Sunlight financial reports third quarter 2022 results
New york & charlotte, n.c.--(business wire)--sunlight financial holdings inc. (“sunlight financial”, "sunlight" or the “company”) (nyse: sunl), a premier, technology-enabled point-of-sale finance company, today announced its results for the third quarter 2022. “despite a challenging macro-economic backdrop, sunlight continued to deliver growth in the third quarter, with funded loan volume of $835 million and 22,470 borrowers served, a significant year-over-year increase," said matt potere, chief executive officer of sunlight. "while our earnings this quarter were negatively impacted by non-cash charges related to the insolvency of an installer and a goodwill impairment, our core performance was in line with our expectations." potere continued, "we expect the operating environment will remain challenging for the near-term. the unprecedented speed and magnitude of interest rate increases have reduced our direct capital provider capacity, increased our reliance on the indirect channel, and affected our ability to profitably monetize indirect channel loans originated at lower interest rates. these factors will have a significant negative impact on our financial performance in the near term, until the substantial pricing increases implemented over the past several months take effect. in addition, we are exploring a hedging program to protect us from interest rate volatility in the future." "sunlight continues to operate in an attractive and growing market, with continued growth in solar demand driven by rising utility rates, improved federal tax incentives, and an increasing need for energy reliability," added potere. "i am confident we are taking the steps necessary to be successful in the current environment." third quarter 2022 key operational and financial metrics funded loans of $834.7 million, up 31% from $639.5 million in the prior-year period average solar loan balance of $45,750, up 12% from $40,991 in the prior-year period borrowers served of 22,470, up 24% from 18,189 in the prior-year period total contractor relationships of 1,880, up 27% from 1,484 in the prior-year period total revenue of $33.0 million, a 10% increase from the prior-year period gaap net income of $(415.5) million, relative to $(22.2) million in the prior-year period, primarily due to a $384.4 million non-cash impairment of goodwill driven by challenges in the macro economic environment adjusted ebitda of $(27.0) million, relative to $11.4 million in the prior-year period, primarily driven by an impairment related to the bankruptcy of an installer partner total platform fee margin of 5.1% (up from 4.3% in the prior-year period) and solar direct channel platform fee margin of 5.5% (up from 5.0% in the prior-year period) total cumulative funded loans of $8.2 billion as of september 30, 2022 a reconciliation between historical gaap and non-gaap information is provided in the tables below. recent developments strategic alternatives. sunlight's board of directors and management believe the company's current share price does not reflect the intrinsic value of the company. therefore, as a number of parties have approached the company with a range of strategies, the board has commenced a process to explore, review and evaluate potential alternatives that enable the company to continue to grow and maximize value for all stakeholders. sunlight will make further public comments once the board has approved a specific transaction or otherwise concludes its review. installer insolvency. in september 2022, one of sunlight’s largest contractors became insolvent; as a result, the company determined it would be unable to collect outstanding advances owed by the installer and recorded a non-cash charge of $32.4 million against contractor advances. while the contractor’s bankruptcy stemmed from issues unrelated to sunlight or macroeconomic conditions, sunlight has re-underwritten all other contractors in the advance program and has subsequently taken actions to further reduce its exposure to counterparty risk. goodwill impairment. in september 2022, sunlight recorded a goodwill impairment charge of $384.4 million primarily due to changes in the macro-economic environment, such as interest rate volatility, impacting the financial and market performance of sunlight and its peers. share repurchase program. in may 2022, sunlight's board of directors authorized a share repurchase program pursuant to which sunlight may repurchase up to $50 million of sunlight’s class a common stock over an 18-month period from the date of the authorization. as of november 7, 2022, sunlight repurchased a total of 3,036,259 shares for a total of $10.5 million, funded through cash on hand and cash from operations. the company has suspended share repurchases under the program to preserve liquidity in the current environment but may resume repurchases in the future. revolving credit facility covenants. sunlight's loan and security agreement contains financial covenants that are detailed in the company's q3 2022 form 10-q. as the negative impacts to sunlight's near-term financial performance may affect sunlight’s financial covenant compliance, the company is in discussions with the bank to remain in compliance. conference call information sunlight will host a conference call and webcast to discuss its third quarter 2022 financial and operational results and business outlook at 5:30 pm et today, november 14, 2022. the conference call will be webcast live from the company's investor relations website at ir.sunlightfinancial.com. a replay will be available on the investor relations website following the call. earnings presentation a supplemental earnings presentation is available at ir.sunlightfinancial.com. additional information is available in the form 10-q, which sunlight filed with the sec on november 14, 2022. about sunlight financial sunlight financial is a premier, technology-enabled point-of-sale finance company. sunlight partners with contractors nationwide to provide homeowners with financing for the installation of residential solar systems and other home improvements. sunlight’s best-in-class technology and deep credit expertise simplify and streamline consumer finance, ensuring a fast and frictionless process for both contractors and homeowners. for more information, visit www.sunlightfinancial.com. forward-looking statements the information included herein and in any oral statements made in connection herewith may include “forward-looking statements” within the meaning of section 27a of the securities act of 1933, as amended, and section 21e of the securities exchange act of 1934, as amended. forward-looking statements may generally be identified by the use of words such as “could,” “should,” “would,” “will,” “may,” “believe,” “anticipate,” "outlook," "2022 guidance," “intend,” “estimate,” “expect,” “project,” “plan,” “continue,” or the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. these forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. except as otherwise required by applicable law, sunlight disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date hereof. sunlight cautions you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of sunlight. such risks and uncertainties include, among others: the ability to consummate a strategic alternative in the timeframe and on terms and conditions favorable to the company and its stakeholders, material adverse impacts from macro-economic conditions including unprecedented interest rate increases on business, profitability and cash-flow, risks relating to our ability to secure relief from our current bank covenants, risks relating to the uncertainty of the projected operating and financial information with respect to sunlight; risks related to sunlight’s business and the timing of expected business milestones or results; global supply chain shortages, competition for skilled labor, and permitting delays; the effects of competition and regulatory risks, and the impacts of changes in legislation or regulations on sunlight’s future business; the expiration, renewal, modification or replacement of the federal solar investment tax credit, rebates and other incentives; the effects of the covid-19 pandemic on sunlight’s business or future results; sunlight’s ability to sustain profitability and to attract and retain its relationships with third parties, including sunlight’s capital providers and solar contractors; the financial performance of sunlight’s capital providers and contractors; the willingness of sunlight’s capital providers to fund loans on terms desired by relevant markets and economically favorable to sunlight; the impact of inflation and increased interest rates on sunlight’s capital providers and the cost and availability of credit from our capital providers as well as on the demand for solar panel installation and home improvement; changes in the retail prices of traditional utility generated electricity; the availability of solar panels, batteries and other components and raw materials; and such other risks and uncertainties discussed in the “risk factors” section of sunlight’s form 10-q as filed with the securities and exchange commission (“sec”) on november 14, 2022, which amends and restates the risk factors set forth in the company’s form 10-k as filed with the sec on march 29, 2022 and forms 10-q as filed with the sec on may 16, 2022 and on august 15, 2022, and other documents of sunlight filed, or to be filed, with the sec. should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. sunlight’s sec filings are available publicly on the sec’s website at www.sec.gov. non-gaap financial measures some of the operating and financial information and data contained in this press release, such as adjusted ebitda, adjusted ebitda margin, free cash flow, adjusted net income and adjusted net income per share (diluted) or adjusted eps (diluted) have not been prepared in accordance with united states generally accepted accounting principles (“gaap”). sunlight believes these non-gaap measures of financial and business results provide useful information to management and the reader regarding certain financial and business trends relating to sunlight’s financial condition and results of operations. sunlight further believes that the use of these non-gaap financial and business measures provides an additional tool for use in evaluating projected operating results and trends and in comparing sunlight’s financial and operating measures with other similar companies, many of which present similar non-gaap financial and operating measures to their investors and potential investors. while adjusted ebitda, in particular, is relevant and widely used across industries and in the industries in which sunlight participates, they may contain or exclude adjustments, exclusions and one-time items that third parties may or may not adjust for in connection with such measure, and such measure should not be considered an alternative to any gaap measures in evaluating the profitability of an investment in, or whether to invest in or consummate a transaction involving, sunlight. the principal limitation of the adjusted ebitda non-gaap financial measure is that it excludes significant items of income and expense that are required by gaap to be recorded in sunlight’s financial statements. in addition, it is subject to inherent limitations as it reflects the exercise of judgment by sunlight’s management about which items of income and expense are excluded or included in determining this non-gaap financial measure. the adjusted ebitda non-gaap financial measure and other non-gaap metrics used herein, including adjusted ebitda margin, free cash flow, adjusted net income and adjusted net income per share (diluted) or adjusted eps (diluted) should not be relied on or considered an alternative to any gaap measures or other measures related to the liquidity, financial condition or financial results of sunlight. reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure can be found in the accompanying tables to this release. sunlight financial holdings inc. consolidated balance sheets dollars in thousands september 30, 2022 december 31, 2021 assets cash and cash equivalents $ 70,569 $ 91,882 restricted cash 1,228 2,018 advances (net of allowance for credit losses of $7,458 and $238) 56,608 66,839 financing receivables (net of allowance for credit losses of $186 and $148) 3,581 4,313 goodwill 61,377 445,756 intangible assets, net 327,673 365,839 property and equipment, net 1,681 4,069 other assets 30,849 21,531 total assets $ 553,566 $ 1,002,247 liabilities and equity liabilities accounts payable and accrued expenses $ 24,931 $ 23,386 funding commitments 21,411 22,749 debt 20,613 20,613 deferred tax liabilities 25,338 36,686 warrants, at fair value 3,691 19,007 other liabilities 13,433 843 total liabilities $ 109,417 $ 123,284 stockholders' equity class a common stock 8 9 additional paid-in capital 759,105 764,366 accumulated deficit (459,706 ) (186,022 ) total capital 299,407 578,353 treasury stock, at cost (15,671 ) (15,535 ) total stockholders' equity 283,736 562,818 noncontrolling interests in consolidated subsidiaries 160,413 316,145 total equity 444,149 878,963 total liabilities and equity $ 553,566 $ 1,002,247 sunlight financial holdings inc. unaudited consolidated statements of operations dollars in thousands three months ended september 30, nine months ended september 30, 2022 2021 2022 2021 revenue $ 33,265 $ 28,594 $ 91,086 $ 79,584 costs and expenses cost of revenues (exclusive of items shown separately below) 5,619 5,206 16,621 15,397 compensation and benefits 16,378 33,824 43,641 49,944 selling, general, and administrative 4,504 3,660 15,522 6,780 property and technology 2,069 1,664 5,981 4,292 depreciation and amortization 8,572 20,619 40,713 22,229 provision for losses 37,247 254 41,927 1,426 goodwill impairment 384,379 — 384,379 — management fees to affiliate — 4 — 204 total costs and expenses 458,768 65,231 548,784 100,272 operating income (loss) (425,503 ) (36,637 ) (457,698 ) (20,688 ) other income (expense), net interest income 189 86 360 339 interest expense (375 ) (323 ) (931 ) (895 ) change in fair value of warrant liabilities 6,590 8,677 15,316 4,612 change in fair value of contract derivatives, net (2,340 ) 614 (2,247 ) (173 ) realized gains on contract derivatives, net (278 ) 1,383 3,686 4,369 other realized losses, net (196 ) — (569 ) — other income (expense) (839 ) (65 ) (1,667 ) 556 business combination expenses — (1,622 ) — (8,104 ) total other income (expense), net 2,751 8,750 13,948 704 net income (loss) before income taxes (422,752 ) (27,887 ) (443,750 ) (19,984 ) income tax benefit (expense) 7,299 5,684 11,350 5,684 net income (loss) (415,453 ) (22,203 ) (432,400 ) (14,300 ) noncontrolling interests in loss of consolidated subsidiaries 151,389 9,108 158,478 9,108 net income (loss) attributable to class a shareholders $ (264,064 ) $ (13,095 ) $ (273,922 ) $ (5,192 ) loss per class a share1 net loss per class a share basic $ (3.16 ) $ (0.13 ) $ (3.25 ) $ (0.13 ) diluted $ (3.16 ) $ (0.15 ) $ (3.25 ) $ (0.15 ) weighted average number of class a shares outstanding basic 83,049,291 84,833,808 84,157,718 84,833,808 diluted 83,049,291 131,088,438 84,157,718 131,088,438 (1) reflects net loss per share and weighted shares outstanding only for the successor period starting july 10, 2021 for the three months ended september 30, 2021 and for the nine months ended september 30, 2021. sunlight financial holdings inc. unaudited consolidated statements of cash flows for the nine months ended sept. 30, dollars in thousands 2022 2021 cash flows from operating activities net income (loss) $ (432,400 ) $ (14,300 ) depreciation and amortization 40,713 22,323 goodwill impairment 384,379 — provision for losses 41,927 1,426 change in fair value of warrant liabilities (15,316 ) (4,612 ) change in fair value of contract derivatives, net 2,247 173 other expense (income) 2,120 (556 ) share-based payment arrangements 14,143 24,839 deferred income tax expense (benefit) (11,350 ) (5,684 ) increase in advances (25,133 ) (36,004 ) decrease (increase) in due from affiliates — (358 ) decrease (increase) in other assets (5,978 ) (14,315 ) increase (decrease) in accounts payable and accrued expenses 545 (10,290 ) increase (decrease) in funding commitments (1,785 ) 2,602 increase (decrease) in due to affiliates — 761 increase (decrease) in other liabilities (1,249 ) 430 net cash provided by (used in) operating activities (7,137 ) (33,565 ) — — cash flows from investing activities return of investments in loan pool participation and loan principal repayments 780 1,183 payments to acquire loans and participations in loan pools (2,058 ) (1,424 ) payments to acquire property and equipment (1,918 ) (1,937 ) payments to acquire sunlight financial llc, net of cash acquired — (304,570 ) net cash used in investing activities (3,196 ) (306,748 ) — — cash flows from financing activities proceeds from borrowings under line of credit — 20,746 repayments of borrowings under line of credit — (14,758 ) proceeds from issuance of private placement — 250,000 payments of stock issuance costs — (19,618 ) payments for share-based payment tax withholding (136 ) (18,591 ) payments for repurchase of redeemable convertible preferred stock (10,452 ) — payment of capital distributions (1,182 ) (7,522 ) payment of debt issuance costs — (491 ) net cash provided by (used in) financing activities (11,770 ) 209,766 — — net increase (decrease) in cash, cash equivalents, and restricted cash (22,103 ) (130,547 ) — — cash, cash equivalents, and restricted cash, beginning of period 93,900 269,224 — — cash, cash equivalents, and restricted cash, end of period $ 71,797 $ 138,677 reconciliation of gaap measures to adjusted financial measures adjusted ebitda and free cash flow reconciliations three months nine months ended september 30, dollars in thousands 2022 2021 2022 2021 revenue $ 33,265 $ 28,594 $ 91,086 $ 79,584 (+) realized gain on contract derivatives, net (278 ) 1,383 3,686 4,369 total revenue $ 32,987 $ 29,977 $ 94,772 $ 83,953 three months nine months ended september 30, dollars in thousands 2022 2021 2022 2021 net income (loss) $ (415,453 ) $ (22,203 ) $ (432,400 ) $ (14,300 ) amortization of business combination intangibles 8,202 20,221 39,786 20,221 non-cash change in financial instruments (3,411 ) (9,252 ) (11,402 ) (5,021 ) goodwill impairment 384,379 — 384,379 — expenses from the business combination and other 32 1,622 522 8,104 adjusted net income (loss) $ (26,251 ) $ (9,612 ) $ (19,115 ) $ 9,004 depreciation and amortization 370 $ 398 927 $ 2,008 interest expense 375 323 931 895 income tax expense (benefit) (7,299 ) (5,684 ) (11,350 ) (5,684 ) equity-based compensation 5,491 24,821 14,143 24,839 fees paid to brokers 315 1,126 2,060 3,294 adjusted ebitda $ (26,999 ) $ 11,372 $ (12,404 ) $ 34,356 interest expense $ (375 ) $ (323 ) $ (931 ) $ (895 ) income tax benefit — 5,684 — 5,684 fees paid to brokers (315 ) (1,126 ) (2,060 ) (3,294 ) expenses from the business combination and other (32 ) (1,622 ) (522 ) (8,104 ) provision for losses 37,247 254 41,927 1,426 changes in advances, net of funding commitments 4,470 — (26,918 ) — changes in operating capital and other (3,133 ) (64,910 ) (6,229 ) (62,738 ) net cash provided by (used in) operating activities $ 10,863 $ (50,671 ) $ (7,137 ) $ (33,565 ) capital expenditures $ (903 ) $ (789 ) $ (2,568 ) $ (1,626 ) changes in advances, net of funding commitments (4,470 ) 33,402 26,918 61,997 changes in restricted cash (353 ) 1,602 (791 ) 1,460 payments of business combination costs — 1,035 — 7,979 other changes in working capital 3,078 20,247 7,160 (20,155 ) free cash flow $ 8,215 $ 4,826 $ 23,582 $ 16,090 adjusted net income (loss) per class a share, diluted1 $ (0.16 ) $ (0.06 ) $ (0.12 ) $ (0.06 ) (1) reflects net income (loss) for the successor period starting july 10, 2021 for the three and nine months ended sept. 30, 2021.
