Spruce Power Holding Corporation

2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the call over to Scott Kostak, Director of Investor Relations, Sarah, you may go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Spruce Power's first quarter of 2025 earnings conference call. Joining me today are Chris Hayes, Spruce's chief executive officer, and Sarah Wells, our chief financial officer and head of sustainability. Before we begin, I would like to remind you that we will comment on our financial performance using both GAAP and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to the comparable GAAP measures, is included in our earnings release for the first quarter 2025. Our discussion will also include forward-looking statements. These statements are not statements of historical fact, reflect our current expectations, and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed. There can be no assurance that actual performance will not differ materially from any future expectations or results expressed or implied by these forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement except as required by applicable law. Please refer to our earnings release and our other SEC filings for further discussion of spruce powers, risk factors, and other important information regarding our forward-looking statements. All comments made during today's call are subject to that safe harbor statement. With that, I will turn it over to Chris.

Thanks, Scott, and hello, everyone. Our first quarter results reflected the positive impact of last year's acquisition of rooftop assets from NJR, New Jersey Resources. Revenue grew 30% from the year earlier period, and operating EBITDA increased 15%. Our balance sheet remains robust with close to $100 million in cash, the majority of which is unrestricted. We are excited by the opportunities ahead of us in 2025 and are actively seeking new acquisition opportunities that meet our disciplined return hurdles. Spruce is determined to achieve our goal of generating positive free cash flow. We believe our path to achieving that objective is continued growth and scale in our portfolio of solar installations coupled with prudent cost containment. Spruce generates predictable recurring revenue and cash flow from the approximately 85,000 home solar assets and contracts we own and operate and the roughly 60,000 residential solar systems that we service as a third party. This is a great foundation for our business, but to meet our free cash flow objective, we need to scale our business with acquisitions of installed systems and programmatic offtake partnerships, as well as through the growth of Spruce Pro servicing. We continue to take a disciplined approach to portfolio acquisitions, only purchasing assets that meet our internal rate of return requirements. We believe this discipline has served us well, but it can also slow down growth when market conditions are challenging, which is the case now. Thus far in 2025, we have proceeded cautiously with new growth opportunities given uncertainty and rapidly shifting dynamics across the market. Our cash burn during the period reflected normal winter seasonality combined with a small delay in the start of payment collections of the assets acquired from NJR, which dampened revenue. Spruce Pro is off to a good start with the ADT deal, and we expect that revenue to ramp up gradually in the months ahead. So the immediate top-line impact was not significant. Down the P&L, costs are still running a bit hot as we roll off the earlier-than-expected operations and maintenances or O&M expenses we began experiencing last year. Overall, our O&M expenses remained outsized in the first quarter of 2025 compared to our long-term expectations, although to give you a sense for trajectory, we did spend less O&M dollars sequentially. Spruce experienced higher O&M expenses beginning in 2024 with the early arrival of anticipated maintenance. Initially, we did not have a technology platform or team in place to optimize the management of resources, such as when to roll a truck or ensuring the truck was carrying the right componentry to complete the job. This led to inefficiency and added costs. However, we are confident that the O&M initiatives we have put in place will drive a material decrease in this expense line in the second through fourth quarters of this year. Changes implemented over the past year include the onboarding of experienced tires, technology investments, and a revamped strategy to intelligently route service calls from customers, limit truck rolls, right size inventory on the truck, and appropriately manage to the customer contract in the most cost effective manner possible. The platform and detailed operational strategy we implemented began producing the results we are seeking in late February and has continued to gain ground thus far in the second quarter. We believe these improvements are sustainable and will sharply reduce O&M expense as 2025 progresses. In addition, we are making operational enhancements through strategic sourcing and procurement and better vendor management. We believe these efforts will drive improved operating efficiency and margin expansion in 2025. We expect these cost containment actions are transitioning the business toward a more sustainable model with the financial resources and liquidity needed to support our long-term strategy. Next, I will discuss each of the company's key revenue drivers. Executing on these initiatives is imperative for achieving the scale we need to achieve positive free cash flow. The first revenue driver is opportunistic M&A. This is when Spruce acquires portfolios of installed systems, then sells additional services and leverages strategic partnerships to drive profitable expansion. We have been able to command a higher return on opportunistic M&A because of our scale and expertise in this area. Given these advantages, coupled with a limited pool of potential buyers, we're able to be selective and only pursue agreements that meet our deal terms and density objectives. The NJR acquisition that closed in November 2024, in which Spruce acquired approximately 9,800 installations in New Jersey is the most recent example of this type of transaction. To be clear, though, even an opportunistic deal half the size of NJR would share the same deal flow characteristics, so this is a target-rich environment for SPURs. The second revenue driver is programmatic offtake. At this time, I can only speak to this opportunity in general terms as we are still working to secure our first programmatic agreement. our expectations for programmatic as a de-risked revenue driver are high. With programmatic, we are looking to acquire or potentially service newly installed systems on an ongoing basis as our partners complete them. These partners may include home builders, legacy solar loan operators, or lease originators that are pivoting into TPO or third-party ownership leases and PPAs. Increasingly, These established players want to focus on origination rather than servicing. We anticipate that our future programmatic partners will take the risk of getting systems through construction to operations, and only then will we buy or begin servicing these installations at an agreed upon price. While this channel has long lead times, we are confident Spruce is gaining traction, and when we deploy our programmatic offtake initiative, we will ultimately generate double digit IRRs. The third and final primary revenue driver is Spruce Pro, our third party solar servicing platform. For this channel, we leverage the company's decade plus experience in management of our wholly owned residential solar assets to offer a suite of services that can be tailored for third party owners of distributed generation assets. In December 2024, we finalized a third party agreement with ADT covering approximately 60,000 systems. By partnering with Spruce Pro, third parties like ADT can leverage our experience and maximize productivity, uptime, and efficiencies in areas such as financial asset management, billing and collections, asset operations, account services, homeowner support, IT support and implementation, and finally, solar renewable energy credits or SREC marketplace. We believe the Spruce Pro channel plays to our strengths and has strong potential to deliver capital light growth. We have a defined and growing pipeline of potential Spruce Pro partners that include traditional residential solar players, large owners of solar installations, developers, private equity, and numerous midsize and local companies that own residential and commercial and industrial or CNI solar sites. Potential scope ranges from full wrap servicing to piecemeal O&M, billing and collections, harvesting SRECs, or some combination. While each of these third-party agreements will be customized, we are confident the company can source other partnerships like ADT. Last month, we announced a Spruce Pro partnership to monetize SRECs in California with CNI and residential solar installer Hot Purple Energy. We see considerable potential for generating high margin cash flow by registering, managing, and reporting California SRECs. Spruce is among a very small number of companies that have completed the approval process to enable monetization of dormant SREC revenue within all three of California's largest utility zones. This puts Spruce in a unique position to capitalize on a meaningful market opportunity. We are in active discussions for the rights to acquire SRECs from significant third-party installers as well as numerous midsize and local companies that own residential and CNI solar sites in the state. We have already completed the hard work of creating a Spruce Pro servicing infrastructure capable of handling portfolios that come to market. This is a difficult business that many do not have the platform or experience to service successfully. Importantly for us and our shareholders, Spruce Pro is unlevered, and there will be no debt financing associated with these agreements. As we prepare, plan, and execute our business development strategy, there are a few overarching themes to point out. First, we are in an environment of pent-up demand for TPO, residential solar, as utility rates continue to increase driven by higher load levels. Further, there is a lot of solar going in. Originators want the developer fee, but many don't want to own or service the installations over the long term. While it is incumbent on us to deliver on the opportunities in our business development pipeline, I will reiterate that the revenue and cash flows generated by the installations we already own and service remain highly predictable whether conditions in the residential solar sector are favorable or distressed. We are confident in our ability to identify, structure, and execute new agreements that add shareholder value. While our investments in revenue drivers have weighed on near-term profitability, we are confident they will position us to cost-effectively participate in the largest and fastest growing parts of the residential solar market. As we scale up, I wanted to highlight the hiring of Chris Hayden as Senior Vice President of IT and Enterprise Applications. Chris will focus on advancing SPRUS's service platform, scaling the SPRUS pro-service offering, and driving innovation across the company's IT function, including strategy, infrastructure, application development, and security. Chris previously served as Chief Technology Officer and Executive Vice President at Sunova and has deep expertise in the solar industry. At Spruce, he will be focused on optimizing technology to drive scalability and accelerate growth with a strong focus on the customer experience. Before concluding, I wanted to highlight that we do not need to refinance any of the non-recourse debt associated with our portfolios in 2025. With that said, we always keep the lines of communication open with creditors, and the feedback we are receiving leads us to believe that we can roll over our first debt maturity associated with our SP1 portfolio in due in April 2026 on like-for-like terms if we choose to proceed. In addition, we have identified additional credit options that could be even more favorable. Although those options and our ability to roll financing on a like for like basis will be subject to ongoing developments in the financing markets. While Spruce plans to continue to make the investments needed to execute our strategy, we believe that the actions we are taking will safeguard the funding necessary to continue our opportunistic share buyback program. I would add that Spruce's board of directors has approved the renewal of the company's share repurchase program as our previous program expires May 15th. We remain confident the company will continue to make the investments needed to drive long-term shareholder value, and we view cost discipline as the compass that drives effective execution, helping teams stay on track to both prioritize and achieve measurable results. My last comments will be on the residential solar sector. While recent challenges in the sector are well known, and although we are not immune to those factors, Spruce is differentiated. Unlike many of our peers who are heavily dependent on aggressive new customer acquisition strategies, externally financed working capital, continuous growth in new solar installations and government assistance, Spruce Power is not a seller, installer, or originator of new solar installations and does not have significant fixed costs. In addition, our financial health is not contingent on new sales, external capital markets, or IRA investment tax credits. Rather, our business is predicated on maximizing the value of existing solar assets through operational efficiencies, maintenance, and superior asset management. Spruce maintains a clear focus and renewed intensity to deliver on our objectives. We are motivated by the progress we are seeing as we execute our strategy and realize our vision. The revenue opportunities we are pursuing and the operational improvements we are driving will support efforts to deliver a combination of performance, flexibility, and value that is compelling to customers, partners, creditors, investors, and other key stakeholders. That is the mindset driving us forward as we continue to build a stronger company. Next, I'll pass it over to Sarah. who will provide a detailed review of our financial results and outlook. This will be Sarah's final quarter as CFO at Spruce as she is leaving the company to pursue another opportunity. I would like to thank Sarah for her numerous contributions to Spruce's growth and development, and we wish her the best going forward. She leaves here as a friend. We expect to announce an interim CFO soon and are engaged in a search to fill the position on a permanent basis. Sarah. Can you please provide our financial summary?