Business Combinations

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Spruce Power

On September 9, 2022, 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 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.

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, September 9, 2022. The excess of the purchase price over those fair values was recorded to goodwill. The Company's evaluations of the facts and circumstances available as of September 9, 2022, to assign fair values to assets acquired and liabilities assumed are ongoing. As we complete 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 becomes available. A change in information related to the value of net assets acquired may change the amount of the purchase price assigned to goodwill, and as a result, the preliminary fair values set forth below are subject to adjustment as additional information is obtained and valuations are completed. Provisional adjustments are recognized during the reporting period in which the adjustments are determined. The Company expects to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including our estimates for solar systems, production based incentives, solar renewable energy agreements, non-controlling interest, trade names and debt, where applicable. Although we believe 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 preliminary purchase price allocation of the fair value of assets acquired and liabilities assumed in the acquisition of 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)

As reflected in the preceding table, as a result of updated valuation reports the Company adjusted solar energy systems and intangible assets with corresponding changes to goodwill. In the first quarter of 2023, due to the 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 relates to previous year.

During Q1 2023, the Company adjusted the fair value of its noncontrolling interest and its redeemable noncontrolling interest in the Company's financials which resulted in the recognition of adjustments of $(5.5) million and $0.2 million, respectively. Additional paid in Capital was adjusted by $(1.8) million which includes the fair value adjustment associated with the purchase of 100% of the membership interests in Ampere Solar Owner IV, LLC, ORE F5A HoldCo, LLC, ORE F6 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 intangible assets are amortized over their respective estimated useful lives as follows:


(Amounts in thousands)	Asset Amount		Liability Amount		Estimated Life (in years)
Solar renewable energy agreements	$	340	$	10,500	6.0
Performance based incentives agreements	$	3,240	$	—	13.0
Tradenames	$	8,400	$	—	30.0

The weighted-average useful life of the intangibles identified above is approximately 16.0 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 acquisition date 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 Spruce Power's established operations and mergers and acquisition capabilities to grow the Spruce Power business.

Supplemental disclosure of pro forma information:

The following unaudited pro forma financial information presents the combined results of the operations of the Company with Legacy Spruce Power as if the acquisition of Legacy Spruce Power on September 9, 2022 had occurred as of January 1, 2022. 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 (loss) income 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, 2022. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined Company.

The following table presents the Company’s pro forma combined results of operations for the three months ended March 31, 2022:


(Amounts in thousands, except share and per share data)	2022
Revenues	$	16,991
Net income from continuing operations	$	10,649
Net loss from discontinued operations	(15,943)
Net income	$	(5,294)
Per share amounts:
Net income from continuing operations - basic	$	0.08
Net income from continuing operations - diluted	$	0.08
Net loss from discontinued operations - basic	$	(0.11)
Net loss from discontinued operations - diluted	$	(0.11)