Q3 2023 Spruce Power Holding Corp Earnings Call
Participants
Bronson Fleig; Head of IR; Spruce Power Holding Corporation
Christian Fong; CEO; Spruce Power Holding Corporation
Sarah Wells; CFO & Head of Sustainability; Spruce Power Holding Corporation
Tristan Richardson; Analyst; Scotiabank
Joseph Osha; Analyst; Guggenheim Securities
Presentation
Operator
Thank you for standing by. My name is Erik, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spruce Power third quarter 2023 earnings conference call. (Operator Instructions) I would now like to turn the call over to Bronson Fleig, Head of Investor Relations. Please go ahead.
Bronson Fleig
Thank you. Good afternoon and welcome to Spruce Power's conference call to discuss results for the third quarter of 2023. With me today are Christian Fong, 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 actual results to differ materially from those expressed in or implied by these statements. We're 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 US GAAP equivalent and can be found in the press release that we issued this afternoon.
With that, I'll turn the call over to our CEO. Christian, go ahead.
Christian Fong
Thank you, Bronson, and thanks everyone for joining us today. I'm going to start with a discussion of our strategy and then turn to the third quarter. Spruce's core strategy is to be the dominant long-term owner and operator of distributed energy assets. Our business model is straightforward.
First, we create and sell clean electricity through our growing portfolio of home solar assets. Our underlying value proposition for our customers is that we provide consistent energy savings month after month compared to the inflation of utility retail rates. Over time as customers savings grow, especially in the expensive coastal markets, their appreciation for solar grows too.
Second, we deliver power services to our customers at high margin economics through our integrated servicing platform. Having regular repeated touch points with customers has enabled Spruce to achieve industry leading customer satisfaction scores.
Third, we capitalize on revenue opportunities, enrich environmental commodities markets across our footprint. As policies in most of our 18 state markets have shifted to be even more pro solar, the sale of renewable energy credits has been Spruce's fastest growing segment. This owner-operator model, combined with our low cost customer acquisition strategy positions us both for long-term recurring revenue and for highly profitable growth across most interest rate and economic scenarios.
Let's turn to the third quarter. I want to anchor my discussion with two metrics The first is cash. This quarter, we generated positive cash. Combined with just shy of 500,000 shares repurchased in our share repurchase program, our net cash per share increased by 4%, excluding cash settlements that are expected to reserve on few legal matters that Sarah will discuss.
Our net cash per share is $9.14 at the end of the third quarter. Over the next few quarters, we'll focus on growing both our adjusted EBITDA and free cash flow as well as either preserving our cash position or using it to buy multiyear cash flow streams at attractive prices.
The second metric of customer satisfaction. Our trailing year customer satisfaction score rose to a record 76%. That measures repeated interactions to establish the customer trust necessary to solve the next product or service. Three years ago, that level sat at about 50%. Our analysis showed that 70% will be the industry's leading operator, and at 80%, we'd be ready to ramp up follow-on sale. So here we go. In 2024, we're aiming for 80% customer satisfaction and expanding the sale of power products and services.
Let's get a general update in operation, current growth initiatives, and capital markets. In operations, Spruce facilitates solar electricity consumed by about 80,000 households across 18 states. Our servicing team delivered outstanding execution of Texas based customer support, customer billing, collections, asset management, and the technology infrastructure that links these functions together.
Done well, this provides a great experience for our customers and supports growth in adjusted EBITDA to pay down project debt and add to our cash. As I mentioned, our customer satisfaction score is 76%, up strongly from last year's 61%. Our Google review rating was 3.7 last quarter, lifting our cumulative score to a high watermark level today of 2.3, and on-time customer payment rates, which usually track customer satisfaction increased a strong 60 basis points in one quarter.
These improvements in customer satisfaction are coming with investments in technology and customer facing personnel across customer operations. In the third quarter, we rolled out our enterprise data warehouse, which links all our IT systems of record and gives us unprecedented internal collaboration tools. And we continue to execute on the rollout of our first field services team that we announced last quarter. The field services program is initially focused on New Jersey and California.
Why have teams in the field? Three reasons come together. First, to provide a better customer experience in some of our most dense markets when there is a service call. Second, to optimize the efficiency of creating and monetizing SRX in these valuable markets. And third, to have teams in place to install retrofit batteries as we ramp up customer power sales later in 2024.
Next, let me address the performance of our assets. Our Q3 performance ratio, which is the production compared to the theoretical maximum to be installed solar panels, with 89%. Lower performance reflects high rainfall on both the East and West Coast at the beginning of the summer. Yet our weather-adjusted performance ratio is 101% year to date. So overall, the portfolio is doing great and generating strong cash flows.
We expect run rate annual cash inflows of between $120 million and $130 million. This is largely supported by recurring revenues and investment cash flows from our residential solar portfolio that has a 12-year remaining average contract life.
Next is our growth initiatives. Our customer acquisition strategy as a compelling competitive advantage grows and carry a high fixed cost sales force. We add customers through the purchase of existing residential solar portfolios. This keeps customer acquisition costs low, and we never feel compelled to overpay for growth.
In Q3, we closed on two deals. The first in August was for about 2,400 contracted customers in the credit card portfolio, a deal that exceeded our equity return target of 18% IRR. We also bought out one of our tax equity joint venture partners in a small tuck-in deal that we project is over 30% IRR. Over the last year, we've acquired the cash flows from about 25,000 rooftops for a 49% growth year on year.
Our M&A team is still busy looking at deals. Renewable power markets, especially for installers, seem to have liquidity concerns with higher interest rates and the capital markets pulling back in that environment. We adopt Warren Buffet style logic. Since we have cash, higher IRRs, it's like having recurring cash flows on sale. Spruce is known as a strong buyer in secondary markets, and we stand ready for installers, we need to recycle capital through portfolio sales.
Apart from acquisitions, we also pursue organic growth opportunities to increase revenue per customer. First, Spruce's environmental commodities market business is firing on all cylinders. In Q3, cash inflows ticked up 25% sequentially as our ECM group found more opportunities to mint and sell renewable energy credits from our assets across the US. We like this business's ability to add cash returns on assets we already own.
Second, we see increased demand for retrofit battery installations. This is largely in California due to that state's net metering rules. We aren't yet budgeting for large battery lease revenue, which was just a couple of hundred thousand dollars in 2023. We anticipate both scaling the slots at the end of 2024 to a more meaningful level.
Third, in the next three months, we'll launch Spruce Pro, a new brand focused on selling services to the commercial and industrial segments.
Next, I'll cover Spruce's capital and financing strategy in funding growth. Residential solar assets naturally support looking seem like high levels of project level debt due to contracted cash flows coming from our customer base with a weighted average FICO score greater than 750, but it's really apples to oranges to compare it to installers. Fundamentally, installers are not our peers and it doesn't work to use the same financial analysis.
We lock in debt that is non-recourse. We don't use any convertible debt and above all, we protect our cash position, which again stood at a net $9.14 per share at the end of the quarter. We have historically used senior loans to pay for between 75% and 85% of the acquisition cost of our residential solar portfolios. Previously, we've used even higher advance rates through a mezzanine debt facility, but we haven't expanded that since becoming a public company.
The debt markets for seasoned assets are still very robust. In fact, in the new deals we're looking at now, lenders have been offering us more money than we want to take because our portfolios have such strong performance history. I'm not saying we're going to raise our debt levels just because we can. Yeah, we do like having untapped debt capacity as a backup liquidity source.
Now tying our liquidity profile to our growth. Spruce is only funded to achieve our near-term goal of reaching a customer contract portfolio of [90,000] by the end of 2024. In fact, that's already baking in reducing our growth rate from 49% over the past year to about 20% annual growth going forward. With a disciplined approach to acquisition, we aren't afraid to wait and preserve cash, calling it T-bill and chill.
We can make acquisitions still that exceed our 18% investment return hurdle. Finally, before handing over to Sarah to walk through financials, I want to preview the significant headway in moving past several transitional tasks associated with our merger with XL Fleet last year.
First in September, we reached an $11 million settlement with the SEC, and we hope to reach settlements soon in the previously disclosed shareholder lawsuits in New York and Delaware. We're glad to turn the page on those and get clarity on their financial impact.
Second, we executed a one for eight reverse stock split in early October to get out a penny stock status and address the NYSE continued listing standard.
Third, we finished most of the efficiency steps following a merger. There are just two people from XL Fleet left at Spruce and nearly all the duplicate systems are shut down. Plainly said, M&A is our core competency, and we're running a textbook post-merger integration; fast and focused on harvesting savings.
As a final remark since our entrance into public markets last fall, we've grown our base of solar assets and contracts leading to meaningful growth in cash flows. Going forward, we have no equity capital needs through at least 2025, while still meeting our growth targets, still increasing EBITDA, and still increasing free cash flow.
At the obvious point that I'll keep repeating, we're trading far below that net cash position of $9.14 per share, even as our operations and acquisition returns are hitting all-time levels.
With that, I'll hand the call over to Sarah to walk through financials
Sarah Wells
Thanks, Christian. Before getting to the quarterly results, I'd like to quickly address a few housekeeping items that impacted our financial reporting. Consistent with the prior few quarters, Legacy XL businesses, Drivetrain and XL Grid are presented as discontinued operations within our financials. These legacy businesses were divested in the first quarter of 2023, and we do not expect any material expenses going forward related to discontinued operations.
Our continuing operating results in the third quarter reflects certain expenses related to XL Fleet, notably legal expenses related to the previously disclosed SEC inquiry and related shareholder losses. An update on these matters. During the third quarter, Spruce announced the resolution of the SEC inquiry of XL Fleet, the settlement of $11 million civil penalty was paid in October.
Also during the third quarter, Spruce reached an agreement in principle with respect to the previously disclosed securities class action lawsuit filed in the Federal District Court for the Southern District of New York related to the 2020 merger of Spruce's predecessor company, XL Fleet Corp has settled the matter for $19.5 million, subject to agreement on documentation and court approval.
Additionally, Spruce determined it is able to estimate its exposure in the previously disclosed securities class action lawsuit filed in the Delaware Court of Chancery related to the 2020 merger and its predecessor company XL Fleet Corp. Spruce estimates a settlement amount of approximately $300,000.
Collectively, these three items, total cash costs, and reserves of $30.8 million. Spruce expects these settlement amounts to be offset by approximately $4.5 million of related insurance reimbursements for total cash costs and reserves at $26.3 million. Please note that these net settlement amounts have been recognized on a GAAP basis in third quarter financials. The net settlement amounts will be funded with corporate cash, which stood at $193 million at quarter end. So the net cash position would be $166 million.
Moving to third quarter financial results. Third quarter revenue was $23.3 million, up 2% from the second quarter's $22.8 million. Revenue was higher, primarily due to incremental revenues related to the acquisition of 2,400 residential solar systems and contracts that we announced in August, as well as higher quarter-over-quarter revenues from solar renewable energy credit sales. The increase was partially offset by lower PPA revenue due to the previously discussed weather impact during the quarter.
Third quarter core OpEx, which includes both the company's SG&A and the portfolio's O&M, was $15.9 million compared to $19 million in the second quarter. Portfolio O&M expenses increased to $3.5 million in the third quarter from $3 million in the second quarter. The sequential increase is tied to continued investment in our meter upgrade campaign as we replace legacy meters across our fleet to maintain the most efficient fleet as possible as well as moderate shortfall payments.
SG&A expenses increased significantly to $12.4 million in the third quarter from $16 million in the second quarter. Just to be clear, SG&A expenses excluding legacy XL Fleet legal items for $14.3 million in the third quarter, a slight increase from $13 million in the second quarter. The increase to core SG&A is largely tied to nonrecurring IT spend and deal acquisition costs. Net loss attributable to stockholders was $19.3 million in the third quarter. And again, just to be clear, excluding the legacy XL fleet legal items, you would have seen net income of $5.1 million in the third quarter.
Adjusted EBITDA totaled $7 million. Adding in the cash flow from Spruce Power core portfolio, which in our financials is called proceeds from investment in lease agreements, brings the total to $14.9 million. In measuring the value of our long-term solar assets and contracts, we provided metrics on gross and net portfolio values, which represent the present value of the remaining net cash flows from customers. Using a base case of 6%, our gross portfolio value was $973 million. After adjusting for non-recourse debt and cash balances, our net portfolio value was $509 million.
Next, I'll recap our capital and liquidity position. As of September 30, 2023, we had cash and cash equivalents of approximately $193 million. This compares favorably to approximately $192 million at the end of the second quarter. The positive change in sequential cash is primarily attributable to strong performance from recent acquisitions and the decline in expenses tied to legacy XL Fleet, namely legal expenses. The total principal balance of long-term debt was $657 million as of September 30, 2023, up from $644 million.
The sequential increase is attributable to debt raise alongside our latest acquisition this past August through upsizing our existing SBQ facility and offset by scheduled principal amortization across our debt facilities. Renewable power markets are broadly facing pressure on concerns about higher interest rates, so I'd like to address that.
As detailed in our 10-Q recent debt stack consists of four project finance facilities that support 13 of our residential solar portfolio acquisitions made since late 2018. We also have a mezzanine facility that was entered into when the company was private. All of these facilities are supported by project level cash flows at a non-recourse dispersed corporate level. Spruce has zero corporate level debt. We have no loans coming to term until late 2025.
The weighted average blended all-in rate for our debt profile was approximately 5.7% as of 9/30. Additionally, we have effectively hedged away floating rate exposure with 97% of our debt profile hedge at quarter end with mark-to-market on our swaps at 9/30, a positive $44 million. An important attribute of our swap positions is that the maturities of our swaps extend beyond the stated maturity on the underlying credit facilities, a common element of project finance structuring. All of our swap positions extend into the early 2030s.
Put simply, in a refinance event of existing credit facilities need be, we can carry over and swap positions to refinance facilities, providing significant protection to then prevailing market reference rates. We have this protection for all of our senior credit facilities through another refinancing cycle. And to reiterate, our nearest maturity facility is in the back half of 2025.
As far as bank reference rate, the weighted average margin from our senior credit facility is attractive at about 250 basis points. This is actually in line with the indicative pricing that you're seeing today in the market.
To land the plane here, the highly predictable long-term cash flow profile of our solar assets provides adequate coverage of our long term debt facilities. Our assets inherently support the ability to refinance and Spruce's current assets has adequate protections against prevailing market reference rates over the medium term with swaps into the early 2030s.
We currently do not envision any scenario in which corporate balance sheet cash would need to be injected into a portfolio company to support underlying project finance structures. Instead, we are watching a normal paydown of our debt balance through our scheduled principal payments.
My final comments are on our share repurchase program. During the third quarter, we repurchased approximately 500,000 shares for $3.4 million. At quarter end, there was $45 million remaining under our $50 million program. Our Board of Directors continually reassess the repurchase program as a use of capital.
With that, I'll hand the call over to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions) Tristan Richardson, Scotiabank.
Tristan Richardson
Hi, good afternoon. Christian, you mentioned in your prepared comments about seeing a target-rich environment and -- the pivot towards TPO bolsters the pipeline. Certainly, we've seen some stress in the ecosystem, particularly in long-tail maybe with installers. Can you talk about the M&A landscape, how it's changed versus maybe a year ago, and in certainly in the context of your 90,000 customer goal by the end of '24?
Christian Fong
Sure. Tristan, thanks for joining. We grew by 49% over the last year. So clearly that target-rich environment has enabled us to grow pretty well over the past year. Looking forward, we have about 75,000 owned systems -- to measure used two different numbers, we say 80,000, that's the number of service systems because we do some third party. So when I talk about getting to 90,000 by the end of 2024, which I've been consistent on since the beginning of this year. I'm going to reiterate that affirm that we're headed do we think we can get to 90,000, that's about 20% growth.
And so while I continue to think, hey, this is a target rich environment that actually would enable us to slow down growth a little bit to a more moderate 20% and still hit those numbers. In terms of what we're seeing, I think of the pipeline of installers and what they are producing on the PPA and lease that is the TPO, or third party owned approach to financing and putting these on customers' homes.
And so we've got now going to draw from and things that some of my ArCom upstream peers had the US dollar does have identified -- We may be seeing some softening nationwide, perhaps 10% looking forward to the next year. However, the that is way more than offset by the swing toward PPAs and leases that have gone from, I don't know, 30% or 40% to upwards of 65% or 70% of that market.
So there are even more of our core business targets being created today than there were before. And we anticipate that that will continue going forward. That is the forward supply outstrips what we had a year or two ago.
And the final piece, I would say that this is that we are currently in bilateral negotiation on over 10,000 different home systems and contracts. There is no guarantee that any of those 10,000 will come to fruition and the deal will on. But our pipeline, we always keep it stocked were constantly in negotiation with various installers and owners of assets that are looking for liquidity for some reason or perhaps even setting up something programmatically for repeat sales going forward to us.
So I don't typically go into any more detail on our pipeline just because those are active negotiations. But I do want to give that sort of transparency to add 20%, that's 15,000 more. And with the pipeline that involves 10,000 right now, we feel pretty good.
Tristan Richardson
I appreciate the context. And then maybe just to your prepared comments around field services and that initiative on can you talk about how this helps the platform and/or the P&L? I mean, I think these are certainly capital-light customers I assume. Do these contribute to these high margin customers? And then how do you think about them from an O&M perspective just in the context of pushing folks out into the field, making calls, rolling trucks etc.?
Christian Fong
Yea, let me put this in the context of three different things. One, we are protecting revenue. One of the fastest-growing segments that we have is our environmental commodities markets. Put more plainly to market insiders, that's the SRX, solar, renewable energy credits. The other states have slightly different names for them, but broadly, the SRX markets we are seeing -- millions of dollars of growth and they're really active in those core markets that we're talking about. California and New Jersey, the places where we're initially looking at field services.
The reason that I say it's protecting and enhancing that revenue stream is because there is a fair amount of the home systems that become non visible, if I could say it that way, that is the 3G meter shut down. And we've been clear about this getting our 3G meters upgraded to 4G, sometimes their Wi-Fi in places where we cell services is strong.
And so getting the field services in place actually allows us to get to a home fast if we can't see it. There's a lot of reasons why you might not be able to see it maybe a cell phone signal. It may be a Wi-Fi signal -- change the password or something. So this this is a revenue side enhancement as well.
On the cost side, though, we are looking at our most dense markets because a truck roll to a customer cost about $300. So if you do two or three of these a day, you're talking about $1,000 that you're going to pay somebody. When we stick with our O&M partners, the local electricians that are in the field. Of course, they have to have their profit margin on top of that as well.
So when we start thinking about the utilization or asset utilization rates would be the way we think about this. Our most dense markets are going to keep small teams of our own field services folks engaged pretty much all the time, because of the density of our assets that we scaled up to. So we see both revenue protection enhancement and in those markets, our O&M cost should go down as we just save on not having to go to outside parties.
Tristan Richardson
Helpful. I appreciate the context. Thank you.
Operator
Joseph Osha, Guggenheim.
Joseph Osha
Hi, Christian.
Christian Fong
Hi Joe.
Joseph Osha
You actually touched on in your comments just now something I wanted to amplify. I would think that there would be more installers now out there looking for not just moving portfolios in a one-off basis, but an ongoing monetization strategy. How do you view that and as you kind of think a year or two forward, could that that approach of really just being a liquidity pipeline as opposed to being out there? You'll have in your M&A guys, hunt for a deal here, a deal there. How important a piece of that business could that become?
Christian Fong
This could become really significant and it's in active enough conversation, we actually have an internal name for this, but I'll just go ahead and say from markets for the first time, we called it a programmatic off-taker agreement. We are actively talking with folks about being a programmatic off-taker. These are going to be installers that sort of as we call them super-regional installers. We're not talking about folks that are doing 200 or 500 systems a year. We're talking about some of the most dominant, consolidated installers, in their particular regions.
For those folks, we are a great partner because our M&A process is so sophisticated and irreplicable. Our cost of capital has only declined as we've gone from being a private to public company and so this is a direct adjacency to our M&A core competency to do this programmatic off-taker. And we are, I'll just say, in active conversations with some of those super-regional installers about connecting with them in that way. (multiple speakers)
It could be that it could be very significant. And I don't want to get out ahead of myself on where we might have success in setting up those relationships. But their need to know where these assets are going and not have them on the balance sheet, I think simply becomes more important as the cost of capital and the cost of warehousing rises for them. So we're trying to solve a known capital markets issue for the installers by getting them off their balance sheet faster, faster turns, enhanced their turns of capital, if you think about their model, and get it to our balance sheet as fast as possible.
We would still not be going up to prior to the installation. So that's where we'll differentiate ourselves from what some other folks are doing in the marketplace. These are folks that are still going to be able to create and put them on the rooftops so that by the time we acquired them, the cash flow is already going. The customer relationship is already done. The asset is already built.
Joseph Osha
Okay. That's -- I find it very interesting. And then second question, we hear a lot about how transferability might or might not impact residential. I'm just curious as to your thoughts and also whether there might be a role in facilitating ITC monetization that you guys could see yourselves playing?
Christian Fong
Well, again, you just attaching it to that last question of -- we don't intend to be doing programmatic off-taker with partners and then take ownership prior to the installation. And so that tax equity moment on from a policy perspective is attached to who owns it at the point that it comes into service. So those partnerships that we are in discussions with are folks that are sophisticated enough to have their own tax equity lined up or to your point, to begin to monetize the ITC and have that trade.
So we are downstream by -- may be weeks or months from that moment. We are certainly aware and because of our environmental commodities markets group, we do have the ability to place and trade ITC as a read through. I would say we do get calls from folks that are interested in making that trade, and we typically are pointing them to against some of our upstream peers that will have those ITC. But certainly, if it came down to us, we have folks that are actively reaching on wanting to acquire them.
Joseph Osha
Yeah. The reason I ask is that obviously for a regular ITC world, there are lots of reasons in terms of size and lumpiness and whatnot, but that doesn't make sense. But I would think transferability you have to extend that kind metaphor you just talked about might actually provide an opportunity at that moment were to move a little further downstream. Because it is a less lumpy exercise, I guess.
Christian Fong
Yeah, absolutely. We've sometimes thought, Joe, that one of the challenges to moving upstream to being an installer is the tax equity on it. So kudos to the policymakers for removing the moat. Strategically, we are not ready to say, hey, let's go ahead and cross that bridge that policymakers have created for us and head up toward installation. But certainly one of the key moats of being an installer, and that is the ability to get tax equity partners at scale. That moat just got filled in.
And I think folks can reach -- can compete in the installation market more readily Now we certainly could more readily. And yet you -- definitely were not looking at becoming an installer or getting upstream into the installers role.
Joseph Osha
Okay. Thank you. I appreciate that.
Operator
(Operator Instructions) Jordan Levy, Truist Securities.
Hey, guys. This is Mo on for Jordan. Thanks for taking my questions. So piggyback on Christian's question on M&A. And so you guys have been talking about how low your customer acquisition cost has been. It appears that this strategy has worked out well for you guys and you did two acquisitions this year. So I'm just wondering, are you worried about or have you seen any other competitors or new entrants, that they're trying to be a copycat of your model?
Christian Fong
Hi Mo, thanks for joining. We have not seen other entrants coming into the M&A space. To your point, it is extremely low cost of the cost of acquiring a customer at cash cost. Yeah, we've been doing this for five years now. And the failure rate of M&A is historically high for corporations that don't developed the M&A muscle memory, if you will. There's a lot that goes into M&A where there's technical accounting, the things that would be in Sarah -- Sarah's playing as a CFO to make sure she gets right.
This is complex stuff, the integration of multiple kinds of contracts -- installer peers, they have the luxury of knowing that all of their contracts are the same home transfer behaves exactly the same. It's why we've actually been investing money into our IT systems and making sure that we have a consistent customer experience, that is hard to do when you've got a lot of different flavors of PPAs and leases.
It's work that we've already accomplished. I would say that if somebody tried to step into the market, they called me up and said, what would you -- how would you recommend we do M&A? I would warn them off and say you need to be prepared for three or four years of really hard work, systems upgrades, service center upgrades before you try to do this.
So fundamentally, there's nothing that keeps people from it except that really hard work of being prepared to do it. I think it would take any one that's tried to step into the space a number of years to get to where we are. I'm going to say our moat sometimes is just that integrated servicing of such complex assets and diverse assets.
Great. Thanks for that detailed answer. So Sarah, maybe just a little one for you. You have affirmed your cash flow guidance of $120 million to $130 million run rate. So that's great. So can you maybe address the outlook and walk us through the puts and takes in your projection. Anything you should be aware of?
Sarah Wells
Sure, Hi, Mo. Thanks for that question. When I think about the top of the funnel, we will add about $105 million to $115 million coming in in customer collections, that would include the buyouts and the prepays that we see throughout the year. We have another $7 million to $8 million in renewable energy credits, the SRX that Christian spoke about previously, and then another $7 million to $8 million in interest on our cash.
That's invested, that gets you to the top. And then circling down for O&M and SG&A gets us down to that [$77 million] cash available for debt service that we've previously spoken about as kind of being in the middle. And then after loan interest and principal payments, we land at around $5 million to $10 million of normalized cash flows before any kind of additional CapEx, IT infrastructure, or meter swap initiatives.
That's helpful.
Operator
Thank you. At this time, there are no further questions. I will now turn the call back over to Bronson Fleig for closing remarks. Please go ahead.
Bronson Fleig
Thanks, operator. And thank you again 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 today. You may all disconnect.
