Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Spruce Power Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Bronson Fleig, Head of Investor Relations. You may begin.

Good afternoon, and welcome to Spruce Power's conference call to discuss results for the second quarter of 2024. With me today are Chris Hayes, our Chief Executive Officer; and Sarah Wells, our Chief Financial Officer. Our call this afternoon will include statements that speak to the company's expectations, outlook and predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We are not obliged to revise or update any forward-looking statements, except as may be required by law. Please refer to our disclosures regarding risk factors and forward-looking statements in today's earnings release and other SEC filings. A copy of our press release has been posted to the Investor Relations page of our website for reference. The non-GAAP financial measures discussed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued this afternoon. With that, I will turn the call over to our CEO. Chris, go ahead.

Thank you, Bronson, and good afternoon to everyone. I want to express how excited I am about the future of Spruce. I can say after these first few months as CEO, we are more confident than ever about the opportunities we have in front of us. As I mentioned in our first call together in May, our strategic priorities center on growth, both through the acquisition of operating residential solar assets and expanding our capital-light third-party service offering. On both fronts, our teams are very busy with due diligence on a rapidly growing opportunity pipeline. We are intensely focused on execution to gain scale and drive inflection of free cash flow generation. I'll make more detailed remarks on our outlook, but first, I want to quickly comment on our second quarter results and operations. Our core business continues to deliver solid results anchored by long-term cash flows from 75,000 rooftops. For Q2, revenue was $22.5 million, and operating EBITDA was $14.4 million. Our total cash position was $150 million at quarter end, up slightly from Q1. Sarah will give more details to the financial results in her section. During the quarter, we refinanced our nearest maturing non-recourse debt, the Spruce Power 4 facility. We're pleased to start a new lending relationship with Barings in this facility. We secured attractive terms, and institutional interest for this paper was very high across the traditional bank loan market as well as public and private credit markets. This speaks to the quality of and appetite for residential solar-backed debt structuring and Spruce's reputation as a high-quality asset manager. We expect to benefit from this deepening pool of capital over the near future. We're also proud to report a historical milestone in the Spruce customer experience. During the quarter, we achieved a Google rating of 3.0 out of 5.0, the highest cumulative rating in our corporate history. Nonetheless, we will strive for even more improvement in customer service. Not only is it the right thing to do, but we also see financial benefits in the form of better fleet performance, customer collections, and cross-selling opportunities. I want to sincerely thank our employees across all departments for their hard work, which led to this record achievement in customer satisfaction. Next, let's discuss our near-term strategy to grow our owner-operator platform. Shifting dynamics in the residential solar market are very favorable for us; higher interest rates and better policy incentives such as investment tax credit adders are resulting in a noticeable acceleration of solar lease and PPA origination. This is advantageous for Spruce for several reasons. First, there is an insatiable need for long-term capital providers that can own solar lease and PPA contracts, a need that is not being fulfilled by the well-known publicly traded originators. This need presents opportunities for us in both equity sponsor capital commitments and M&A opportunities. This need is exacerbated by the recent exit of a large player from this market. Next, this acceleration of solar lease and PPA contract origination requires robust servicing capabilities for at least 20 to 25 years. Solar servicing is our foundation. This need creates robust opportunities to service third-party solar and other energy assets that we do not own. Keep in mind, these opportunities are in addition to the substantial installed base of residential solar assets in the market today. With this market context, I'll speak to how Spruce thinks about execution as it relates to M&A. We will remain disciplined in our return hurdles. Bid-ask spreads are still somewhat wide, yet we are finding opportunities and are evaluating a robust pipeline of seasoned solar portfolios in the secondary market. Also, we are evaluating what we call programmatic offtake, where Spruce would step in earlier in the asset lifecycle, closer to PTO, as the long-term sponsor and owner of solar lease and PPA contracts. To be clear, this would not involve investment in working capital or funding milestone payments; rather, we are looking at off-taking recently installed solar systems by mature installers. On the solar and energy servicing front, we've hit the ground running. In July, we announced the hiring of the General Manager for Spruce Pro, Rich DiMatteo. His team is actively developing a pipeline of servicing opportunities, and initial indications of interest remain strong. As a reminder, we view servicing opportunities as capital-light endeavors where Spruce can leverage its existing investments in people, processes, and service technologies. We are well-positioned to capture third-party servicing customers over the near term. Importantly, Spruce is well-capitalized to pursue growth. At quarter end, Spruce had $150 million in cash. Keep in mind that we are a levered buyer of assets, but we have substantial runway to fund the equity tranche of prospective transactions. Although we have not had any M&A activity so far in 2024, the opportunity set we see has never been greater. Liquidity and capital market access concerns are clearly very pervasive in the upstream installation market. That said, we will be patient and not rush to deploy capital to merely boost our growth metrics. We are focused on underwriting attractive returns and driving toward inflection in free cash flow generation. The beauty of our business model is that we can harvest long-term cash flows while we prudently evaluate investment opportunities. We are paid to wait. Given the opportunities set discussed, the ability to be nimble and opportunistic is a priority for Spruce and its Board of Directors. We want to preserve our cash position to be highly competitive and effective in pursuing near-term growth opportunities. We believe this approach will position us well in our pursuit of being the dominant long-term owner and operator of distributed energy assets. We will continue to assess investment opportunities including share repurchases on a quarterly basis with our Board of Directors. Before handing the call to Sarah, I'll make some comments on a public residential solar installer who recently filed for Chapter 11. This event, while unfortunate, underscores the difficult operating environment for residential solar installers. However, we are hopeful that it acts as a positive catalyst for the industry to move towards a more sustainable origination model focused first on sound economics rather than growth at whatever cost. Additionally, this event allows us to contrast the high-risk business model of many large solar companies versus the Spruce model. Spruce only acquires cash-flowing rooftop portfolios. We do not have a large and costly network of salespeople and channel partners, allowing us to pursue a low customer acquisition cost. We do not have substantial working capital requirements, and we are not subject to cost of capital risk associated with the timing lag between installation and raising project-level capital. In summary, the conservative nature of our business model should give you all great comfort in understanding the risks of our business and how we mitigate them. With that, I'll hand the call to Sarah to address second-quarter financials.

Thanks, Chris. I'll provide more details related to our second quarter 2024 financial results as well as our business outlook for the remainder of the year. Second quarter revenue was $22.5 million compared to $22.8 million in the prior year period. The modest year-over-year decrease is largely due to lower revenues from solar renewable energy credits. Second quarter core OpEx, which we define as SG&A and portfolio O&M, was $21.1 million in total as compared to $19 million for the prior year period. Breaking this out, portfolio O&M expense increased to $4.4 million in the second quarter from $3 million in the prior year period. The increase is tied to higher non-routine servicing costs such as expenses tied to hardware replacements. SG&A expense increased to $16.7 million in the second quarter from $16 million in the prior year period. For the quarter, SG&A was negatively impacted by $1.9 million of expense related to the CEO transition. Spruce generated a GAAP net loss attributable to stockholders of $8.6 million. We consider operating EBITDA a key measure in evaluating the company's financial performance. Operating EBITDA is defined as adjusted EBITDA plus net proceeds from the company's investment in the SEMTH master lease, the interest we earn on our cash investments, and proceeds from system buyouts and prepayments. These items represent material cash inflows from our ongoing business and strategy. Adjusted EBITDA was $5.4 million for the second quarter. Adding the net proceeds from our master lease investment of $5.6 million, $1.5 million of interest earned on cash investments, and $1.9 million of proceeds from system buyouts and prepayments, operating EBITDA was $14.4 million for the second quarter. At the end of the second quarter, total cash, inclusive of unrestricted cash and restricted cash on our balance sheet, was approximately $150 million, unchanged sequentially. Our restricted cash balance increased due to normal seasonality of customer collections. However, our unrestricted cash balance decreased sequentially as a result of higher O&M, partially offset by net proceeds from the refinance of our Spruce Power 4 credit facility during the quarter. The total principal balance of long-term debt was $640 million at the end of the second quarter, with a limited interest rate of 5.9%, including the impact of hedge arrangements. As a reminder, all of Spruce's debt is non-recourse and serviced by customer collections of our various portfolio companies. At quarter end, all of our floating-rate debt instruments were materially hedged with interest rate swaps with a mark-to-market on our swaps of positive $30 million. As Chris mentioned, during the quarter, we successfully closed on the refinance of our Spruce Power 4 credit facility. We are proud of the execution, which we believe strikes a good balance of extending tenor while providing flexibility over the medium term to capitalize on our expectation for continued strong performance of the underlying assets, which are predominantly linked to prevailing retail electricity rates in California. The transaction represents Spruce's first rated debt issuance since 2016, with Kroll Bond Rating Agency rating the new facility A+. We are proud of the institutional interest this refinance solicited, speaking to the quality and the performance of our assets, and we expect to benefit from these expanded relationships over the long term. Last, moving to full-year guidance, which can be found on Slide 20 of our Investor Relations deck. With two quarters of the year complete, we are maintaining our 2024 financial guidance, though we are tracking toward the lower end of the operating EBITDA and adjusted free cash flow ranges. As Chris mentioned, while our M&A pipeline continues to grow, Spruce has not had any M&A activity to date in 2024. For context, the high end of our guidance ranges assumed the acquisition of approximately 6,000 solar lease and PPA contracts in the first half of 2024. We are also experiencing moderately higher operating expenditures than previously anticipated. This is due to unforeseen costs tied to the CEO transition, which we earlier described as having a negative $1.9 million impact on SG&A during the second quarter. We also incurred moderate legal spending in connection with the recent contest of our annual proxy and ultimately a cooperation agreement with one of our shareholders. Last, non-routine operations and maintenance expenditures have trended higher thus far in 2024 than we originally anticipated. These are costs tied to rolling trucks to repair or replace hardware. Currently, we believe this O&M dynamic to be transitory in nature. In summary, the pace of M&A versus previous expectations and higher-than-expected operating expenditures combined to inform our current expectations for our financial guidance metrics to track towards the lower end of their respective ranges. This concludes our prepared remarks. Operator, please open the line for questions.

Our first question comes from the line of Peter Gastreich with Water Tower Research. Your line is open.

Great. Thanks. This is Shawn Severson in for Peter, who is traveling right now. Chris, I had a question about the bankruptcy of the installer. It highlights the differences in the business models, but does it change anything for you or create opportunities? I'm curious about the overall impact on rooftop solar, if any, and specifically how Spruce might benefit from that.

Yes. Thanks, Shawn. I appreciate the question. Really, what it illustrates to me is that our model of being a third-party owner is the best sector to be in solar. We don't have any of the origination costs associated with customer acquisition. Rather, we grow through acquisitions of large numbers. In fact, we've got several portfolios that we're diligencing at this moment. And the other piece in terms of opportunities it creates, we are being incredibly judicious with our capital to try and find deals that make sense for us. And we're actively in the market doing it. And as we see sort of chaos like this, we think the opportunity set is expanding. So I think the sky is the limit for Spruce.

My next question is related to Spruce Pro. I know you had a new hire there as well, but I'm trying to understand the go-to-market strategy, what is the marketing strategy around this and building awareness? I know it's still new, but what is the plan for getting the word out on this?

Yeah. Good question. So you probably heard Rich DiMatteo started this quarter. He is in the seat. We're thrilled to have him. And the first order of business is productizing the second quarter of business is commercializing. And so while we have a few existing pipeline candidates that we're working towards closing, we're aggressively trying to pursue our distinctive confidence in the servicing space and get to a much larger audience. So we're doing all the things you'd expect, including conferences, cold calling, and everything in between. And over these next quarters, we think we're going to be building a really robust pipeline.

Is that something you think converts quickly, so the efforts translate? I mean, what I mean, if you're out there, is this something that has a faster adoption curve or is there a process here behind it that I'm not understanding?

Yeah, so great question. These are longer sales cycle transactions, right? This is just the nature of what an ideal customer prospect looks like, the nature of the selection process and how we fit into it. So these aren't one or two-month sales cycles; they are longer. And that's why we're building out the team in a capital-light manner and aggressively starting to pursue the market to grow that pipeline.

Thanks, Chris. My last question is kind of, is a bigger picture landscape. I think the drumbeat certainly out there that electricity demand is up and probably going to continue to go up for some time, driven by all the things we're well aware of. What I'm trying to get to is a picture of how rooftop solar fits into, let's say, the mega trend of increased demand from AI and EVs and a myriad of things. How does that impact rooftop solar, specifically and for Spruce?

Yeah, so great question. Look, the reality is this: power costs are going to be going up over the next decade, while the cost of solar continues to come down, and the economic argument for an average homeowner is super positive. They will save money with rooftop solar. So while all the originators are going to go out and chase these one-off customers to put solar on their roof, all that is doing is increasing the opportunity set for us at Spruce Power to acquire these portfolios either programmatically or through large acquisitions, of which we've had 13 throughout our history. And so as the total addressable market gets bigger, we think our kind of pure-play third-party ownership model is the way to go, and we're going to keep doing it.

For homeowners, this becomes an economic choice. With rising electricity costs, there is a clear opportunity to reduce my electricity expenses.

Save costs, kitchen table issue: how can we lower our electricity bill? It goes up year-over-year, and this is a way to lower costs.

And there are no further questions at this time. Bronson Fleig, I will turn the call back over to you.

Thanks, operator. And thank you to everyone 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. You can all disconnect. Thanks.