangible assets acquired Sunlight identified the following intangible assets, recorded at fair value at the Closing Date of the Business Combination, and carried at a value net of amortization over their estimated useful lives on a straight-line basis. Sunlight’s intangible assets are evaluated for impairment on at least a quarterly basis:
Estimated Useful Life
(in Years)
Carrying Value
Successor Predecessor
Asset Successor Predecessor September 30, 2021 December 31, 2020
Contractor relationships(a)
11.5 n.a. $ 350,000  $ — 
Capital provider relationships(b)
0.8 n.a. 43,000  — 
Trademarks/ trade names(c)
10.0 n.a. 7,900  — 
Developed technology(d)
3.0 5.0 1.0 3.0 7,489  11,775 
408,389  11,775 
Accumulated amortization(e)(f)(g)
(20,502) (7,242)
$ 387,887  $ 4,533 
a.Represents the value of existing contractor relationships of Sunlight estimated using a multi-period excess earnings methodology.
b.Represents the value of existing relationships with the banks that may be estimated by applying a with-and-without methodology.
c.Represents the trade names that Sunlight originated or acquired and valued using a relief-from-royalty method.
d.Represents technology developed by Sunlight for the purpose of generating income for Sunlight, and valued using a replacement cost method.
e.Amounts include $7.5 million and $11.8 million of capitalized internally developed software costs at September 30, 2021 and December 31, 2020, respectively.
f.Includes amortization expense of $20.5 million for the period July 10, 2021 through September 30, 2021, $0.1 million for the period July 1, 2021 through July 9, 2021, $0.7 million for the three months ended September 30, 2020, $1.4 million, for the period January 1, 2021 through July 9, 2021, and $2.2 million for the nine months ended September 30, 2020, respectively.
g.At September 30, 2021, the approximate aggregate annual amortization expense for definite-lived intangible assets, including capitalized internally developed software costs as a component of capitalized developed technology are as follows:
Developed Technology Other Identified Intangible Assets Total
October 1, through December 31, 2021 $ 406  $ 22,355  $ 22,761 
2022 1,603  46,648  48,251 
2023 1,603  31,199  32,802 
2024 1,496  31,285  32,781 
2025 1,340  31,199  32,539 
Thereafter 694  218,059  218,753 
$ 7,142  $ 380,745  $ 387,887 
Cash and cash equivalents Sunlight reported cash and cash equivalents and restricted cash in the following line items of its Condensed Consolidated Balance Sheets, which totals the aggregate amount presented in Sunlight’s Condensed Consolidated Statements of Cash Flows:
Successor Predecessor
September 30, 2021 December 31, 2020
Cash and cash equivalents $ 72,786  $ 49,583 
Restricted cash and cash equivalents 2,259  3,122 
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statement of Cash Flows $ 75,045  $ 52,705 
Restricted cash Sunlight reported cash and cash equivalents and restricted cash in the following line items of its Condensed Consolidated Balance Sheets, which totals the aggregate amount presented in Sunlight’s Condensed Consolidated Statements of Cash Flows:
Successor Predecessor
September 30, 2021 December 31, 2020
Cash and cash equivalents $ 72,786  $ 49,583 
Restricted cash and cash equivalents 2,259  3,122 
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statement of Cash Flows $ 75,045  $ 52,705 
Overall risk tiers The overall risk tiers are defined as follows:
1 Low Risk The counterparty has demonstrated low risk characteristics. The counterparty is a well-established company within the applicable industry, with low commercial credit risk, excellent reputational risk (e.g. online ratings, low complaint levels), and an excellent financial risk assessment.
2 Low-to-Medium Risk The counterparty has demonstrated low to medium risk characteristics. The counterparty is a well-established company within the applicable industry, with low to medium commercial credit risk, excellent to above average reputational risk (e.g. online ratings, lower complaint levels), and/or an excellent to above average financial risk assessment.
3 Medium Risk The counterparty has demonstrated medium risk characteristics. The counterparty may be a less established company within the applicable industry than risk tier "1" or "2", with medium commercial credit risk, excellent to average reputational risk (e.g., online ratings, average complaint levels), and/or an excellent to average financial risk assessment.
4 Medium-to-High Risk The counterparty has demonstrated medium to high risk characteristics. The counterparty is likely to be a less established company within the applicable industry than risk tiers "1" through "3," with medium to high commercial credit risk, excellent to below average reputational risk (e.g. online ratings, higher complaint levels), and/or an excellent to below average financial risk assessment.
5 Higher Risk The counterparty has demonstrated higher risk characteristics. The counterparty is a less established company within the applicable industry, with higher commercial credit risk, and/or below average reputational risk (e.g. online ratings, higher complaint levels), and/or below average financial risk assessment. Tier "5" advance approvals will be approved on an exception basis.
Property and equipment Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives:
Estimated Useful Life
(in Years)
Carrying Value
Successor Predecessor
Asset Category Successor Predecessor September 30, 2021 December 31, 2020
Furniture, fixtures, and equipment 5 7 $ 555  $ 555 
Computer hardware 5 5 1,063  868 
Computer software 1 —  3 1 —  3 151  197 
Leasehold improvements  Shorter of life of improvement or lease term 421  421 
2,190  2,041 
Accumulated amortization and depreciation(a)
(1,018) (849)
$ 1,172  $ 1,192 
a.Includes depreciation expense of $0.1 million for the period July 10, 2021 through September 30, 2021, $0.0 million for the period July 1, 2021 through July 9, 2021, $0.1 million for the three months ended September 30, 2020, $0.2 million, for the period January 1, 2021 through July 9, 2021, and $0.2 million for the nine months ended September 30, 2020, respectively.
Disaggregation of revenue Sunlight’s contracts include the following groups of similar services, which do not include any significant financing components:
Successor Predecessor
For the Period July 10, 2021 to September 30, 2021 For the Period July 1, 2021 to July 9, 2021 For the Three Months Ended September 30, 2020 For the Period January 1, 2021 to July 9, 2021 For the Nine Months Ended September 30, 2020
Platform fees, net(a)
$ 24,159  $ 1,983  $ 16,543  $ 50,757  $ 38,625 
Other revenues(b)
2,361  91  704  2,307  1,894 
$ 26,520  $ 2,074  $ 17,247  $ 53,064  $ 40,519 
a.Amounts presented net of variable consideration in the form of rebates to certain contractors.
b.Includes loan portfolio management, administration, and other ancillary fees Sunlight earns that are incidental to its primary operations. Sunlight earned $0.0 million for the period July 10, 2021 through September 30, 2021, $0.0 million for the period July 1, 2021 through July 9, 2021, $0.0 million for the three months ended September 30, 2020, $0.1 million for the period January 1, 2021 through July 9, 2021, and $0.1 million for the nine months ended September 30, 2020, respectively, in administrative fees from an affiliate. (Note 9).
Estimate of fair value of consideration transferred and purchase price allocation The following is an estimate of the fair value of consideration transferred and a preliminary purchase price allocation in connection with the Business Combination:
Amount
Purchase Consideration
Equity consideration paid to existing Sunlight Financial LLC ownership in Class A Common Stock, net(a)
$ 357,800 
Rollover of Sunlight Financial LLC historical warrants 2,499 
Cash consideration to existing Sunlight Financial LLC interests, net(b)
296,281 
Cash paid for seller transaction costs 8,289 
$ 664,869 
Fair Value of Net Assets Acquired
Cash and cash equivalents $ 59,786 
Restricted cash 3,844 
Advances 42,622 
Financing receivables 5,117 
Goodwill(c)
670,014 
Intangible assets(d)
407,600 
Property and equipment 1,047 
Due from affiliates 1,839 
Other assets 4,535 
Accounts payable and accrued expenses (19,210)
Funding commitments (21,485)
Debt (20,613)
Distributions payable — 
Due to affiliates (761)
Warrants, at fair value — 
Deferred tax liability (41,743)
Other liabilities (512)
Fair value of noncontrolling interests(e)
(427,211)
$ 664,869 
a.Equity consideration paid to Blocker Holders consisted of the following:
Common Class A shares 38,151,192 
Fair value per share $ 9.46 
Equity consideration paid to existing Blocker Holders $ 360,910 
Acceleration of post business combination expense (3,110)
Equity consideration paid to Sellers, net $ 357,800 
b.Net of $0.0 million acceleration of post business combination expense.
c.Goodwill that arose from the step-up in tax basis from the Business Combination is tax deductible for the Company.
d.The fair value of the definite-lived intangible assets is as follows:
Weighted Average Useful Lives
(in Years)
Fair Value
Contractor relationships 11.5 $ 350,000 
Capital provider relationships 0.8 43,000 
Trademarks/ trade names 10.0 7,900 
Developed technology 5.0 6,700 
$ 407,600 
e.Noncontrolling interests represent the 34.9% ownership in Sunlight Financial LLC not owned by the Sunlight Financial Holdings Inc. as of the Closing Date. The fair value of the noncontrolling interests follows:
Common Class EX units 46,216,054 
Fair value per unit $ 9.46 
Fair value of Class EX units $ 437,204 
Less: Postcombination compensation expenses (9,993)
Noncontrolling interests $ 427,211 
Pro forma operating results The following unaudited pro forma combined financial information presents the results of operations for each Predecessor period as if the Business Combination on July 9, 2021 had occurred as of January 1, 2020. The unaudited pro forma results may not necessarily reflect actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma results reflect the step-up amortization adjustments for the fair value of intangible assets acquired, transaction expenses, nonrecurring post-combination compensation expense and the related adjustment to the income tax provision.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Total revenues $ 28,594  $ 17,247  $ 53,064  $ 40,519 
Net income (loss) before income taxes 4,927  (6,404) (7,706) (79,248)
Income tax benefit (expense) (927) 1,204  1,449  16,747 
Noncontrolling interests (2,040) 2,652  3,191  33,461 
Net income (loss) attributable to Common Class A shareholders 1,960  (2,548) (3,065) (29,041)