Spruce Power Fourth Quarter 2025 Earnings Call - Breakout year: margins widened, cash flow turned positive, refinancing now the critical next step

Operator: I’d like to welcome everyone to the Spruce Power Fourth Quarter 2025 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. If you’d like to ask a question during the question and answer session, simply press star one or star followed by the number one on your telephone keypad. I would now like to turn the conference over to Julia Cassari, Corporate Development and Investor Relations. You may begin.

Julia Cassari, Corporate Development and Investor Relations, Spruce Power: 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 Thomas 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 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.

Chris Hayes, Chief Executive Officer, Spruce Power: Thanks, Julia. Good afternoon, everyone. 2025 was a breakout year for Spruce, and our fourth quarter capped it 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 $5.1 million in the quarter compared to -$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, repaying $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 $17.9 million, compared to -$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 becomes 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 SP one 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 SP one, SP two, and SP three. With the SP one 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 three 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, allowing us to efficiently grow our asset base.

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.

Thomas Cimino, Chief Financial Officer, Spruce Power: Thanks, Chris, and good afternoon, everyone. I’ll begin with our fourth quarter financial results. For the fourth quarter of 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 revenues. Sequentially, revenue declined from the third quarter, which is consistent with the seasonal pattern of solar production and customer payments, particularly during the winter months 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 the -$4.1 million in the 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 remained stable and continues to support the ongoing pay down of debt principal. We continued 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 cash. That compares to $98.8 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-annually.

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 arrangements. As Chris discussed earlier, we strategically entered into an extension of our SP one facility, which gives us maximum optionality and a runway to focus on a broader refinancing transaction across multiple portfolios. We extended the terms to January 30, 2027, with a stipulation that we have a term sheet by October 30, 2026. Looking ahead, we intend to build on the momentum we established in the second half of 2025. We look to continue to reduce costs and further 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.

Chris Hayes, Chief Executive Officer, Spruce Power: 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: As a reminder, if you’d like to ask a question, press star followed by one on your telephone keypad. We’ll just take a brief moment to compile the Q&A roster. Our first question comes from the line of Will Hamilton from Kestrel Merchant Partners. Your line is live.

Will Hamilton, Analyst, Kestrel Merchant Partners: Yeah. Hi, guys. Good afternoon, and congrats on the strong cash flow. I just wanted to see if I could get a little more color on the revenue buckets. How much was SREC during the quarter and the services revenue since those have been larger growth contributors?

Thomas Cimino, Chief Financial Officer, Spruce Power: Yeah.

Chris Hayes, Chief Executive Officer, Spruce Power: Yeah. Thanks. Thanks, Will. You got it, Tom.

Thomas Cimino, Chief Financial Officer, Spruce Power: Yeah, Will, appreciate it. Thanks for the compliment on the quarter. The 10-K you’ll see we break out the revenue by component. The SREC revenue for the year was $21 million, and the system either leases or PPA revenue was $78 million. But keep in mind, the SP Four revenue is consistent with every quarter. That revenue is recorded below the line as interest income, and that’s just due to the accounting nuance.

Chris Hayes, Chief Executive Officer, Spruce Power: The requirements to record that revenue as actually interest income. You can see it in the cash flow statement as cash coming in. That’s the breakdown.

Will Hamilton, Analyst, Kestrel Merchant Partners: With Spruce Pro, how would you characterize like sort of the pipeline of adding new business there to grow that?

Chris Hayes, Chief Executive Officer, Spruce Power: Yeah, 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. 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.

Will Hamilton, Analyst, Kestrel Merchant Partners: Okay. Last question is more on M&A, which part of the answer, but, like, you haven’t done anything too recent. I was just wondering, what is the pipeline like for that? Is it also now kind of tied to the debt consolidation deal that you’re working on?

Chris Hayes, Chief Executive Officer, Spruce Power: Yeah. I’ll answer them separately, but talk about any interplay between the two. We do have a super active pipeline. I mean, you know, we’ve done 13 acquisitions over a number of years. 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 SP one strategic extension that we chose, no, there is not an interplay with that and either helping or hurting any strategic growth acquisitions that sort of operate independently.

Will Hamilton, Analyst, Kestrel Merchant Partners: Got it. Okay. Thank you for your time.

Chris Hayes, Chief Executive Officer, Spruce Power: Appreciate it, Will, thanks.

Operator: There are no further questions. I’d like to now turn the call back over to Julia Cassari for closing remarks.

Julia Cassari, Corporate Development and Investor Relations, Spruce Power: Thanks, operator, and thank you to 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.

Operator: This concludes today’s meeting. You may now disconnect.