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 June 30, 2022
or
☐ 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
Securities registered pursuant to Section 12(g) of the Act: None

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 August 11, 2022, 83,301,671 shares of Class A Common stock, $0.0001 par value, and 47,595,455 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 Consolidated Statements of Changes in Equity	3
Unaudited Condensed Consolidated 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	25
Note 5 - Debt Obligations	26
Note 6 - Equity and Earnings per Share	27
Note 7 - Fair Value Measurement	36
Note 8 - Taxes	38
Note 9 - Transactions with Affiliates and Affiliated Entities	39
Note 10 - Commitments and Contingencies	40
Note 11 - Subsequent Events	42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3. Quantitative and Qualitative Disclosures About Market Risk	73
Item 4. Controls and Procedures	73
Part II. Other Information
Item 1. Legal Proceedings	74
Item 1A. Risk Factors	75
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3. Defaults Upon Senior Securities	77
Item 4. Mine Safety Disclosures	77
Item 5. Other Information	77
Item 6. Exhibits	78
Signatures	79

ii

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNLIGHT FINANCIAL HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	Successor
	June 30, 2022		December 31, 2021
	(Unaudited)
Assets
Cash and cash equivalents	$	68,913	$	91,882
Restricted cash	1,581		2,018
Advances (net of allowance for credit losses of $3,487 and $238)	91,778		66,839
Financing receivables (net of allowance for credit losses of $146 and $148)	3,794		4,313
Goodwill	445,756		445,756
Intangible assets, net	335,343		365,839
Property and equipment, net	1,681		4,069
Other assets	22,533		21,531
Total assets	$	971,379	$	1,002,247
Liabilities and Stockholders' Equity
Liabilities
Accounts payable and accrued expenses	$	16,082	$	23,386
Funding commitments	16,568		22,749
Debt	20,613		20,613
Distributions payable	1,521		—
Deferred tax liabilities	32,637		36,686
Warrants, at fair value	10,281		19,007
Other liabilities	10,009		843
Total liabilities	107,711		123,284
Commitments and Contingencies (Note 10)
Stockholders' Equity
Preferred stock (Successor); $0.0001 par value; 35,000,000 shares authorized; none issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Class A common stock (Successor); $0.0001 par value; 420,000,000 shares authorized; 85,928,364 and 86,373,596 issued; and 84,332,637 and 84,803,687 outstanding as of June 30, 2022 and December 31, 2021, respectively	9		9
Class B common stock (Successor); $0.0001 par value; 20,000,000 shares authorized; none issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Class C common stock (Successor); $0.0001 par value; 65,000,000 shares authorized; 47,595,455 issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Additional paid-in capital	765,284		764,366
Accumulated deficit	(195,642)		(186,022)
Total capital	569,651		578,353
Treasury stock, at cost; 1,595,727 and 1,569,909 Class A shares as of June 30, 2022 and December 31, 2021, respectively	(15,638)		(15,535)
Total stockholders' equity	554,013		562,818
Noncontrolling interests in consolidated subsidiaries	309,655		316,145
Total equity	863,668		878,963
Total liabilities and stockholders' equity	$	971,379	$	1,002,247

See notes to unaudited condensed consolidated financial statements.

1

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 June 30,		For the Three Months Ended June 30,		For the Six Months Ended June 30,		For the Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	29,590	$	26,203	$	57,821	$	50,990
Costs and Expenses
Cost of revenues (exclusive of items shown separately below)	5,773		5,337		11,002		10,191
Compensation and benefits	14,138		8,108		27,263		16,120
Selling, general, and administrative	4,546		1,204		11,018		3,120
Property and technology	1,984		1,420		3,912		2,628
Depreciation and amortization	9,694		801		32,141		1,610
Provision for losses	4,042		436		4,680		1,172
Management fees to affiliate	—		100		—		200
	40,177		17,406		90,016		35,041
Operating income (loss)	(10,587)		8,797		(32,195)		15,949
Other Income (Expense), Net
Interest income	87		112		171		253
Interest expense	(296)		(317)		(556)		(572)
Change in fair value of warrant liabilities	13,610		(1,451)		8,726		(4,065)
Change in fair value of contract derivatives, net	320		69		93		(787)
Realized gains on contract derivatives, net	2,055		719		3,964		2,986
Other realized losses, net	(176)		—		(373)		—
Other income (expense)	(1,004)		209		(828)		621
Business combination expenses	—		(2,895)		—		(6,482)
	14,596		(3,554)		11,197		(8,046)
Net Income (Loss) Before Income Taxes	4,009		5,243		(20,998)		7,903
Income tax benefit (expense)	1,650		—		4,051		—
Net Income (Loss)	5,659		5,243		(16,947)		7,903
Noncontrolling interests in (income) loss of consolidated subsidiaries	(1,543)		—		7,089		—
Net Income (Loss) Attributable to Class A Shareholders	$	4,116	$	5,243	$	(9,858)	$	7,903
Earnings Per Class A Share
Net income (loss) per Class A share
Basic	$	0.05			$	(0.11)
Diluted	$	0.05			$	(0.11)
Weighted average number of Class A shares outstanding
Basic	84,635,413				84,717,117
Diluted	84,668,201				131,433,095

See notes to unaudited condensed consolidated financial statements.

2

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		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Class A	Class C		Class A		Class B		Class C
March 31, 2022	86,373,596	47,595,455	—	$	9	$	—	$	—	$	765,755	$	(199,758)	$	(15,590)	$	550,416	$	307,667	$	858,083
Equity-based compensation	—	—	—	—		—		—		2,647		—		—		2,647		663		3,310
Shares withheld related to net share settlement of equity awards	—	—	—	—		—		—		—		—		(48)		(48)		—		(48)
Equity repurchase	(445,232)	—	—	—		—		—		(2,004)		—		—		(2,004)		—		(2,004)
Dilution	—	—	—	—		—		—		(1,114)		—		—		(1,114)		1,114		—
Distribution	—	—	—	—		—		—		—		—		—		—		(1,332)		(1,332)
Net income	—	—	—	—		—		—		—		4,116		—		4,116		1,543		5,659
June 30, 2022	85,928,364	47,595,455	—	$	9	$	—	$	—	$	765,284	$	(195,642)	$	(15,638)	$	554,013	$	309,655	$	863,668
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	—	—	—	—		—		—		4,430		—		—		4,430		1,755		6,185
Shares withheld related to net share settlement of equity awards	—	—	—	—		—		—		—		—		(103)		(103)		—		(103)
Equity repurchase	(445,232)	—	—	—		—		—		(2,004)		—		—		(2,004)		—		(2,004)
Dilution	—	—	—	—		—		—		(1,508)		—		—		(1,508)		1,508		—
Distribution	—	—	—	—		—		—		—		—		—		—		(2,705)		(2,705)
Cumulative ASC 842 adoption effect	—	—	—	—		—		—		—		238		—		238		41		279
Net loss	—	—	—	—		—		—		—		(9,858)		—		(9,858)		(7,089)		(16,947)
June 30, 2022	85,928,364	47,595,455	—	$	9	$	—	$	—	$	765,284	$	(195,642)	$	(15,638)	$	554,013	$	309,655	$	863,668

3

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

(dollars in thousands)

	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
March 31, 2021	389,852	234,051	306,895	78,717	$	319,772	$	196,340	$	257,301	$	59,836	54,867	$	1,450	$	(789,415)	$	(787,965)
Preferred distributions, paid in-kind	14,094	8,461	11,094	—	11,815		7,438		9,752		—		—	—		(29,005)		(29,005)
Change in temporary equity redemption value	—	—	—	—	7,033		9,440		12,501		8,460		—	—		(37,434)		(37,434)
Equity-based compensation	—	—	—	—	—		—		—		—		1,594	7		—		7
Net income	—	—	—	—	—		—		—		—		—	—		5,243		5,243
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)
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	27,551	16,540	21,687	—	22,852		14,216		18,634		—		—	—		(55,702)		(55,702)
Change in temporary equity redemption value	—	—	—	—	55,340		44,716		58,875		20,539		—	—		(179,470)		(179,470)
Equity-based compensation	—	—	—	—	—		—		—		—		3,356	18		—		18
Net income	—	—	—	—	—		—		—		—		—	—		7,903		7,903
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)

See notes to unaudited condensed consolidated financial statements.

4

SUNLIGHT FINANCIAL HOLDINGS INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	Successor		Predecessor
	For the Six Months Ended June 30,		For the Six Months Ended June 30,
	2022		2021
Cash Flows From Operating Activities
Net income (loss)	$	(16,947)	$	7,903
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	32,141		1,698
Provision for losses	4,680		1,172
Change in fair value of warrant liabilities	(8,726)		4,065
Change in fair value of contract derivatives, net	(93)		787
Other expense (income)	828		(621)
Share-based payment arrangements	8,652		18
Deferred income tax benefit	(4,051)		—
Increase (decrease) in operating capital:
Increase in advances	(25,206)		(5,673)
Increase in due from affiliates	—		(1,839)
Decrease in other assets	2,927		2,190
Increase (decrease) in accounts payable and accrued expenses	(4,077)		2,664
Increase (decrease) in funding commitments	(6,182)		3,779
Increase in due to affiliates	—		761
Increase (decrease) in other liabilities	(1,946)		202
Net cash provided by (used in) operating activities	(18,000)		17,106
Cash Flows From Investing Activities
Return of investments in loan pool participation and loan principal repayments	586		832
Payments to acquire loans and participations in loan pools	(1,438)		(1,170)
Payments to acquire property and equipment	(1,265)		(1,066)
Net cash used in investing activities	(2,117)		(1,404)
Cash Flows From Financing Activities
Proceeds from borrowings under line of credit	—		20,746
Repayments of borrowings under line of credit	—		(14,758)
Payments for share-based payment tax withholding	(103)		—
Payments for repurchase of common stock	(2,004)		—
Payment of capital distributions	(1,182)		(7,522)
Payment of debt issuance costs	—		(491)
Net cash used in financing activities	(3,289)		(2,025)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	(23,406)		13,677
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period	93,900		52,705
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	70,494	$	66,382
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	559	$	537
Cash paid during the period for income taxes, net	3,360		—
Noncash Investing and Financing Activities
Distributions declared, but not paid	$	1,330	$	—
Preferred dividends, paid in-kind	—		55,702
Change in temporary equity redemption value	—		179,470
Capital expenditures incurred but not yet paid	400		—

See notes to unaudited condensed consolidated financial statements.

5

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in tables in thousands, except share, per share, unit, and per unit data)

Note 1. Organization and Business

Sunlight Financial Holdings Inc. (together with its consolidated subsidiaries, the “Company” or “Sunlight”) is a premier, technology-enabled point-of-sale finance company. Sunlight Financial LLC, its accounting predecessor and wholly-owned subsidiary, was organized as a Delaware limited liability company on January 23, 2014.

On July 9, 2021 (the “Closing Date”), the Company consummated the transactions contemplated by that certain Business Combination Agreement (the “Business Combination Agreement”), dated as of January 23, 2021, by and among Spartan Acquisition Corp. II, a Delaware corporation incorporated on August 17, 2020 as a publicly-traded special purpose acquisition company sponsored by funds managed by an affiliate of Apollo Global Management, Inc. (the “Sponsor”) and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Spartan”), Sunlight Financial LLC and the Spartan Subsidiaries, FTV Blocker and Tiger Blocker (each as defined in the Business Combination Agreement). On the Closing Date, Spartan changed its name to “Sunlight Financial Holdings Inc.” and Sunlight Financial LLC became the operating subsidiary of Sunlight Financial Holdings Inc., organized in an “Up-C” structure (the “Business Combination”). As a result of the Business Combination, the Company’s trading symbol on the New York Stock Exchange (the “NYSE”) was changed from “SPRQ” to “SUNL.”

All activity for the period from August 17, 2020 (Spartan’s inception) to the Closing Date relates to the Company's formation, initial public offering and private placement of equity (Note 6), and search for a prospective business combination. The Company did not generate any operating revenues until after completion of the Business Combination. Upon completion of the Business Combination, the Company assumed the operations of, and began to consolidate, Sunlight Financial LLC. Refer to “Note 2 — Basis of Presentation” regarding the presentation of the Company’s financial statements before and after the Business Combination.

Business — Sunlight operates a technology-enabled financial services platform within the United States of America, using a nationwide network of contractors at the point-of-sale, to offer homeowners secured and unsecured loans (“Loans”), originated by third-party lenders, for the purchase and installation of residential solar energy systems and other home improvements. Sunlight arranges for the origination of Loans by third-party lenders in two distinct ways:

Direct Channel Loans — Sunlight arranges for certain Loans (“Direct Channel Loans”) to be originated and retained by third parties (“Direct Channel Partners”). The Direct Channel Partners originate the Direct Channel Loans directly, using their own credit criteria. These Direct Channel Partners pay for Direct Channel Loans by remitting funds to Sunlight, and Sunlight is thereafter responsible for making the appropriate payments to the relevant contractor. Sunlight earns income from the difference between the cash amount paid by a Direct Channel Partner to Sunlight for a given Direct Channel Loan and the dollar amount due to the contractor for such Direct Channel Loan. Sunlight does not participate in the ongoing economics of the Direct Channel Loans and, generally, does not retain any obligations with respect thereto except for certain ongoing fee-based administrative services and loan servicing performed by Sunlight.

Indirect Channel Loans — Sunlight arranges for other Loans (“Indirect Channel Loans”) to be originated by Sunlight’s issuing bank partner (“Bank Partner”). Sunlight has entered into program agreements with its Bank Partner that govern the terms and conditions with respect to originating and servicing the Indirect Channel Loans and Sunlight pays its Bank Partner a fee based on the principal balance of Loans originated by Sunlight’s Bank Partner. Sunlight’s Bank Partner funds these Loans by remitting funds to Sunlight, and Sunlight is thereafter responsible for making the appropriate payments to the relevant contractor. Sunlight arranges for the sale of certain Indirect Channel Loans, or participations therein, to third parties (“Indirect Channel Loan Purchasers”).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation — As a result of the Business Combination, for accounting purposes, Sunlight Financial Holdings Inc. is the acquirer and Sunlight Financial LLC is the acquiree and accounting predecessor. The financial statement presentation includes the financial statements of Sunlight Financial LLC as “Predecessor” for periods prior to the Closing Date and of the Company as “Successor” for the periods after the Closing Date, including the consolidation of Sunlight Financial LLC.

6

The accompanying consolidated financial statements and related notes, prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), include the accounts of Sunlight and its consolidated subsidiaries. In the opinion of management, all adjustments considered necessary for a fair presentation of Sunlight’s financial position, results of operations, and cash flows have been included and are of a normal and recurring nature. All intercompany balances and transactions have been eliminated.

Certain information and footnote disclosures normally included in financial statements prepared under GAAP may be condensed or omitted for interim financial reporting, and the operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

These financial statements should be read in conjunction with Sunlight’s audited consolidated financial statements for the year ended December 31, 2021 and footnotes thereto included in Sunlight's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022. Capitalized terms used herein, and not otherwise defined, are defined in Sunlight's consolidated financial statements for the year ended December 31, 2021.

Certain prior period amounts have been reclassified to conform to the current period's presentation.

Emerging Growth Company — The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Consolidation — Sunlight consolidates those entities over which it controls significant operating, financial, and investing decisions of the entity as well as those entities deemed to be variable interest entities (“VIEs”) in which the Company is determined to be the primary beneficiary.

The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered are the determination as to the degree of control over an entity by its various equity holders, the design of the entity, how closely related the entity is to each of its equity holders, the relation of the equity holders to each other and a determination of the primary beneficiary in entities in which Sunlight has a variable interest. These analyses involve estimates, based on the assumptions of management, as well as judgments regarding significance and the design of entities.

VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

7