Q4 2024 Spruce Power Holding Corp Earnings Call

Abby: Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the Spruce Power Force Quarter 2024 Earnings Conference call.

Abby: 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 fourth quarter and full year 2024.

Abby: Our discussion will also include forward looking statements. These statements are not statements of historical fact refer.

Abby: Our current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed.

Abby: There can be no assurance actual performance will not differ materially from any future expectations or results expressed or implied by these forward looking statements.

Abby: We undertake no obligation to publicly revise or update any forward looking statement.

Abby: Please refer to our earnings release and our other SEC filings for further discussion on Bruce Power's risk factors and other important information regarding our forward looking statements.

Abby: All comments made during today's call are subject to that safe Harbor statement.

Chris: With that I will turn it over to Chris.

Chris: Thank you Scott and good afternoon, everyone.

Chris: I will begin by providing our perspective on the residential solar market recent challenges in the sector are well known and while we're not immune to those factors. It is important to highlight what differentiates Bruce power from other players in the residential solar space.

Chris: Most importantly in this time of heightened uncertainty across the broader solar market Bruce power offers investors greater stability and predictability.

Chris: Many of our peers are heavily dependent on aggressive new customer acquisition strategies externally finance working capital continuous growth in new solar installations in government assistance Bruce power operates on a fundamentally different and more resilient business model.

Chris: Since Bruce power is not a seller installer or originator of new solar installations, we do not have significant fixed costs. In addition, our financial health is not contingent on new sales or external capital markets, rather our business is predicated on Maxim.

Chris: The value of existing solar assets through operational efficiencies.

Chris: Maintenance.

Chris: Superior asset management today, we own and manage a portfolio of approximately 85000.

Chris: Solar assets and customer contract.

Chris: These installations generate stable long term contracted cash flows for the company providing resistant to macroeconomic headwinds.

Chris: This structural advantage makes Bruce power are more stable and cash efficient business more than ever consistency and cash flows is what differentiates Bruce power as a trusted long term operator in the residential solar sector.

Chris: Now, let's look back on 2024.

Chris: And highlight our key accomplishments.

Chris: First we grew our portfolio significantly.

Chris: In November 2024, we acquired our residential solar portfolio of approximately 9800 systems from <unk> clean energy ventures in New Jersey.

Chris: These systems are supported by long term lease agreement with homeowners, including an average remaining contract life of more than 11 years.

Chris: Bruce is entitled to the customer payment streams, and renewable energy credit program incentives.

Chris: <unk> to the portfolio.

Chris: The acquisition meaningfully expand versus presence within new Jersey.

Chris: Now representing the company's second largest market with approximately 16000 customers.

Chris: We expect to benefit from efficiencies associated with increased geographic density.

Chris: This is an exciting acquisition that provides immediate positive impact to <unk>.

<unk> financial and strategic outlook through continued scaling of our ownership of home solar asset same contract overall spruce increased our total loan portfolio to approximately 85000 home solar assets and customer contract across 18 states.

Chris: I will also note that the <unk> acquisition had a materially positive impact on spruce is growth portfolio value.

Chris: Inclusive of N Jr. Our gross portfolio value with $910 million in the fourth quarter.

Chris: Whereas our growth portfolio value would have been 749 million without the MGR transaction is further demonstrates the value of the MGR transaction, particularly given our ability to execute while maintaining disciplined cash restraint.

Chris: Second we.

Chris: We made major improvements that enhanced our operational efficiency and increased revenue.

Bruce: I'm proud to report that as Bruce Reconnected 4800 systems reduced ticket cycle times and cleared 10000 backlog service tickets.

Bruce: We also implemented an advanced asset management system and upgraded meters across our portfolio.

Because of these improvements and other upgrades, we drove a material increase in customer experience.

Bruce: Our customer satisfaction or <unk> score rose to 83% in 2024 up from 74% in 2023.

Bruce: Third our GAAP expenses associated with our legacy XL fleet legal matters are now behind us. These onetime charges obscured our true financial model. We're excited to begin 2025 with excess fleet in the rearview mirror finally, we successfully law.

Speaker Change: <unk>, our third party servicing channel, which was a major initiative for Bruce.

Bruce: Let me discuss this in more depth.

Bruce: Spruce Pro our third party solar servicing platform is gaining traction.

Bruce: In December 2024, we finalized a third party servicing agreement with ADT solar covering approximately 60000 systems.

Bruce: This validates our optimism and is testament to our capabilities.

Bruce: By partnering with first row third parties like ADT solar can leverage our experience and maximize productivity uptime and efficiency in areas such as financial asset management billing.

Bruce: Billing and collections.

Bruce: Asset operations account services homeowner support it support.

Bruce: And implementation and finally <unk> marketplace.

Bruce: We believe that spruce CRO channel plays to our strengths and has strong potential to deliver capital light growth.

Bruce: To support this effort, we hired a high impact sales reps, specifically focused on delivering additional new business wins modeled after ADT solar.

Bruce: <unk> problem.

Bruce: As we position the company for a successful 2025.

Bruce: I will remind you that our corporate strategy is built on three pillars first.

Bruce: We acquired portfolios of installed systems, then sell additional services and leverage strategic partnerships to drive profitable expansion.

Bruce: We did this with the <unk> transaction in 2024 and are working to Opportunistically identify additional favorable transactions in 2025.

Bruce: Our spruce pro channel enables us to maximize return on assets and capital light growth.

Bruce: We leveraged the company's decade, plus experience in management of its wholly owned residential solar assets to offer a suite of services that can be tailored for third party owners of distributed generation assets.

Bruce: These services include financial and asset management operations and customer service support.

Bruce: While each of these third party agreements will be customized we're confident that we can source other partnerships like ADT solar.

Bruce: Third we are focused on expanding subscription base.

Bruce: Solutions for distributed energy.

Bruce: We are extending our proven solar servicing platform to the distributed energy resources market.

Bruce: Our strategy produces business opportunities and a platform for a predictable and healthy revenue and cash flow.

Bruce: Weather conditions in the residential solar sector are favorable or distressed. Moreover, we prioritize long term financial stability over short term sales growth.

Bruce: This along with our long live cash flow generating assets enables us to be patient and meticulous as we identify structure and.

Bruce: And execute agreements that add shareholder value.

Bruce: We are also implementing several cost optimization strategies in 2025, most prominently we're focused on driving down operations and maintenance or O&M costs.

Bruce: We talked about elevated O&M expense throughout 2024, because of the early arrival of anticipated maintenance.

Bruce: The actions, we're taking should sharply reduce O&M expenses.

Bruce: As 2025 progresses.

Bruce: In addition, we are making operational enhancements through strategic sourcing and procurement and better vendor management.

Bruce: By developing channels of supply and services at low cost, we foster more predictable pricing models.

And benefit from job cost savings.

Bruce: We believe these efforts will drive improved operating efficiency and margin expansion in 2025.

Speaker Change: Before I turn the call to Sarah.

Speaker Change: I want to reiterate the financial strength of our business, we continue to generate stable predictable cash flows reflecting the resilience of our unique business model. Despite the currently challenging residential solar environment.

Speaker Change: This remains a long term competitive advantage first Bruce.

Speaker Change: Financial discipline is at the core of our strategy and we are committed to maintaining operational efficiency and shareholder value creation.

Speaker Change: Let me now turn it over to Sarah who will provide a detailed review of our financial results and outlook.

Sarah: Thank you Chris I will now provide additional details regarding our fourth quarter and full year 2024 financial results.

Sarah: In 2024, we took important steps to strengthen our financial position and enhance operational efficiency.

Sarah: Fourth quarter revenue was $20 2 million compared to $15 7 million in the prior year period with the increase primarily attributable to higher revenues associated with the <unk> acquisition.

Sarah: Using a conservative approach to recognizing revenue for delinquent customer accounts in accordance with GAAP in the prior year on a full year 2024 basis GAAP revenue was $82 1 million compared to $79 9 million in 2023.

Sarah: Fourth quarter core Opex, which we define as SG&A and portfolio O&M was $20 7 million in total as compared to $17 6 million for the prior year period.

Sarah: Portfolio.

Sarah: <unk> decreased to $5 3 million in the fourth quarter from $5 6 million in the prior year period.

Sarah: G&A expense increased to $15 5 million in the fourth quarter from $12 million in the prior year period for this quarter SG&A was negatively impacted by an increase in professional services incurred in connection with the <unk> acquisition and a conservative shift in how we recognize seasonal reserve for delinquent customer accounts.

Sarah: Accordance with GAAP in the prior year these costs amounted to $2 $1 million during the quarter.

Spruce generated a GAAP net loss attributable to stockholders of $5 9 million.

Sarah: As a reminder, we consider operating EBITDA, our 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 strategy.

Sarah: Operating EBITDA was $10 8 million for the fourth quarter versus $11 3 million in the prior year period on a full year basis versus 2024 operating EBITDA was $53 9 million.

Sarah: Despite the substantial improvement in the fourth quarter relative to the prior period, we missed our full year 2024, operating EBITDA guidance range of 57% to $62 million, primarily due to O&M and legal expenses.

Sarah: Chris communicated previously servicing existing solar installation this produces predictable revenue and cash flow streams.

Sarah: Various prioritizes long term financial stability over short term sales growth.

Sarah: We acknowledge that the acquisition of installed systems and agreements related to spruce pro are lumpy and will only occur when the deal terms we require are satisfied.

Sarah: Given these priorities and constraint and the backdrop of a volatile residential solar macroeconomic inflationary interest rate and utility rate environment, we have decided not to provide financial guidance at this time.

Sarah: At the end of the fourth quarter total cash inclusive of unrestricted cash and restricted cash on our balance sheet was approximately $109 $1 million.

Sarah: Our unrestricted cash balance at quarter end was approximately $72 8 million versus $113 6 million at the end of the third quarter.

Sarah: The sequential decline in unrestricted cash is largely due to the <unk> transaction, although ongoing operational spend including O&M costs as well as legal expense also contributed.

Sarah: The total principal balance of long term debt was $730 6 million at the end of the fourth quarter with a blended interest rate of 6%, including the impact of hedge arrangement.

Sarah: All of <unk> debt is nonrecourse and serviced by customer collections of our various portfolio companies.

Sarah: At quarter end all of our floating rate debt instruments were materially hedged with interest rate swaps extending into early 2030. These hedge arrangements had a net mark to market of positive $24 2 million at quarter end.

Sarah: First the financial goals in 2025 or to optimize cash flow and manage operating expenses to improve efficiency.

Sarah: With that operator, we're going to take questions.

Sarah: Thank you.

Sarah: And we will now begin the question and answer session.

Speaker Change: Belden and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.

Speaker Change: I would like to withdraw your question simply press Star one a second time.

Speaker Change: And we will pause for just a moment to compile the Q&A roster.

Speaker Change: And there are no questions at this time I will now turn the conference back over to Mr. Chris Hayes for closing remarks.

Chris Hayes: Thank you operator, I want to emphasize that we remain laser focused on scaling our platform optimizing our capital structure and delivering consistent financial performance. One final remark is that we welcome Scott Kozak as director of Investor Relations as we expand communication with the Investor.

Speaker Change: <unk> community in 2025.

Speaker Change: For your interest in Bruce power and for participating in our call today, we look forward to updating you throughout 2025.

Speaker Change: And ladies and gentlemen that concludes today's call and we thank you for your participation you may now disconnect.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.