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. [Operator Instructions] 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…

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 due to the CEO transition. Spruce generated a GAAP net loss attributable to stockholders of $8.6 million. We consider operating EBITDA as 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…

[Operator Instructions] 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 going back to the bankruptcy of the installer. I mean -- and obviously, it highlights the differences in the business models, but does it change anything for you or create opportunities? I'm just wondering on the overall impact in 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. He's with -- 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, conferences, cold calling everything in between. And over these next quarters, we think we're going to be building a really robust pipelines.

Is that something you think that 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 so 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, [indiscernible], it looks like this. Power costs are going to be going up over the next decade, 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 through 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.

And to the homeowner, this becomes an economic decision, right? This is -- electricity costs going up, opportunity to lower my electricity costs straightforward.

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 cost.

[Operator Instructions] 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.