Good morning, everyone. I'm George Gianarikas , one of Canaccord's annuity sustainability analysts. Thank you all for joining our 45th Annual Growth Conference . We're blessed to have with us today Spruce Power, from the company, Chris Hayes, CEO, Tom Cimino, CFO, and Scott Kozak from Investor Relations. I know the company has a presentation, so please go ahead.
Thanks. Appreciate everyone joining us. I have a very big goal this morning. I want to put no one to sleep. This is my auspicious goal for all of us here today. I'm also not going to read to you from a deck, although I might use it to cheat a little bit to think of stuff to say. Look, this is like a land of capitalism. I'm sorry if this is your truck, but I saw a Mercedes G-W agon when I parked in the garage with the license plate that said Bull M. I think it's fair to say everyone is here not to necessarily cure the ills of the world, but maybe to make money and find cool companies. With that being said, I mean, I'm biased, but I think Spruce is a no-brainer, and I'll tell you why.
At the end of Q3, excuse me, at the end of Q2, we had $5.07 of cash on our balance sheet. The majority of it is unrestricted, and we're trading, someone can check my math, at something like $1.45. That was not a typo. So, actually, $5.07 in cash, majority unrestricted, and we're trading at $1.45. I come sort of from the private markets. I've been doing clean energy for a long time. I'm used to investors wanting a 7x- 10x return in seven to 10 years. I don't know of a public company, and I don't pretend to cover the whole space, but I don't know of a public company that has the characteristics where one could expect a multiple on their money. These are not forward-looking statements. We do have our IR guy here, and we're going to cover the boilerplate in just one second.
I look at it and I say the multiple on invested capital, if this thing even gets close to the cash number, is really meaningful. The other thing that I certainly understand, trading under $5, this can't go in a lot of institutional portfolios, right? Just sub-$5 can't happen. I will tell you a couple of places that it can go that I think is super compelling. Personal accounts. I mean, you look at our chart, you look at the fundamentals, and we'll get to it. Again, to my mind, it's a no-brainer. Obviously, the other place is sort of more opportunistic hedge funds that can do whatever they want. As I look at our shareholder base, who's been quite supportive, actually, despite there being a tough run, primarily fit into that category. A hedge fund can do whatever you want.
I won't opine too greatly, but I will tell you, because it would occur to me, why would you be trading so far below cash? We made a pivot as a company in 2022 and bought Spruce Power. We had a number of one-time charges that we had to settle. In fact, the last one hit this quarter but was accrued starting at the end of the year, which was a legal settlement. Those are all behind us. I think the reality of a thinly- traded stock is that the information gap sort of hasn't caught up. I would speculate that the market might be saying there have been these one-time charges. What's next? I mean, look, I'm the CEO. I can tell you there are no rear-looking one-time charges that look even anywhere similar to some of the stuff that we have been through.
It's over, it's gone, and now we are kind of what I think about as just like a boring, sleepy solar company that has 85,000 rooftops, and we clip the coupons and try to be super effective at managing costs. This quarter, thankfully, has sort of shown the street that we have actually turned the corner, have aggressively lowered O&M cost. I mean, I think it's down, what, 52%? O&M is down 52% year- over- year from last year. Why don't we do the forward-looking statement before Scott kicks me under the table? It's a long way off. Oh, am I driving here? Does this clicker work? Hit OK? Or just, oh, OK. Oh, cool. There we go. Read it closely. There's no forward-looking statements here. There we go. Let me just give you some sort of nuts and bolts on the company. I'll presume you know nothing.
We're a so-called third-party owner, right? For those that follow this space, they call it the solar coaster for a good reason. It has had its ups and downs, and we are making no secrets about that. I don't know how incredibly enthused this current administration is over wind and solar, which will probably come as a shock to you. This Big B eautiful Bill and some of the stuff going on with the IRA impacts us zero, right? We are a business. We have 85,000 rooftops. We have over 10 years in tenure left on average in all of the contracts. We buy systems that are already in the ground. There are 5 million± solar installations or residential arrays in this country. We own 85,000 of them.
What we have seen through this solar coaster, we have watched SunPower, we have watched Sunnova, some others, sort of on tricky ground. The M&A market's fantastic for us. That's how we grow this business. Thankfully, we have some capital to do it. We are not dependent on tax credits. We are not dependent on incentives. Really and truly, we are this third-party owner that, in essence, has to both clip the coupons and be super effective at O&M and servicing our customers well. I think as we have become a public company over these last few years, we have sort of gotten our sea legs, which this quarter has shown, and are really aggressively managing costs. That's really the name of the game with this business.
The other piece I would add in terms of growth, because again, if I put myself in an investor or research analyst category, I'm sort of thinking two things, which is how can you get to free cash, how do you get to positive free cash flow, and how do you grow. I'll cover the positive free cash flow in a second. I've alluded to it. In terms of the growth, for M&A, there's two flavors. There are acquisitions like we recently did a little over a year ago with New Jersey. It was 9,800 systems. SREC-rich market was a great, great deal for us. The other is so-called programmatic, right? You have homebuilders throughout the country, and they're dropping new solar on a lot of these homes that we're building. None of them want to own it. They want to originate, develop, develop, originate, flip.
We are then the owners. We have a number of programmatic deals in our pipeline. The third category for growth, we announced a big deal with 60,000 rooftops not long ago, is so-called Spruce PRO . We have been at this for a long time. Having 85,000 roofs has given us a fleet of trucks, a fleet of relationships, a call center, a delinquent debt center, managing accounting and debt. We have done that. We have a deep pipeline of offering Spruce PRO to other parties. We closed a big deal with ADT Solar, as I said, 60,000 rooftops, 30%, 40% margin deals. In a capital-light manner, we've hired two people in the group, which we announced just under a year ago. They are working with other financial owners and sponsors of solar, and we just provide the service.
These are investments that we've already made in our company, and this is high-margin business for us. It's basically a way for us to leverage what we built and what we have here with extra capacity that takes no money, right? We are offering these on a service. These are typically managed- services deals, three years. I sort of look at it as a pick-and-shovel business. You know, you've got 5,000, excuse me, you've got 5 million rooftops out there. Who's going to service them? A lot of these financials love the predictability of the cash flows, but they don't necessarily want to operate and maintain them. That's where we come in. We have a pretty durable pipeline at this moment. These are just some of the, you know, we had Q2 earnings yesterday. Our revenue is up 48% year- on- year. It was $33 million.
EBITDA was up 71% year- over- year, $25 million. As mentioned, and I may very well end with it, you know, we have $5.07 of capital on our balance sheet, and it's pretty rock solid, majority being, as I said, unrestricted. Look, I hear it in the elevators. I hear it when I read the paper. Power consumption in this country is going up. Period. Full stop. I don't think anyone at this conference would disagree with me. It's a confluence of things. It's AI. It's population growth. It's all these other things which we study. The fact that, you know, this administration seems quite oriented to fossil fuels may not be helping that revenue mix. Frankly, what it does for us is it provides a natural driver. About half of our rooftops are so-called PPAs, meaning they're indexed to utility prices.
Utility prices go up, our receivables go up. We think fundamentally for the business, and I don't mean Spruce 's business, I just mean solar as a whole, that this is a family table issue. Like, you can save money with it, even without subsidies. The case study that everyone talks about is South Carolina. They had a number of years ago, they had a $5,000 subsidy for residential solar. Average installation was about $45,000. The subsidy went away. What do you think happened? The average solar array installation went down to $40,000. It was still economic. It still made sense. You'd still lose power. You'd still pay less for your power. Fundamentally, in terms of tailwind, we believe solar is here to stay. Not being dependent on any of the tax credits, incentives, and all of this other stuff really makes us immune to that.
All we really need to be a business is to effectively manage our existing 85,000 rooftops and then have those growth opportunities through M&A, both programmatic, large portfolios, and Spruce PRO . We've talked about that. I promised I wouldn't read to you. I'm just cheating. Spruce PRO , just to sort of hit this again, because it is sort of a new development for us. This is a pick-and-shovel business, straight up. The competitors that we go after in this space tend to not provide full wrap solar, right? What they will do is there's a huge number of firms you could go to that will manage call center just for solar. There's a number that will do operations and maintenance and truck rolls and things like that.
The difficulty for anyone, and we saw this with ADT when we won the deal, is that having a full wrap service provider who can do all of the stuff is really compelling. We really don't see anyone out there. It is sort of a green field for us. Our pipeline shows it. I am hopeful over the next couple of quarters, we'll have some announcements. I'll wrap up a little bit here. We have absolutely no corporate debt that is recourse of any sort. We are a project finance business. Any debt that you read about is all going to be non-recourse at the project level. Doesn't come back to the parent. By and large, all hedged to 2030. We do have one refinance coming up with our so-called SP1 portfolio that expires April of next year. We've gotten indications from an existing debt provider.
They will do like-for-like terms, but to be very direct and supported by news up to the minute, we do have a bias towards the downside on rates. We do think we don't take a view on interest rates particularly, but we do think there's a greater probability that rates will lower than rise. That is super helpful for this refinance. Rather than refinancing on like-for-like terms, we suspect, no forward-looking statements, that we will get a better deal if we wait a minute, probably playing it somewhere in Q4. More on that, but it does come up again. Zero debt at the corporate level. CSAT numbers have gone up. Delinquency rates for collections have gone down. I don't have too much more before we open it for any Q&A that you might have.
Tom, anything on the quarter that you might want to cover that I sort of conveniently forgot to mention?
Yeah. Hi, I'm Tom Cimino. I'm the CFO. We script, we don't always call script. We have it written out for Chris so that we keep him online. The big thing in the quarter that he did not discuss is that we are, cash flow is a big issue here, right? He talks about the $5.07 per share, but you do have debt, right? It's not a straight, you know, one-to-one calculation. We are getting to, and you'll see in our quarter release, we call it adjusted cash flow from operations positive. The only reason, the biggest reason why it's adjusted is one of the leases is presented down below investment, but it's truly in operations. A big thing for the company, and Chris alluded to cost controls, is we have to get cash flow positive. That is one of our number one goals.
That cash flow statistic's not up there, but it is in our earnings release. I just really want to emphasize that, that it's obviously you want to grow the company and all these great things we're doing with Spruce PRO , but we want to manage costs. We've done a great job on O&M. You'll see that 52% down for the quarter. The true cash flow from operations, managing those costs is real important to us. That adjusted cash flow is positive in Q2. That's a big milestone for us.
Thanks, Tom.
Thank you for that. I'd like to focus on that $5.07 a share.
I've heard about that.
I did. You mentioned it a few times. I checked your stock price. It's at $1 and change, I think, last. You mentioned the market inefficiency that may be leading to that discrepancy.
Yeah.
I think you just said that you have reached cash flow break or positive. Are there any stresses on that $5.07 over the next, call it, 12- 24 months that you see that could lower or maybe even raise that cash balance?
Yeah, I would say this. We don't offer forward-looking projections or estimates. Period. Full stop. Tom and I have had endless debate as to whether we do it, when we do it, how we do it. I will just say at this moment, we don't. I'm not trying to be coy. There are no one-time expenses that look anything like those in the rearview mirror from the predecessor company. I'm more than happy to own that statement. In general, no, the name of the game is it's an execution business, right? The question is, how do you, with 85,000 rooftops, do it in a super cost-contained manner? The way we do it, and this quarter has shown, I've had a relentless focus on this, is through the O&M numbers. You have to roll trucks as efficiently as possible. You can't send them out multiple times. You have to leverage technology.
We just put in a new CRM system. It gives us better transparency and data into customers. It lets us have the right inventory and equipment on the trucks. It lets us go once. It charges customers where they should be charged for dirty panels. I promised I wouldn't put people to sleep. There's a lot of sausage making that goes to the execution risk. That's really what's gone on for the last couple of quarters, because we are not shying away from the fact that historically, SG&A numbers have been too high. O&M numbers have been too high. It is finally in this quarter that we are seeing we've got a great company, a great team, that we are bending that cost curve down. It really is through technology, people, and process. Do we think it's repeatable? Absolutely, we do. Would I expect it to go down?
I sure would. I'm not, we're not issuing estimates at the moment.
You talk about that $33 million number that you have, that up 48% year- over- year. You sort of went over some of the debt that is at a customer level, so to speak, that finances the purchases of the solar assets. What sort of, and you assume that rates will go down, but in a hypothetical scenario, if rates rise, like what happens? Is there any risk to that cash that you get every, the revenue that you see every quarter?
No, so we're fully hedged on the whole portfolio. For those investors that sort of watch all of the detail, our so-called SP1 portfolio comes due in April of 2026. A common investor question will be, what are you doing on that refi? What can we expect? What does it look like? What we have said publicly, and for sure, I stand by, is that it would appear that the worst is going to be like-for-like terms, which is a good place to be. I would say if there is one, certainly two, and you know, I heard the ex-Kansas Fed chief saying this morning, possibly even three, that would be a great backdrop for us. I have no clue what will happen, but that is the reason that we are not extending that on our SP1 portfolio, because we could roll it.
I think the prevailing thinking is, why would you do that and lock it at this point? We have more than enough time to do so if we choose to in Q1 or back half of Q4. If rates do go down, probably not the time to lock that. I think neutral is the base case. Positive contribution, i.e., lower expenses and costs if rates drop.
There have been clear changes to the residential- solar market through changes in the one Big Beautiful Bill. How does that impact your growth trajectory or your business overall?
Yeah, so we get the question a lot. I mean, look, I'd say overall, it is not a great backdrop for the wind and solar space, period. This is not a controversial statement. I would say for us, we are super insulated from it because we are not dependent on incentives. We are not dependent on tax credits. The fuel for our business outside of the 85,000 rooftops that we have now are M&A opportunities. The M&A opportunities typically come within the 5 million existing rooftops that are out there. What does that look like to dig a little deeper? There are utilities that will have 5,000- 25,000 rooftop portfolios. They often don't want them. It's not strategic. They want to focus on being an IPP. They'll sell it.
There's a lot of financials who sort of piled into the solar space at the wrong time because of the predictable nature of cash flows, which is great for us or a company that focuses on it. If you're a run-of-the-mill financial, once you get to 5,000 or 10,000 rooftops, you realize it's very difficult to service it. The acquisition environment tends to be rich. The name of the game for us truly is that a lot of this chaos is actually helpful because, you know, the old adage, like you go running in when everyone is running out. We have built a really durable mousetrap in terms of how we service, operate, and maintain these things. We want to get as much capacity through our system as possible because we've already made these investments, right?
We've got 150-odd people in Houston, and we've got a call center and a delinquent debt and truck rolls and relationships through 18 states, kind of the big solar states, California, New Jersey, Mass. We want to get the most out of those investments and drive growth.
Last question. You had a question.
Yeah, it's a great question. We're in about 18 states, and we for sure look to land and expand. In other words, you would not see us bidding on a portfolio where we had, you know, picking a number of 500 stranded systems in some random state. We like the concentration. We either have vertically integrated truck rolls like we do in New Jersey, or we have third-party servicers like much of California, where you get economies of scale to layer more. I'm just watching the clock. This is sort of the good opportunity of the solar space at a down moment. There's a heck of a lot less bidders there now than there would have been two years ago. Absolutely fewer. I'd say a handful of qualified. There's a couple of players who are trying to build a really durable model and go big in residential solar.
A lot of the players you saw two years ago, namely financials, have all just decided, forget it. Those, in fact, are a lot of the players who are divesting portfolios.
That's a great place to stop. Thank you so much.
Three seconds to spare.