Business context and reporting period
XL Fleet Corp.’s unaudited Form 10-Q covers the quarter and nine months ended September 30, 2022. The registrant was named XL Fleet in the filing; it announced a change to Spruce Power Holding Corporation and ticker SPRU, effective November 14, 2022. The business added residential solar through its September 9 acquisition of Spruce Power, alongside its Drivetrain and XL Grid segments.
Spruce Power owns and operates more than 52,000 residential rooftop solar systems and services more than 28,000 third-party systems. Management said its strategy is shifting toward subscription-based distributed energy solutions and pursuing acquisitions; it was also reviewing strategic alternatives for Drivetrain.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $8.36 million | $3.20 million | $16.13 million | $7.57 million |
| Operating loss | $28.01 million | $15.27 million | $66.33 million | $38.02 million |
| Net income (loss) attributable to XL Fleet | ($22.01 million) | ($7.53 million) | ($50.78 million) | $43.91 million |
| Net income (loss) per share, basic | ($0.15) | ($0.05) | ($0.36) | $0.32 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | ($46.40 million) | ($34.22 million) |
Q3 revenue rose 161%, mainly from $5.08 million of Spruce Power revenue recorded after the acquisition. Nine-month revenue rose 113%, including Spruce Power and a full nine months of World Energy operations versus a partial-year contribution in 2021. Drivetrain revenue declined 10% in the nine-month comparison. Consolidated gross profit was approximately $3.68 million (44% of revenue) in Q3 and $3.82 million (24%) for the first nine months; these derived figures include the acquired solar business only from the acquisition date.
At September 30, cash and cash equivalents were $239.51 million and restricted cash was $32.12 million, totaling $271.63 million. The restricted balance included $31.97 million subject to financing and fund restrictions. Debt principal was $542.49 million; its reported balance-sheet carrying value, including current debt, was $510.37 million after a $32.12 million acquisition-date fair-value adjustment. Current liabilities were $58.71 million and current debt was $25.34 million. The company used $31.53 million in investing activities and $2.26 million in financing activities during the first nine months.
Material changes, outlook and risks
- Spruce Power was acquired for $32.59 million net of cash acquired. The preliminary allocation recorded $406.30 million of solar systems, $158.64 million of goodwill and $510.00 million of assumed debt; the purchase-price allocation remained subject to adjustment.
- Q3 SG&A included $13.6 million of Spruce acquisition transaction expenses. The company recorded an $8.61 million goodwill impairment in Q1 and $1.71 million of restructuring-related inventory write-downs for the nine-month period. Restructuring included workforce reductions, facility and engineering closures, and discontinued hybrid products.
- Reported Q3 other income included an $8.53 million unrealized gain on interest-rate swaps. The swaps covered approximately 97% of floating-rate term-loan balances. These non-cash fair-value movements affect reported earnings; the company had not applied hedge accounting.
- Management expected continued near-term net losses but believed existing liquidity would fund its current business plan for the next 12 months without additional capital. No specific revenue, earnings or cash-flow guidance was provided.
- Risk factors include solar-market adoption and reliance on incentives, customer and electricity-market conditions, supply-chain and component costs, and litigation and regulatory expenses. The company disclosed an SEC fact-finding investigation, securities and shareholder litigation, and said it could not estimate potential losses for these matters.
- Disclosure controls were assessed as ineffective at September 30, 2022 because of material weaknesses involving IT access and segregation-of-duties controls and insufficiently designed or documented management review controls. Remediation was ongoing.
Important facts for investors to verify
- Progress toward completing Spruce Power’s provisional acquisition accounting, including goodwill, debt valuation and noncontrolling interests.
- Debt terms, covenant compliance, interest-rate exposure and the amount of cash that is restricted or available for corporate use.
- Whether the planned strategic shift and Drivetrain review deliver sustainable revenue, margins and cash flow, given continuing losses and operating cash outflow.
- Developments and potential costs from the SEC investigation and pending lawsuits, and progress in remediating the disclosed control weaknesses.
- Performance of Spruce Power’s solar portfolios and exposure to SREC delivery obligations, tax matters and possible incentive or market changes.