Summary of Significant Accounting Policies (Tables)
|
9 Months Ended |
Sep. 30, 2022 |
|---|
| 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, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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. |
|
| Cash and cash equivalents |
Sunlight reported cash and cash equivalents and restricted cash in the following line items of its Unaudited Condensed Consolidated Balance Sheets, which totals the aggregate amount presented in Sunlight’s Unaudited Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
September 30, 2022 |
|
|
December 31, 2021 |
| Cash and cash equivalents |
|
$ |
70,569 |
|
|
|
$ |
91,882 |
|
| Restricted cash and cash equivalents |
|
1,228 |
|
|
|
2,018 |
|
| Total cash, cash equivalents, and restricted cash shown in the Consolidated Statement of Cash Flows |
|
$ |
71,797 |
|
|
|
$ |
93,900 |
|
|
| Restricted cash |
Sunlight reported cash and cash equivalents and restricted cash in the following line items of its Unaudited Condensed Consolidated Balance Sheets, which totals the aggregate amount presented in Sunlight’s Unaudited Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
September 30, 2022 |
|
|
December 31, 2021 |
| Cash and cash equivalents |
|
$ |
70,569 |
|
|
|
$ |
91,882 |
|
| Restricted cash and cash equivalents |
|
1,228 |
|
|
|
2,018 |
|
| Total cash, cash equivalents, and restricted cash shown in the Consolidated Statement of Cash Flows |
|
$ |
71,797 |
|
|
|
$ |
93,900 |
|
|
| 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. |
|
| Changes in carrying value of goodwill |
The carrying value of Sunlight’s goodwill changed by the following amounts:
|
|
|
|
|
|
|
|
|
| December 31, 2021 (Successor) |
|
|
| Goodwill |
|
$ |
670,457 |
|
| Accumulated impairment losses |
|
(224,701) |
|
|
|
445,756 |
|
|
|
|
|
|
|
| Impairment losses |
|
(384,379) |
|
|
|
|
|
|
|
|
|
|
| September 30, 2022 (Successor) |
|
|
| Goodwill |
|
670,457 |
|
| Accumulated impairment losses |
|
(609,080) |
|
|
|
$ |
61,377 |
|
|
| 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 |
| Asset |
|
|
September 30, 2022 |
|
December 31, 2021 |
Contractor relationships(a)
|
|
11.5 |
|
|
|
$ |
350,000 |
|
|
$ |
350,000 |
|
Capital provider relationships(b)
|
|
0.8 |
|
|
|
— |
|
|
43,000 |
|
Trademarks/ trade names(c)
|
|
10.0 |
|
|
|
7,900 |
|
|
7,900 |
|
Developed technology(d)
|
|
3.0 |
— |
5.0 |
|
|
|
|
|
10,383 |
|
|
8,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
368,283 |
|
|
409,093 |
|
Accumulated amortization(e)(f)(g)
|
|
|
|
|
|
|
|
|
|
(40,610) |
|
|
(43,254) |
|
|
|
|
|
|
|
|
|
|
|
$ |
327,673 |
|
|
$ |
365,839 |
|
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 Direct Channel Partners and Indirect Channel Loan Purchasers 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 amortization expense of $0.3 million, $0.3 million, and $0.0 million related to capitalized internally developed software costs for the three months ended September 30, 2022 and the periods from July 10, 2021 through September 30, 2021 and July 1, 2021 through
July 9, 2021 and $0.6 million and $1.5 million for the nine months ended September 30, 2022 and the period from January 1, 2021 through July 9, 2021, respectively.
f.Includes amortization expense of $8.5 million, $20.5 million, and $0.1 million for the three months ended September 30, 2022 and the periods from July 10, 2021 through September 30, 2021 and July 1, 2021 through July 9, 2021 and $40.4 million and $1.4 million for the nine months ended September 30, 2022 and the period from January 1, 2021 through July 9, 2021, respectively.
g.At September 30, 2022, 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, 2022 |
|
$ |
646 |
|
|
$ |
7,864 |
|
|
$ |
8,510 |
|
| 2023 |
|
2,573 |
|
|
31,199 |
|
|
33,772 |
|
| 2024 |
|
2,465 |
|
|
31,285 |
|
|
33,750 |
|
| 2025 |
|
1,689 |
|
|
31,199 |
|
|
32,888 |
|
| 2026 |
|
694 |
|
|
31,199 |
|
|
31,893 |
|
| Thereafter |
|
— |
|
|
186,860 |
|
|
186,860 |
|
|
|
$ |
8,067 |
|
|
$ |
319,606 |
|
|
$ |
327,673 |
|
|
| 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 |
| Asset Category |
|
|
September 30, 2022 |
|
December 31, 2021 |
| Furniture, fixtures, and equipment |
|
5 |
|
|
|
$ |
1,517 |
|
|
$ |
1,020 |
|
| Computer hardware |
|
5 |
|
|
|
1,308 |
|
|
1,108 |
|
| Computer software |
|
1 |
— |
3 |
|
|
|
|
|
352 |
|
|
250 |
|
| Leasehold improvements |
|
Shorter of life of improvement or lease term |
|
— |
|
|
2,829 |
|
|
|
|
|
|
|
|
|
|
|
3,177 |
|
|
5,207 |
|
Accumulated amortization and depreciation(a)
|
|
|
|
|
|
|
|
|
|
(1,496) |
|
|
(1,138) |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,681 |
|
|
$ |
4,069 |
|
a.Includes depreciation expense of $0.1 million, $0.1 million, $0.0 million, for the three months ended September 30, 2022 and the periods from July 10, 2021 through September 30, 2021, and July 1, 2021 through July 9, 2021 and $0.3 million and $0.2 million for the nine months ended September 30, 2022 and the period from January 1, 2021 through July 9, 2021, respectively.for the nine months ended September 30, 2022 and the period from January 1, 2021 through July 9, 2021, respectively.
|
| Disaggregation of revenue |
Sunlight’s contracts include the following groups of similar services, which do not include any significant financing components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform fees, net(a)
|
|
$ |
31,446 |
|
|
|
$ |
24,159 |
|
|
|
$ |
1,983 |
|
|
$ |
85,473 |
|
|
|
$ |
50,757 |
|
Other revenues(b)
|
|
1,819 |
|
|
|
2,361 |
|
|
|
91 |
|
|
5,613 |
|
|
|
2,307 |
|
|
|
$ |
33,265 |
|
|
|
$ |
26,520 |
|
|
|
$ |
2,074 |
|
|
$ |
91,086 |
|
|
|
$ |
53,064 |
|
a.Amounts presented net of variable consideration in the form of rebates to certain contractors. Includes platform fees from affiliates of $0.0 million, $0.0 million, $0.0 million, for the three months ended September 30, 2022 and the periods from July 10, 2021 through September 30, 2021, and July 1, 2021 through July 9, 2021 and $0.0 million and $0.2 million for the nine months ended September 30, 2022 and the period from January 1, 2021 through July 9, 2021, respectively. (Note 9).
b.Includes loan portfolio management, administration, and other ancillary fees Sunlight earns that are incidental to its primary operations. Sunlight earned $0.0 million, $0.0 million, $0.0 million, for the three months ended September 30, 2022 and the periods from July 10, 2021 through September 30, 2021, and July 1, 2021 through July 9, 2021 and $0.1 million and $0.1 million for the nine months ended September 30, 2022 and the period from January 1, 2021 through July 9, 2021, 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 the 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)
|
|
670,457 |
|
Intangible assets(d)
|
|
407,600 |
|
| Property and equipment |
|
1,047 |
|
| Due from affiliates |
|
1,839 |
|
| Other assets |
|
4,561 |
|
| Accounts payable and accrued expenses |
|
(19,210) |
|
| Funding commitments |
|
(21,485) |
|
| Debt |
|
(20,613) |
|
|
|
|
| Due to affiliates |
|
(761) |
|
| Warrants, at fair value |
|
— |
|
| Deferred tax liability |
|
(42,212) |
|
| 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 existing Sunlight Financial LLC members, net |
|
$ |
357,800 |
|
b.Net of $0.0 million acceleration of post business combination expense.
c.Goodwill, as a component of the step-up in tax basis from the Business Combination, is tax deductible for the Company in the estimated amount $149.7 million.
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 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: Post-combination compensation expenses |
|
(9,993) |
|
| Noncontrolling interests |
|
$ |
427,211 |
|
|
| Pro forma operating results |
The following unaudited pro forma financial information presents the results of operations for each of the three and nine months ended September 30, 2022 and 2021, respectively, as if the Business Combination on July 9, 2021 had occurred as of January 1, 2021. 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, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
| Revenue |
|
$ |
33,265 |
|
|
$ |
28,594 |
|
|
$ |
91,086 |
|
|
$ |
53,064 |
|
| Net income (loss) before income taxes |
|
(420,209) |
|
|
4,927 |
|
|
(423,694) |
|
|
(7,706) |
|
| Income tax benefit (expense) |
|
19,330 |
|
|
(927) |
|
|
19,490 |
|
|
1,449 |
|
| Noncontrolling interests in (income) loss of consolidated subsidiaries |
|
151,696 |
|
|
(2,040) |
|
|
152,954 |
|
|
3,191 |
|
| Net income (loss) attributable to Class A shareholders |
|
(249,184) |
|
|
1,960 |
|
|
(251,251) |
|
|
(3,065) |
|
|