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Item 1. Business

2023-03-30 compared with 2022-03-01 · 146 added, 434 removed, 5 unchanged (99% of the section changed)

Corporate History and Background

On December 21, 2020 (the “Closing Date”),

Pivotal Investment Corporation II, a special purpose acquisition company incorporated on March 20, 2019 (“Pivotal”), consummated

a business combination pursuant to that certain Agreement and Plan of Reorganization, dated as of September 17, 2020 (the “Merger

Agreement”), by and among Pivotal, PIC II Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal (“Merger

Sub”), and XL Hybrids, Inc., a Delaware corporation (“Legacy XL”).

Pursuant to the terms of the Merger Agreement, a

business combination between Pivotal and Legacy XL was affected through the merger of Merger Sub with and into Legacy XL, with Legacy

XL surviving as the surviving company and as a wholly-owned subsidiary of Pivotal (the “Merger” and, collectively with the

other transactions described in the Merger Agreement, the “Business Combination”).

On the Closing Date, and in connection

with the closing of the Business Combination (the “Closing”), Pivotal Investment Corporation II changed its name to XL Fleet

Company Overview

We are a provider

of fleet electrification solutions for commercial vehicles in North America, offering our systems for vehicle electrification (our

“Power Drive” business) and through our energy efficiency and infrastructure solutions business, including charging

stations to enable customers to effectively plug in their electrified vehicles (our “XL Grid” business) .

XL Fleet has sold over 4,450 electrified powertrain systems that have been driven over 181 million miles by over 245 fleet

customers, as of December 31, 2021.

In over 10 years of operations, we believe that

we have built a large customer base deploying Class 2-5 vehicles across North America.

Our fleet electrification solutions for

commercial vehicles provide the market with cost-effective hybrid solutions with on-board telematics that are available for sale and

deployment across a broad range of popular vehicle chassis from the world’s leading OEMs.

We launched our XL Grid business in

December 2020 and with the acquisition of World Energy Efficiency Services, LLC (“World Energy”) in May 2021, we are

able to offer comprehensive solutions to commercial fleets to sustainably transform their operations.

With the acquisition of World Energy, we became a provider

of energy efficiency, renewable technology, electric vehicle charging station and other energy solutions to customers across the New England

By leveraging our comprehensive solutions in combination with project management and utility incentive and financing programs,

we assist companies throughout all aspects of the fleet vehicle electrification process.

We provide full-service electric vehicle charger

installations, including the assessment of a location’s electrical infrastructure, site layout of the charging area plan and equipment

installation.

We believe that the availability of robust electric vehicle charging and infrastructure solutions is critical to meeting

the long-term fleet electrification goals of our customers which in turn will translate into growth opportunities for the Company.

We are currently conducting a strategic

review which includes assessing our product and service offerings, strategy, processes and growth opportunities.

While this strategic

review is ongoing, the Company will be narrowing its focus in 2022 to concentrate on those areas of our Power Drive business that we believe

to be the most profitable, both in the short- and long-term.

As part of this refocusing effort, in February of 2022, we eliminated 51

full-time positions across the organization.

Market Opportunity

Within the last two years, there has been substantial

disruption in the electrification of municipal and commercial fleets and renewed emphasis on decarbonization across many commercial sectors.

Federal and regional mandates and incentive programs are increasing the adoption rate of fleet electrification, particularly in fully-electric

These disruptive forces have led to the emergence and growth of more fully electric OEM vehicle offerings, reductions in the

availability of fossil fuel powered OEM vehicle chassis and the continuation of the microchip shortage.

In light of these and other factors,

we are re-assessing the risks and market opportunities for our Power Drives business.

Based upon that assessment, we have taken actions

during the first quarter of 2022 to scale back our Power Drive business.

We believe, however, that these same disruptions have

the ability to create more demand for our energy efficiency, infrastructure and vehicle charging business.

With commercial and municipal

fleets increasingly migrating to electric vehicles, we believe that organizations will require enhancements to their energy infrastructures

in charging stations and electrical distribution to recharge those vehicles.

Furthermore, organizations will need to invest significantly

in energy efficient solutions within their footprint to both free up kilowatt hour capacity for vehicle charging and to meet increasing

broad commitments to reduce their carbon footprint.

All of these electrification, distribution and efficiencies initiatives will create

demand for service providers who can assist fleet operators with implementation of solutions and navigation through the complex and rapidly

changing mandate and incentive landscape.

Our Technology and Products

Our XL Grid energy efficiency and infrastructure services

business is primarily project driven where we identify efficiency measures and infrastructure enhancements that commercial and municipal

customers can implement to improve efficiency and expand capacity for fleet electrification.

Many of our projects are partially funded

through incentives provided by regional electric utilities.

Typical energy efficiency projects address improvements in heating, ventilation

or air conditioning (“HVAC”) equipment, and the upgrade of lighting.

Infrastructure projects consist principally of the design

and build out of facilities and infrastructure to provide on-site vehicle charging.

An essential component of our XL Grid offering is

the technology assessment, regulatory and project management services we provide to assist the customer with maximizing the return on

its investment.

Our electrified Power Drives systems are comprised

of an electric motor that is mounted onto the vehicle’s drive shaft, an inverter motor controller, and a lithium ion battery pack

to store energy to be used for propulsion.

No other significant modifications to the vehicle are required, and no changes are made to

the internal combustion engine or transmission.

We deploy our electrified Power Drives systems (XLH™ and XLP™) onto the chassis

of vans, pickups, shuttle buses, delivery trucks, and many other commercial vehicles produced by leading OEMs such as Ford, RAM, GMC,

Chevrolet and Isuzu.

This technology can be installed as the vehicles are being manufactured by industry standard second stage manufacturers,

known as upfitters, in less than one day, with no negative impact on the vehicles’ operational performance or factory warranties

and with reduced maintenance cost.

Our electrified powertrain systems capture and store energy during braking and subsequently deploy

that energy into the driveline during acceleration, operating in parallel with the existing OEM drive train.

Our systems enable vehicles

to burn less fuel and emit less CO2.

To date, vehicles deploying our electrification solutions have driven over 181 million miles.

The Power Drive system allows the vehicle to continue leveraging its

internal combustion engine, while an electric motor mounted on the driveshaft provides an electric assist during acceleration that reduces

strain on the engine and lowers the amount of fuel consumed.

During deceleration, that motor serves as a generator that captures energy

through a process called regenerative braking, which stores that energy in the system’s battery pack.

When the vehicle accelerates,

that power is transferred into the driveline once again, and the process repeats.

This allows our systems to operate in parallel with

the OEM drivetrain, maintain factory vehicle warranties, and regenerate energy automatically to help power the vehicle.

We have begun leveraging the technology and know-how

of our Power Drive business into related electrification initiatives.

We have been awarded a contract with the US Military to develop a

retrofit kit for a tactical vehicle.

This kit, if adopted by the US Military, has the potential to be fitted to over 60,000 vehicles in

service today providing a significant fuel saving.

We also have in the prototype stage a fully-electric Class 6 refuse vehicle developed

in partnership with Curb Tender.

Industry and Competition

Within our XL Grid business, we generally compete

against local, regional and national competitors.

Typically national competitors are much larger, operate across the United States and

often internationally, and offer products and services that extend beyond those that we offer.

These competitors often target customers

that are national and international in scope, whereas we are principally targeting commercial and municipal organizations within our

Northeast regional footprint.

Competitors who operate nationally include Ameresco, AECO and Willdan, as well as separate divisions of

many of the regional public utility companies.

There has been substantial growth in the electric vehicle

sector, which when combined with the reduced availability of OEM chassis for us to install Power Drives, represents significant competition.

For example, nearly all traditional OEMs and many new market entrants have accelerated and expanded their own electric vehicle lineups.

We expect that in our Power Drives business, our potential

customers will see electric vehicle manufacturers as our competitors.

These competitors include current manufacturers such as Lion Electric

Company, Hyliion, Inc., GreenPower Motor Company, Lightning eMotors, XOS, Inc., Nikola Motor Company and Proterra, Inc.

In our XL Grid business, our customers have traditionally

been small and medium sized businesses, as well as municipalities, such as schools and offices.

The XL Grid service is scalable, so customers

may include facilities in multiple locations throughout the U.S.

that can benefit from energy efficiency improvements, especially in

lighting and HVAC.

Given the growth that we expect to see in charging stations and energy infrastructure projects, we anticipate that

our customer pool may be larger than the small and medium sized businesses that we have traditionally served.

We believe that there will

be substantial new capital flowing into EV charging installation and customer-sited energy storage and energy generation infrastructure

Customers for our Power Drive systems are generally

commercial and government operators of large service and delivery fleets.

Our end-use customers most often purchase our systems from upfitters,

OEM dealerships or other participants in our sales channels, who are our direct customers.

Our end-use customer base is comprised of Fortune

500 corporate enterprises, public utilities, and municipalities of all sizes.

In our 11-year existence, we have served over 245 end-use

customers deploying over 4,450 systems.

These systems have combined use in real world applications in excess of 181 million miles

as of December 31, 2021.

Partnerships and Suppliers

In our XL Grid business, we purchase lighting and infrastructure

equipment from major national and international equipment suppliers.

We rely on a skilled group of sub-contractors to install and implement

our energy efficiency and infrastructure solutions.

our Power Drive business, we rely on an established upfitter partner network with locations throughout the U.S.

and Canada to support

the installation of our product via the industry standard ship-thru and upfit processes.

We, or our upfitters, arrange for the customers’

purchase of the vehicle chassis in which our products are installed.

This requires advance planning and coordination between us and the

OEM to schedule chassis production and specifications of each vehicle to ensure conformance with the specifications of our products.

We rely on third-party suppliers for the provision

and development of many of the key components and materials used in our electrified powertrain solutions.

While we obtain components from

multiple, redundant suppliers whenever possible, some of the components used in our vehicles are purchased from a single source or a limited

number of sources.

We are reliant upon a single source, Parker Hannifin Corporation, for the supply of motor components operating under

a three-year non-exclusive supply agreement with volume and pricing commitments.

In the case of batteries, we rely on more than one supplier.

Strategy and Value Proposition

We are currently conducting a strategic review

of the risks and market opportunities of our businesses.

Based upon our initial indications, we are taking actions in the first quarter

of 2022 to narrow our operational focus and concentrate efforts and resources on the most profitable areas of the business.

this process, we will be strategically reducing some aspects of our Power Drive product lines and limiting those offerings to those platforms

and applications that we believe are most scalable and provide the most substantial return on investment.

As part of this realignment,

we have recently taken actions to align our team and resources with our short-term needs.

In February 2022, the Company eliminated 51

full-time positions across the organization.

The severance charges related to this reduction were approximately $1.3 million.

continue to invest in and grow the energy efficiency and infrastructure offerings of our XL Grid business.

Our goal is to leverage our core competencies

in electrification and energy efficiency to deliver to customers cost effective solutions that help them to realize their goals in electrification

and decarbonization of operations.

Manufacturing and Production

We produce our electrification systems and energy efficiency

and infrastructure equipment from components manufactured by third party suppliers.

We also rely on system installation support from certified

upfitters as required to meet demand volume.

Our production team capabilities include receiving, warehousing, production/kitting, delivery,

install/upfit training and system/component level troubleshooting.

Our support functions, including supply chain, quality, and engineering

operate remotely with daily contact with the production team.

Sales and Marketing

We maintain a sales and marketing team designed to

promote, sell and communicate to our core target customers throughout the U.S.

Research and Development

We conduct vehicle electrification research and development

in support of our Power Drive offerings at our 3 locations:

our corporate headquarters in Boston, MA, the Southern California Technical

Center in Foothill Ranch, CA and at our Michigan Technical Center in Wixom, MI.

These facilities are equipped with prototyping and testing

capabilities to support product development.

As needed, we supplement testing with outside test facilities to support product development

along with ensuring compliance to applicable standards and regulations such as Federal Motor Vehicle Safety Standards (“FMVSS”).

To support development, these facilities have engineering and support staff.

As part of our strategic reduction of our Power Drive business,

we will be terminating research and development activities in Boston, MA in the first half of 2022.

We have begun leveraging the technology and know-how

of our Power Drive business into related electrification initiatives.

We are developing a prototype for the US Military of a kit that can

be retrofitted to tactical vehicles in the field.

This development started in 2021 and will continue throughout 2022.

Development is being

conducted according to the required US Military standards.

We also have in the prototype stage a fully-electric Class 6 refuse vehicle

developed in partnership with Curb Tender.

The Company is a leading owner and operator of distributed solar energy assets across the United States, offering subscription-based services to more than 72,000 customers with the March 2023 SEMTH Acquisition discussed below and making renewable energy more accessible to everyone.

The Company generates revenues primarily through the sale of electricity generated by its residential solar energy systems to homeowners pursuant to long-term agreements that obligate the Company’s subscribers to make recurring monthly payments, and the servicing of those agreements for other institutional owners of residential solar energy systems.

The Company holds subsidiary fund companies that own and operate portfolios of residential solar energy systems.

The solar energy systems are subject to solar lease agreements ("SLAs") and power purchase agreements ("PPAs", together with the SLAs, "Customer Agreements") with residential customers who benefit from the production of electricity produced by the solar energy systems.

The solar energy systems may qualify for subsidies, renewable energy credits and other incentives as provided by various states and local agencies.

These benefits have generally been retained by the Company's subsidiaries that own the systems, with the exception of the investment tax credit under Section 48 of the Internal Revenue Code ("IRC"), which were generally passed through to the various financing partners of the solar energy systems.

The Company also engages in the energy efficiency and solar loan servicing business.

The Company offers services which include asset management services and operating and maintenance services for residential solar photovoltaic projects, in addition to, loan servicing support that allows residential consumers to finance energy efficiency home improvements and residential solar energy systems.

In addition to providing management services to its own portfolio, the Company also provides management services to over 7,500 systems owned by other companies.

These services include (i) billing and collections, (ii) account management services, (iii) financial reporting, (iv) homeowner support and (v) maintenance monitoring and dispatch.

Corporate History and Background

On December 21, 2020 (the “Closing Date”), Pivotal Investment Corporation II, a special purpose acquisition company incorporated on March 20, 2019 (“Pivotal”), consummated a business combination pursuant to that certain Agreement and Plan of Reorganization, dated as of September 17, 2020 (the “Merger Agreement”), by and among Pivotal, PIC II Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal (“Merger Sub”), and XL Hybrids, Inc., a Delaware corporation (“Legacy XL”).

Pursuant to the terms of the Merger Agreement, a business combination between Pivotal and Legacy XL was affected through the merger of Merger Sub with and into Legacy XL, with Legacy XL surviving as the surviving company and as a wholly-owned subsidiary of Pivotal (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”).

On the Closing Date, and in connection with the closing of the Business Combination (the “Closing”), Pivotal Investment Corporation II changed its name to XL Fleet Corp ("XL Fleet").

Under the XL Fleet name, the Company was historically a provider of fleet electrification solutions for commercial vehicles in North America, offering its systems for vehicle electrification (the “Drivetrain” segment) and through its energy efficiency and infrastructure solutions business, including offering and installing charging stations to enable customers to effectively and cost-effectively develop the charging infrastructure required for their electrified vehicles (the “XL Grid” segment).

The XL Grid segment included World Energy Efficiency Services, LLC (“World Energy”) after its acquisition in May 2021.

In the first quarter of 2022, the Company initiated a strategic review of its overall business operations which included assessing its offerings, strategy, processes and growth opportunities.

As a result of the strategic review, in the first quarter of 2022 the Company made the following decisions relating to a restructuring of its Drivetrain business:

(i) the elimination of a substantial majority of the Company’s hybrid drivetrain products;

(ii) the elimination of its Plug-In Hybrid Electric Vehicles (“PHEV”) products;

(iii) the reduction in the size of the Company’s workforce by approximately 50 employees;

(iv) the closure of the Company’s production center and warehouse in Quincy, IL;

(v) the closure of the Company’s engineering activities in its Boston office;

and (vi) the termination of the Company’s partnership with eNow.

Following the strategic review, the Company announced its decision to pursue transformational mergers and acquisition (“M&A”) opportunities, enabled by a significant cash balance resulting from the Company’s go-public transaction completed in December 2020.

As a result of these efforts, on September 9, 2022, the Company acquired 100% of the membership interests of Spruce Holding Company 1 LLC, Spruce Holding Company 2 LLC, Spruce Holding Company 3 LLC, and Spruce Manager LLC (collectively and together with their subsidiaries, “Legacy Spruce Power”) for $32.6 million which consisted of cash payments of $61.8 million less cash and restricted cash acquired of $29.2 million.

With the acquisition of Legacy Spruce Power, the Company also assumed $542.5 million of long-term debt .

In November 2022, the Company changed its corporate name from “XL Fleet Corp” to “Spruce Power Holding Corporation”.

Additionally, the Company changed its ticker symbol from “XL” to “SPRU.”

Discontinued Operations

With the completion of the acquisition of Legacy Spruce Power, the Company announced that it would analyze strategic alternatives related to its Drivetrain business.

In December 2022, the Company announced that it was exiting its Drivetrain business and would be selling a portion of the business for an immaterial amount to Shyft Group USA (“Shyft”) which closed on January 1, 2023.

Shyft bought certain technical equipment and assumed the Company’s Wixom, Michigan facility and also offered employment to certain engineers and other sales personnel.

Shyft also assumed completion of the Company’s pilot development agreement with the Department of Defense related to vehicle hybridization (with the Company retaining rights to potential future royalties from the program).

The Company also announced that it had sold certain battery inventory and its legacy hybrid technology to RMA Group, an automotive and equipment supplier in Southeast Asia.

As of December 31, 2022, the Company had ceased Drivetrain operations and began to restructure most of its related Corporate functions.

The Company also began reviewing the operations of its XL Grid business to evaluate its strategic fit with Spruce Power.

In the fourth quarter of 2022, the Company entered into a non-binding letter of intent (“LOI”) for the sale of World Energy for an immaterial amount, with the divestiture closing in January 2023 and the Company ceased XL Grid operations after the closing of the divestiture.

Both the Drivetrain and XL Grid operations are presented as discontinued operations.

Company Strategy

The Company believes that the combination of Spruce Power’s existing Customer Agreements' subscriber-base proven servicing platform, together with the Company’s capital resources and relationships gives it the ability to take advantage of rapid growth in distributed solar, energy storage and electric vehicle adoption while creating a path to more predictable revenues, profits and cash flow for the Company’s shareholders.

As described above, over the past several quarters, the Company’s Management and Board of Directors conducted a comprehensive review of the Company’s existing business as well as potential acquisitions that could accelerate growth and increase profitability.

Based on that review, as well as learnings from the operation of the XL Grid segment, the Company determined to refocus its business on providing subscription-based solutions to homeowners for rooftop solar and servicing of assets and customers to other owners of similar portfolios.

In addition, offering consumer power products such as energy storage, EV chargers and other energy-related products would yield greater value for the Company’s shareholders.

Key elements of the Company’s new corporate strategy include:

Leveraging the Spruce Power platform to become a leading provider of subscription-based solutions for distributed energy resources – Spruce Power has more than a decade of experience owning and operating rooftop solar systems, and the Customer Agreements associated with those systems, as well as energy efficiency upgrades.

The Company believes that Spruce Power’s proven platform for managing residential solar can be extended to other categories of distributed energy resources.

Through leveraging the Spruce Power platform, the Company intends to grow its revenues by providing subscription-based solutions for rooftop solar, energy storage, EV chargers and other energy-related products, as well as the servicing and management of those systems, to homeowners and small businesses.

Over the last 18 months, Spruce Power has focused on delivering best-in-class customer service, with investment into process and platform improvement for on-site monitoring, customer billing and working with qualified partners for field services.

Profitably growing return on assets by focusing on channels with below-average customer acquisition cost – The Company will seek to grow its subscriber revenues by focusing on the channels that have below-average customer acquisition costs and the ability to increase return on assets, including:

acquiring existing systems from other companies or investment funds, selling additional services to existing subscribers, selling services to new customers online and partnering with selected independent installers to provide a subscription-based solution for their customers.

Increasing shareholder value by delivering predictable revenues, profits and cash flow – By focusing on subscription-based solutions with long-term customer agreements, and the adjacent businesses of servicing and managing those systems, the Company will seek to generate consistent revenues, profits and cash flow.

Customer Operations

Spruce Power has over ten years of experience servicing rooftop solar systems including servicing both the over 72,000 systems (with the March 2023 SEMTH Acquisition) from its own portfolios and over 7,500 systems owned by third parties.

The Company’s in-house capabilities include:

customer billing and collections, cash administration, account management services, homeowner support, maintenance monitoring and dispatch, and portfolio accounting and financial reporting.

The Company has made progress in elevating its customer service and continues to invest resources in its goal of becoming best-in-class.

Spruce Power’s in-house customer operations is intended to position the Company to be able to leverage existing relationships to expand beyond solar to comprehensive home energy management.

The Company believes that Spruce Power’s customer operations infrastructure has created a scalable opportunity where it is able to improve profitability through growth with lower incremental operational costs.

Corporate Development

Spruce Power’s growth strategy is different than other public third-party asset owner organizations.

Spruce Power does not sell new solar systems directly to consumers and does not have its own sales force.

Spruce Power has a dedicated corporate development team that has historically been successful in acquiring high quality portfolios of solar systems that are already in operations and have long-term contracts with the homeowners.

Spruce Power’s in-house M&A team acquires operating residential solar energy systems “in-bulk” from other companies.

This approach has positioned Spruce Power to achieve step change growth while minimizing its customer acquisition costs.

In furtherance of its growth strategy, on March 23, 2023, the Company completed the acquisition of all the issued and outstanding interests in SS Holdings 2017, LLC and its subsidiaries ("SEMTH" and the “SEMTH Acquisition”) from certain funds managed by HPS Investment Partners, LLC (“HPS”), pursuant to a Membership Interest Purchase And Sale Agreement (“Purchase Agreement”) dated as of March 23, 2023.

The SEMTH assets include 20-year use rights to the customer payment stream of approximately 22,500 residential solar leases and power purchase agreements.

The Company acquired SEMTH for approximately $23 million of cash, net of cash received, and assumed $125 million of outstanding senior indebtedness held by SS Holdings 2017, LLC, and its subsidiaries at the close of the acquisition.

Since 2019, with the acquisition of SEMTH in March 2023, Spruce Power has acquired 11 rooftop solar portfolios' Customer Agreements with a combined capacity of approximately 285 MWdc over 54,000 systems.

Spruce Power’s corporate development team additionally brings significant experience in renewable energy credit markets, a critical area of expertise in residential solar power markets that allows additional value creation alongside Spruce Power’s acquisition strategy.

Distributed solar generation is a capital-intensive, evolving business with numerous industry participants.

While Spruce Power’s solar generation portfolios are currently contracted, Spruce Power may compete in the future primarily on the basis of price of electricity, quality of service and low/no carbon energy.

Spruce Power considers the long-term contracted profile of its solar generation assets, among other strengths discussed below, as competitive advantages.

Distributed solar generation is a growing industry in the United States and diverse in terms of industry structure.

As such, there is a wide variation in terms of the capabilities, resources, nature and identity in the companies Spruce Power competes with depending on the market.

In residential distributed solar generation, customers' needs are met through long-term bilateral contracts which supply power and maintenance services.

In addition, Spruce Power competes with other companies to acquire operating portfolios of residential solar energy systems with stable contracted cash flows.

Spruce Power considers its primary competitors for opportunities in North America as other solar companies with vertically integrated business models, existing solar servicing companies, purely finance focused organizations, and regulated utility holding companies.

Spruce Power believes that it is well-positioned to execute its strategy over the long term based on the following competitive strengths:

Spruce Power management and operational expertise.

Spruce Power believes it benefits from Management's seasoned experience in industry (renewables, utilities, and financial services), corporate development (M&A) and customer focused, cost-efficient operations.

Contracted assets with stable cash flows.

The contracted nature and diversification of off-takers in Spruce Power's portfolio of residential solar assets supports stable long-term cash flows.

Residential solar assets in Spruce Power's portfolio are contracted under long-term contracts that generally provide for lease payments or production-based power purchase payments over the contract term.

Spruce Power’s solar residential asset portfolios have a total weighted average remaining contract term of approximately 13 years as of December 31, 2022.

Newer, well-maintained portfolio.

Approximately 65% of Spruce Power's portfolio, based on expected contributions to cash generated, of residential solar energy systems have been operating on average for fewer than 8 years.

Because its portfolio of projects are relatively new relative to their expected useful life and use industry-standard technology, Spruce Power believes that it will achieve the expected levels of performance.

Geographic and resource diversification.

With the March 2023 SEMTH Acquisition, Spruce Power’s portfolio of over 72,000 systems is geographically diverse across 18 states in the United States which reduces exposure to localized weather events, natural disasters, regional underperformance, and adverse regulatory actions providing a more stable stream of cash flows over the long term than a non-diversified portfolio.

Flexible customer service platforms .

Spruce Power utilizes scalable, cost-effective customer service platforms and systems in its operations which support efficient integration and service of acquired portfolios and third party owned portfolios.

These platforms also provide customers with self-service options to make payments and select other services.

Competitiveness of renewable energy.

Renewable energy technology has improved in recent years.

Solar energy generation is becoming one of the lowest cost energy generation technologies in many regions in the U.S.

which is expected to lead to significant growth in the renewable energy industry.

Solar technology is improving as solar cell efficiencies improve and installation costs are declining.

The Company’s revenue is impacted by seasonal weather patterns as the amount of electricity its solar energy systems produce is dependent in part on the amount of sunlight where the assets are located.

Less daylight hours in winter months and adverse weather conditions will reduce the output of solar energy systems.

Customers purchase electricity under PPAs and SLAs.

As PPA revenue is recognized when generated based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the PPAs, the associated revenue is impacted by seasonality.

For SLAs, revenue is recognized on a straight-line basis over the contract term as the obligation to provide continuous access to the solar energy system is satisfied and accordingly is not impacted by seasonality.

Intellectual Property

Our success depends in part upon our ability to protect

our core technology and intellectual property, and we rely on a combination of patents, know-how, copyrights, trademarks, trade secrets

and non-disclosure agreements to establish and protect our intellectual property.

As of December 31, 2021, we had 27 issued patents,

including one international patent from China.

In addition, as of December 31, 2021, we had 14 patent applications that were published

(or awaiting publication) and are under examination at the U.S.

Patent Office.

We also have four provisional patent application that have

been filed with the U.S.

Patent Office.

In addition to the above, eleven trademarks have been assigned to us.

Our intellectual property portfolio largely relates

to mechanical systems, software, vehicle data analysis, vehicle control strategies, and data processing/management, and the utilization

of data to optimize vehicle functions.

Intellectual property is generated organically as part of our product development efforts.

ideas and solutions that are generated are reviewed to determine if they are patentable, and we hold regular executive level reviews to

determine if disclosures are to be further processed for filing as a patent application.

We cannot conclusively state that any pending applications,

existing patents or future patents will be definitively useful in protecting or promoting our business and growth plans.

Please see the

section entitled “ Risk Factors ” for additional information on the risks associated with our intellectual property strategy

and portfolio.

We currently operate five separate leased facilities across the U.S.,

strategically positioned across the East coast, Midwest and West coast in order to best leverage proximity to customers, partners and

employee talent pools.

Our headquarters is located in Brighton, MA, a neighborhood of Boston.

This flagship facility houses members of the executive leadership team, along with the engineering, sales & marketing, finance, human

resources, service and supply chain functions.

The facility includes a mixture of upper floor offices and lower floor automotive engineering

equipment, including vehicle lifts and a dynamometer which enables the team to conduct extensive system and emissions testing on-site.

Our lease was extended to August 31, 2022.

In 2021 our production team moved into a new leased facility in Quincy,

It is strategically located near OEM and key upfitter partner headquarters facilities.

This facility is predominantly responsible

for receiving material inventory and completing and shipping finished kits to customers.

Site capabilities include receiving, warehousing,

production/kitting, delivery, install/upfit training and basic system/component level troubleshooting.

Our lease expires on April 30,

We also operate a facility in Foothill Ranch, CA which houses members

of the engineering team that were brought into the business through the 2019 acquisition of Quantum Fuel’s electrification division.

This team includes expertise in electrical, mechanical and systems engineering and is responsible for new product development, testing

and component integration.

Our lease expires on February 28, 2025, with the option to extend for an additional 60-month term.

Effective February 2021 we opened a location in Wixom,

MI, which will serve as a fleet electrification technology center to support the design, development, testing and validation of a wide

range of commercial vehicle electrification solutions.

The facility includes a component test lab including vibration capability,

a vehicle chassis dynamometer, an electronics lab and battery testing equipment.

Our lease expires in February 2024.

We lease a facility in Worcester, MA that houses members of the World

The lease expires in September 2023.

In addition, roughly 10 percent of our employees work remotely on a

regular basis across a range of functions for whom frequent travel is required, including sales & marketing, service and quality.

Throughout the COVID-19 pandemic, the majority of our employees have worked remotely unless required to be at a facility to perform their

core functions.

As of December 31, 2021, we had 177 full time

employees, including 34 employees at World Energy Efficiency Services.

We have not experienced any work stoppages, do not include any

labor unions and consider our relationship with employees to be very good.

Generally, the Company’s residential solar business is not dependent on intellectual property.

As needed, the Company relies on intellectual property laws, primarily a combination of copyright and trade secret laws in the U.S., as well as license agreements and other contractual provisions, to protect any proprietary technology.

The Company also relies on registered trademarks to protect its brands.

Human Capital Management

The Company’s mission is to power our customers’ clean and efficient energy use, for a stable future.

The Company believes that starts with its employees.

The Company’s culture is built upon its values of coordination, being purpose-driven where work is results oriented.

The Company has invested in talent management and employee engagement initiatives consistently, fostering a culture of belonging and execution.

The Company has implemented several training programs, including an internally designed Spruce University training program to foster an environment of learning, employee development and longer-term internal career paths.

Continued Learning:

To create a culture of learning, purpose, diversity, and opportunity, the Company's leaders must never stop looking to improve.

That is why the Company has committed to training its Senior Leadership twice a year with programs to promote teamwork, accountability, and development of young leaders.

In addition, the Company grants access to staff training programs within our internal Spruce University program to cover the foundations of solar energy, management skills, professional communication, and our own business and company history.

Investing in our employees is investing in the Company’s future.

A Place of Belonging:

The Company believes for any workforce to be satisfied with a purpose and direction on the job, they must feel they belong here.

The Company works towards creating an environment that is inclusive, creative, and humble.

To keep employees engaged and working towards the Company’s objectives, the Company works to meet their basic needs and provide opportunities for them to be represented.

Since the Company’s beginnings, a team was formed with purpose to represent each area of the Company so that programs and initiatives that are pursued provide equal amounts of benefits to staff.

Annually, the Company conducts a climate survey to measure its results, in addition to holding quarterly Town Halls where Management shares its strategies, goals, and achievements.

Human Capital:

As of December 31, 2022, the Company had 318 full time employees, including 169 employees from Spruce Power, 107 employees from Drivetrain operations and 42 employees at World Energy.

Spruce Power's employees are primarily located in Denver, Colorado and Houston, Texas.

In addition, the Company works with independent contractors and consultants.

No employees are covered by collective bargaining agreements and the Company has not experienced any work stoppages.

Supporting Employee Welfare:

In addition to providing employees competitive wages to support everyday living, the Company also offers employees access to comprehensive benefits for medical, dental and vision.

Employees also have access to retirement savings through the Company’s 401k plan with a guaranteed match from the Company to those participating.

Government Regulations

We operate in an industry that is subject to extensive

Regulatory compliance and product safety are our key areas of focus.

As part of product development cycles, regulatory compliance

is assessed early on in the development program and plans are implemented to assure compliance when a product is released to customers.

We also operate in an industry that is subject to extensive

environmental regulation, which has become more stringent over time.

The environmental laws and regulations to which we are subject govern,

among others, water use, air emissions, use of recycled materials, energy sources, the storage, handling, treatment, transportation and

disposal of hazardous materials, the protection of the environment, natural resources and endangered species and the remediation of environmental

contamination.

We may be required to obtain and comply with the terms and conditions of multiple environmental permits, many of which

are difficult and costly to obtain and could be subject to legal challenges.

Compliance with such laws and regulations at an international,

regional, national, provincial and local level is an important aspect of our ability to continue our operations.

Environmental standards applicable to us are established

by the laws and regulations of the countries in which we operate, standards adopted by regulatory agencies and the permits and licenses

that we hold.

Each of these sources is subject to periodic modifications and increasingly stringent requirements.

Violations of these

laws, regulations or permits and licenses may result in substantial civil and criminal fines, penalties, orders to cease the violating

operations or to conduct or pay for corrective works.

In some instances, violations may also result in the suspension or revocation of

permits and licenses.

Vehicle Safety and Testing Regulation

The vehicles containing our systems are subject to,

and required to comply with, numerous regulatory requirements established by the National Highway Traffic Safety Administration (“NHTSA”),

including applicable Federal Motor Vehicle Safety Standards (“FMVSS”).

The OEMs must self-certify that its vehicles meet or

are exempt from all applicable FMVSSs before a vehicle can be imported into or sold in the U.S.

There are numerous FMVSSs that apply to our systems

that are included in our customers’ vehicles.

Examples of these requirements include:

Electric Vehicle Safety—limitations on electrolyte spillage, battery retention, and avoidance of electric shock following specified crash tests;

Flammability of Interior Materials—burn resistance requirements for materials used in the occupant compartment;

Crash Tests for High-Voltage System Integrity—preventing electric shock from high voltage systems.

We are also required to comply with other NHTSA requirements

and federal laws administered by NHTSA, including early warning reporting requirements regarding warranty claims, field reports, death

and injury reports, foreign recalls, and owner’s manual requirements.

CARB Emissions Compliance and Certification

Our hybrid and plug-in hybrid systems are fitted to

vehicles that have been certified to meet the requirements of U.S.

Environmental Protection Agency (the “EPA”) and California

Air Resources Board (“CARB”).

The OEMs are responsible for ensuring compliance with the appropriate regulations for the base

vehicle for emissions, fuel economy and on-board diagnostics.

CARB classifies the XL hybrid and plug-in system as

an aftermarket fit system / device.

As such, CARB requires that an Executive Order (“EO”) is obtained for the sale of the

system intended for use on a vehicle to be operated in the state of California.

In order to obtain the EO, we are required to submit an

application to CARB for each vehicle group or family, which is required for each model year.

The vehicle models included in a group or

family are determined by the level of commonality of vehicle systems on both the base vehicle and the hybrid or plug-in hybrid systems

that are fitted.

CARB will then issue a test order that details the

required testing and the specification of the vehicle to be used to demonstrate compliance.

The essence of the testing is not to confirm

the performance of the hybrid or plug-in hybrid system fitted to the vehicle, but to demonstrate that addition of the system does not

negatively impact the emissions or diagnostic monitoring performance of the vehicle.

In 2021 we have obtained 7 EOs for hybrid systems covering

2021 and 2022 Model Years, and in February 2022 received an EO for the sale of our battery electric Ford F-600 platform.

We are in the

process of conducting testing against CARB issued test orders for future products to be introduced into the California market.

by CARB to us are public record and are available to view on the CARB database for aftermarket, performance, and add-on parts.

include requirements to collect data from vehicles in the field (in-use data).

We have obtained our first EO for our first battery

electric vehicle.

This is based on the conversion of a 2021MY vehicle.

An application has been filed for a 2022 MY vehicle and an EO

is expected to be issued by March 31, 2022.

Battery Safety and Testing Regulation

Our electrified powertrain solutions are intended to

meet the International Organization for Standardization’s standards for electrically propelled vehicles in vehicle operational safety

specifications and connecting to an external power supply.

Additionally, we may incorporate other battery system standards of the International

Organization for Standardization in our electrified powertrain solutions.

Our battery portfolio has leveraged three commercially available Lithium-ion

Further, we have developed a hybrid battery and a plug-in hybrid pack with industry partners.

The commercially available batteries

were designed and tested by the suppliers, while the developed packs went under stringent testing to comply with Society of Automotive

Engineers International J2929 Standard, “Safety Standard for Electric and Hybrid Vehicle Propulsion Battery Systems Utilizing Lithium

Based Rechargeable Cells.”

We have developed and instituted the recommended practice

for conductive charging systems to the SAE International Surface Vehicle Standard J1722 SAE Electric Vehicle and Plug in Hybrid Electric

Vehicle Conductive Charge Coupler.

We have designed systems in accordance to SAE J2344

Guidelines for Electric Vehicle Safety mandating use of Hazardous Voltage Interlock Loop, charge interlocks, access cover interlocks,

grounding practices and safety labeling for Electrical Energy Storage devices following the recommended practice of SAE J2936.

All XL developed batteries have been tested and meet

the requirements for USDOT Federal Regulations Title 49 Part 173.185 General Requirements for Shipments and Packaging;

Lithium Cells and

Batteries issued by the Pipeline and Hazardous Materials Safety Administration.

Testing was performed following the United Nations (“UN”)

Recommendations on the Transport of Dangerous Goods;

Manual of Tests and Criteria Section 38.3.

Our battery packs and modules have met the compliance

requirements of the UN Manual of Tests and Criteria demonstrating our ability to ship the battery packs with completion of the following

Altitude Simulation

External Short Circuit

Forced Discharge (Module)

Legal Proceedings

From time to time, we may become involved in legal

proceedings or be subject to claims arising in the ordinary course of our business.

Regardless of outcome, such proceedings or claims

can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors and there can be no

assurances that favorable outcomes will be obtained.

Beginning on March 8, 2021, two putative class

action complaints were filed in the federal district court for the Southern District of New York against us and certain of our current

officers and directors.

The cases were consolidated as In re XL Fleet Corp.

Securities Litigation , Case No 1:21-cv-02171, a lead

plaintiff was appointed, and an amended consolidated complaint was filed on July 20, 2021.

The amended complaint alleges that certain

public statements made by the defendants between September 18, 2020 and March 31, 2021 violated Sections 10(b) and 20(a) of the Exchange

Act and Rule 10b-5 promulgated thereunder.

Our motion to dismiss the amended complaint was denied on February 17, 2022.

The Company believes

that the allegations asserted in the securities class action are without merit, and we intend to vigorously defend the action.

be no assurance, however, that we will be successful.

At this time, we are unable to estimate potential losses, if any, related to this

On September 20, 2021, and October 19, 2021, two

class actions were filed in the Delaware Court of Chancery against certain of the Company’s current officers and directors, and

the Company’s sponsor, Pivotal Investment Holdings II LLC.

The actions were consolidated as In re XL Fleet (Pivotal) Stockholder

Litigation , C.A.

2121-0808, and an amended consolidated class action complaint was filed on January 31, 2022.

The amended complaint

alleges various breaches of fiduciary duty, and aiding and abetting breaches of fiduciary duty, for purported actions relating to the

negotiation and approval of the December 21, 2020 merger and organization of Legacy XL to become XL Fleet Corp., and purportedly materially

misleading statements made in connection with the merger.

The Company believes that the allegations asserted in the action are without

merit, and the Company intends to vigorously defend the lawsuit.

The Company has received requests for information

including a subpoena, from the Securities and Exchange Commission (“SEC”) related to, among other things, the Company’s

business combination with XL Hybrids, Inc.

and the related PIPE financing, the Company’s sales pipeline and revenue projections,

purchase orders, suppliers, CARB approvals, fuel economy from our Power Drive products, customer complaints, and disclosures and other

matters in connection with the foregoing.

According to the subpoena, the investigation is a fact-finding inquiry and does not mean that

the SEC has concluded that there is a violation of the law.

We intend to provide the requested information and cooperate fully with the

SEC investigation.

Although the Company is not regulated as a public utility in the United States under applicable national, state or other local regulatory regimes where it conducts business, the Company competes primarily with regulated utilities.

As a result, the Company maintains a team that focuses on the key regulatory and legislative issues impacting the entire industry.

The Company obtains interconnection permission from the applicable local primary electric utility.

Depending on the size of the solar energy system and local law requirements, interconnection permission is provided by the local utility directly to the Company and/or its customers.

In almost all cases, interconnection permissions are issued on the basis of a standard process that has been pre-approved by the local public utility commission or other regulatory body with jurisdiction over net metering policies.

As such, no additional regulatory approvals are required once interconnection permission is given.

The Company's collection activities are regulated in various states in which it operates.

As such, the Company obtains and maintains collection agency licenses in the states in which it operates as required by law and is subject to regulatory examination of such collection activities on a regular basis.

Corporate Information

Our principal executive offices are located at 145 Newton Street, Boston,

Massachusetts 02135, and our telephone number is (617) 718-0329.

Our website address is www.xlfleet.com and the information contained

in, or that can be accessed through, our website is not part of this Annual Report on Form 10-K and should not be considered part of this

Annual Report on Form 10-K.

The Company's principal executive offices are located at 1875 Lawrence Street, Denver, Colorado 80202, and its telephone number is (888) 390-1131.

The Company's website address is www.sprucepower.com and the information contained in, or that can be accessed through, the Company's website is not part of this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K.

Information Available on the Internet

Our internet address is www.xlfleet.com, to which we regularly post

copies of our press releases as well as additional information about us.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q,

current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the Investor Relations section

of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the Securities

and Exchange Commission (the “SEC”).

The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy

and information statements, and other information regarding issuers that file electronically with the SEC.

We include our web site address

in this Annual Report on Form 10-K only as an inactive textual reference.

Information contained in our website does not constitute a part

of this report or our other filings with the SEC.

The Company's internet address is www.sprucepower.com, to which the Company regularly post copies of its press releases as well as additional information about us.

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the Investor Relations section of the Company's website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the SEC.

The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company includes its web site address in this Annual Report on Form 10-K only as an inactive textual reference.

Information contained in the Company's website does not constitute a part of this report or its other filings with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business