XL Fleet Corporation - Ordinary Shares - Class A Aktie

Hello, everyone. Thank you for joining us, and welcome to the Spruce Power Second Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I will now hand the conference over to Julia Gasbarre, Corporate Development and Investor Relations. Julia, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Spruce Power's Second Quarter 2026 Earnings Conference Call. Joining me today are Chris Hayes, Spruce's Chief Executive Officer; and Tom Cimino, the company's Chief Financial Officer.

Before we begin, I'd 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 most comparable GAAP measures, is included in our earnings release for the second quarter of 2026, which is available on the Investor Relations section of our website.

Our discussion today will also include forward-looking statements that reflect management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and SEC filings for a discussion of these risk factors.

With that, I will now turn the call over to Chris Hayes, Chief Executive Officer of Spruce Power. Chris?

Thanks, Julia, and good afternoon, everyone. We delivered a solid second quarter and executed against the priorities we outlined at the beginning of the year. Disciplined execution across the organization enabled us to deliver operating EBITDA ahead of the prior year. We also generated higher operating income, returned to positive GAAP net income, and reduced debt while maintaining a disciplined approach to liquidity.

Revenue totaled $30.3 million compared with $33.3 million in the prior year period. Despite the decline in revenue, income from operations increased 10% to $9.8 million. Net income attributable to stockholders was $3.3 million, or $0.14 per diluted share, compared with a net loss attributable to stockholders of $3 million, or $0.17 per diluted share, in the second quarter of 2025.

The composition of the quarter is important. Combined PPA and SLA revenue increased 2% year-over-year to $22.5 million, and our portfolio generated approximately 196,000 megawatt-hours of power, up from 187,000 megawatt-hours a year ago. Lower SP5 SREC production and a slower-than-anticipated ramp in Spruce Pro revenue were the principal revenue headwinds. Those 2 factors were distinct from the underlying performance of our recurring customer portfolio, which remained stable.

At the same time, core operating expenses, which include SG&A and O&M, declined 21% year-over-year to $13.8 million and remains below $15 million for the fourth consecutive quarter. SG&A expense declined 26% to $11.3 million, primarily reflecting lower labor and professional services costs from our project to streamline operating expenses. The year-over-year improvement is particularly notable because second quarter SG&A also includes a number of nonrecurring costs. Excluding these discrete items, the underlying cost structure continues to demonstrate the structural benefits of the efficiency actions we implemented over the past several quarters.

O&M expense was $2.5 million compared with $2.2 million in the prior year quarter. O&M was favorable relative to plan because nonroutine service activity ramped more gradually than anticipated during the first half. Routine O&M also benefited from discipline around fleet, mailing, and administrative costs. We expect service volumes to increase during the second half of the year, which should bring full year O&M spending closer to our original plan.

Our in-house field services model continues to be an important part of that operating strategy. We have reduced servicing costs across our New Jersey portfolio and are extending the same approach into Southern California. As the rollout matures, we believe it can lower servicing costs per system, shorten repair cycle times, and give us greater control over service quality and system uptime.

Operationally, our approximately 83,000 customer contracts generated recurring customer payments under long-term agreements across a geographically diversified portfolio. Our customer satisfaction score was 80% for the quarter, reflecting the focus of our teams on customer service and operational execution. We are evaluating practical opportunities to use automation and artificial intelligence across customer service, asset management, finance, and other core functions. The focus is on targeted applications that can reduce manual work, improve data quality and service levels, and support productivity without adding unnecessary overhead.

Turning to liquidity and financing. We preserved liquidity and reduced debt during the quarter. We ended the quarter with total cash and restricted cash of $81.5 million and repaid $7.9 million of debt principal. Tom will discuss the quarter-end balances in more detail. Refinancing remains a critical near-term priority. As required under GAAP, our quarter-end financial statements include a going concern disclosure because the SP1 and SP2 maturities fall within 12 months of the financial statements issuance dates, and we had not entered into committed refinancing arrangements as of that date.

The current classification of SP1 and SP2 caused the reported negative working capital position at quarter end. We are in preliminary discussions with potential lenders regarding SP1 and are evaluating refinancing alternatives for both SP1 and SP2. We recognize the importance and timing of these maturities and are approaching the process with appropriate urgency. Our objective is to complete refinancing solutions ahead of the applicable maturities while preserving liquidity and maintaining a capital structure appropriate for the scale and maturity of the portfolio.

Looking ahead, our priorities are unchanged. First, continue to improve the efficiency, service quality, and profitability of our operating platform; second, execute our refinancing initiatives while maintaining disciplined liquidity management; and third, take a disciplined approach to growth, including portfolio acquisitions, programmatic partnerships, and Spruce Pro servicing relationships. Overall, the quarter demonstrates that our cost control actions are translating into stronger profitability. We are focused on disciplined execution through the second half of 2026. With that, I will turn the call over to Tom.

Thanks, Chris, and good afternoon, everyone. I will begin with a more detailed review of our second quarter financial results. Revenue totaled $30.3 million compared to $33.3 million in the second quarter of 2025. Sequentially, revenue increased from $23.4 million in the first quarter, consistent with the seasonal pattern of our solar production and customer payments. On a year-over-year basis, combined PPA and lease revenue increased by $400,000. That increase was more than offset by a $1.4 million reduction in performance-based incentive revenue, a $1.1 million reduction in SREC revenue, and a net $900,000 reduction in other revenue, of which $600,000 was noncash.

Turning to expenses. Total operating expenses were $20.6 million, down 16% from $24.4 million in the prior year period. Solar energy service system depreciation was essentially flat at $7.3 million. Core operating expenses totaled $13.8 million compared with $17.4 million in the second quarter of 2025. SG&A expense was $11.3 million, down 26% year-over-year. The decrease primarily reflected the benefits of our project to streamline operating expenses, including lower labor and recurring professional service costs. These positives were somewhat offset by the nonrecurring professional fees related to corporate strategy, refinancing, and legal costs.

O&M expense was $2.5 million compared with $2.2 million in the prior year period. The year-over-year increase reflects extra efforts to reduce the outstanding service ticket backlog. At the same time, the O&M increase was offset by lower routine recurring costs as a result of streamlined contract negotiations. For the first 6 months of 2026, O&M expense was down approximately 40% year-over-year, reflecting the concentration of elevated nonroutine activity in the first half of 2025.

Operating EBITDA for the quarter was $26.5 million compared with $24.6 million in the second quarter of 2025. The result was ahead of the prior year as lower operating costs offset the revenue decline. Income from operations increased to $9.8 million from $8.9 million in the prior year period. Net income attributable to stockholders improved to $3.3 million from a net loss of $3 million in the second quarter of 2025. The improvements in net income reflect lower operating expenses and a favorable year-over-year change in the noncash valuation of our interest rate swaps.

Cash used in operating activities was $3.2 million during the quarter, reflecting working capital timing, primarily higher SREC receivables, of which the majority were fully collected in July. After including recurring cash proceeds from the SEMTH master lease and customer buyouts and prepayments, adjusted cash flow from operations was a positive $4.8 million.

We ended the quarter with total cash of $81.5 million, including $44.7 million of unrestricted cash. The total cash balance benefited from reduced core operating expenses, offset by increased debt service payments in part due to the timing of the mezzanine debt service occurring only twice a year as well as higher legal costs.

During the quarter, we repaid $7.9 million of debt principal. Total debt principal outstanding as of June 30, 2026, was $680 million. The GAAP carrying amount, net of unamortized fair value adjustments and deferred financing costs, was $663 million. Our interest rate swaps covered 91% of our floating rate term debt, and we remain in compliance with all covenants under our credit agreements at quarter end.

The SP1 facility matures on January 30, 2027, if we obtain an executed term sheet for long-term financing by October 30, 2026. The SP2 facility matures on May 14, 2027. We have commenced preliminary lender discussions regarding SP1 and continue to evaluate refinancing alternatives for both facilities with the objective of completing the respective transactions ahead of their maturities. We can provide no assurance regarding the timing, terms, or completion of any refinancing transactions.

Looking ahead, our current full year forecast is unchanged. On revenue, we expect PPA and lease revenue to remain generally consistent with the performance of the portfolio through the first half and the normal seasonal patterns. We continue to monitor SREC production and revenue, particularly around SP5, and expect revenues to be in line with the first half of the year.

On expenses, we expect the first half O&M favorability to be largely offset by higher service activity during the second half, resulting in full year O&M broadly in line with start of the year expectations. We expect recurring SG&A to trend from an approximately $11 million quarterly level to approximately $10 million in the fourth quarter. Taken together, we believe the business remains positioned to generate stable recurring portfolio cash flows from operations while continuing to improve operating efficiency and advance our financing objectives.

With that, I'll turn the call back over to Chris for closing comments.

Thanks, Tom. To summarize, our second quarter results demonstrate the resilience of the business model. Our core contracted PPA and lease revenue remained stable, while the operating improvements implemented over the past year translated into a structurally lower cost base and year-to-date operating EBITDA 21% ahead of the prior year.

As we move through the second half of 2026, our priorities are clear: execute our refinancing initiatives, maintain disciplined liquidity management, continue improving service and operating efficiency, and pursue growth only where the expected returns justify the capital and incremental overhead. We appreciate the continued support of our investors and look forward to updating you again next quarter. Operator, please open the line for questions.

[Operator Instructions] There are no questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Spruce Power First Quarter 2026 Earnings Results Conference Call. [Operator Instructions]

I will now hand the call over to Julia Gasbarre, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Spruce Power's First Quarter 2026 Earnings Conference Call. Joining me today are Chris Hayes, Spruce's Chief Executive Officer; and Tom Cimino, the company's Chief Financial Officer.

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 most comparable GAAP measures is included in our earnings release for the first quarter of 2026 is available on the Investor Relations section of our website.

Our discussion today will also include forward-looking statements that reflect management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and SEC filings for a discussion of these risk factors.

With that, I will now turn the call over to Chris Hayes, Chief Executive Officer of Spruce Power. Chris?

Thanks, Julia. Good afternoon, everyone. We began 2026 with continued progress against our operational and financial priorities, delivering meaningful year-over-year improvement in profitability and operating efficiency, while maintaining stable liquidity and recurring cash flow generation from our portfolio. For the first quarter, revenue totaled approximately $23.4 million, which was generally in line with the prior year period despite weather-related impacts in the Northeast. Importantly, we continue to realize the benefits of our operational streamlining initiatives, resulting in substantial margin expansion and improving operating performance across the business. Operating EBITDA for the quarter was approximately $18.4 million, an increase of 49%, compared to the first quarter of 2025.

Income from operations improved by more than $5.5 million year-over-year, reflecting continued cost discipline, lower operating expenses and the structural efficiencies we implemented through 2025.

Our first quarter results demonstrate the strength of our operating platform and the durability of our long-term contracted revenue base. While top line growth was modest during the quarter, our focus remains on maximizing cash generation, improving operating leverage and positioning the business for sustainable long-term value creation.

During the quarter, we executed our cost optimization initiatives. Operations and maintenance expenses declined 70% year-over-year, while SG&A expense declined 21%, driven primarily by lower labor costs, reduced professional services spend and ongoing operational efficiencies associated with Project Streamline.

Importantly, we believe a significant portion of these improvements are structural in nature. While some O&M activity shifted into later quarters of the year, the broader improvements in labor efficiency, vendor management and servicing operations continue to support a meaningfully lower recurring cost structure for the business.

Turning to liquidity and financing. As expected, our quarter end financial statements include a going concern disclosure tied to the accounting treatment associated with the current maturity classification of the SP1 facility. Importantly, we successfully completed an extension of the SP1 facility during the quarter and continue to advance constructive refinancing discussions consistent with our historical financing strategy.

We believe the extension provides additional flexibility as we evaluate a broader refinancing opportunity designed to optimize our long-term capital structure and align financing with the scale and maturity of the platform we have built.

Operationally, the business remains stable. With approximately 84,000 customer contracts generating predictable, recurring cash flows supported by long-term agreements and diversified geographic exposure.

Looking ahead, our priorities remain consistent: first, continue to improve the efficiency and profitability of our operating platform; second, advancing our refinancing initiatives and maintaining disciplined liquidity management; third, selectively pursuing growth opportunities across portfolio acquisitions, programmatic partnerships and Spruce Pro servicing relationships, where we believe we can generate attractive returns without significant incremental overhead.

We also continue to see encouraging long-term opportunities within a variety of new business initiatives that we are exploring as the year continues. Overall, we are encouraged by the progress we made during the quarter and remain focused on disciplined execution as we move through 2026. With that, I'll turn the call over to Tom.

Thanks, Chris, and good afternoon, everyone. I'll begin with our first quarter financial results. For the first quarter 2026, revenue totaled $23.4 million, compared to $23.8 million in the first quarter of 2025. Modest year-over-year decline was primarily attributable to lower noncash amortization revenue associated with our previously acquired solar energy agreements as well as lower PPA revenue driven by weather-related impacts and customer buyouts. These items were partially offset by higher SREC and performance-based incentive revenue.

Turning to expenses. Total operating expense for the quarter was $19.6 million compared with $25.5 million in the prior year period. Core operating expenses, which include SG&A and O&M totaled approximately $12.7 million, compared with approximately $18.6 million in the first quarter of 2025.

Breaking that down further, SG&A expense was approximately $11.6 million. O&M expense was approximately $1.2 million. The year-over-year improvement reflects our continued execution of streamlined initiatives including lower labor costs, reduced professional service expense and ongoing operating efficiencies throughout the organization. Within O&M, the reduction was driven by improved servicing efficiencies and lower third-party vendor activity and the completion of elevated service and meter upgrade activity that occurred during the prior year period.

As Chris mentioned, some O&M activity shifted into later quarters of 2026 as we align servicing volumes with our full year operating plan. As a result, we expect O&M expenses to increase sequentially throughout the year while remaining generally in line with our full year expectations.

Operating EBITDA for the quarter was $18.4 million compared with $12.3 million in the first quarter of 2025 and representing an increase of 49%. Net loss attributable to stockholders improved significantly to approximately $2.9 million compared with a net loss of approximately $15.3 million in the prior year period. The improvement was driven primarily by lower operating expenses and favorable year-over-year changes in the valuation of our interest rate swaps.

Now turning to the balance sheet and liquidity. We ended the quarter with total cash and restricted cash of approximately $85.6 million, including approximately $50 million of unrestricted cash.

During the quarter, we repaid approximately $8.2 million of debt principal, continuing our long-term deleveraging strategy. Total outstanding debt as of March 31, 2026, was $668 million with a blended interest rate of approximately 6.6%, including the impact of our hedge arrangement.

As Chris discussed, we completed an amendment to the SP1 facility during the quarter, extending the maturity to October 2026, with the potential extension to expense into January 2027, subject to achieving a signed term sheet. We continue to actively evaluate refinancing alternatives and remain encouraged by ongoing discussions.

Looking ahead, our current outlook for full year 2026 remains generally consistent with our prior expectations. We expect full year operating EBITDA to remain in line with our budget with lower first quarter O&M spend and collections, offset by higher servicing activity and collections during the second half of the year.

We expect continued improvements in SG&A run rate as additional streamlined initiatives are implemented. Overall, we believe the business is well positioned to continue generating stable recurring cash flow from operations while improving operational efficiency and advancing our financing objectives.

With that, I'll turn the call back over to Chris for closing remarks.

Thanks, Tom. To summarize, our first quarter results reflect continued progress executing our operational and financial strategy. We delivered substantial year-over-year improvement in profitability and operating EBITDA, continue to reduce costs across the organization, maintained stable liquidity and advanced our refinancing process. As we move through 2026, we remain focused on disciplined execution, recurring cash flow generation, operational efficiency and long-term shareholder value creation. We appreciate the continued support of our investors and look forward to updating you again next quarter. Operator, please open the line for questions.

[Operator Instructions] At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Spruce Power Fourth Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Julia Gasbarre, Corporate Development and Investor Relations. You may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Spruce Power's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today are Chris Hayes, Spruce's Chief Executive Officer; and Tom Cimino, the company's Chief Financial Officer. 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 comparable GAAP measures is included in our earnings release for the fourth quarter of 2025, which is available on the Investor Relations section of our website.

Our discussion today will also include forward-looking statements that reflect management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release and SEC filings for a discussion of these risk factors. With that, I will now turn the call over to Chris Hayes, Chief Executive Officer of Spruce Power. Chris?

Thanks, Julia. Good afternoon, everyone. 2025 was a breakout year for Spruce and our fourth quarter captive with exceptional momentum across the business. I could not be prouder of what our team accomplished. We delivered strong growth, significantly expanded margins and fundamentally improved the efficiency and scalability of our platform. For the fourth quarter, revenue was approximately $24 million, up 19% year-over-year, and operating EBITDA exceeded $17 million, reflecting both portfolio growth and meaningful cost improvements.

For the full year, revenue increased 36% versus 2024, underscoring the strength of our platform and the impact of the NJR acquisition. Importantly, this growth was accompanied by substantial operating leverage. In the fourth quarter, O&M expense declined 64% year-over-year and SG&A declined 16% as we executed on our cost optimization initiatives. These gains are structural in nature and position us to drive continued margin expansion as we scale. We saw a meaningful inflection in cash generation.

Adjusted cash flow from operations was positive $5.1 million in the quarter compared to negative $4.1 million in the prior year period, reflecting both improved operating performance and the growing contribution from our portfolio. At the same time, we continued to delever repairepaying $35.1 million of debt during 2025, increasing our enterprise value. The shift in our operating income underscores our breakout year.

For the full year 2025, income from operations was positive $17.9 million compared to negative $50.4 million in the prior year. Operating EBITDA was $80.1 million for the full year 2025, a 49% increase versus 2024. Taken together, these results demonstrate the strength of our model. A growing base of long-term contracted cash flows, improving unit economics and a platform that become more efficient as it scales.

Before turning to our strategy, I want to address our financing process and the going concern disclosure you will see in our upcoming 10-K. As part of our capital strategy, we made a deliberate decision to extend our existing SP1 facility to create additional flexibility as we evaluate a broader refinancing opportunity. Rather than a near-term single portfolio solution, we chose to position the company to execute a more comprehensive transaction that could include SP1, SP2 and SP3. With the SP1 extension now complete, we are moving aggressively on a more comprehensive solution.

We believe this approach maximizes optionality enhances long-term financing efficiency and better aligns our capital structure with the scale of the platform we have built. The going concern disclosure is driven by accounting requirements related to the timing of this process, it is not reflective of our operating performance or lender engagement. We are encouraged by the level of interest and support we have seen and remain confident in our ability to execute a financing solution that strengthens the business and supports future growth.

Looking ahead, our strategy remains focused on 3 key growth drivers. First, acquiring installed residential solar portfolios where our platform can unlock incremental value through operational improvements; second, expanding programmatic partnerships with developers and originators and allowing us to efficiently grow our asset base; and third, scaling Spruce Pro, our capital-light servicing platform, which we believe represents a significant and underappreciated opportunity to grow revenue and expand margins without deploying capital.

Across each of these areas, our operating capabilities, cost structure and experience managing distributed solar assets position us to execute at scale. In closing, we exited 2025 with strong momentum, improved profitability, solid cash position and a clear path to continued growth. We are confident in the trajectory of the business and excited about the opportunities ahead in 2026.

With that, I'll turn the call over to Tom.

Thanks, Chris, and good afternoon, everyone. I'll begin with our fourth quarter financial results. For the fourth quarter 2025, revenue totaled $24 million compared to $20.2 million in the fourth quarter of 2024. The increase was again primarily attributable to the residential solar portfolio acquired from NJR in November 2024 as well as higher solar renewable energy credit revenue. Sequentially, revenue declined from the third quarter, which is consistent with the seasonal pattern of solar production and customer payments, particularly during the [indiscernible] when solar generation is lower.

Turning to expenses. Total operating expense was $21.8 million for the quarter compared to $26.7 million in the year earlier period. Core operating expenses, which include SG&A and O&M totaled $14.9 million compared with $20.7 million in the fourth quarter of 2024. Breaking that down further. SG&A expenses were $13 million, O&M expenses were $1.9 million. The year-over-year improvement reflects the early stages of our project streamline and its impact on SG&A as we focus on reducing recurring costs.

Regarding O&M costs for the year-over-year period, both the completion of our meter upgrade activities as well as continued efficiencies and cost discipline across the business contributed to the favorable variance. Operating EBITDA for the quarter was $17 million, up from $10.8 million in the fourth quarter of 2024, primarily reflecting the contribution of the NJR portfolio as well as improvements in the company's operating cost structure.

Now moving on to the balance sheet and liquidity. Adjusted cash flow from operations was $5.1 million for the quarter compared with a negative $4.1 million in the prior period -- prior year period. Cash flow from operations can fluctuate quarter-to-quarter due to both seasonal solar generation patterns and timing of certain debt service payments. Despite these fluctuations, the underlying cash generation from our portfolio remains stable and continues to support the ongoing paydown of debt principal.

We continue to repay debt principal paying $10.1 million during the quarter and $35.1 million for the year. We closed the year with a total of $93.1 million in gas. That compares to $0.8 million at the end of the third quarter and approximately $90 million at the end of the second quarter. The modest sequential change primarily reflects the timing of debt service as we pay the mezzanine debt service semi-anually. Total outstanding principal debt as of December 31, 2025 was $695.5 million with a blended interest rate of approximately 6.1%, including the impact of our hedge arrangement.

As Chris discussed earlier, -- we strategically entered into an extension of our SP1 facility, which gives us maximum optionality and a runway to focus on a broad refinancing transaction across multiple portfolios. We extended the terms to January 30, 2027, and with the stipulation that we have a term seat by October 30, 2026. Looking ahead, we intend to build on the millennium we established in the second half of 2025. We look to continue to reduce costs and further improve our improve our recurring run rate core expense profile as we fully implement our streamlined savings while pursuing modest disciplined growth.

With that, I'll turn the call back over to Chris for closing comments.

Thanks, Tom. To summarize, our fourth quarter and full year results reflect continued progress executing our strategy. We remain focused on generating stable cash flow from our operating portfolio. improving the efficiency of our platform and pursuing disciplined growth opportunities through portfolio acquisitions, programmatic partnerships and the continued expansion of Spruce Pro. We appreciate the continued support of our investors and look forward to updating you again next quarter. Operator, please open the line for any questions.

[Operator Instructions] Our first question comes from the line of Will Hamilton from Castro Virgin Partners.

Congrats on the strong cash flow. I was just wanted to see if I could get a little bit more color on the revenue buckets. How much was SREC during the quarter in the services revenue since those have been larger growth contributors?

Yes. Well, appreciate it. Thanks for the compliment on the quarter. The K, you'll see we break out the revenue by component. The SREC revenue for the year was $221 million. and the system either leases or PPA revenue was $78 million. But keep in mind, the SP4 revenue is consistent with every quarter that revenue is reported below the line as interest income, and that's just due to the accounting you want and requirements to record that revenue as actually interest income, but you can see it in the cash flow statement as cash coming in. So that's the breakdown.

Okay. And then on -- with Spruce Pro, how would you characterize like sort of the pipeline of adding new business there to grow that.

Yes. I would say, overall, we have a robust pipeline that's made up of kind of what we call a few large whales and sort of some smaller opportunities. So we've been super active in the market. Obviously, we didn't announce anything in the quarter, but we are hopeful there will be announcements in the near term and are very aggressive in that space. .

Okay. And then last question is just more on the M&A, which hard to answer, but -- you haven't done anything too recent. I was just wondering what is the pipeline like for that. But is it also now kind of tied to the debt consolidation deal that you're working on?

Yes. So I'll answer them separately, but talk about any interplay between the 2. So we do have a super active pipeline. I mean, we've done certain acquisitions over a number of years. So having been active in the market. We get phone calls, we're always beating the bushes. We are underwriting a number of deals, whether we get to closing remains to be seen, but that is certainly the objective. As it relates to the SP1 strategic extension, that we chose, no, there is not an interplay with that and either helping or hurting any strategic growth acquisitions to sort of operate independently.

There are no further questions. I'd like to now turn the call back over to Julia Casari for closing remarks.

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

This concludes today's meeting. You may now disconnect.

Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spruce Power Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Julia Gasbarre, Investor Relations. Julia, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Spruce Power's Third Quarter 2025 Earnings Conference Call. Joining me today are Chris Hayes, Spruce's Chief Executive Officer; and Tom Cimino, the company's Interim Chief Financial Officer.

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 third quarter of 2025, which has been posted on the Investor Relations page of our corporate website. Our discussion will also include forward-looking statements. These statements are not statements of historical fact. They reflect our current expectations and are subject to risks and uncertainties that could cause actual results to differ materially than 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 on Spruce Power's 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, Julia, and hello, everyone. Before we dive into details of the quarter and our outlook, I want to express to you the excitement we feel at Spruce. Our actions over the past few months, while difficult, position us for outstanding performance in the quarters ahead. Even as many peers in our sector struggle or face bankruptcy, [ upper ] balance sheet, cash position and resilient business model give us an ironclad foundation for success. Just looking at our third quarter results, you can sense the change in direction and the exciting outlook for our business. We believe Spruce is ready to blossom in the year ahead, thanks to the efforts this year of everyone on our team.

Okay. Let's start with highlights of the KPIs by which we measure ourselves. This quarter, we achieved positive free cash flow, increasing our total cash to $98.8 million now from $90.4 million at the start of the quarter. Revenue grew 44% compared to the year earlier period. Operating EBITDA jumped an even better 48% year-over-year. The growth primarily reflects the positive impact of the November 2024 acquisition of approximately 9,800 rooftop assets from New Jersey Resources as well as sizable growth in solar renewable energy credits or SREC revenue. Furthermore, our core operating expenses, which include both SG&A and operations and maintenance, or O&M, was $14.8 million in the aggregate, down 15% from the year earlier period. I want to emphasize that nothing is more important to us than generating positive free cash flow.

Now let me give you some perspective on the residential solar market and our position in it. Our market faced challenges this year and certain business model proved that they were not sustainable. Notably, recent policy changes in Washington, D.C. eliminated some residential solar energy tax credits. These changes are expected to negatively impact cash loan deals and origination of new assets. We believe that many players will not be able to adapt to this changing environment. In contrast, Spruce's resilient business model is fundamentally different, we are not dependent on aggressive new customer acquisition strategies, externally financed working capital or continuous growth in new installations. In contrast to installers, our business produces steady cash flows from our operating assets. So we are not hostage to the origination treadmill. Moreover, our business does not depend on IRA tax credits. Spruce's model is designed to maximize the value of existing solar assets through operational efficiencies, maintenance and superior asset management. Today, we own and manage a portfolio of approximately 85,000 home solar assets and customer contracts. We also provide servicing to roughly 60,000 residential solar systems owned by others. As a third-party owner, we buy systems after installation and after any tax credit has been monetized. The installations we acquire generate stable, long-term contracted cash flows. Simply put, our differentiated model does not bear the same risks as the installer model.

Now let me offer context on our market penetration capacity for growth. According to a September 2025 analysis from the Solar Energy Industries Association, or SEIA, residential solar installations declined 9% year-over-year. However, there are over 5 million solar installations in the United States, 97% of which are on residential rooftops. If residential solar installation growth slows due to recent policy changes, Spruce still has significant room to grow. With only 145,000 systems and contracts, our portfolio size is just a fraction of the addressable market. We can grow whether new installations are growing or not. To be clear, we do not believe the solar energy industry has peaked. According to the same report, solar accounted for over half of all new electricity generating capacity additions in the first half of 2025. The need for power, especially distributed generation is significant and increasing in the U.S. Individuals and companies are experiencing higher costs as rates rise, driven by load growth from data centers, the electrification of everything and reshoring industrials. This underscores the need for an all-of-the-above energy strategy. Spiking power demands, rising utility rates and the phaseout of the 48E tax credit in 2027 should drive a shift towards the third-party owner or TPO channel. With most regulatory uncertainty behind us, Spruce is taking advantage of market changes to actively pursue 3 key opportunities to grow our business. These are: one, the acquisition of installed systems; two, programmatic offtake partnerships; and three, the expansion of our Spruce Pro servicing business with both primary and backup servicing contracts. The first revenue driver is opportunistic M&A.

When we acquired portfolios of installed systems, and then sell in additional services, we command a higher return on opportunistic acquisitions because of our M&A expertise, cash discipline, relationship with underwriters and low servicing costs. These advantages, coupled with a limited pool of potential buyers, enable us to only pursue agreements that meet our deal terms. Our NJR acquisition last year is a recent example of this type of transaction. We expect to secure more attractive deals as installers seek to recycle their capital and/or recognize that they do not have the expertise or resources to efficiently manage all their systems. Indeed, the bid-ask spread has narrowed considerably this year. In addition, some interesting assets could become distressed as the entry transition following the elimination of certain IRA tax credits. This could lead to a renewed urgency to complete new TPO deals by the end of 2027. We are actively evaluating new portfolios as we speak.

Importantly, we are not just passive acquirers. We actively maximize value from the installations we acquire. For example, the NJR acquisition included many New Jersey SRECs, in August, we entered into a multiyear agreement to sell New Jersey SRECs to an energy sector conglomerate. The transaction is expected to generate a total of $10 million in revenue through 2029. This partnership is part of a broader initiative to leverage our platform and experience to capture the benefits of our SRECs. These are low-cost, low-risk opportunity to generate capital-light, high-margin cash flow for Spruce. The SREC transaction is another example of our ability to maximize value from our assets while hedging against future price movements. The forward contract provides an important ongoing hedged revenue stream and reinforces the dependability of Spruce's cash flow generation. We anticipate similar opportunities may be available in certain Northeastern states as well as California, which we are actively pursuing.

The second revenue driver is programmatic offtake. We are working to secure our first programmatic agreement and are enthusiastic that this strategy can drive derisked revenue. With programmatic offtake, we seek to acquire or service newly installed systems on an ongoing basis as our partners complete them. These partners may include homebuilders as well as legacy solar originators that are pivoting into TPO ownership leases and PPAs. Our model is one where programmatic partners bear the risk of getting systems through construction to operational status and only then [ when ] we buy or begin servicing these nearly new installations at an agreed-upon price.

Partnership opportunities did slow this year as many waited for clarity on the budget bill and IRA tax credits. Some originators revamped their business models in recent years to eliminate dependency on IRA tax credits and are poised to grow without any government support. We are in active conversations with these strong industry players. We believe that our programmatic offtake initiative should ultimately generate double-digit IRRs as we acquire a steady number of new installations each month.

The third revenue driver is Spruce Pro, our third-party servicing platform. For this channel, we leverage the company's decade-plus experience in managing our wholly-owned residential solar assets to offer a suite of services that can be tailored for third-party owners of distributed generation assets. Our service offering covers financial asset management, billing and collections, asset operations, account services, homeowner support, IT support and implementation and SREC management. Customers leverage our experience to maximize productivity, uptime and efficiency. We have a growing pipeline of potential Spruce partners that include traditional residential solar players, large owners of solar installations, developers, private equity and numerous midsized and local companies that own either residential or commercial and industrial solar sites. Our servicing model and deep expertise enables us to offer our customers significant flexibility when it comes to meeting the needs of their business. While each of these third-party agreements will be customized, we are confident the company can source other partnerships like ADT. Servicing is a durable competitive advantage for Spruce and we are benefiting by leveraging previous investments. We are delivering capital-light growth through this initiative and are proud to have announced several new wins this quarter. These include a full-scope deal, servicing residential solar and storage in North Carolina and a backup servicing role for a Puerto Rico-based solar financing platform. Spruce will pursue both primary and backup servicer roles to meet the needs of this market. Importantly for us and our shareholders, Spruce Pro is unlevered, and there will be no debt financing associated with these agreements. Even as we pursue these new growth initiatives, Keep in mind that the revenue and cash flows generated by the installations we already own and service remain highly predictable regardless of conditions in the residential solar sector or changes to the high IRA. We are confident in our ability to identify, structure and execute new agreements that add shareholder value.

Next, I want to dissect the other half of our strategy to sustain positive cash flow. Top line growth is complemented by aggressive cost containment, and we are seeing results from recent cost reduction initiatives. In September, we announced a program to meaningfully improve operational efficiency, drive long-term profitability and optimize our financial position. The program will reduce SG&A expense and lead to approximately $20 million in annual savings. Actions included workforce adjustments, the closure of the Denver office and consolidation of certain roles. These changes will redirect resources to accelerate sales of Spruce Pro investment in IT systems and automation and improved scalability across the entire business. Furthermore, we drove a sequential decrease in operations and maintenance expenses for the third consecutive quarter, reversing the earlier-than-expected O&M spike that began in 2024. We revamped our system to more efficiently route service calls from customers. We rightsized inventory on our trucks, and we appropriately managed customer contracts. This resulted in lower spending on third-party contractors. Meanwhile, our in-house service team is fully operational in New Jersey, where we have a heavy concentration of systems. This team can handle most of the service calls in-house, further driving down third-party contractor spend. The platform and methodical operational strategy we implemented in late February has produced thoughtful system issues management and is gaining ground. We believe these improvements are sustainable and will continue to levelize O&M expenses into 2027. We believe the reduction in SG&A and O&M expenses will increase positive free cash flow through the end of 2025 and into 2026. These changes are moving the company toward a more sustainable business model that will support our long-term strategy for future growth.

Before concluding, I want to highlight that we do not need to refinance any of the nonrecourse debt associated with our portfolios in 2025. With that said, the lines of communication are open with creditors, and we continue to receive feedback that we can roll over our first debt maturity associated with our SP1 portfolio due in April 2026 and on like-for-like terms, if we choose to proceed. In addition, we have identified additional potential credit options that could be more favorable, although those other options and our ability to roll financing on a like-for-like basis will be subject to changing financing market conditions.

Finally, taking a step back, we are motivated by the progress we are making as we execute our strategy and realize our vision. Our revenue opportunities and operational improvements can deliver a combination of performance, flexibility and value that is compelling to customers, partners, creditors, investors and other key stakeholders. Customers and partners recognize that Spruce is a mature industry leader and a low-cost service provider with an established and high-functioning portfolio management and service offering. We are well positioned as more players seek solar TPO deals, both PPA and lease and as individuals and companies take energy matters into their own hands in the face of escalating rates.

Now I'll pass the call to Tom Cimino, who will provide a detailed review of our financial results and outlook. This is Tom's second quarter serving as CFO at Spruce. Tom hit the ground running since joining us and is doing a great job in maximizing operational efficiencies and executing growth strategies. Tom, go ahead.

Thanks, Chris. Good afternoon, everyone. I will start with the details on the company's third quarter financial results and the tangible progress we are making to strengthen our financial position and enhance our operating efficiency.

Third quarter revenue was $30.7 million, down from $33.2 million in the second quarter but up from $21.4 million in the prior year period. The 44% increase from the prior year period is primarily attributable to the NJR acquisition and the resulting lease and SREC revenue.

Third quarter core operating expense, which we define as SG&A and O&M was $14.8 million in total. This is down from $17.2 million in the previous quarter and $17.5 million in the prior year period. We are pleased with this trend, but not content with the 15% decline in our core operating expense from the prior year period. Breaking this out, our O&M expense was $1.8 million in the third quarter, down from $2.1 million in the second quarter and $3.9 million in the prior year period. This represents an annual decline of 51%.

SG&A expense was $12.9 million in the third quarter, down from $13.5 million in the prior year period. As evidenced here, we have already made strides to decrease our core operating expenses. However, this does not yet reflect the cost savings initiatives Chris discussed earlier. We expect to see our core operating expenses continue to decline through the end of 2025 and into 2026. Contributing to the above, Bruce generated a net loss attributable to stockholders of $860,000 compared to a net loss of $3 million in the previous quarter and a loss of $53.5 million in the prior year period. The significant loss in the prior year period is in part attributable to a goodwill impairment charge recognized in that quarter.

Moving to operating EBITDA. As a reminder, we consider operating EBITDA a key metric in evaluating the company's financial performance, which is defined as adjusted EBITDA plus select items that represent material cash inflows from our ongoing operations. Operating EBITDA was $26.2 million, up from $24.6 million in the second quarter and 48% higher compared to the $17.7 million in the prior year period. This increase was due to the NJR acquisition, resulting in both higher lease and SREC revenues as well as our continued lower core operating expenses as we efficiently manage our costs.

Turning now to cash flow. We were also pleased with the continued improvement in our cash flow from operations. In the third quarter, we generated $11.2 million in cash from operating activities. Net cash generated from operations in the quarter improved $17.4 million from the prior year period. When adjusting for the recurring proceeds of our SEMTH master lease agreement and proceeds from our sale of solar energy systems, we generated $20.2 million in adjusted cash flow from operations during the third quarter of 2025 and $26.5 million for the 9-month period.

Moving further down the cash flow statement. For the third quarter 2025, we generated $8.6 million from investing [ activities ], including the above-mentioned proceeds from the master lease and solar system sales. Regarding our financing activities, we used $11.4 million in the quarter for debt repayment. And for the 9-month period 2025, we have used $25 million, further driving down our net debt balance.

Finally, let me close with a brief discussion on our capital and liquidity position. At the end of the second quarter, total cash, inclusive of unrestricted and restricted cash was $98.8 million, $53.6 million of which was unrestricted versus $53.5 million at the end of the second quarter. Our total debt principal was $705.6 million at the end of the third quarter with a blended interest rate of 6.1%, including the impact of our hedge arrangements. Our debt principal was down from $730.6 million at the end of 2024. All debt consists of project finance loans that are nonrecourse to the company itself or nonrecourse debt is incurred at the project level. At the quarter end, all of our floating rate debt instruments were materially hedged with interest rate swaps extending into the early 2030s. These hedge arrangements had a net mark-to-market value of $12.2 million at the end of the quarter.

With that, thank you very much. And now let me turn the call back over to the operator.

[Operator Instructions] your first question comes from the line of Will Hamilton with Kestrel Merchant Partners.

Congrats on the great quarter. I was wondering if you could just give us a little bit more breakdown of the revenue. What was the solar renewal credit revenue in the quarter?

Yes. Thanks for the question, Will. Tom, do you want to break that up, please?

Yes. Sure, Will. We break it out in our Q, but the SREC revenue, I think, that you're referring to was about $6.5 million of the $30 million for the quarter. It's slightly lower than it was last quarter. And then $11.5 million of PPA, $9.7 million of lease revenue and the rest is the other, including some of the ADT and other revenues that we have.

Okay. And since some of these kind of are newer to this game, could you speak to a little bit how we should think about fourth quarter in terms of revenue given maybe the seasonality and the electricity generation?

Yes, for sure. So what I would say about that, obviously, being in the Northern Hemisphere, we do have seasonality in the numbers. At this point, we are not giving guidance, so I can't really provide more clarity than that other than to say we do get less sun in this part of the world, and that does drive some of the top line revenues down.

Right. Okay. Got it. That's helpful. And then in terms of just capital allocation from here, I mean, given the improvement in cash flow, it sounds like you are looking more and more at deals. Can you give us just some color in terms of how to think about valuation of some of these deals that you might be looking at, whether it's portfolio acquisition versus, say, the programmatic offtake opportunities that you mentioned, too?

Yes, for sure. So I'd say this, Will, we feel pretty great about the forward-looking impact of the cost cuts that we made. It was obviously a hard decision, but we think it was the right decision. So that does materially change our financial position. And we have continued through this period to look at both programmatic deals and larger M&A deals, much like the New Jersey Resources we did, which was 9,800 systems. I'd say this, we don't give particular guidance on the exact return profile that we look for, but we care quite a bit about what state they're in, what the average FICO scores are of the homeowners. And then as you'd expect, the IRR, which we have said consistently is in the teens. And lastly, we want to figure out what technologies are used in the system, age of the system, what's the tenure. And based on that, we will then make the decision to go, no go [indiscernible]. And I would say, lastly, on that front, look, we've been in this business for a long time. And what that means is from an origination perspective, we are always beating the bushes, but we do get a lot of inbound calls, right? I mean players know Spruce has been doing this for a long time. We certainly don't buy everything. We don't swing at every pitch, but we do look at a lot of stuff. And so we're doing a bunch of underwriting now. And I would hope that we have an announcement, but I certainly can't promise that.

That concludes our question-and-answer session. I will now turn the call back over to Chris Hayes for closing remarks.

Sure. Thank you, operator. Our focus through the end of 2025 is on containing costs and scaling our platform, driving down improved financial performance and shareholder value. We really appreciate your interest in Spruce Power and for participating in our call today, and we look forward to updating you again next quarter.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.