Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 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 March 31, 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
	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	69,574	$	91,882
Restricted cash and cash equivalents	2,355		2,018
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statement of Cash Flows	$	71,929	$	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
	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	69,574	$	91,882
Restricted cash and cash equivalents	2,355		2,018
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statement of Cash Flows	$	71,929	$	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
March 31, 2022 (Successor)
Goodwill	670,457
Accumulated impairment losses	(224,701)
	$	445,756

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				March 31, 2022		December 31, 2021
Contractor relationships(a)	11.5			$	350,000	$	350,000
Capital provider relationships(b)	0.8			43,000		43,000
Trademarks/ trade names(c)	10.0			7,900		7,900
Developed technology(d)	3.0	—	5.0	8,867		8,193
				409,767		409,093
Accumulated amortization(e)(f)(g)				(65,592)		(43,254)
				$	344,175	$	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 tDirect 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 $0.1 million and $0.7 million related to capitalized internally developed software costs for the three months ended March 31, 2022 and 2021, respectively.

f.Includes amortization expense of $22.3 million and $0.8 million for the three months ended March 31, 2022 and 2021, respectively.

g.At March 31, 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
April 1, through December 31, 2022	$	1,556	$	24,780	$	26,336
2023	2,062		31,199		33,261
2024	1,964		31,285		33,249
2025	1,377		31,199		32,576
2026	694		31,199		31,893
Thereafter	—		186,860		186,860
	$	7,653	$	336,522	$	344,175

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				March 31, 2022		December 31, 2021
Furniture, fixtures, and equipment	5			$	1,512	$	1,020
Computer hardware	5			1,134		1,108
Computer software	1	—	3	324		250
Leasehold improvements	Shorter of life of improvement or lease term			—		2,829
				2,970		5,207
Accumulated amortization and depreciation(a)				(1,247)		(1,138)
				$	1,723	$	4,069

a.Includes depreciation expense of $0.1 million and $0.1 million for the three months ended March 31, 2022 and 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
	For the Three Months Ended March 31,		For the Three Months Ended March 31,
	2022		2021
Platform fees, net(a)	$	26,154	$	23,662
Other revenues(b)	2,077		1,125
	$	28,231	$	24,787

a.Amounts presented net of variable consideration in the form of rebates to certain contractors. Includes platform fees from affiliates of $0.0 million and $0.1 million for the three months ended March 31, 2022 and 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 and $0.1 million for the three months ended March 31, 2022 and 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 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)	670,457
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 iSn 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 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 of the three months ended March 31, 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 March 31,
	2022		2021
Total revenues	$	28,231	$	24,787
Net income (loss) before income taxes	(1,808)		(43,744)
Income tax benefit	25		2,163
Noncontrolling interests	630		15,248
Net income (loss) attributable to Common Class A shareholders	(1,152)		(26,333)