SPRU - NYSE

Good afternoon, and welcome to the XL Fleet Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Stacey Constas, General Counsel for XL Fleet. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to XL Fleet’s earnings conference call to discuss our results for the third quarter of 2022. With me today are Eric Tech, Chief Executive Officer of XL Fleet; Christian Fong, President of XL Fleet and CEO of Spruce Power; and Don Klein, Chief Financial Officer. Our call this afternoon includes statements that speak to the company’s expectations, outlook or 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. Similarly, out of our control is the timing of some of the processes we will discuss today which could impact the expectation related statement you will hear shortly. We undertake no obligation to revise or update any forward-looking statements, except as maybe required by law. We refer you to XL Fleet’s disclosures regarding risk factors and forward-looking statements in today’s earnings release, our Annual Report on Form 10-K, and our other Securities and Exchange Commission 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 Eric Tech.

Thanks, Stacey. And thanks to everyone for joining us on the call today. When I joined XL Fleet in December 2021, I was tasked by the Board to assess our company's current position and identify the best path forward to maintain and create value for all stakeholders. And as we've communicated for the last several quarters, I determined the most efficient path was by utilizing the significant cash position we had on our balance sheet to help execute transformational M&A. I communicated that we were looking for three main attributes in a potential deal. One, a business making an impact on decarbonization; two, a leader in a mature and growing market; and three, a company generating positive EBITDA. On September 12th, we announced the acquisition of Spruce Power. I am very proud of the team for identifying and executing on this transaction and doing exactly what we said we’d do. Let's walk through each aspect and how the Spruce Power meets, and in many ways, exceeds what we're targeting in our extensive search process. First, we look for a business making an impact on decarbonization. As a leader in residential solar, Spruce Power wakes up every day to help homeowners reduce their carbon footprint. The company’s more than 51,000 current customers utilize solar to power aspects of their everyday lives, ultimately improving the reliability of electricity grid, and advancing the energy transition. The company's sole mission is to make it easy for customers to embrace the power for renewable energy, a change that is critical today, and for generations to come. Second, we look for a leader in a mature and growing market. Spruce Power was strategically positioned as the largest privately held operator of residential solar in the U.S. And with our acquisition of the business, Spruce, now well capitalized has the resources it needs to elevate the company's mission to the next level. Christian Fong and the entire Spruce Power team have done an excellent job in scaling the company to where it is today. And I couldn't be more excited at what this transaction does for the company's platform, growth opportunities and ability to extend its leadership position in the fast growing residential solar market. Third, we look for a company generating positive EBITDA. With the acquisition of Spruce Power, we accelerated our company to be a steady generator of EBITDA and cash flow with a strong backbone for further significant growth. Taken together, our roughly 51,000 customers, combined with multiyear commitments, make monthly payments to Spruce Power reflect total subscriber value of $821 million. Beyond these three attributes, we're successful in delivering other forms of value. Specifically, with $240 million of cash left on the balance sheet after the completion of the deal, the business is armed with the power to execute step change growth, building on the scale of growth achieved by the company to date. Additionally, one aspect of Spruce’s business that we find particularly valuable is its lower than average reliance on supply chain. Unlike others in the industry, who are directly involved in supply procurement and installation, we take over when all that work in sourcing has already been completed, significantly reducing the supply chain risk that others are exposed to. This has been particularly valuable in recent months, where parts of the solar supply chain have faced significant headwinds. With that established, let me tell you what the team and I have been up to in roughly 60 days since announcing this transformational transaction in mid-September. First and most importantly, my team and I have been collaborating closely and daily with Christian and his wider leadership team to help ensure a smooth transition to the XL Fleet platform. This includes integration of policies, procedures, systems and reporting. We've also gotten right to work in helping to assess the company's portfolio of growth opportunities, especially now that Spruce is armed with the capital resources needed to extend and accelerate the growth trajectory. As discussed at the time of our announcement, I'll be transitioning the role of CEO to Christian by the first quarter of 2023. And we are already working closely to ensure that, that transition occurs as efficiently and smoothly as possible. I look forward to continuing my collaboration with the Spruce Power team in my ongoing role as a Board Member of the combined company. Second, we previously announced our intention to rebrand the combined company to better reflect the company's new strategy and direction. Just last week, we were excited to announce our intention to rename our company as Spruce Power Holding Corporation to be known as Spruce Power, extending the company's long standing and well-known brand in the residential solar industry. We felt it was important to build upon the rich history of Spruce as a knowledgeable owner and operator of assets, and look forward to advancing Spruce's position as a leader in the industry. As part of this, we will also change our ticker symbol and expect to begin trading on the New York Stock Exchange under our new ticker symbol SPRU on November 14th. Third, as we announced during the time of our acquisition, we continue to explore strategic alternatives for the XL Fleet’s legacy Drivetrain business. I'm very pleased with the progress on this process. We are in advanced discussions with several interested parties. We anticipate being able to make a more detailed announcement before the end of this calendar year. Investors have been following several drive lane activity -- active projects, including our work developing new idle mitigation technology for the Department of Defense and our development with curb tender of an all-electric refuge vehicle. These projects remain active while we work in parallel to explore the best future alternatives for these endeavors. While the conclusion of this process is not expected to drive significant financial outcome for XL Fleet, we understand the importance of this further simplification to our business and our strategy, and the market's ability to assign proper valuation to our company. I remain committed to executing on this final step in the transition process. And when I pass the keys to Christian early next year, I expect to do so with Spruce Power position as a pure play distributed energy platform. With that, it's my pleasure to turn it over to Christian, to review the Spruce Power platform, and the exciting opportunities we see for this business. Christian?

Thanks, Eric. It's great to be speaking with you all again today. Before I begin, I'd like to echo Eric's enthusiasm for what we've created and express the excitement I have for the pathway ahead. We were excited to introduce many of you to Spruce Power several weeks ago. Today, I'd like to take the opportunity to emphasize who we are, and how we're positioned for continued success over the near and long-term. Prior to the acquisition by XL Fleet, Spruce Power was the largest privately held owner and operator of residential rooftop solar systems in the U.S. The company has over a decade of experience in installation, financing, owning and managing residential rooftop solar. And since I became CEO in 2018, Spruce is focused on our current strategy of owning and operating residential solar assets on behalf of homeowners. We've built a portfolio which today has more than 51,000 subscriber customers with a footprint spanning 16 different states. Our solar assets are backed by long-term subscription-based contracts, in which our customers make monthly payments to Spruce in either leases or production-linked power purchase agreements or PPAs. This contract structure allows for reliable and highly visible cash flows over a period measured in decades, not just months, quarters or even years. Our customer portfolio carries an average remaining contract life of approximately 13 years, and in total, represents more than $800 million of total gross subscriber value, using a 5% discount rate and industry standard subscriber renewal assumptions. What makes Spruce Power particularly unique is our growth strategy. We've been successful in doubling revenues since 2019, primarily driven by the acquisition of 10 rooftop solar portfolios, and a number of smaller joint venture interests over this time period. We have an exceptional team of M&A professionals identifying opportunities to acquire assets that fit our model, systems that are already in operation with long-term customer contracts. We've exhibited the operational sophistication to be patient and only pursue those opportunities that drive attractive returns to our business. This growth strategy has built up a strong track record of generating attractive equity returns with levered IRR into the low to mid-teens, including our first series of small post transaction deals that I'll detail later. This growth strategy is the way we add customers to the Spruce platform. But we don't stop there. With an average of over 13 years remaining on the solar PV systems contracts, it gives us time to deepen the value of the relationship. We do that by offering customers additional products for their home power systems, such as batteries, and EV chargers. Rather than channel partners, we do this through direct sales, which increases the profit margin of those follow on sales. With that as a reminder of who we are, I want to take a few minutes discussing what drives us and specifically I want to hit on Spruce Power's three core pillars: ensuring an industry leading customer experience; delivering operational and safety excellence in producing electricity; and executing on our growth strategy. Our first pillar is ensuring an industry leading customer experience. Customers are at the root of everything we do. And like any good service business, we want every customer to have a good experience with us. To us customer experience includes consistency, reliability and trust. While we have a strong foundation in place, I often encourage our team to find ways to be better. A corporate mission that puts the customer -first is what drives us toward continuous improvement in customer experience. We now have a strong foundation of systems and policies in place, yet it's important to recognize that we're in a highly dynamic environment, one where technology and expectations evolve. That's just one example the way customers want to communicate with us changes. Because of this and the need to be responsive to the market, we continue to invest in technology, in people and in platforms that support and enable industry leading onshore customer service. With the support of XL’s resources, we recently have launched Service By Chat with hired staff to interact with customers by social media and we've streamlined our call center to shorten wait times. It is a great example of how our team identifies areas for improvements and find solutions for our customers. And we're a data driven company. Our Houston based servicing team has the metrics and track the industry closely so we know what best-in-class service means. My team and I are monitoring our performance across several key metrics, including first and foremost, rising customer satisfaction as measured in direct surveys to our customers. Our Q3 customer satisfaction score was 64%. And with a number of changes rolled out in Q3 to allow First Touch Issue Resolution and Service By Chat, we saw that score rise to just over 80% for October, the highest level of customer satisfaction since we began measuring it closely in 2018. Secondly, we look for shorter wait times to reach one of our homeowner support team associates and faster resolution of problems. And yet we know we can be better inside the organization as well as customer experience and perception outside the company. And the resources XL brings are accelerating our 2023 initiatives toward the goal of having every single customer experience be a positive one. Turning to our second pillar, delivering operational excellence. In Q3, our owned systems generated 133.6 million megawatt hours. Renewable power companies measure production excellence by comparing actual production, often called the performance ratio to a weather-adjusted performance ratio using external weather data to see what our portfolio could have produced. Our Q3 performance ratio was 96% and our weather-adjusted performance ratio was a strong 101%, evidencing the capability, efficiency and reliability of our asset portfolio. Finally, our third pillar, executing on our growth strategy. As noted earlier, Spruce's M&A function is its growth engine. Rather than selling one subscription or system at a time to homeowners through a paid sales force or installing them with their own technicians, our growth strategy is driven exclusively by the acquisition of seasoned portfolios of systems from other companies. Our M&A team has a long track record of successful acquisitions that drive significant accretive growth to our platform. Just as importantly, once we execute on acquisitions, our team has the experience and expertise to efficiently integrate systems onto the Spruce platform to maximize returns, fix problems that might have lingered under previous ownership and then efficiently service the customer. Following the sale of Spruce Power to XL Fleet, that team got back to work. Spruce Power exercised options to buy out the remaining equity interests in six residential solar portfolios in transactions totaling approximately $7.7 million. Half of these transactions occurred in late September, and the other half occurred in early November 2022. There are a few ways we look at the value add of these transactions, the increase in PV5 contracted value is about $11.5 million or a remarkable 49% margin above the invested cash. And the projected increase to our adjusted EBITDA is about $3.6 million in 2023, then $1.7 million for 2024 and beyond for a projected unlevered IRR of 14%. While these deals are relatively small, it's proof of concept that with XL’s cash we could quickly get back to work and accretive acquisitions. We're looking at over 34,000 systems all in bilateral negotiations, though it's too early to know if or when larger portfolio acquisitions might occur. Turning now to what we're seeing in the residential solar market and the impact to Spruce Power. We continue to see strong growth in the installation market which is upstream from our acquisition growth strategy. Growth is being driven by three main factors first continued and dramatic increases in utility electricity prices driving further economic benefit of going solar. In this sense, residential solar is a natural hedge to inflation, where inflation is actually accelerating demand at the consumer level. Second, the rapid and accelerating adoption of electric vehicles which on average increases household electricity consumption by about 30%. It's an example of sector convergence where parallel sectors of home power systems, electric vehicles and smart grid are coming together. And third, long-term reduction in battery costs enabling homeowners to pair storage with solar and maximize the benefit of solar generated power. Spruce's existing customers can already pick a variety of home power system upgrades at sprucepower.com. For Spruce, that is exclusively the retrofit addition of batteries to existing systems, which we see as an underserved market. Countervailing these growth drivers are a couple of headwinds. First, there's a nationwide shortage of skilled labor, and electrician professionals. That's emerged as a bottleneck for the residential solar industry and slows our local maintenance partner's time to deliver routine maintenance items or installation of new batteries. Secondly, most of the legacy systems in the U.S. have depended on transmitting data through cell networks. The sunset of 3G networks and ongoing transition to 4G meters in our portfolio is impacting homeowners with the oldest systems. We're about halfway through a multimillion dollar upgrade of our portfolio with over 17,000 Spruce systems upgraded to 4G. We have a robust transition plan in place with adequate capital reserves for this equipment upgrade and expect to complete almost all upgrades by the end of 2023. Back to our 2023 priorities, we want to make sure there's transparency for both Spruce and the customer on the timing of when a 3G system gets upgraded, and are moving as fast as labor and 4G meter availability allows. These upgrades are now our top source of customer service interactions. And we don't see that changing over the next few quarters. I'll make one final note about the macro environment with regard to customer credit. As Spruce, we aren't seeing any slowdown in customers making payments. And in fact, our internal customer recovery team is still seeing improvements in customer credit in the form of lower delinquency rates. Economists are debating whether there are recession headwinds, but at Spruce we're still seeing consumer spending more strongly in the context of making good under PPA and lease contracts. Reduced delinquency is a trend we've been seeing all through 2022, is making our own cash flow and adjusted EBITDA pretty resilient. And on that note, I'll turn it over to Don Klein to walk through our financials.

Thanks, Christian. As a reminder, our results for the third quarter of 2022 reflect full quarter contribution from XL Fleet’s legacy operations, including Drivetrain and XL Grid, as well as contributions from Spruce Power for 21 days following September 9th closing date. Beginning in the fourth quarter and going forward, our financial results will reflect the full quarter impact and benefit of Spruce Power operations. With that established, total company revenues for the third quarter of 2022 totaled $8.4 million, compared to $3 million in the second quarter of 2022 and $3.2 million in the prior year. Revenue for the third quarter included $5.1 million from 21 days of contribution from Spruce Power. Selling, general administrative expenses through the third quarter of 2022 totaled $31.3 million, compared to $12.8 million last quarter, and $12.7 million in the third quarter of 2021. SG&A expenses for the third quarter of 2022 included approximately $2.6 million in legal fees related to the previously disclosed class action complaints and SEC investigation, and approximately $50 million of transaction costs associated with the Spruce acquisition. Adjusted EBITA total negative $9 million compared to negative $11.1 million in the second quarter of 2022 and negative $14.2 million in the prior year quarter. Turning into our segment results, revenue from Spruce Power, a residential solar segment totaled $5.1 million, reflecting the period from September 9th through September 30th. Our gross customer value was $828 million at the end of Q3 on a PV5 basis. Revenue in our Drivetrain segment totaled approximately $900,000 compared with approximately $800,000 in the prior quarter, and approximately $600,000 in the third quarter of 2021. Segment loss for our Drivetrain segment was $3.6 million compared with a segment loss of $3.4 million in the prior quarter, and a segment loss of $4.9 million in the third quarter of 2021. Revenue in our XL Grid segment totaled $2.4 million, compared to $2.2 million in the prior quarter and $2.6 million in the prior year quarter. Segment loss or XL Grid segment was $500,000 compared with the segment loss of $1.5 million in the prior quarter and $1.6 million in the prior year quarter. As of September 30, 2022, we had unrestricted cash and cash equivalents of approximately $240 million. This compares the $322 million at the end of the second quarter of 2022. The sequential change in cash includes approximately $62 million of cash use for the acquisition of Spruce Power. Net of $29.3 million of cash, restricted cash acquired, the purchase price was $32.6 million. Cash used in operations for the quarter was $46 million. Total principal balance of long term debt as of September 30th, was $542 million. As noted at the time for our acquisition our new leverage profiles in line with industry average and sort of business we operate in, all Spruce debt in non-recourse and backed by our long-term contracts provide annuity like cash flows. The debt is very attractively priced with a weighted average interest cost of approximately 5.5%. The company's mezzanine debt is fixed rate debt and the variable rate senior debt is approximately 97% fixed through interest rate swaps. It's also worth noting that our first maturity is not until April 2026, provides an apple flexibility to manage our future capital structure and financing costs. I'll now pass it back to Eric for a few closing comments before we open it up for Q&A.

Thanks, Don. In closing, I'm very encouraged about the progress that we've made and excited about all that we have ahead of us. Our team remains focused on creating shareholder value over the near and long-term. While we've accomplished a lot, we'll be busy over the next several months, further streamlining our platform, hopefully improving the market's ability to identify and unlock the value we've identified with Spruce Power. On behalf of Christian and the combined team, we look forward to providing updates as we have them. Before opening up for Q&A, I felt that it is important to address our current market valuation. As of yesterday's close, our stock was trading at a total market capitalization of approximately $115 million. We feel this is a disconnect for a company with approximately $240 million of unrestricted cash on its balance sheet, and significant adjusted EBITDA. We will continue to execute on our strategy to unlock the value of what we own today, and to maximize the value of our platform and resources over the long term. With that, we'd like to open up the lines for Q&A.

[Operator Instructions] Our first question comes from Joseph Osha of Guggenheim.

So a couple of questions and I apologize, I'm going to focus on the solar side. So Christian, is this 821, PV5, is that contracted and renewal or just contracted?

Thanks, Joe. Thanks for joining. The 821 is both contracted and renewal using the same PV5 metrics that our peers use.

Yes, I was kind of comping you and that makes sense. So -- and then if I wanted to get to net, I would just back out the 485, plus it looks like you've got 25 is the total non-recourse number 5, 5.10, am I right there?

Are you adding up the debt? You just net off the debt, as of 9/30. And then we would -- the 25, if you're talking about the amount of cash then that's on hand.

No, no, you've got a good portion of long-term debt of $25 million and then long-term…

Got it. Got it. It’s split between. Sure.

Correct. And the 10-Q has a debt footnote. There is an adjustment for purchase accounting. So the fair value is put on the books or that’s put on the book at fair value. So there's a delta that's really an accounting nuance, so you want to look at the principal balance so.

Okay. So it's like 320-ish net in there. Okay, that's fine. My next question I guess Christian, just to confirm I remember you had said this before. You guys are going to continue to focus on buying post flip assets? Or has that thought process evolved at all? I just want to confirm.

Yes, we've talked about getting seasoned assets. And that's been really the focus. Now, by looking at things that are post flipped, they become the most streamlined acquisitions. So you don't have to be negotiating with those tax equity partners. However, our previous acquisitions, among those 10, we did buy things that were just prior to flip often within maybe one or two years, and the tax equity has line of sight. So of the 34,000 -- of more than 34,000 that were in bilateral negotiations, actually, some of them are pre flip, but most of them the strong majority are post flip.

And then just, I'm sure you saw how that Nova deal priced GoodLeap and whatnot pretty tough, right? So, I'm curious, you know, taking that into account, as you look at new deals, just talk a little bit about the kind of capital structure, you can put around approaches of new assets at this point?

Yes, we're still seeing robust availability of senior debt capital, and the final structure that we would put on -- and let me just step back at our current structure has senior debt as well as mezzanine debt, those are done as non-recourse at the asset level. So let me not talk about the mezzanine debt on this call and what we would do on a go forward basis. I think the real question as you talk about the GoodLeap deal, some of our peers and where they priced in the public markets that are more known on the ABS side, we are seeing robust availability of bank senior debt, the pricing would be let's just say not dissimilar, I shouldn't go into exactly what the price talk is between us and our counterparty lenders. But it's not dissimilar from what's available. But I think what's key dimension is we're not seeing a shortage of that capital right now. Certainly, the acquisitions that we are looking at, we have no concerns and we believe that the availability of senior debt capital will be available for what we're looking at.

Okay, and then just kind of following on that, I can figure out, I think you mentioned five and a half for the whole loan, the all of the debt. And again, we know what sort of the marginal cost is based on what you just said. Based on what you're seeing right now, what would you say the unlevered IRR is on new portfolios? 10, 11?

Well, looking back what we did -- just did in the last quarter, we had an unlevered of 14, but that was the joint venture related to tax equity buyouts that we were executing, those are great, but there's a -- it's kind of an apples-and-oranges question. The negotiations that we're having -- I shouldn't speak to that, because these are live negotiations. And so in essence, we're setting the market in these negotiations right now. So let me not get out and actually give a number. But we continue to think that on a levered basis, just the senior loan levered basis that we'll be able to achieve that double-digits, even into the mid-teens on a levered basis.

Next question comes from [Alex Bravo] of Bank of America.

Maybe just a quick kind of follow-on and maybe I will ask it in slightly different way than kind of where Joe was going? I mean, how do you think about, right, well, we've seen like this, this sort of broad, endless discussion on discount rates, and what's the right discount rate to be assigned to these assets? I mean, you guys are -- looking as both a buyer and an owner, currently, it looks like you're using a PV5 all up, Sunrun or anyone in the industry, but how do you think about with broader rates moving up, like what's the right discount rates be using? And like, how do you think about value creation between acquiring and then looking at your assets, in sort of an equity investor mindset. Does that make sense?

Thanks for joining. And that does make sense. The 5% that the industry is using, I actually don't think is crazy. What folks should understand about our business model is that we have both an M&A engine that is acquiring things, and one might think of that a little bit more like that asset management approach of, what should an unlevered IRR be, what sort of capital can you put behind it the capital sector, the things that Joe just was just asking about. The way you're asking it, I think you're right is slightly different, because the valuation needs to also include that we actually are the owner operator of this. So the ownership side when you acquire it, has some return. But because we have the ability to get renewals, we have the ability to sell batteries and EV chargers, and very directly to right now we've got our huge operating center in Houston, which has its own economics that come off of it. And so when one thinks about it on an all in basis, the industry's guidance of using PV5, again, it's not crazy. Now, cost of capital and the capital markets, those are the sorts of things that you're living and breathing on a day-to-day basis, we're certainly watching it as well. And it would play into things like the cost of our senior debt. And though availability is great, of course, we will have to be adjusting the prices that we pay on a go forward basis to continue to get to those mid-teen returns. Now, what Spruce really likes about its business model is we are able to adjust the price that we pay. So for an upstream peer, that maybe has a bunch of things locked in and warehouse lines, et cetera. Their cost of capital or it may not be as flexible as our ability to simply adjust price to make sure that we get the returns that we need. But again, I just want to point toward we have additional value drivers that would come into effect when you start thinking about that headline rates.

I mean maybe just sort of follow-on and a little bit of the same context, slightly different questions, though. We've listened in obviously, some of your larger peers talk through their results. And I think that, there's a clear sort of wave across the industry, a push towards TPO over loans. There's clearly attractive upside on TPO as far as what you can do on tax equity going forward from an asset ownership model standpoint. I mean, how do you think about that impacting your ability to go out and acquire, right? Like, what's the marketplace going to do in 2023 if there's a broader shift towards leases, and then maybe people want to hold those leases more, how does that I guess, inform the opportunity set for you guys going forward?

Yes, I mean, certainly when we started thinking about the shift for TPO, that's a huge tailwind to us. Let me pull out some numbers from what we just put out are from the servicing side, we have about 88,000 systems that we either service or own now, what we own becomes the headline number, but let's just talk about that broader number of 88,000. About 89%, of our service portfolio is TPO. So the tailwind of moving toward -- and I'm going to say our upstream peers, as they are saying, hey, we're seeing more and more and more a TPOs, we're downstream from that, that is really good for our business model, the shift away. And I think what we're going to see from Spruce is this continued reliance on the PPAs and the leases, just because it adds so much more value that like we just talked about. On an annual basis, we may be looking at what 15,000 to 30,000 systems per year that these peers are putting on. And that just keeps ratcheting up times the number of peers that you're talking about. There's a very large addressable market, I'll use those words, a large addressable market is being created for us.

Got it. And then just one last one for me. I mean, when you when you think about, you know, sort of the landscape looking forward and like how you want to position you mentioned at the outset that, there's some headwinds in the resi solar space, what are the key ones being skilled laborin people to not only install things like batteries, and EV chargers, everything else, but also to go out and maintain them and service them, you guys obviously run a much leaner model than most, you know, asset owners that are kind of looking at that sort of scale of servicing? I mean, does that inform what you want to own and how you want to think about it going forward. I don't know if that makes you like, for example, want to own less batteries and sort of weighed that out, but curious I mean, if you can give any color there?

Yes, you bet the look, you're absolutely right, it's a much leaner model. It means that we can do things at a lower cost, I won't get into the numbers of my peers, but it's certainly something that we've got a good asset operations group in Houston, that then manages that nationwide network of O&M partners, and it's how we keep it lean. Rather than losing money in a subscale market, we can partner with someone that has that local scale to do that. So our Lean model doesn't mean that we don't cover our markets, we just do it in a way that is as streamlined as possible. The availability of does drive we want to see a certain amount of scale in markets. So when we talk about being in 16 different states, those are those are selected. We look at the density that's available in the market, the availability of OEM partners in those markets, before we jump in, and acquire into that market. That enables us to keep what we think is a cost advantage on the overall O&M costs on a per system basis, which of course just leads to higher overall operating margins, especially in those dense markets that we keep adding scale. So on a go forward basis when we talk about over 34,000 systems in bilateral negotiations, those are huge, huge majority almost entirely in the markets that we already have. And as a result, every one of those is going to continue to add to the operating profit margins.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Eric Tech for any closing remarks.

Thank you very much. And thank you for all the people that participated in the call today, as well as those that had some questions which hopefully we appropriately addressed. As I said in my earlier statement, we look forward to delivering value to our shareholders and other stakeholders in the company. We feel, we have demonstrated the ability now to have a platform with positive EBITDA, growth and with liquidity, and we're hoping that we can demonstrate that to the market going forward. Thank you.