Thank you for standing by. My name is John and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Spruce Power Third Quarter 2024 Earnings Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Bronson Fleig, Head of Investor Relations. Please go ahead.

Good afternoon and welcome to Spruce Power’s Conference Call to discuss results for the third quarter of 2024. With me today are Chris Hayes, our Chief Executive Officer; and Sarah Wells, our Chief Financial Officer. Our call this afternoon will include statements that speak to the company's expectations, outlook, and predictions of the future which are considered forward-looking statements. These forward-looking statements are subject to risk and uncertainties, many of which are beyond our control, which may cause actual results to differ materially from those expressed in or implied by these statements. We are not obliged to revise or update any forward-looking statements, except as may be required by law. Please refer to our disclosures regarding risk factors and forward-looking statements in today's earnings release and other SEC filings. A copy of our press release has been posted to the Investor Relations page of our website for reference. The non-GAAP financial measures discussed in this call are reconciled to the US GAAP equivalent and can be found in the press release that we issued this afternoon. With that, I will turn the call over to our CEO. Chris, Go ahead.

Thank you, Bronson, and good afternoon to everyone. Our top priority is to grow our distributed energy platform through the acquisition of operating residential solar assets and by expanding our capital light, third-party service offerings, Spruce Pro. On both fronts, our commercial teams are poised to convert some long-standing opportunities in our growth pipeline. We're focused on executing on these opportunities, which will enable us to further scale our owner-operator platform and drive an inflection in free cash flow generation. I'll make more detailed remarks on our pipeline and outlook shortly. First, I want to briefly address third quarter results and operations. Later, Sarah will dive deeper into financial results. Our core business delivered solid results supported by the predictable monthly cash flows from over 75,000 solar assets and contracts. Third quarter revenue was $21.4 million and operating EBITDA was $17.7 million. Ability and predictability of financial results is often measured by a metric known as annual recurring revenue or ARR. Similarly, here at Spruce, management uses an internal measure called business cash inflows, which accounts for top-line recurring revenue, as well as other sources of consistent cash inflows that do not flow through GAAP P&L. Our results this quarter affirm our previously referenced run rate of between $120 million to $130 million of annual run rate business cash inflows. Our balance sheet is also rock solid with total cash of $150 million at quarter end unchanged from the second quarter period. Our unrestricted cash per share as of quarter end was $6.11. Our receivables are also rock solid with great collections performance due to the nature of our customers. Most of our customers own their homes and are early adopters of solar with an average system age of approximately 10 years. Our customers are highly incented to pay us…

Thanks, Chris. I'll provide more details related to our third quarter 2024 financial results, as well as our business outlook for the remainder of the year. Third quarter revenue was $21.4 million compared to $23.3 million in the prior year period, with the decrease primarily attributable to lower SREC revenues and higher performance guarantee payments. Second quarter core OpEx, which we define as SG&A and portfolio O&M excluding depreciation, was $17.4 million in total as compared to $15.9 million for the prior year period. Breaking this out, portfolio O&M expense moderately increased to $3.9 million in the third quarter from $3.5 million in the prior year period. The increase is tied to higher non-routine servicing costs such as expenses tied to hardware replacements. SG&A's expense increased to $13.5 million in the third quarter from $12.4 million in the prior year period. For the quarter, SG&A was negatively impacted by an increase in legal costs incurred in connection with legal settlements and other ongoing legal proceedings. These costs amounted to $1.4 million during the quarter. Spruce generated a GAAP net loss attributable to stockholders of $53.5 million. As a reminder, we consider operating EBITDA as a key measure in evaluating the company's financial performance, which is defined as adjusted EBITDA plus several items that represent material cash inflows from our ongoing business and strategy. Operating EBITDA was $17.7 million for the third quarter versus $19.8 million in the prior year period. Please see our press release filed prior to today's call for reconciliation of this non-GAAP measure. At the end of the third quarter, total cash, inclusive of unrestricted cash and restricted cash on our balance sheet was approximately $150 million unchanged sequentially. Our unrestricted cash balance at quarter end was approximately $114 million versus $117 million at the end of…

Thank you. We will now begin our question-and-answer session. [Operator Instructions] Our first question comes from the line of Peter Gastreich with Water Tower Research. Please go ahead.

Thank you very much for the presentation and congratulations to Chris and team on your announced acquisition, and also great to see the commitment to your share buyback program coming in. So I think I'll start there actually with the -- a question about the acquisition. It looks like a good place to start. It looks like this will grow your rooftop solar assets and contracts by more than 10%. Can you share any perspective details about the financial impact of the portfolio? For example, how should we think about the profitability of this asset when compared to your existing portfolio? Thank you.

Yes. Thanks for the question, Peter. We are super excited about this opportunity. If we complete it, it lets us build on our high-margin cash flow base and obviously, realized synergies within our servicing organization as we continue to scale our platform. We can't comment on specific deal economics. So you should think about any prospective acquisition activity to align with the framework we've historically publicly provided. And I'll just lastly share that we're aggressively working to close the acquisition as quickly and as efficiently as possible, and we'll provide incremental details at the appropriate juncture, assuming a successful close.

Okay. That's great. Thank you. My next question is about Spruce Pro. It's great to see that you signed an MOU recently. Are you able to expand a little bit on that opportunity? And related to that, how would you define success for Spruce Pro entering 2025? So for example, when would you expect to land your first customers and generate revenue? And what type of customers are you looking at?

Sure. Thanks for the question. So as you can imagine, we are really excited about signing this MOU. It's an excellent proof-point for Spruce Pro. And in-line with the past commentary, this is a capital-light endeavor. And we are levering existing investment to date in our servicing platform, so that people, technology and allows us to provide advanced servicing solutions to third-party, which this should prove, assuming we ink the deal. We can't offer a lot of specifics right now on the scope and economic impact to Spruce despite the MOUs in place, but we are working towards an executed service agreement in the fourth quarter. As to the second part of your question, with respect to 2025 and success points, so as earlier mentioned, we are not issuing guidance for any top-line revenue projection for Spruce Pro in 2025. However, I would define success based on our quality of pipeline, and I suggest there is a high probability we close a deal or two in 2025, and that's how I'd look at success.

Okay. Thanks. That's very clear. Let me just ask one more question here before getting back in the queue. So I've got a few more. But I'm sure you asked this a lot, especially recently, but I'd really like to know your views here. So we are past the election now. I'm just curious what your thoughts are about how this would impact Spruce? How durable would you do your business model in the face of any risk of changes to policy when compared to our industry peers?

Well, it is a great question. I'll tell you, I am thrilled that we are a third-party owner of solar. And I would say this to you, while we can't predict the future, obviously all we need to be a successful business is to continue having new solar put on rooftops and the economics continue to remain strong. And so long as that happens, we will have new acquisition opportunities. And we are not sort of subject to the whims of Washington DC and whatnot. So it is quite probable both on already installed solar and presumably, much more going in, there is a very active M&A pipeline for us. And then, of course for Spruce Pro, there's a huge market out there that we can service. So we think that it's as good an environment as it was two weeks ago and remain super bullish.

Okay, that great to hear. I guess I will get back in the queue, unless there's any other questions from other analysts.

[Operator Instructions] And we have another question from Mr. Peter Gastreich with Water Tower Research. Please go ahead.

Great. Thank you very much. I've got more of a macro question here. So there's been a lot of structural macro drivers out there for power demand, including AI data centers, crypto now and so forth. These are all driving very strong power demand growth outlook. And there is some uncertainty out there emerging in terms of whether utility scale capacity can keep up with that. I'm just curious, how do you see these factors affecting grid electricity rates? And what would that mean for the future of rooftop solar?

Well, look, again, it's super hard to predict the future, but if you forced me to do so, I would say, not solely on commodity prices, but more on the wire and line business, all of the inflation associated with that and demand growth with AI and all this other stuff. I would imagine that utility rates are going to continue rising through time. Ultimately, that is a great backwind for us, about 50% of our portfolio, [or] (ph) power purchase agreements. And so rising utility rates, both make solar more economically compelling and also increase many of the underlying contracts. So we are excited about that trend for our business.

Okay. Thank you. I've got two more questions, if I may. The first one is, would it be possible to provide any guidance as far as where we stand so far in the fourth quarter? For example, if you look at last year, the fourth quarter was a bit lower than expected, and I recall that was due to some weather-related issues. I would also be interested to the extent you can provide any additional commentary on O&M and legal items.

Peter, this is Sarah. Thanks for the question. Go ahead, Chris.

No, Sarah, please.

I was just going to say, Peter, that we have given updated guidance in the script, and so we're just going to stick with that for now.

Okay. Okay. Got it. So just a final question here, a bit more about your stocks. So we see that it's now trading below cash. Based on your conversations with investors, can you make any comment on perceived sentiments? Or maybe what do you think are some of the key things that the market is missing here?

Yes, it is a great question. I mean look, I would say this, you heard mentioned in my commentary earlier, the company has issued a share buyback plan. We have agreed to purchase $1 million per quarter pursuant to all underlying rules. So of course hopefully, that is received as a bullish sentiment. It is difficult to comment on the market. But I think given some of the earlier comments, I think we are just in the starting blocks. I mean we are so bullish on this business on the growth prospects on Spruce Pro. And the last piece to your question are the legal expenses. We are materially through all one-time charges. We don't see anything even close to any of the past numbers that we've seen and that is very close to being behind us and we're thrilled for it.

Okay, great. Thanks very much, Chris.

And that does conclude the question-and-answer session. I would like to turn the call over back to Bronson Fleig for any closing remarks.

Thanks, operator, and thank you to everyone for joining us today and for your continued support. If you have any questions, please contact me or our Investor Relations team. This concludes our call today.