Q3 2022 XL Fleet Corp Earnings Call

[music].

Good afternoon, and welcome to the XL Sweet third quarter.

22 earnings conference call.

Participants.

Only about.

Should you need assistance please.

Specialists by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Ask a question you May press Star then one on your telephone keypad.

Withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the call over to Steve.

Constance General Counsel of XL fleet. Please go ahead.

Thank you good afternoon, everyone and welcome to XL fleets earnings conference call to discuss our results for the third quarter of 2022.

With me today are Eric Katz, Chief Executive Officer of XL Fleet Christian Fong, President of Excel fleet, and CEO of Bruce Power and Dan Klein Chief Financial Officer.

Our call. This afternoon includes statements that speak to the company's expectations outlook or predictions of the future which are considered forward looking statements. These forward looking statements are subject to risks and uncertainties many of which are beyond our control, which may cause our actual results to differ materially.

Those expired expressed in or implied by these statements.

Similarly out of our control is the timing of some of the processes, we will discuss today, which could impact the expectation related statements you will hear shortly.

We undertake no obligation to revise or update any forward looking statements, except as may be required by law.

We refer you to XL fleets disclosures regarding risk factors and forward looking statements in today's earnings release, our annual report on Form 10-K, and our other Securities and Exchange Commission 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 U S. GAAP equivalent and can be found in the press release that we issued this afternoon.

With that I will turn the call over to Eric attack.

Thanks, Stacey and thanks to everyone for joining us on the call today.

When I joined XO fleets in December 2021, I was tasked by the board to assess our company's current position and identify the best path forward to maintain and create value for all stakeholders.

And as we've communicated for the last several quarters I determine the most efficient path was by utilizing the significant cash position, we had on our balance sheet to help execute transformational M&A.

I communicated that we were looking for three main attributes in a potential deal.

One our business, making an impact on decarbonization.

To a leader in a mature and growing market and three accompany.

A company generating positive EBITDA.

On September 12, we announced the acquisition of Bruce Power I.

I am very proud of the team for identifying and executing on this transaction and doing exactly what we said we'd do.

Let's walk through each aspect and how this Bruce power.

Meats and in many ways exceeds what we are targeting and our extensive search process.

First we look for our business, making an impact on decarbonization.

As the leader in residential solar Bruce power wakes up every day to help on homeowners reduce their carbon footprint.

The company is more than 51000 current customers utilize solar to power aspects of their everyday lives.

Intimately improving the reliability of the electricity grid and advancing the energy transition.

The company's sole mission is to make it easy for customers to embrace the power of renewable energy.

That is critical today and for generations to come.

Second word.

We look for a leader in a mature and growing market.

Bruce power was strategically positioned as the largest privately held operator of residential solar in the U S.

And with our acquisition of the business spruce now well capitalized has the resources it needs to elevate the company's mission to the next level.

Christian Fong and the entire screws power team have done an excellent job in scaling the company to where it is today.

And I couldnt be more excited at what this transaction does for the company's platform.

Growth opportunities and ability to extend its leadership position in the fast growing residential solar market.

Third we look for a company generating positive EBITDA.

With the acquisition of Bruce power, we accelerated our company to be a steady generator of EBITDA.

And cash flow with a strong platform for further significant growth.

Taken together are roughly 51000 customers.

With multiyear commitments make monthly payments to spruce power reflect total subscriber value of $821 million.

Beyond these three attributes we are successful in delivering other forms of value.

Specifically with $240 million of cash left on the balance sheet. After the completion of the deal the business is armed with the power to execute step change growth.

Building on the scale of growth achieved by the company to date.

Additionally, one aspect of spruce is business that we find particularly valuable if it's lower than average reliance on supply chain.

Unlike others in the industry, who are directly involved in the and supply procurement and installation.

We take over when all of that work in sourcing has already been completed.

Significantly reducing the supply chain risks that others are exposed to.

This has been particularly valuable in recent months, where parts of the solar supply chain have faced significant headwinds.

Yes.

With that established let me tell you what the team and I had been up to roughly 60 days since announcing this transformational transaction in mid September .

First and most importantly, my team and I have been collaborating closely and daily with Christian and his wider leadership team to help ensure a smooth transition to the XL fleet platform.

This includes integration of policies procedures systems and reporting.

We've also got right to work in helping to assess the company's portfolio of growth opportunities, especially now that spruces armed with the capital resources needed to extend and accelerate their growth trajectory.

As discussed at the time of our announcement I'll be transitioning the role of CEO to Christian by the first quarter of 2023, and we are already working closely to ensure that the attrition the transition occurs.

<unk> and smoothly as possible.

I look forward to continuing my collaboration with sprint with the spruce power team in my ongoing role as a board member of the combined company.

Second we previously announced our intention to rebrand the combined company to better reflect the company's new strategy and direction.

Just last week, we were excited to announce our intention to rename our company at Bruce Power holding corporation to be known as spruce power extending.

Extending the company's long standing and well known brand in the residential solar industry.

We felt it was important to build upon the rich history of spruce is a knowledgeable owner and operator of assets and look forward to advancing spruce is positioned as a leader in the industry.

As part of this we will also change our ticker symbol.

And expect to begin trading on the New York stock exchange under a new ticker symbol S. E. R U.

On November 14th.

Third as we announced during the time of our acquisition, we continue to explore strategic alternatives for the XL fleets legacy drivetrain business.

I'm very pleased with the progress on this process.

We are in advanced discussions with several interested parties, we anticipate being able to make them more detailed announcement before the end of this calendar year.

Yeah.

Investors have been following several driveline activity active projects, including our work developing new idle mitigation technology for the department of defense and our development with curb tender of an all electric refuge vehicle.

These projects remain active well we work in parallel to explore the best future alternatives for these endeavors.

Well the conclusion of this process is not expected to drive significant financial outcome for XL fleet we.

We understand the importance of this further simplification to our business and our strategy and the market's ability to assign proper valuation to our company.

We are committed to executing on this final step in the transition process and when I pass the keys to Christian early next year I expect to do so with screws pallet position as a pure play distributed energy platform.

With that it's my pleasure to turn it over to Christian to review the screws power platform and the exciting opportunities we see for this business Christian.

Thanks, Eric it's great to be speaking with you all again today before I begin I'd like to Echo Eric's enthusiasm for what we've created and express the excitement I have for the pathway ahead.

We were excited to introduce many of your discrete power several weeks ago today I'd like to take the opportunity to emphasize who we are and how we're positioned for continued success over the near and long term pre.

Prior to the acquisition by Exxon wheat, Bruce power was the largest privately held owner and operator of residential rooftop solar systems in the U S. The company has over a decade of experience installation financing owning and managing residential rooftop solar.

Since I became CEO in 2018, Bruce is focused on our current strategy of owning and operating residential solar assets on behalf of home owners.

We've built a portfolio, which today has more than 51000 subscriber customers with a footprint spanning 16 different states. Our solar assets are backed by long term subscription based contracts in which our customers make monthly payments to spruce and either leases or production linked.

Power purchase agreements or Ppas.

This contract structure allows for reliable and highly visible cash flows over a period measured in decades, not just months quarters, even years, our customer portfolio carries an average remaining contract life of approximately 13 years and in total represents more than $800 million of total <unk>.

Subscriber value using a 5% discount rate and industry standard subscriber renewal assumptions.

Well it makes at Bruce power, particularly unique is our growth strategy. We have been successful in doubling revenues since 2019, primarily driven by the acquisition of 10 rooftop solar portfolios and a number of smaller joint venture interests over this time period.

We have an exceptional team of M&A professionals identifying opportunities to acquire assets that fit our model systems that are already in operation with long term customer contracts.

We've exhibited the operational statistics Asian to be patient and only pursue those opportunities that drive attractive returns to our business. This growth strategy is built up a strong track record of generating attractive equity returns with levered IRR into the low to mid teens.

<unk>, our first series of small post transaction deal subtle detail later this growth strategy is the way, we add customers to the <unk> platform, but we don't stop there with an average of over 13 years remaining on the solar PV systems contracts. It gives us time to deepen the value of the relationship.

We do that by offering customers additional products for their home power systems, such as batteries and EV Chargers.

Rather than the channel partners, we do this through direct sales, which increases the profit margin of those follow on sales.

With that as a reminder of who we are I wanted to take a few minutes discussing what drives us and specifically I want to hit on Bruce power has three core pillars, ensuring an industry, leading customer experience delivering operational and safety excellence and producing electricity and executing on our growth strategy are.

First pillar is ensuring an industry leading customer experience.

Customers are at the root of everything we do.

And like any good service business, we want every customer to have a good experience with us to us customer experience includes consistency reliability and trust, while we have a strong foundation in place I, often encourage our team to find ways to be better our corporate mission that puts the customer first is what drives us towards continuous improvement in custom.

Our experience.

We now have a strong foundation of systems and policies in place yet it's important to recognize that we're in a highly dynamic environment, one where technology and expectations of all is just one example of the way customers want to communicate with us changes because of this and they need to be responsive to the market. We continue to invest in technology and people in it.

That forms that support and enable industry, leading onshore customer service with a supportive ex those resources. We recently have launched service by chat with hired staff to interact with customers by social media and we streamlined our call center to shorten wait times. This is a great example of how our team identifies areas for <unk>.

Movements and find solutions for our customers.

And we're a data driven company, our Houston based servicing team has been metrics them attract the industry closely. So we know what best in class service means.

My team and I are monitoring our performance across several key metrics, including first and foremost rising customer satisfaction as measured indirect surveys to our customers. Our Q3 customer satisfaction score was 64% and with a number of changes rolled out in Q3 to allow first touch issue resolution and serviced by <unk>.

We saw that score rise to just over 80% for October at the highest level of customer satisfaction. Since we began measuring closely 2018.

Secondly, we look for shorter wait times to reach one of our homeowner support team associates and faster resolution of problems and yet we know we can be better inside the organization as well as customer experience and perception outside the company and the resources XL brings our accelerating our 2023 initiatives towards the goal.

All of having every single customer experience would be a positive one.

Turning to our second pillar delivering operational excellence in Q3, our own systems generated $133 6 million megawatt hours renewable power companies measure production excellence by comparing actual production often called the performance ratio to a weather.

Adjusted performance ratio using external weather data to see what our portfolio could've produced.

Our Q3 performance ratio was 96% and our weather adjusted performance ratio was a strong 101% evidenced in the capability efficiency and reliability of our asset portfolio.

Finally, our third pillar executing on our growth strategy as noted earlier Spruces M&A function is its growth engine, rather than selling one subscription or system at a time to homeowners through a paid salesforce or installing them with their own technicians. Our growth strategy is driven exclusively by the acquisition of seasoned portfolios of systems from other companies.

Our M&A team has a long track record of successful acquisitions that drive significant accretive growth to our platform just as importantly, once we execute on acquisitions. Our team has the experience and expertise to efficiently integrate systems onto the <unk> platform to maximize returns fix problems that might've wind GERD.

Under previous ownership and then efficiently service the customer.

Following the sale of Bruce power to XL fleet that team got back to work spruce power exercised options to buy out the remaining equity interest in six residential solar portfolio and transactions totaling approximately $7 $7 million.

Half of these transactions occurred in late September and the other half occurred in early November 2022.

There are a few ways, we look at the value added these transactions the increase in PV five contracted value is about $11 5 million or a remarkable 49% margin above the invested cash and the projected increase to our adjusted EBITDA is about three <unk>.

$6 million in 2023 than $1 $7 million for 2024 and beyond for our projected Unlevered IRR of 14%.

While these deals are relatively small it's proof of concept that with excess cash we could quickly get back to work in accretive acquisitions. We're looking at over 34000 systems. All in bilateral negotiations. So it's too early to know if or when larger portfolio acquisitions might occur.

Turning now to what we're seeing in the residential solar market and the impact just Bruce power. We continue to see strong growth in the installation market, which is upstream from our acquisition growth strategy growth is being driven by three main factors first continued and dramatic increases in utility electricity prices driving further economic benefit of going solar.

In this sense residential solar is a natural hedge to inflation, where inflation is actually accelerating demand at the consumer level.

Second the rapid and accelerating adoption of electric vehicles, which on average increases household electricity consumption by about 30%. Sydney example of sector convergence, where parallel sectors home power systems electric vehicles, and smart grid are coming together.

And third long term reduction in battery cost, enabling homeowners to pair storage with solar and maximize the benefit of solar generated power spruces.

Existing customers can already pick a variety as home power system upgrades at Bruce power Dotcom for spruce that is exclusively the retrofit addition of batteries to existing systems, which we see as an underserved market.

Countervailing. These growth drivers are a couple of headwinds.

First there was a nationwide shortage of skilled labor and electrician professionals, that's emerged as a bottleneck for the residential solar industry and slows our local maintenance partners time to deliver routine maintenance items or installation of new batteries. Secondly, most of the legacy systems in the U S have dependent on transmitting data through cell.

Works the Sunset at three G networks, and ongoing transition to 40 meters in our portfolio is impacting homeowners with the oldest systems. We're about halfway through a multimillion dollar upgrade of our portfolio with over 17000 spruce systems upgraded to <unk>.

We have a robust transition plan in place with adequate capital reserves for this equipment upgrade and expect to complete almost all upgrades by the end of 2023.

Actually 2023 priorities, we want to make sure there's transparency for both spruce and the customer on the timing of when a <unk> system gets upgraded or moving as fast as labor and <unk> meter availability allows.

These upgrades are now our top source of customer service interactions and we don't see that changing over the next few quarters.

I'll make one final note about the macro environment with regard to customer credit as spruce, we arent seeing any slowdown in customers, making payments and in fact, our internal customer recovery team.

Still seeing improvements in customer credit in the form of lower delinquency rates.

Economists are debating, whether they're a recession headwinds, but at spruce, we're still seeing consumer spending more strongly in the context of making good under PPA and lease contracts reduced delinquencies a trend we've been seeing all through 2022 is making our own cash flow and adjusted EBITDA pretty resilient and on that.

Note I will turn it over to John Kline to walk through our financials.

Thanks Christian as a reminder, our results for the third quarter of 2020 to reflect a full quarter contribution from XL fleets legacy operations, including drivetrain and XL grid as well as contribution from spruce power for 21 days following September 9th closing date.

In the fourth quarter and going forward, our financial results will reflect the full quarter impact and benefit of spruce power operations.

With that established total company revenues for the third quarter of 2022 totaled $8 $4 million compared to $3 million in the second quarter of 2022 and $3 $2 million in the prior year.

Revenue for the third quarter included $5 $1 million from 21 days of contribution from <unk> power.

Selling general and administrative expenses through the third quarter of 2022 totaled $31 $3 million compared to $12 $8 million last quarter and $12 $7 million in the third quarter of 2021.

SG&A expenses for the third quarter of 2022 included approximately $2 $6 million in legal fees related to the previously disclosed class action complaints and SEC investigation.

Proximately $50 million of transaction costs associated with the <unk> acquisition.

Adjusted EBITDA totaled negative $9 million compared to negative $11 $1 million in the second quarter of 2022 and negative $14 $2 million in the prior year quarter.

Turning to our segment results revenue from Bruce power, a residential solar segment totaled $5 $1 million, reflecting the period from September nine through September 30th our gross customer value was $828 million at the end of Q3 on the TV five basis.

Revenue in our drivetrain segment totaled approximately $900000 compared with approximately $800000 in the prior quarter and approximately $600000 in the third quarter of 2021.

Net loss for our drivetrain segment was $2 $6 million compared with a segment loss of $3 $4 million in the prior quarter and a segment loss of $4 $9 million in the third quarter of 2021.

Revenue in our XL grid segment totaled $2 $4 million compared to $2 $2 million in the prior quarter and $2 $6 million in the prior year quarter.

Net loss for XL grid segment was $500000 compared with a segment loss of $1 $5 million in the prior quarter and $1 $6 million in the prior year quarter.

As of September 32022, we had unrestricted cash and cash equivalents of approximately $240 million. This compares to $322 million at the end of the second quarter of 2022.

Sequential change in cash includes approximately $62 million of cash used for the acquisition of Bruce power.

Net of $29 $3 million of cash and restricted cash acquired the purchase price was $32 6 million cash used in operations for the quarter was $46 million.

Total principal balance of long term debt as of September 30 was $542 million as noted at the time of our acquisition our new leverage profile was in line with industry average and sort of business. We operate in all skus debt is nonrecourse and backed by long term contracts provide annuity like cash flows.

That is very attractively priced with a weighted average interest cost of approximately five 5%. The company's mezzanine debt is fixed rate debt and the variable rate senior debt is approximately 97%.

Fixed through interest rate swaps.

Worth, noting that our first maturity is not until April 2026, providing ample flexibility to manage our future capital structure and financing costs.

I'll now pass it back to Eric for a few closing comments before opening it up for Q&A.

Thanks, Don.

In closing I'm very encouraged about the progress that we've made and excited about all that we have ahead of us.

Our team remains focused on creating shareholder value over the near and long term.

While we've accomplished a lot will be busy over the next several months further streamlining our platform hopefully improving the market's ability to identify and unlock the value we've identified with Bruce power.

On behalf of Kristen and the combined team, we look forward to providing updates as we have them.

Before opening up for Q&A I felt it is important to address our current market valuation.

As of yesterday's close our stock was trading at a total market capitalization of approximately $115 million.

We feel this is the disconnect for a company.

With approximately $240 million of unrestricted cash on its balance sheet and significant adjusted EBITDA.

We will continue to execute on our strategy to unlock the value of what we own today and to maximize the value of our platform and resources over the long term.

With that we'd like to open up the lines for Q&A.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the key.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And our first question comes from Joseph Osha with Guggenheim. Please go.

Ahead.

Oh, hi, everybody.

Make sure I've got.

Can you hear me okay.

Yeah, Yeah, we can hear you great yes.

Yes, sorry, I'm sitting in a hotel room here so.

So a couple of questions and I apologize I'm going to focus on the solar side.

So Christian is this 821 T.

<unk> five is that contracted and renewal where just contracted.

Yeah. Thanks, Joe Thanks for joining the <unk> hundred 21 is both contracted and renewal are using the same PV five metrics that our peers use.

Oh, Yeah, I was kind of Comping you in to and then that makes sense. So and then if I wanted to get the net.

I would just back out the 45.

Plus it looks like you've got 25 is the total nonrecourse number.

Five 510 am I right there.

Are you are you, adding up the debt you just net debt.

As of 930.

And then we would add the 25, if you were talking about the amount of cash on hand.

No no you've got a portion of long term debt of 25 billion and then walked Oh got it got it that's split between sure Yeah, correct, Yeah and the <unk>.

<unk> is our debt footnote there is an adjustment for purchase accounting. So the fair value is put on the books or the desperate on the book at fair value. So there's a delta that is really an accounting nuance. So you want to look at the principal balance.

Okay. So it's like $3 20 ish there.

And there okay, all right that's fine.

My next question Christian.

Just to confirm I remember you had said this before.

You guys are going to continue to focus on buying post flip assets or has that thought process evolved at all I just want to confirm.

Yes, we've talked about getting seasoned assets and that's been really the focus.

<unk>.

The.

But looking at things that are post flip they become the most streamlined acquisitions.

You don't have to be negotiating with those tax equity partners.

However, our previous acquisitions among those 10, we did buy things that were just prior to flip often within maybe one or two years in the tax equity has line of sight. So of the 34000 more than 34000 that were in bilateral negotiations actually some of them are pre flip but.

Most of them the strong majority are our post flip.

Okay I got that.

And then just you know.

I'm sure you saw how that Nova deal price, yeah, good leap and whatnot pretty pretty tough right. So I'm curious you know taking that into account you will get new deals.

Just talk a little bit about the kind of capital structure, you can put around the purchase of new new assets at this point.

Yeah, we're still seeing robust availability of senior debt capital and the.

As the final structure that we would put on on.

And let me just step back our current structure has senior debt as well as mezzanine debt.

Those are done is nonrecourse, let the asset level.

So let me now talk about the the mezzanine debt on this call and what we would do on a go forward basis I think the real question is you talk about the the good leap deal some of our peers and where are they priced.

In the public markets that are more known on the ABS side, we are seeing robust availability of bank senior debt.

The pricing would be let's just say not dissimilar I shouldn't go into exactly what the price talk is between us and our counterparty lenders.

But it's not dissimilar from what's available, but I think what's key dimension is we're not seeing a shortage.

Yeah, all of that capital right now.

Sure certainly Doug I mean, certainly the acquisitions that we're looking at.

We have no concerns that we believe that the availability of senior debt capital will be available for what we're looking at.

Okay, and then just kind of following on that I can figure out your I think you mentioned five and a half or the whole loan Oh, the all of the debt and again, we know what sort of the marginal cost is based on what you just said.

Based on what you're seeing right now.

What would you say your Unlevered IRR is at new new portfolios.

And 11.

Well looking back what we did just did in the last quarter we had.

And Unlevered of 14, but that was the joint venture and really the tax equity buyouts.

We are executing.

Those are great, but there's it's kind of an apples and oranges question.

Yeah.

The negotiations that we're having you I shouldn't speak to that because these are live negotiations and so in essence, we're setting the market.

In these negotiations right now.

So let me not get out would actually give a number.

But we continue to think that on a levered basis, just that senior loan levered basis that we will be able to achieve that double digits, even into the mid teens on a on a levered basis.

Okay Alrighty ill Oh.

I'll step aside I'm sure other people have questions. Thank you.

The next question comes from Alex <unk>.

All of Bank of America. Please go ahead.

Hey team. Thanks for having me on the call maybe just a quick kind of fallen and maybe I'll ask it in a slightly different way than kind of what Joe was going I mean, how do you think about what we've seen like this sort of broad endless discussion on discount rates and what's the right discount rate to be assigned to these assets. I mean, you guys are you know looking at as both a buyer.

And an owner.

Currently it looks like you're using a P V five Allah sunbelt or anyone in the industry, but but how do you think about with broader rates moving up like what's the right discount rate to be using and and like how you think about value creation between acquiring and then you know looking at your assets.

And sort of an equity investor mindset that makes sense. Thanks.

Yeah, Alex Hey, thanks for joining and that does make sense. The the 5% that the industry is using I actually don't think is as <unk>.

Lazy.

What folks should understand about our business models that we have both in M&A.

Engine that is acquiring things and one might think that a little bit more like that asset management approach of.

Which at an Unlevered IRR of D. What sort of capital can you put behind it the capital stack of the things that that Joe So just I.

He was asking about the way you're asking it I think youre right. Its a slightly different because the valuation needs to also include that we actually are the owner operator of this so the ownership side. When you acquire it has some return, but because we have the ability to get renewals, we had the ability to sell.

Batteries, and EV Chargers and very directly to right now we've got a huge operating center in Houston.

Which has its own.

Economics that come out of it.

And so when one thinks about it on an all in basis, the industry's guidance of using Peasy five again, it's not crazy.

Our cost of capital and the capital markets. Those are the sorts of things that you are living and breathing you on a day to day basis, we're certainly watching it as well and it would play into things like the cost of our senior debt and availability.

<unk> has great.

Of course, we will have to be adjusting the prices that we pay on a go forward basis to continue to get to those mid teen returns now what spruce really likes about its business model is we are able to adjust the price that we pay.

For a an upstream tier that maybe has a bunch of things locked in.

And warehouse lines et cetera.

Cost of capital or.

It may not be as flexible as our abilities is simply adjust price to make sure that we get the returns that we need but again I just wanted to point toward we have additional value drivers that would come into effect when you start thinking about the.

That headline rates.

No I know.

I very much hear you on that I mean, maybe just sort of a follow on in a little bit of the same context slightly different question, though.

We've lifted and obviously some of your larger peers talked through their results and I think that there's a clear sort of wave across the industry push towards T. P. Overwhelms theres clearly attractive upside on <unk> as far as what you can do.

On tax equity going forward from an asset ownership model standpoint, I mean, how do you think about that impacting your ability to go out and acquire right like what's the marketplace can you do in in 2023, and you know theres a broader shift towards towards leases that maybe people want to hold those leases.

More.

How does that I guess inform the opportunity set for you guys going forward.

Yes, I mean, certainly when we started thinking about the.

The shift or a T P O.

Huge tailwind.

Tests.

The.

Well, let me, let me pull out some numbers from what we just put out.

Our from the servicing side, we have about 88000 systems that we either service or own what we own becomes the headline number but let's just talk about that broader number of 88000.

About 89% of our service portfolio is P. P F.

So the tailwind of moving toward I am going to say our upstream peers as they are saying, Hey, we're going we're seeing more and more and more of TPS.

We're downstream from that that is really good for our business model the shift away and I think what we're going to see.

From spruce is this continued reliance on the ppas and the leases.

Because it adds so much more value like we just talked about.

Yeah.

Annual basis.

We may be looking at what 15 to 30000 systems per year that these peers are putting on and that just keeps ratcheting up.

Times, the number appears that youre talking about.

There's a very large addressable market I'll use those where it's a large addressable market is being created for us.

Yes.

Got it and then just one last one for me I mean, when you think about sort of the landscape looking forward and like how you want to position you mentioned at the outset that you know there are some <unk>.

And in the resi solar space, what are the key ones being skilled labor and people to not only install things like batteries need be charges and everything else, but also to go out and maintain them and service them.

Obviously, you brought a much leaner model.

Bose.

Asset owners that are kind of looking at that at.

That sort of scale of servicing I mean does that inform you know what you want to own and how you want to you know you want to think about it going forward I don't know if that makes you like for example want to own less batteries instead of wait that out.

You know I bet, but curious I mean, if you if you can give any color there yeah.

Yeah, you bet the look you're absolutely right, it's a much leaner model.

It means that we can do things at a lower cost I won't get into the numbers at my peers, but it's certainly something that.

We've got a good asset operations group in Houston.

Then manages that nationwide network of O&M partners and it's how we keep it lean.

Other than losing money in a subscale market, we can partner with someone that has that local scale to do that so our lean model doesn't mean that we don't cover our markets. We just do it in a way that is a streamlined as possible.

The the availability of does drive we want to see a certain amount of scale in markets. So when we talk about being in 16 different states. Those are those are selected.

We look at the density that's available in the market the availability of O&M partners in those markets.

Before we jump in and acquire into that market that enables us to keep what we think is a cost advantage on the overall O&M costs on a persistent basis, which of course, just which leads to higher overall operating margins.

And those dense markets that we keep adding scale.

On a go forward basis, when we talked about over 34000 systems in bilateral negotiations those are.

Huge huge majority almost entirely in the markets that we already have and as a result every one of those is going to continue to add.

Two the operating profit margins.

Got it appreciate the color guys. Thanks.

Yes.

This.

A question and answer session I would like to turn the conference back over to Mr. Eric Katz for any closing remarks.

Hey, Thank you very much and thank you for all the people that participated in the call today.

Well as those that that had some questions, which hopefully we we appropriately addressed.

As I said in my earlier statement, we look forward to delivering value to our shareholders and other stakeholders in the company. We feel we have demonstrated the ability now to have a platform with the with positive EBITDA growth and with liquidity.

And we're hoping that we can demonstrate that to the market going forward. Thank you.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].