Q4 2022 Spruce Power Holding Corp Earnings Call
Speaker 2: Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Spruce Power 4th Quarter 2022 Earnings Conference Call.
Speaker 2: 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 followed by the number 1 on your telephone keypad.
Speaker 2: If you would like to withdraw your question, again press the star 1. Thank you. Ronson Slag, Head of Investor Relations for Spruce Power.
Speaker 3: Please go ahead. Thank you. Good afternoon and welcome to Spruce Power's conference call to discuss results for the fourth quarter and full year 2022. With me today are Christian Fong, our Chief Executive Officer, and Donald Klein.
Speaker 3: our Chief Financial Officer.
Speaker 3: Our call this afternoon will include 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 risk and uncertainties.
Speaker 3: many of which were beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements.
Speaker 3: Similarly, out of our control is the timing of some of the processes we will discuss today, which could impact the expectation-related statements we will hear shortly.
Speaker 3: We are not obliged to revise or update any forward-looking statements except as may be required by law.
Speaker 3: Please refer to our 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.
Speaker 3: A copy of our press release has been posted to the investor relations page of our website for reference.
Speaker 3: The non-GAAP financial measures discussed in the 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 , Christian Fong. Christian, go ahead. Thanks, Bronson, and thanks to everyone for joining us on the call today. Welcome to our first earnings call at the new Spruce Power.
Speaker 3: Although our Q4 and full year 2022 financials will reflect the results of the digested operations of Excel Suite, as we speak to you today, the transformation to spruce power is largely complete. Last quarter we talked about our post merger path being three steps.
Speaker 3: that is finishing the strategic review of the legacy Excel businesses, then transitioning to management team, and finally resuming growth through portfolio acquisition.
Speaker 3: With the exit from Legacy XL businesses, our sole business now is owning, operating, and servicing rooftop solar installations. I resumed the CEO role on February 1st and the company is led predominantly by the executive team that built Spruce Power over the last five years.
Speaker 3: Our name has changed and our headquarters moved it to Denver. In all regards, we are a pure play residential rooftop solar company.
Speaker 3: Finally, we tipped the ground running on portfolio growth. We announced earlier today that we acquired a portfolio of over 22,000 customers.
Speaker 3: on portfolio growth. We announced earlier today that we acquired a portfolio of over 22,000 customers. More on that in a moment.
Speaker 3: Bottom line, we executed the plan we described last fall and our future has never been brighter.
Speaker 3: Strategically, Bruce starts 2023 in a position of strength with a stable portfolio that generates significant recurring revenue. Importantly, during turbulent economic times, we had access to substantial growth capital. We started 2023 with over $200 million of cash.
Speaker 3: Furthermore, our common stock, when properly valued by the market, can be used to fund future growth. Simply put, cash is king and we have it.
Speaker 3: Including today's portfolio acquisition, we own rooftop solar assets and contracts in 18 states, powering over 70,000 homes.
Speaker 3: We also provide billing, maintenance, and renewable energy credit services to third-party clients for another 7,500 customers. We are among the top five owner-operators of U.S. residential solar companies based on 2022 revenue. With our highly differentiated growth strategy, we believe we can eventually move into the top three.
Speaker 3: What do we do differently?
Speaker 3: We don't directly originate or install rooftop systems.
Speaker 3: Instead, we purchased entire portfolios of rooftop assets from developers and other asset owners.
Speaker 3: Origination and installation are labor, sales, and capital intensive.
Speaker 3: Our model enables us to achieve scale more quickly by buying systems cheaper and faster than we can build, and we don't tie up working capital. We think recent capital markets volatility highlights the stability of asset ownership.
Speaker 3: versus other pass-through origination models.
Speaker 3: Importantly, our rooftops are not passive financial holdings. They are opportunities to increase revenue. We can sell to our existing customers add-on technologies that are a part of what we call the Home Power Systems 2.0. That is, customers start with solar, then add other products like battery storage, smart grid.
Speaker 3: and consumer power components.
Speaker 3: As systems get complex, we can offer management of residential energy data, renewable energy credits, and other services that move customers toward greater savings and greater energy independence.
Speaker 3: For now though, Spruce's growth is being driven by acquisitions of systems and customers. Furthermore, the recurring revenue and high margins of rooftop solar have enabled access to plentiful non-recourse project debt. We started 2023 confident that we had access to capital sufficient for growth to well over 100,000 rooftops.
Speaker 3: We set a near-term goal of over 80% growth by the end of 2024. That goal would take us to over 90,000 rooftops, creating meaningful scale. From a strategic standpoint, we expand our customer and geographic base. From a financial standpoint, we expand the operating margins on the entire portfolio.
Speaker 3: We also intend to differentiate in customer experience. We are committed to creating the best customer experience possible, which we believe also requires a great customer facing employee team.
Speaker 3: We are dedicating resources to elevating both the customer experience and the quality of our team. We built a Texas-based customer experience team, invested in supporting technology, leading to substantial improvements in customer satisfaction ratings.
Speaker 3: In 2022, we went from 54% customer satisfaction in the first quarter to 81% in the fourth quarter. Our customer experience improvements were driven by a strong service team committed to building their technical knowledge and deepening internal collaboration. At our recently launched Spruce University.
Speaker 3: More than half the company is now working toward a Spruce Solar certification. We expect this more knowledgeable staff to provide better, faster, and smarter answers for our customers. As a result, they should also be more effective at selling appropriate products for future upgrades. To better attract talent, we raise our minimum wage from $15 to $17.
Speaker 3: Because our interface with customers increasingly depends on technology, we are upping investment in customer-facing systems.
Speaker 3: In February , we launched an efficient new billing system.
Speaker 3: It gets monthly invoices to customers nearly a week earlier than the old system and provides customers with a single sign-in online interface to access their account.
Speaker 3: We expect meaningful improvements in customer satisfaction and cost savings because today only 5% of our customer interactions are through virtual tools. Customer service is still primarily via live personnel. There are trade-offs of course. Service can lead to deeper customer interactions.
Speaker 3: Yet feedback from our customers is unambiguous. They want the speed and efficiency that come from technical tools. That's why we're working hard in 2023 to build those capabilities for an even better customer experience.
Speaker 3: Now let me get specific in outlining Spruce Power's goals for 23 and 24.
Speaker 3: First, we started 23 with the goal of growing our customer portfolio by about 80% in the next two years, which would take us to over 90,000 rooftops.
Speaker 3: Beyond customer count growth, we're also looking for growth in the average number of products and services each customer uses, which improves both our share of wallet and share of mind as customers make decisions about their home power.
Speaker 3: Since we grow through acquisition, we have greater return hurdles too, and target an equity IRR in the teens for new acquisitions.
Speaker 3: Second, we want to maintain a balanced use of capital, especially when it comes to our mounting positive cash flow. Over the next two years, we expect to allocate 10 to 20% of our EVA.DA to capital improvements for upgrades to individual systems as well as building out the stronger customer service technologies.
Speaker 3: Beyond these critical investments, our approach to capital allocation will emphasize maximum flexibility for growth on a per share basis.
Speaker 3: We may allocate cash flows to future acquisitions, debt repayment, or other measures that we feel best enhance returns to our shareholders.
Speaker 3: Third, we aim to steadily improve financial performance.
Speaker 3: The primary financial performance metrics that we managed toward are eva da and recastflow. We also watched a handful of secondary metrics. First, the subscriber value of the owned portfolios recurring casilos, which we report on a quarterly basis.
Speaker 3: Secondly, our net debt level relative to EBITDA. Let's examine our goal for each of these.
Speaker 3: For EBITDA on cash flow, we intend to build long-term value for shareholders by growing predictable recurring cash flows with high-credit quality customers.
Speaker 3: For subscriber value, we enable you to easily compare us to our residential solar peers by reporting the net present value of the future cash flows from our own portfolios using a 6% discount rate currently.
Speaker 3: For net debt to Iida, this bi-digested measure is the ratio of our debt balance, net of our cash and interest rate swap value, divided by Iida. Over time, we intend to reduce this metric from the current to 6.8 times. However, considering recent turbulence in the banking sector, we may also seek better terms or transparency from our debt partners.
Speaker 3: Please keep in mind when valuing us that our debt is entirely non-recourse project debt. The first maturity is still at least three years out.
Speaker 3: Our debt was struck at attractive rates. Across the whole debt structure we are paying a composite rate of about 5.5% and I want to emphasize that we have zero corporate recourse debt.
Speaker 3: Let me make one final note on financial performance. We intend to grow recurring EBITDA by investing and redeploying cash flow into acquisitions with high IRR. Yet knowing that our cash flow can also pay down debt, we always have the two good options of either growing per share cash flows or strengthening our balance sheet. Both are good near-term outcomes. Let me make one final note on financial performance.
Speaker 3: Beyond financial performance, you should also evaluate our performance in customer experience.
Speaker 3: We finished 22 with an average customer satisfaction, or what we call CSAT.
Speaker 3: Average CSAT score of 62 percent for the full year. We ended the year with an extraordinary fourth quarter score of 81 percent. Our 23 goal is a full year CSAT exceeding 70 percent.
Speaker 3: We intend to drive improvement by investing in new employee tools, continue staff training.
Speaker 3: We also expect to steadily improve externally reported reputation scores. Also look for why is use of new technology.
Speaker 3: Nearly 100% of our portfolio CapEx is for technologies that improve customer experience, especially as residential power shifts from a home infrastructure product to the interactive experience of a consumer good.
Speaker 3: We have two big projects underway. First, we are implementing improved asset level monitoring systems.
Speaker 3: We have already upgraded about 65% of our original 3G base monitoring to 4G and 5G or Wi-Fi meters. We have already upgraded about 65% of our original 3G base monitoring to 4G and 5G or
Speaker 3: Second, we are building our own integrated enterprise technology stack that enables our customers to interact with their Spruce Home Power System.
Speaker 3: We expect to complete both projects by the end of 2024.
Speaker 3: As we look ahead, my confidence in our 150 strong person team has never been greater. I laid out hard but achievable goals and I know our team is up to the task. If we succeed, which we fully intend to do, we'll create substantial value for both our customers and our shareholders.
Speaker 3: Before I turn the call to Don to review financials, I want to discuss the exciting portfolio acquisition we announced earlier today. We acquired a portfolio of approximately 22,500 residential solar contracts across 10 U.S. states. We call this portfolio the SCMTH portfolio.
Speaker 3: SEMTH consists of cash flows generated by high quality residential solar systems.
Speaker 3: The systems were originated by the home builder, Linares, and its legacy residential solar platform Sun Street. This is our first large-scale acquisition as a public company and the largest in our corporate history. It grows our system ownership by 40% literally overnight.
Speaker 3: demonstrating the power of our strategy to drive step change growth. We believe this deal immediately and substantially increases the value of spruce. The FEMTH portfolio has strong underlying cash characteristics with clear line of side to substantial recurring customer collections.
Speaker 3: of about $23 million annually. The portfolio is highly profitable.
Speaker 3: Underwritten portfolio EBITDA for 2023 of about $18 million leads to an attractive rate of return with an unlevered IRR of about 10%. It also improves our visibility for long-term recurring revenue with its nearly 15-year average contract life averaging up our existing portfolios to approximately 13 years.
Speaker 3: Finally, credit risk is solid.
Speaker 3: Customer's credit resembles our existing portfolio with an average customer FICO score of 738.
Speaker 3: The SEMTH acquisition is a great step forward for Spruce as we start life as a publicly traded company, but it's far from our last deal. We believe there's a compelling set of growth opportunities in our market.
Speaker 3: I'll reiterate what I said last quarter. We can't normally comment on specific opportunities we're pursuing, but we do continue to expect a stair-step function in growth as we pursue both large and small portfolios in the quarters ahead. With that, I'll now turn the call over to our CFO , Don Klein, to walk through the financials. Don, go ahead.
Speaker 3: Thanks, Christian. Before we discuss our fourth quarter results, I'd like to walk through a few items that impacted our financial reporting. As Christian mentioned, with the completion of the acquisition of Sprues and transition to solar, we announced that we were pursuing a strategic alternatives for our drivetrain business.
Speaker 3: In December , we exited the drivetrain business, including the sale of a portion of the business, which closed in January . We also explored alternatives for the XL Grid operations, which primarily consisted of world energy efficiency services. In January , we completed the sale of world energy.
Speaker 3: Because of these exits, both the tree that discontinued operations in the fourth quarter, the related operators also presented a single line in our income statement, loss of discontinued operations.
Speaker 3: For the fourth quarter, our revenues and continuing operating results reflect results of spruce as well as certain corporate functions of the legacy Excel operations.
Speaker 3: This gives a cleaner picture of our results from continuing operations.
Speaker 3: But note that the results include restructuring charges and costs that we expect to run off in 2023 as we finish up integration of the two businesses.
Speaker 3: Starting in C1 2023 results with a more fully reflect operation of the Spruce Power Rift with top-sword business.
Speaker 3: In GC1 2023, results will more fully reflect operations of spruce power, rooftop solar business. With that, let's move on to results.
Speaker 3: Fourth quarter revenue, which consists of exclusively of spruce-related revenue, was 18.1 million compared to 5.1 million in the third quarter of 2022.
Speaker 3: Three-quarter revenue had only 21 days of contribution from Spruce.
Speaker 3: Keep in mind that with quarter is typically a lower revenue generating quarter for us due to weather related impacts on solar production.
Speaker 3: Fourth quarter, selling general administrative expenses were $28.6 million, compared to $27 million last quarter and $11.6 million in the fourth quarter of 2021.
Speaker 3: Fourth quarter SG&A includes approximately $3.8 million in legal fees related to the previously disclosed class action complaints and SEC investigation.
Speaker 3: It also includes restructuring related charges of $8.4 million related to our integration and transition efforts.
Speaker 3: So just to be able to total $3.5 million compared to negative $8.3 million in the prior year quarter.
Speaker 3: As of December 31, 2022, we had cash, cash equivalents, and restricted cash of approximately $240 million.
Speaker 3: This compares to 272 million at the end of the third quarter of 2020. The sequential change in cash includes approximately 9 million used for debt repayment and approximately 8 million for the buyout and distributions of tax equity partnerships.
Speaker 3: The total principal balance of long-term debt as of December 31 was $533 million.
Speaker 3: As noted at the time of the acquisition of Spruce, our leverage is in line with industry average for the sort of business we operate. Our debt is non-recourse and backed by our long-term contracts that provide annuity-like cash flows. The debt is very tractively priced with a weighted average interest cost of only approximately 5.5%. Our monthly new debt is 6th rate, while our variable rate, senior debt, is approximately 97% 6th through interest rate swaps.
Speaker 3: Again, it's worth noting that our first maturity is not until April 2026, providing ample flexibility to manage future capital structure and financing costs.
Speaker 3: In measuring the value of our long-term solar contracts with customers, we have provided metrics on gross total subscriber value, which represents the present value of the remaining net cash flows of our rooftop systems in customer contracts discounted at 6%. As of December 31, gross total subscriber value was $741 million.
Speaker 3: Now we would like to open the call for any questions. Operator, please go ahead.
Speaker 2: Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad.
Speaker 2: Your first question comes from the line of Joseph Asha with Guggenheim. Your line is now open. Hey there. Can you guys hear me okay? Your hand, Joe. Okay. Thank you.
Speaker 4: Okay, so thanks for this. That was really interesting. I've got a couple of questions here. First, when you buy a portfolio like the one you just bought, does that typically come? Are you bringing the existing debt along with it?
Speaker 4: If so, what opportunities exist as you bring this business on your platform to potentially refinance that debt? What opportunities exist as you bring this business on your platform to potentially refinance
Speaker 5: So, we did assume the non-recourse project debt for this portfolio of $125 million was that loan, a single-tranch senior loan. And this, it is...
Speaker 5: more rare to assume the debt, but that in some ways is a function of what the capital markets and the debt markets had been when we made previous acquisitions, where because of our size, we were often able to get such attractive debt that it was more favorable to get a debt released and put new debt on. That's been our MO in the past.
Speaker 5: but clearly with the increase in rates recently, debt that is on was favorable to leave on and as a result we could make sure that we negotiated and successfully assumed that debt.
Speaker 4: Okay, and you shared with us kind of a target IRR, unlevered I assume, for your portfolio. So kind of the logical question be, what type of crap you have Cutting offiorÃs
Speaker 4: What is the current number and perhaps target in terms of your cost of debt capital?
Speaker 5: Sure, well, let's start with the overall cost of debt that we've got in the portfolio right now, and it's between 5.5 and 5.6% for the entire stack. Let me say it.
Speaker 5: In a bit of a debt perspective, we are often seeing spreads in kind of the 225 to 250 range, similar to what some of our other public peers have experienced. I think the recent turbulence may test that, but we don't have anything further beyond
Speaker 5: beyond that. I think what's important to note Joe is that
Speaker 5: Because we are acquiring the portfolios, it's a return in the teens.
Speaker 5: we simply can adjust the bids and the costs that we're paying for the equity portion. And so there's a natural buffer as debt costs change to still be able to get the yields that we've been targeting by adjusting the pricing in a similar way that I suppose an originator.
Speaker 5: would adjust their pricing to a customer and pass that through. So in that similar way we've been able to maintain the yields or the returns on the assets. Okay, would you go, I mean so now you've got you know four hundred and seventy million and four hundred thirty five million in in in
Speaker 4: non-recourse project debt, which is a pretty chunky number, right? Let's assume for a minute that this mosaic deal gets off the runway for some kind of halfway reasonable pricing here. Could we see you guys try to take this increasing portfolio business?
Speaker 4: and go out and perhaps refinance the whole thing and you know debt or ABS markets if the pricing was reasonable? Yeah absolutely. We have four different tranches of senior debt. Each of them...
Speaker 5: a good amount of scale for the bank loans that
Speaker 5: all four of them were. But to your point, now that we are getting into that $400-$500 million range, you certainly start getting large enough to support a different part of the capital markets. And we continue to actively talk to the folks that would provide.
Speaker 5: things like structured finance or some folks may be aware and it's certainly public because of the ratings that at one point we had looked at even doing a term loan B and had rated debt though it didn't finish the swing and actually issuing that debt but we've actively and transparently
Speaker 5: than approaching the capital markets because of that scale. And we think that could be a potential opportunity, though again, the market turbulence right now makes it hard to lock anything in.
Speaker 4: Right, and we'll see how mosaic goes. Two more questions for me and then I'll jump off. The first, you're disclosing a gross contract in renewal customer value, which is great. I guess I'm just wondering why you don't go the next step.
Speaker 4: and do that simple math and disclose a net number because it's not bad, it's 741 less 470 plus 220, right, which is getting you at kind of the 500 range. So why not disclose that?
Speaker 3: right, especially seeing as that number is, you know, roughly five times your current market cap. Yeah, this is Don. I think that's a good question. It's something that we're definitely working through the, you know, the evolution from Excel to Spruce with the KPIs, and that's probably one at the top of the list and better defining, refining how we're presenting that, but obviously that information is available, as you noted.
Speaker 4: Right, okay, and then the last one before I go away just looking at the
Speaker 4: the operating expense, if you take that 28 million, about 12 of it looks like it was kind of one-time stuff associated with restructuring or SEC and this and that. So if we assume, can we think about this business of...
Speaker 4: having of the SG&A at kind of a 16 million dollar run rate? Is that a reasonable assumption? And is that sustainable? Can you scale the organization on that run rate? Thank you. Yeah, I think that number is directionally reasonable, but we've definitely had discussions of
Speaker 3: continuing to drive costs down. And fourth quarter, as we said in the script, and it's in there, we pulled out certain numbers for restructuring, but there's inherently redundancies and transition costs in there, so I think some of those will fall off, and we alluded to in Q1, that's gonna be a better picture.
Speaker 2: As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad.
Speaker 2: Your next question comes from the line of Jordan Levy with Truist. Your line is now open.
Speaker 6: Afternoon all and thanks for taking my questions.
Speaker 6: And also congratulations on the acquisition announcement.
Speaker 6: Clearly, based on your announcement, there's deals to be had in the market. Recognizing some of the volatility we're seeing right now. Christian, maybe for you, I just wanted to get your thoughts around the current landscape and the pipeline for other deals and any recent shifts you've seen in the broader picture there.
Speaker 7: Yeah, the...
Speaker 7: Yeah, the.
Speaker 5: There's always this cadence of looking at deals picking the best ones
Speaker 5: have the best characteristics and then closing. So obviously today is the culmination of
Speaker 5: going through that cycle. We are in active discussions, so it's not a on-off switch between finding and closing, and so those continue. I don't want to project when our next deal would be or how large it is. I just say that we are in active bilateral negotiations on
Speaker 5: things currently. I am seeing a more active market. I think when say some things are shaking loose, there's some well-known private installers that have gone under or are struggling trying to raise equity themselves and sometimes instead of raising equity, recycle the capital from selling the assets that you own.
Speaker 5: So between asset owners and developer installers needing to find capital, it is an active market right now.
Speaker 6: Thanks for that. Maybe just as a quick follow up on the different front. You mentioned some of the initiatives around the enterprise technology stack. Just wanted to see if we could get a little more color there on what that allows you to do from a customer servicing perspective and that sort of thing. There's no on the.
Speaker 5: This is not like dialing up a Salesforce representative and saying, hey, hand me your package of residential solar tools. This is a new industry and the tools are being invented and developed by the participants.
Speaker 5: there's pluses and minuses to that. It does take longer, so for example we just
Speaker 5: We just launched the billing platform that I talked about. And that took a lot more months than pulling something off the shelf and installing.
Speaker 5: So what we're working on going forward is an enterprise-wide, where all our systems of records are effectively talking to each other, so that when a customer calls in or logs in, again I talked about single sign-in process,
Speaker 5: every time you build something for security reasons, you end up having a different sign-in. It's a very clunky customer experience. So even the process of giving what may seem to be obvious, like you just sign in with a login password like we're all used to in many apps.
Speaker 5: That is something that has to be built inside this industry. It actually creates a moat as folks get to 30,000 or 50,000 customers. It's impossible to do things by spreadsheet, to do things with legacy older technology. These things all have to be built.
Speaker 5: What I'm happy to be able to share is that all the different portions of an enterprise technology stack have been built. And so in 23 and 24, by connecting them all together, a customer will be able to log in and see every aspect, whether it's the performance.
Speaker 5: of the system or a bill or a customer service question, if there may be an asset component replacement or something that is going on. Their experience then becomes very real-time in being able to interact with their customer NXT-type
Speaker 5: or to see the power that's on the rooftop.
Speaker 5: and interact with Spruce and of course from a future sales standpoint to be able to select and begin a sale process or an acquisition process of their own to buy the next piece of that home power system.
Speaker 5: So that's what we anticipate coming in the next two years, leading to higher customer satisfaction, better customer experiences all the way through, so one call, one answer situations, and ideally greater sales as additional components come to market. Really interesting. Thanks for the commentary.
Speaker 2: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. If you would like to ask a question, press star followed by the number one on your telephone
Speaker 4: Your next question comes again from the line of Joseph Osher with Guggenheim. Your line is now open. I'm back. I wanted to return to that interesting point you made, Christian, about, you know, sort of some dealers.
Speaker 4: sort of being forced to sell the family jewels to stay in business. And that's quite interesting given, I expect, where loan pricing in particular is going to go, again depending on what happens today or tomorrow with Mosaic and the implications for that.
How big an opportunity is that? And do you have a mechanism in place to perhaps go out and start looking at who might be prospective sellers in that market?
I mean the mosaic, we're all watching that print very closely. It hasn't hit today, I'm looking at it as we speak. Thanks for the real-time update to the audio. Actually, no, it literally just hit. Alright, pulling back from talking about a competitor.
It is dramatic, let's put it that way. And I think other folks have talked about the percentage shift to PPAs versus the loans.
So in terms of the opportunities, the calls are coming in to us. We're a well-known buyer within the market. Those of us that have built the company have been doing this for five years within this company, but 15 years for many of us that have been active in solar power and wind before that. Incoming calls...
give us insight that there are public.
There are public renewable power companies.
that are actively looking for buyers of blocks of their assets. And those incoming calls have given us visibility that it's not just limited to the private markets that are always trying to raise cash and optimize what they hold versus the warehouse finance facilities that they have. But that this is extending.
to our public peers as well as they may be doing normal rebalancing. We don't have necessarily the visibility into why, we just know the what. I'll leave it there for obvious reasons, I can't talk about specific names.
Okay, all right, thank you. That's very helpful. And just, I wanted to check on one other bit of simple math I was doing looking at your current financials, right?
You had a gross margin of $10 million. You had, I would argue, recurring operating expenses of $16 million. And then a depreciation add back of $16 million.
I think I want to say it was worth like five, five and a half million dollars. So on kind of an organic basis right now today.
I would argue that you're sort of running a cash flow break even. Is that a fair way to think of it?
Yeah, I think that's accurate in light of the debt structure and the principal payments. I think there's a healthy amount of scheduled principal that's made each quarter.
So I think that's one of the legacy spruce carryovers and something that we've talked about revisiting again as we look at refinancing to get more cash flow positive.
So I think that's one of the legacy spruce carryovers and something that we've talked about revisiting again as we look at refinancing to get more cash flow positive.
All right, well, thank you. This concludes our Q&A for today. I now would like to turn the call back over to Bronson Flagg. Thank you, operator, and thank you again 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. You may all disconnect.