Business context and reporting period
Entity mismatch: The supplied filing is Pivotal Investment Corporation II’s Form 10-Q, not a filing under the name Spruce Power Holding Corp. It covers the quarter and nine months ended September 30, 2020, and was signed November 10, 2020.
Pivotal was a pre-business-combination SPAC and had no operating business or revenue. On September 17, 2020, it agreed to merge with XL Hybrids, Inc. (XL), which would become its wholly owned subsidiary. The filing describes the proposed transaction and related financing, not a completed merger.
Financial results and position
| Metric | Q3 2020 / September 30, 2020 | Comparison |
|---|---|---|
| Revenue | None; no operating revenue expected before a business combination | Not applicable |
| Net income (loss) | $(1.83) million; $(0.26) per share | Q3 2019: $0.67 million; $(0.01) per share |
| Operating costs | $1.87 million | Q3 2019: $0.13 million |
| Interest income from trust assets | $21,011 | Q3 2019: $951,166 |
| Cash outside Trust Account | $535,515 | December 31, 2019: $624,943 |
| Marketable securities in Trust Account | $232.29 million | December 31, 2019: $231.92 million |
| Total liabilities | $9.98 million, including $8.05 million deferred underwriting fee | December 31, 2019: $8.27 million |
| Debt | No long-term debt; no working-capital loans outstanding | — |
| Operating cash flow | $(0.61) million for the first nine months of 2020 | 2019 inception-to-September period: $(0.32) million |
For the first nine months of 2020, net loss was $1.42 million, versus net income of $0.66 million for the 2019 inception-to-September period. The filing reports no operating margins because the company had no revenue-generating operations. Trust funds are substantially invested in U.S. Treasury-backed money market funds; $520,032 of trust interest had been withdrawn for tax obligations.
Material changes and transaction financing
- Q3 operating costs rose substantially year over year, while trust interest income fell to $21,011 from $951,166; the company consequently moved from Q3 2019 net income to a Q3 2020 net loss.
- The merger agreement provides for 100 million company shares to be issued or reserved for XL securityholders. The company also planned to seek approval to combine its Class A and Class B shares and authorize 350 million common shares.
- Separate subscription agreements contemplated a $150 million PIPE: 15 million shares at $10 each, subject to shareholder approval and completion of the merger.
- A Sponsor-affiliate forward purchase agreement allows for up to $150 million of securities at the time of a business combination, but the purchaser may decline to participate. This is separate from the PIPE.
Outlook, risks and contingencies
Pivotal said it expected existing funds outside the Trust Account to cover pre-combination expenditures, but warned that cost overruns could leave it short and that additional financing might be needed to complete the merger, particularly if public shareholders redeem significant numbers of shares. The company had $535,515 of cash outside the Trust Account at quarter-end.
The company had until January 16, 2021 to complete a business combination unless shareholders approved an extension. If it failed to complete one, it would wind up and redeem public shares from the Trust Account; warrants could expire worthless. Public shareholders could redeem shares in connection with a combination. The $8.05 million deferred underwriting fee is payable upon a completed combination and is forfeited if no combination is completed.
The filing identifies customary merger closing conditions and states that the forward purchase is not assured. Management reported effective disclosure controls and no material change in internal control during the quarter. It reported no off-balance-sheet arrangements and no material market or interest-rate exposure.
Investor facts to verify
- Confirm the issuer and filing identity: this 10-Q is for Pivotal Investment Corporation II, despite the request naming Spruce Power Holding Corp.
- Check subsequent filings for whether the XL merger closed, its final terms, shareholder redemptions, and any extension of the January 16, 2021 deadline.
- Verify whether the $150 million PIPE and any Sponsor-affiliate forward purchase were funded, and whether alternative financing or debt was required.
- Review the merger’s final share issuance and dilution, including founder shares, warrants, XL securities, and the proposed common-stock authorization.
- Assess liquidity available outside the Trust Account and obligations, including the deferred underwriting fee and transaction costs.