Q2 2024 Earnings: Spruce Power, ESS Tech, and Surf Air Mobility Report Mixed Results

Spruce Power Holding Corporation (SPRU) Q2 2024 Earnings Call Transcript

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Spruce Power Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Bronson Fleig, Head of Investor Relations. You may begin. Bronson Fleig Good afternoon, and welcome to Spruce Power's conference call to discuss results for the second quarter of 2024. With me today are Chris Hayes, our Chief Executive Officer; and Sarah Wells, our Chief Financial Officer. Our call this afternoon will include statements that speak to the company's expectations, outlook and predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those expressed in or implied by these statements. We are not obliged to revise or update any forward-looking statements, except as may be required by law. Please refer to our disclosures regarding risk factors and forward-looking statements in today's earnings release and other SEC filings. A copy of our press release has been posted to the Investor Relations page of our website for reference. The non-GAAP financial measures discussed in this call are reconciled to the U.S. GAAP equivalent and can be found in the press release that we issued this afternoon. Thank you, Bronson, and good afternoon to everyone. I want to express how excited I am about the future of Spruce. I can say after these first few months as CEO, we are more confident than ever about the opportunities we have in front of us. As I mentioned in our first call together in May, our strategic priorities center on growth, both through the acquisition of operating residential solar assets and expanding our capital light third-party service offering. On both fronts, our teams are very busy with due diligence on a rapidly growing opportunity pipeline. We are intensely focused on execution to gain scale and drive inflection of free cash flow generation. I'll make more detailed remarks on our outlook, but first I want to quickly comment on our second quarter results and operations. Our core business continues to deliver solid results anchored by long-term cash flows from 75,000 rooftops. For Q2, revenue was $22.5 million and operating EBITDA was $14.4 million. Our total cash position was $150 million at quarter end, up slightly from Q1. Sarah will give more details to the financial results in her section. During the quarter, we refinanced our nearest maturing non-recourse debt, the Spruce Power 4 facility. We're pleased to start a new lending relationship with Barings in this facility. We secured attractive terms and institutional interest for this paper was very high across the traditional bank loan market, as well as public and private credit markets. This speaks to the quality of and appetite for residential solar backed debt structuring and Spruce's reputation as a high quality asset manager. We expect to benefit from this deepening pool of capital over the near future. We're also proud to report a historical milestone in the Spruce customer experience. During the quarter, we achieved a Google rating of 3.0 out of 5.0, the highest cumulative rating in our corporate history. Nonetheless, we will strive for even more improvement in customer service. Not only is it the right thing to do, but we get financial benefits in the form of better fleet performance, customer collections, and cross-selling opportunities. I want to sincerely thank our employees across all departments for their hard work, which led to this record achievement in customer satisfaction. Next, let's discuss our near-term strategy to grow our owner operator platform. Shifting dynamics in the residential solar market are very favorable for us, higher interest rates and better policy incentives such as investment tax credit adders are resulting in a noticeable acceleration of solar lease and PPA origination. This is advantageous for Spruce for several reasons. First, there is an insatiable need for long-term capital providers that can own solar lease and PPA contracts, a need that is not being fulfilled by the well-known publicly traded originators. This need presents opportunity for us in both equity sponsor capital commitments and M&A opportunities. This need is exacerbated by the recent exit of a large player from this market. Next, this acceleration of solar lease and PPA contract origination requires robust servicing capabilities for at least 20 to 25 years. Solar servicing is our foundation. This need creates robust opportunity to service third-party solar and other energy assets that we do not own. Keep in mind, these opportunities are in addition to the substantial installed base of residential solar assets in the market today. With this market context, I'll speak to how Spruce thinks about executions. As it relates to M&A, we will remain disciplined in our return hurdles. Bid-ask (ph) spreads are still somewhat wide, yet we are finding opportunities and are evaluating a robust pipeline of seasoned solar portfolios in the secondary market. Also, we are evaluating what we call programmatic offtake, where Spruce would step in earlier in the asset lifecycle closer to PTO as the long-term sponsor and owner of solar lease and PPA contracts. To be clear, this would not involve investment in working capital or funding milestone payments, rather we are looking at off-taking recently installed solar systems by mature installers. On the solar and energy servicing front, we've hit the ground running. In July, we announced the hiring of the General Manager for Spruce Pro, Rich DiMatteo. His team is actively developing a pipeline of servicing opportunities and initial indications of interest remain strong. As a reminder, we view servicing opportunities as capital light endeavors where Spruce can leverage its existing investment in people, processes, and service technologies. We are well-positioned to capture third-party servicing customers over the near term. Importantly, Spruce is well capitalized to pursue growth. At quarter end, Spruce had $150 million in cash. Keep in mind that we are levered buyer of assets, but we have substantial runway to fund the equity tranche of prospective transactions. Although, we have not had any M&A activity so far in 2024, the opportunity set we see has never been greater. Liquidity and capital market access concerns are clearly very pervasive in the upstream installation market. That said, we will be patient and not rush to deploy capital to merely boost our growth metrics. We are focused on underwriting attractive returns and driving toward inflection in free cash flow generation. The beauty of our business model is that we can harvest long term cash flows, while we prudently evaluate investment opportunities. We are paid to wait. Given the opportunities set discussed, the ability to be nimble and opportunistic is a priority for Spruce and its Board of Directors. We want to preserve our cash position to be highly competitive and effective in pursuing near term growth opportunities. We believe this approach will position us well in our pursuit of being the dominant long term owner and operator of distributed energy assets. We will continue to assess investment opportunities including share repurchases on a quarterly basis with our Board of Directors. Before handing the call to Sarah, I'll make some comments on a public residential solar installer who recently filed for Chapter 11. This event, while unfortunate, underscores the difficult operating environment for residential solar installers. However, we are hopeful that it acts as a positive catalyst for the industry to move towards a more sustainable origination model focused first on sound economics rather than growth at whatever cost. Additionally, this event allows us to contrast the high risk business model of many large solar companies versus the Spruce model. Spruce only acquires cash flowing rooftop portfolios. We do not have a large and costly network of salespeople and channel partners allowing us to pursue a low customer acquisition cost. We do not have substantial working capital requirements and we are not subject to cost of capital risk associated with the timing lag between installation and raising project level capital. In summary, the conservative nature of our business model should give you all great comfort in understanding the risks of our business and how we mitigate them. With that, I'll hand the call to Sarah to address second quarter financials. Sarah Wells Thanks, Chris. I'll provide more details related to our second quarter 2024 financial results as well as our business outlook for the remainder of the year. Second quarter revenue was $22.5 million compared to $22.8 million in the prior year period. The modest year-over-year decrease is largely due to lower revenues from solar renewable energy credits. Second quarter core OpEx, which we define as SG&A and portfolio O&M was $21.1 million in total as compared to $19 million for the prior year period. Breaking this out, portfolio O&M expense increased to $4.4 million in the second quarter from $3 million in the prior year period. The increase is tied to higher non-routine servicing costs such as expenses tied to hardware replacements. SG&A expense increased to $16.7 million in the second quarter from $16 million in the prior year period. For the quarter, SG&A was negatively impacted by $1.9 million of expense related due to the CEO transition. Spruce generated a GAAP net loss attributable to stockholders of $8.6 million. We consider operating EBITDA as a key measure in evaluating the company's financial performance. Operating EBITDA is defined as adjusted EBITDA plus net proceeds from the company's investment in the SEMTH master lease, the interest we earn on our cash investments and proceeds from system buyouts and prepayments. These items represent material cash inflows from our ongoing business and strategy. Adjusted EBITDA was $5.4 million for the second quarter. Adding the net proceeds from our master lease investment of $5.6 million, $1.5 million of interest earned on cash investments and $1.9 million of proceeds from system buyouts and prepayments. Operating EBITDA was $14.4 million for the second quarter. At the end of the second quarter total cash inclusive of unrestricted cash and restricted cash on our balance sheet was approximately $150 million, unchanged sequentially. Our restricted cash balance increased due to normal seasonality of customer collections. However, our unrestricted cash balance decreased sequentially as a result of higher O&M, partially offset by net proceeds from the refinance of our Spruce Power 4 credit facility during the quarter. The total principal balance of long-term debt was $640 million at the end of the second quarter, with a limited interest rate of 5.9%, including the impact of hedge arrangements. As a reminder, all of Spruces debt is non-recourse and serviced by customer collections of our various portfolio companies. At quarter end, all of our floating rate debt instruments were materially hedged with interest rate swaps with a mark-to-market on our swaps of positive $30 million. As Chris mentioned, during the quarter, we successfully closed on the refinance of our Spruce Power 4 credit facility. We are proud of the execution, which we believe strikes a good balance of extending tenor, while providing flexibility over the medium term to capitalize on our expectation for continued strong performance of the underlying assets, which are predominantly linked to prevailing retail electricity rates in California. The transaction represents Spruce's first rated debt issuance since 2016 with Kroll Bond Rating Agency rating the new facility, A+. We are proud of the institutional interest this refinance solicited, speaking to the quality and the performance of our assets, and we expect to benefit from these expanded relationships over the long term. Last, moving to full year guidance, which can be found on Slide 20 of our Investor Relations deck. With two quarters of the year complete, we are maintaining our 2024 financial guidance, though we are tracking towards the lower end of the operating EBITDA and adjusted free cash flow ranges. As Chris mentioned, while our M&A pipeline continues to grow, Spruce has not had any M&A activity to date in 2024. For context, the high end of our guidance ranges assumed the acquisition of approximately 6,000 solar lease and PPA contracts in the first half of 2024. We are also experiencing moderately higher operating expenditures than previously anticipated. This is due to unforeseen costs tied to the CEO transition, which we earlier described as having a negative $1.9 million impact to SG&A during the second quarter. We also incurred moderate legal spend in connection with the recent contest of our annual proxy and ultimately, a cooperation agreement with one of our shareholders. Last, non-routine operations and maintenance expenditures have trended higher thus far in 2024 than we originally anticipated. These are costs tied to rolling trucks to repair or replace hardware. Currently, we believe this O&M dynamic to be transitory in nature. In summary, the pace of M&A versus previous expectations and higher-than-expected operating expenditures combined to inform our current expectations for our financial guidance metrics to track towards the lower end of their respective ranges. This concludes our prepared remarks. [Operator Instructions] Our first question comes from the line of Peter Gastreich with Water Tower Research. Your line is open. Shawn Severson Great. Thanks. This is Shawn Severson in for Peter, who is traveling right now. Chris, I had a question going back to the bankruptcy of the installer. I mean -- and obviously, it highlights the differences in the business models, but does it change anything for you or create opportunities? I'm just wondering on the overall impact in rooftop solar, if any, and specifically how Spruce might benefit from that? Chris Hayes Yes. Thanks, Shawn. I appreciate the question. Really, what it illustrates to me is that our model of being a third-party owner is the best sector to be in solar. We don't have any of the origination costs associated with customer acquisition. Rather, we grow through acquisitions of large numbers. In fact, we've got several portfolios that we're diligencing at this moment. And the other piece in terms of opportunities it creates, we are being incredibly judicious with our capital to try and find deals that make sense for us. And we're actively in the market doing it. And as we see sort of chaos like this, we think the opportunity set is expanding. So I think the sky is the limit for Spruce. Shawn Severson My next question is related to Spruce Pro. I know you had a new hire there as well, but I'm trying to understand the go-to-market strategy, what is the marketing strategy around this and building awareness? I know it's still new, but what is the plan for getting the word out on this? Chris Hayes Yeah. Good question. So you probably heard Rich DiMatteo started this quarter. He is in the seat. He's with -- we're thrilled to have him. And the first order of business is productizing the second quarter of business is commercializing. And so while we have a few existing pipeline candidates that we're working towards closing, we're aggressively trying to pursue our distinctive confidence in the servicing space and get to a much larger audience. So we're doing all the things you'd expect, conferences, cold calling everything in between. And over these next quarters, we think we're going to be building a really robust pipelines. Shawn Severson Is that something you think that converts quickly, so the efforts translate? I mean, what I mean, if you're out there, is this something that has a faster adoption curve or is there a process here behind it that I'm not understanding? Chris Hayes Yeah, so great question. These are longer sales cycle transactions, right? This is just the nature of what an ideal customer prospect looks like, the nature of the selection process and how we fit into it. So these aren't one or two month sales cycles, they are longer. And so that's why we're building out the team in a capital light manner and aggressively starting to pursue the market to grow that pipeline. Shawn Severson Thanks, Chris. My last question is kind of, is a bigger picture landscape. I think the drumbeat certainly out there that electricity demand is up and probably going to continue to go up for some time, driven by all the things we're well aware of. What I'm trying to get to is a picture of how rooftop solar fits into, let's say, the mega trend of increased demand from AI and EVs and a myriad of things. How does that impact rooftop solar, specifically and for Spruce? Chris Hayes Yeah, so great question. Look, [indiscernible], it looks like this. Power costs are going to be going up over the next decade, cost of solar continues to come down and the economic argument for an average homeowner is super positive. They will save money with rooftop solar. So while all the originators are going to go out and chase these one-off customers to put solar on their roof, all that is doing is increasing the opportunity set for us at Spruce Power to acquire these portfolios either programmatically or through large acquisitions, of which we've had 13 through our history. And so as the total addressable market gets bigger, we think our kind of pure-play third-party ownership model is the way to go, and we're going to keep doing it. Shawn Severson And to the homeowner, this becomes an economic decision, right? This is -- electricity costs going up, opportunity to lower my electricity costs straightforward. Chris Hayes Save costs, kitchen table issue how can we lower our electricity bill, it goes up year-over-year, and this is a way to lower cost. [Operator Instructions] And there are no further questions at this time. Bronson Fleig, I will turn the call back over to you. Bronson Fleig Thanks, operator. And thank you to everyone for joining us today and for your continued support. If you have any questions, please contact me or our Investor Relations team. This concludes our call. You can all disconnect. Thanks.

ESS Tech, Inc. (GWH) Q2 2024 Earnings Call Transcript

Justin Clare - ROTH MKM Davis Sunderland - Robert W. Baird Thomas Boyes - TD Cowen Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen only mode. Later, we will conduct a Q&A session [Operator Instructions]. I would now like to turn the conference over to our host, Erik Bylin. Please go ahead, sir. Erik Bylin Welcome to ESS Second Quarter of Fiscal Year 2024 Financial Results Conference Call. Joining me on the call today from ESS are Eric Dresselhuys, CEO; and Tony Rabb, CFO. Following management's prepared remarks, we will hold a Q&A session. Earlier today, ESS released financial results for the second quarter of fiscal year 2024. The earnings release is available in the Investor Relations section of the company's website. As a reminder, the information presented today will include forward-looking statements, including, without limitation, statements about our growth prospects, partnerships, financial performance and strategy for 2024 and beyond. The forward-looking statements are also subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors set forth in more detail in our most recent periodic filings filed with the Securities and Exchange Commission, as well as the current uncertainty and unpredictability in our business, issues with our partnerships, the markets, the economy and the current geopolitical situation. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call today are based on assumptions and beliefs as of the date hereof, and we disclaim any obligation to update any forward-looking statements, except as required by law. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with US GAAP financial measures provide useful information for both management and investors by excluding certain items that are not indicative of our core operating results. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Reconciliations between US GAAP and non-GAAP results are presented within our earnings release. With that, I'll turn the call over to ESS CEO, Eric Dresselhuys. Eric Dresselhuys Welcome, and thanks for joining us today. Momentum continues to build for our business and for the larger long duration energy storage market. In the last quarter, we've seen continued regulatory momentum to grow deployments of eight plus hour duration storage and direct funding announcements to projects that will accelerate adoption and continued deployment of our technology reinforcing our position as a leader in the field. In the second quarter, we have expected to ship more units but a key partner experienced a delay in final approvals and funding. We have built and had anticipated shipping approximately 12 additional EWs last quarter in support of those projects. But unfortunately, they flipped. Based on the current information provided by the partner and the end customer, we now expect to ship and recognize revenue for those units in the third quarter. So stay tuned for further announcements. These delays are frustrating and given our early stage any shift in project timing has a meaningful impact on the results within any given quarter. In any case, we continue to execute on our strategy and expect to ramp revenue in the back half of the year as we lower cost and increase our capacity. I'm thrilled to announce that we are finalizing the details to close a transformative agreement with the Export-Import Bank of the United States, or EXIM for up to $50 million in funding to help ESS continue to maintain our strong balance sheet while expanding our operations. Provided by the Make More in America Initiative, this funding is long term, low interest nondilutive capital to finance expanding manufacturing capacity. We can use it immediately to add to our cash position, borrowing about $10 million this year, including on a look back basis for previously installed capacity and for the addition of Line 2, which is expected to triple our production capacity to over 1 gigawatt hour of battery capacity annually. Just last week, we were joined by Senator Ron Wyden and EXIM Vice Chair, Judith Pryor and numerous other dignitaries here in Wilsonville to hold the ribbon cutting to celebrate our growing manufacturing capacity. This groundbreaking followed the visit from the Conservative Climate Caucus, a group of Congress people that works to reduce emissions by educating house republicans and climate policies and legislation consistent with conservative values, proving that lowering our carbon footprint through American made long duration energy storage is a bipartisan imperative, something we can all agree upon. We're honored to have gained their support and humbled to hear their praise for what ESS is doing on storage in the US. This support for scaling is important because we're going to need a lot of long duration energy storage. As many of you know, electricity demand in the US and around the world is beginning to increase dramatically as we work to electrify everything and support the massive demand from technologies such as generative AI. After decades of essentially no load growth, the Federal Energy Regulatory Commission or FERC now shows that US electricity demand is expected to grow by 4.7% annually. That translates to 38 gigawatts of growth by 2028, as large customers are expecting it to be clean, driving the demand for green energy PPAs and clean baseload power. Legislators and regulators are hearing the call, resulting in new mandates for long duration energy storage in California, Michigan, New York and other states and across the globe. Ensuring a reliable, cost effective, decarbonized electricity system is our mission here at EFS, and we were pleased to be included in the recent New York Times discussion on the need to ensure the reliability of the grid. Our customers are leading the industry to the future and their work demonstrates the progress we're making in the market, helping position our iron flow technology as the most proven long duration energy storage technology available. These proof points are critical as they demonstrate the value of our solutions across a variety of use cases, unlock future projects with these customers and serve as a critical catalyst to building on an over $1.5 billion in potential projects with our current customers. Earlier this year, we successfully commissioned our first system at Schiphol Airport in Amsterdam, which is installed on the tarmac to phase out diesel ground power units or GPUs that supply electrical power to aircraft while they're parked at the gates. I'm pleased to share that in Q2, we went into operation at the airport and are charging GPUs. This is an extremely meaningful validation of the safety of our technology given the strict standards in commercial aviation while also proving out the functionality and versatility of our batteries. And yet another sign of the imperative behind California's drive to decarbonize and increase resiliency of the electricity system. In July, the California Energy Commission or CEC, awarded a $10 million grant to our long duration battery storage project in partnership with Sacramento Municipal Utility District or SMUD. As a reminder, SMUD signed a 2-gigawatt hour framework agreement with ESS and we have already delivered and commissioned the first phase of this agreement. The CEC's funding, along with incremental investments in SMUD, will be used to fund Phase 2, a 3.6 megawatt eight hour iron flow battery implementation. With SMUD transitioning to a carbon free power portfolio by 2030, a goal which is now a near 5.5 years away, they are clearly taking meaningful steps towards achieving the 13.6 gigawatts of energy storage the California Public Utility Commission believes California will need by 2032. At the end of May, Burbank Water and Power held their ribbon cutting with local elected officials to commemorate the commissioning of their ESS Energy Warehouse, their first long duration energy storage system. EWP is another progressive California utility that recognizes the necessity of pairing LDES with renewables to achieve their aggressive decarbonization goals. Our Energy Warehouse is now integrated into BWP's EcoCampus and connected to a 265-kilowatt solar array capable of powering about 300 homes. Their forward thinking approach to decarbonization will help them increase their use of renewable energy and propel them towards their goal of achieving 100% carbon free power by 2040. I'm pleased that ESS will play such an integral part in this journey and it is gratifying to see the Burbank team so eager to publicize their project, including their planned VIP tour in September. We were pleased to announce that Indian Energy, a native American-owned microgrid developer and integrator, the CEC and the Department of Defense together selected ESS' iron flow batteries to demonstrate the diverse capabilities of LDES technologies for utility scale resilient microgrid. The program is a valuable step forward in proving that LDES can deliver energy security to remote communities like triball nations and military bases. Over the coming months, our project partners expect to demonstrate a variety of use cases for the California energy market, including solar peak shifting and grid ancillary services, after which time it will be placed into commercial operation. And now I'll touch on our progress with the Energy Center project we're developing with Portland General Electric and the transition to production manufacturing. Importantly, as we've shared in the past, we completed production and testing of the inaugural EC and have been cycling it to hone the operations while subjecting it to varied operating demands to characterize and validate its operational performance. As part of this, we continue to conduct additional durability cycling against both the PNNL and [indiscernible] testing regimes. It's great to see the unit performing well and we have transacted more than 140-megawatt hours of energy through this 1 unit over the last couple of months. Importantly, we're thrilled to see our iron flow technology transition quickly to a scaled up form factor through the great work of our engineering and production teams. Building the units is only one part of making a new battery ready for market. In our business, certifications are imperative to our customers. Ensuring our solutions are safe and can withstand the harsh environments in which they operate is critical to enabling adoption. We mentioned last quarter that we were the first nonlithium grid battery [bet] for both the EW and EC achieved IEEE 693 certification, a seismic rating that qualifies new systems for deployment as critical infrastructure across the United States. This is an essential certification for LDES deployment in California. And in the near term, we expect to achieve UL 9540 for the EC, a safety standard for energy storage systems and equipment for fire prevention. Achieving both IEEE 693 and the UL 9540 certifications is critical for utilities, given the ongoing lithium storage incidents in California and elsewhere and an important step in demonstrating the viability of our EC for frictionless deployment across broad use cases and a variety of environments. Given our progress, we incorporated a number of design optimizations from our first EC to enhance manufacturability and begin production of our second unit for PGE in July. We expect this unit to be completed by our next earnings call with grid interconnection and handover to PGE expected to take place soon after. In conjunction with that, we are nicely positioned to begin building the first ECs for commercial deliveries in August. In preparation for our planned shipments to Tampa Electric, followed by SMUD, we have bolstered our operations and assembly lines to accommodate the EC manufacturing requirements and volume expectations. As we've discussed on previous calls, our plan for 2024 was to moderate our builds and shipments in the first half and scale them in the second half after we make progress on our cost reduction initiatives. That plan remains intact and we expect to begin increasing our shipments in the coming quarters, driven by a combination of EWs and initial shipments of our EC. As you have likely seen from many companies in the energy transition space, project timing can be difficult to predict and we've certainly had our share of delays. That said, we continue to see ramping 2024 revenue to multiples of what it was in 2023, which sets us up nicely to achieve our broader expansion plans for 2025 and beyond. So we'll continue to work to keep these projects on track. And with that, I'll turn it over to Tony. Tony Rabb Thanks, Eric. Unless otherwise noted, all numbers we discuss today will be on a non-GAAP basis. You'll find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release, which is posted on our Investor Relations Web site. We reported revenue of $348,000 in the second quarter with the associated cost of revenue reported at $11.7 million. As previously shared, the transition from R&D accounting to inventory accounting results in an LCNRV adjustment that dramatically impacts our current COGS results. This will not be a material contributor to our financials as we reach scale. We continue to make progress towards profitability. However, our COGS results will not fully reflect our cost reduction initiatives benefits, thereby making it difficult to assess our progress through our current financial statements. We're making great progress with incremental cost reduction initiatives through value engineering, supply chain optimization and process improvements for both the Energy Warehouse and Energy Center. As we previously mentioned, during 2023, we lowered the cost to build EW by 60% and we're targeting another 40% reduction this year. With the improvements we're realizing on the cost reductions in 2024, we still expect to reach non-GAAP gross margin profitability on the Energy Warehouse by the end of this year. Our non-GAAP operating expenses for Q2 were in line with our expectations at $9.1 million. Non-GAAP R&D came in at $1.9 million, which we believe reflects the company's run rate and continued investment in our cost out initiatives and product road map improvements on reliability, durability and the efficiency of the EW and EC. With that, we reported Q2 adjusted EBITDA of negative $18.8 million. Turning to cash flow and liquidity. We ended the second quarter with $74.4 million in cash and short term investments. We remain focused on managing our cash burn rate, including driving ongoing efforts to optimize working capital. As Eric mentioned, this quarter, we expect to close on the first tranche of an up to $50 million financing facility from EXIM and from this, we intend to add about $10 million of cash to our balance sheet this year with extended repayment terms and very competitive interest rates. We have invested in another automated line that is planned to come online early next year to produce power modules that should greatly enhance our ability to ramp up in 2025. That capacity expansion comes at a dramatic improvement in cost per megawatt, roughly half the cost we previously expected. And with the EXIM agreement, we expect to fully fund this and future production capacity expansion. We're extremely well positioned to continue to expand our production capacity through this EXIM financing facility, effectively funding all of our production capacity CapEx needs through 2025 and into 2026. This transformative agreement bolsters our liquidity levels and we expect should support our business cash needs well into 2025. We continue to opportunistically look to strengthen our balance sheet through dilutive and nondilutive financing alternatives, to provide the necessary capital to give us operational flexibility to respond to market demand. Our EXIM financing is a great example of a nondilutive solution to bolstering our cash position. Additionally, with such strong market tailwinds, we continue to see considerable investor interest in investing in long duration energy storage, and we remain very confident in our ability to raise the necessary capital to fund us through to cash flow breakeven. And finally, as you may have seen, we filed a proxy statement with the SEC to execute a reverse split of our stock to address a listing notice from the New York Stock Exchange. Once executed, we expect to be in compliance with the listing requirements and continue our operations as a publicly listed company. The current ratio of shares has yet to be determined but we expect to complete the split in late August. And with that, I'll open it up for questions. [Operator Instructions] Your first question comes from Colin Rusch. Unidentified Analyst This is Lidya on for Colin. First, we noticed on Slide 20 of the investor presentation that the capital required to produce for ESS is around $20 million per gigawatt hour. Could you maybe talk about what scale you would need to achieve that number? Eric Dresselhuys You mean the scale to -- that's on a per gigawatt hour basis in terms of the capacity that we need to add. So each of our lines is substantially less than that amount. Tony Rabb So we can build an increment smaller than a gigawatt. I think Line 2 is about a half, a little bigger than 0.5 gigawatt hour of capacity... Unidentified Analyst And then maybe for a follow-up, could you speak to the growth in potential customers evaluating your field data and how quickly those customers are moving through your sales funnel? Tony Rabb It's a mixed bag, as you would expect. We're seeing two things. We're seeing some of the behind the meter applications where customers have kind of follow-on applications, they tend to move through more quickly. They'll often want to run for a year but sometimes less. And for other customers, we have a multi phased approach where we're going through it kind of in order. So we'd expect, as we said, if you look at SMUD to having deployed the first phase, complete the work on that and start moving on to the second phase, which will be an EC phase product. But the third piece that we found is that a lot of the market activity these days from an RFP, RFI perspective, are all targeting larger projects that will be '26 and '27 projects. One of the things about our industry that people who follow other companies would certainly be aware is that the lead times for planning are quite long and that can be influenced by interconnect cues and site preparations as well. So we have a lot of folks that are looking at current customers and visiting them, getting feedback on the product as they're making their plans for very large projects that happen in the out years. And that activity has increased quite a bit in part, as I mentioned, due to things like the need for green PPAs from hyperscalers and folks like that. Your next question comes from Corinne Blanchard. Unidentified Analyst This is actually Mike [indiscernible] on for Corinne. My question has to do with your revenue target of 3 times to 4 times in 2024. So this is implying $23 million in the second half at midpoint. Could you maybe break that down between Energy Centers and Energy Warehouses? Eric Dresselhuys I think that the ramp-up on the Energy Centers we've talked about in the past will start in the -- not until the fourth quarter. So it's going to be, I'd say, I don't know, maybe a split of two thirds EW and a third ECs. As we said in our -- in the prepared comments, not just what we've seen but with other people have seen, we get very interested about the timing of one project versus another if there's any slippage or movement in timing because our numbers are comparatively small number of projects, that can make a pretty big difference. So I wouldn't want to hang my hat too hard on exact mixes but that would roughly be the layout. Unidentified Analyst And then my follow-up has to do with the growth tied to AI and data centers. You mentioned it in your prepared remarks, I was wondering if you could give a little bit more color around what you're hearing from potential customers in that space? Eric Dresselhuys So the step back is really on the broader category of data centers. One of the increasingly loud screams we're hearing from the market, both from end users but also from developers who serve that market is that the data center operators have very ambitious plans for building out in support of what they expect to be massive growth in generative AI. And that's got two problems. One, it's just regular use, but generative AI is, depending on who you talk to, kind of 8 to 10 times more energy consuming than, say, a typical Google search. So people are anticipating that demand. And what's happening is they're going to utilities, not just here in the US but around the world saying, hey, I'd like to build a data center of this size and I need the power of a certain level. And they're getting the answer back from the utilities that say, I'm sorry, I just can't support that, it's just too much energy. So this is becoming kind of an economic limiter for the people in the business of hosting data centers to say where can I go put a data center that can supply the power I need. In some markets like Ireland, as an example, Ireland, they've come out and just told data center people would love to have you, but you're totally responsible for coming up with your own power. So with that as a little bit long winded background what we're finding is that people are looking at saying, can I do this as a microgrid, can I buy my own renewables, pair it with storage and create a 24/7 green energy system and do that without having a heavy reliance, maybe not no reliance, but without any heavier reliance on the grid operator that I normally would thought about doing. It's early days of this but it's a topic at every conference that happens in the energy industry these days. And there have been quite a few big public announcements from Google, Microsoft and AWS, they're trying to procure their own green PPAs to get out of the way to not have the reliance on the utility operators. So I wanted to start with the manufacturing here. So the second automated line, I think that's expected to come online next year. I was wondering if you could talk about the ramp there. So you talked about getting to 1 gigawatt hour. When could you achieve that run rate and what does the time line look in terms of the ramp-up of that second line? Tony Rabb So the second line, we anticipate, should be online in the first half or by the end of the first half of next year. And so the way to think about that is that we'll have 1 gigawatt hour approximately of production capacity going forward from that point. So we'll get about half year's worth of that capacity in 2025. Justin Clare And then just on the manufacturing CapEx, I was wondering when we think about the financing from Export-Import Bank, $10 million this year and then $10 million to $15 million, I think you anticipate next year. Is all of that capital expected to be devoted toward the CapEx spend for that second automated line? And then just wondering how you're thinking about the remaining capital that might be available to you and whether that could be used for a third automated line or what you're contemplating there? Tony Rabb So the large portion of the first $10 million that we're drawing down is associated with Line 1 and the production capacity CapEx that we incurred to put that in place. So that's that look back component that Eric had mentioned. And then Line 2 will be financed with the remaining parts of the credit facility. And as we mentioned, the CapEx that we need to implement these lines is substantially less than Line 1. So we should be able to add multiple lines with this credit facility well beyond Line 2 and into the capacity that we need into 2026. Justin Clare And then one more just on the margin profile. So it sounds like you're on track to reach non-GAAP profitability for the EW toward the end of this year. Wondering what the impact could be on the profitability for that product as that second automated line ramps up. Like would you produce EWs on that line and would you expect a margin boost at that point in time? Eric Dresselhuys Well, what gets produced on those battery stacks lines, those go into both EWs and ECs. It's the exact same product. So it doesn't matter what the mix of product is that we are shipping. Those production lines, the core components and the battery powertrain that goes into the EC is the exact same product. So as we scale up to produce and sell ECs, that's all going to be happening on Line 1. And then as we run out of capacity on Line 1, we'll start producing on Line 2. Your next question today comes from Davis Sunderland. Davis Sunderland I wanted to ask if you can talk a bit more about the Honeywell partnership, maybe if there's any new traction you can speak to as a distribution channel, maybe if there's any possibility to execute more, I guess, I'll call them individual asset sales rather than your typical kind of framework partnerships you have with, say, SMUD or LEAG or some of the other larger partners? Just anything that's opened up from the Honeywell, and then I have one follow-up. Eric Dresselhuys So well, things are starting to really get some great momentum with Honeywell. We were very fortunate to host Vimal, the CEO of Honeywell, all Honeywell came out just last week to visit us and -- two weeks ago, I want to be accurate, came out to visit us here in Wilsonville and spent a day with us, which -- he's a busy guy, so I think that's a great sign for the importance that he's putting on the relationship in the space, and we had a great series of conversations across both go-to-market and on some of the joint development activities that we've taken on together to do some things, to add new features, functions and performance, but a lot of it has been driven by just getting to scale more and driving cost out of the system. Honeywell certainly has a great appreciation, as we do, for the market environment and the mandate to get down the cost curve as fast as possible. So we're at the stage now where the go-to-market teams have been organized. They've been off actively engaged in the marketplace. And I think the hope would be we'd have announcements to make. We're putting proposals out to people and our hope would be that we'll be able to translate that into live announcements with people here over the coming months. Davis Sunderland And then my follow-up is just on raw material costs. And I know there's some one-offs this quarter and probably the rest of this year with LCNRV, the accounting of the higher cost. But just wanted to ask if you guys are suffering from the so-called start-up premium or if suppliers have been able to renegotiate with you guys as you're getting more units out in the field now, or just anything you can speak to on that would be great. Tony Rabb So we're not seeing any negative impacts from our suppliers in terms of raw materials costs. Most of the efforts that we are seeing is we're either negotiating with our vendors for reduced cost or negotiating and qualifying new vendors for the same materials for lower cost. So that tends to be the primary focus of what we tend to be experiencing with respect to raw materials. Your next question today comes from Thomas Boyes. Thomas Boyes Just two quick ones. Do you have a sense on maybe what the financing issues were that caused the delay in EWs this quarter? The reason I asked is we saw something similar in solar complex, where adjustments to the domestic content add or caused some companies to kind of pause for a second reassess, figure out under the new kind of schedule that was put out there, what the ramifications are. Is that something that you're seeing or could you give any commentary there? Eric Dresselhuys We haven't seen that specific case. Although like you, we've been noting a lot of the announcements made by others on project delays either from site delays or other third party equipment delays. We've been fortunate we've avoided those for this quarter. This specific case was the project is specifically dependent on the government grant. So government funding that was expected to happen before the end of the quarter that would have freed everything up and the government just didn't move fast, this government entity just didn't move fast enough to get it done. So we've talked to the party -- both our partner and the folks at the utility and the government funders, everybody assures us that they're moving through and getting it done, and it's just taken longer than they had hoped. But unfortunately, in this case, it was enough of a timing slip that it held us back from shipping the product. Thomas Boyes Do you know if that was the PACE program or the newer financing vehicles? Eric Dresselhuys No, this was just a directed investment. So it wasn't under any sort of a broader program or anything that we'd see be more methodical. Thomas Boyes And then for my follow-up, just -- it was good to see the project with India Energy, we've talked about some of the traction you've seen in -- for military applications. I'm trying to get a sense of maybe what the size of the resiliency market would be for tribal land, is that maybe a large opportunity, how do you think about addressing that longer term? Eric Dresselhuys I think it's -- I don't know that I can give you a number specifically for tribal lands. But certainly, resiliency as a market resiliency microgrids, we see as a multibillion dollar US market between now and 2030. And it ties back a little bit to the earlier question on data centers, although that is -- certainly, data centers are very unique use case with some very unique requirements. But it ties into this broader theme of people wanting to have not just green energy networks that they're supplying their own electricity, but they're really starting to ship to see this as a resiliency play where you're obviously going green and hopefully trying to drive cost out but you're worried about your ability to access electricity on a regular basis. And so microgrids for military bases or indigenous communities are great examples of where they frankly have, in the past, either had an underserved community where the electricity distribution isn't good enough or where the cost of having a power outage is so severe, it's beyond the cost of electricity, right? There's operational or application impacts to losing electricity. And we like those markets because those markets also tend to have -- put a big premium on both American made products and on safe products, right? They wanted their -- there's a lot of concern about lithium and some of the problems that lithium batteries have had. And so there's kind of a predisposition, if you will, towards buying a US product or buying a product that is non-lithium in design. It would appear we are having technical difficulties with Canaccord's lines, I do apologize. But that was our final question for today. I see there aren't any further questions in the queue. So that will conclude today's conference call. I want to thank you all for your participation, and that will conclude today's call. You may now disconnect.

Surf Air Mobility Inc. (SRFM) Q2 2024 Earnings Call Transcript

Deanna White - Chief Operating Officer and Interim Chief Executive Officer Oliver Reeves - Chief Financial Officer Thank you for standing by. At this time, I would like to welcome everyone to today's Surf Air Mobility Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Sam Levinson [ph]. Sam, please go ahead. Unidentified Company Representative Thank you, operator. Welcome to Surf Air Mobility's second quarter 2024 earnings call. I'm joined today by Deanna White, Chief Operating Officer and Interim Chief Executive Officer; and Oliver Reeves, Chief Financial Officer. Our earnings results can be found on the SEC EDGAR website and on our Surf Air Mobility Investor Relations page at investors.surfair.com. During this call, we will discuss our outlook and expectations for future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or other similar such statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from those views expressed today. Some of these risks have been set forth in our earnings release and in our periodic reports filed with the SEC. During today's call, we will present both GAAP and non-GAAP measures. Additional disclosures regarding non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the earnings release we issued earlier today, posted on the Surf Air Mobility Investor Relations website and in our filings with the SEC. I'll now turn the call over to Surf Air Mobility's Interim CEO, Deanna White. Deanna? Deanna White Thank you, Sam. I would like to welcome everyone who has joined our call this evening. As many of you know, I have been with Surf Air Mobility since 2021 and previously served as the Chief Financial Officer. Approximately 90 days ago, I became the Chief Operating Officer and Interim Chief Executive Officer. I know the organization well and understand our opportunities to lead innovation in our industry. I am excited to be here to execute our strategy. Let me start by noting how pleased we are with the financial results of the second quarter. Revenue for the quarter exceeded our expectations and rose over 13% year-over-year on a pro forma basis. Adjusted EBITDA results were materially better than our expectations with an adjusted EBITDA loss of $11.8 million as compared with our expectations of a loss of $16 million to $18 million. Let me take a moment to address the important announcement we made yesterday related to our new venture with Palantir Technologies. We have been working with Palantir since 2021 to develop and deploy software and analytical tools across all three of our air travel brands. Going forward, we will form a new venture with Palantir. Surf Air Technologies LLC to further develop market and sell a software platform solution for the advanced air mobility industry. At the center of this solution sits Surf OS, a category defining operating system and an all in one holistic suite of software tools to enable operators to more efficiently run their businesses. Components will include flight distribution, airline and charter operations, revenue and demand management, business intelligence, financial reporting and customer service. Surf Air Mobility will become the first customer of Surf Air Technologies and will thereafter leverage Palantir sales force to offer Surf OS to Part 135 operators, existing aircraft manufacturers and manufacturers of clean sheet design electric aircraft. Surf Air Technologies has a unique relationship with Palantir, designed to penetrate the Part 135 market and harness the growth of the emerging regional Air Mobility segment of the aviation industry, which McKinsey estimate at between $75 billion and $115 billion by 2035. Using Palantir tools and processes, we will advance our efficiency, innovation and leadership position. An important reason for the formation of Surf Air Technologies is to sub-capitalize or refinance our software platform and reduce the capital burden on Surf Air Mobility. During the second quarter, we made significant strides in the development of our software, adding exciting new features to our platform. First, we layered a Palantir powered solution into our new Pilot check-in mobile app, which validates a pilot's eligibility before he or she takes a flight. Second, we started training a large language model Ask Sam on operational documentation such as aircraft manuals and operating specs, pilot training manuals and flight logs to serve our future AI needs. Third, we worked on digitizing flight log records. Today, one of our pilots can take a picture of a handwritten flight log, which are mobile apps, which will automatically digitize it, store it, and allow someone to make prompts against the data using OpenAI engine via Palantir. These features are just a small example of how software solutions and AI applications can meet the needs of our industry, which will only become more complex as the industry matures and expands. Turning to our electrification initiatives, our aircraft electrification program remains on track to complete the conceptual design phase by the end of the fourth quarter of 2024. At that stage, we will have selected the key supplier for the Electric EP1 variant and will have concluded commercial agreements with our core supplier group. Regarding the Hybrid EP1 variant, we have made significant progress on the preliminary design, having completed a series of trade studies. We are now confident in the systems performance and viability, and the capacity of the supply chain to support its commercialization. With regard to our STC, we remain on track to meet our 2027 deadline. We intend to take a similar approach with our electrification initiatives as we have with our software and technology initiatives, partnering with leading electrification supply chain partners to create a venture focused on building electrified powertrains for the Cessna Caravan and thereafter other turbo aircraft. As with our software platform initiatives, we intend to pursue the sub capitalization of our electrification initiatives. Now turning to our mobility initiatives. In the last three months, we have moved rapidly to effect change and reposition our regional airline operations for success. First, we have augmented our leadership team. In June, we named Jim Sullivan, President of Air Mobility. Jim is an airline industry veteran with experience as CEO and COO of a Canadian airline and previous experience as a commercial pilot and VP of Flight Operations at both JetBlue and Frontier. Jim is overseeing our regional airline operations and commercial strategy across all three of our travel brands. In July, we named Louis Saint-Cyr, President of our Hawaiian Operations reporting to Jim. Louis previously served in operations and guest experience roles at Hawaiian Airlines, Air Canada and WestJet. Jim and Louis have joined me to bring new focus and rigor to our regional airline operations and as the second quarter results show, we are notching many early wins. Our regional airline operations, previously known as Southern Airways produced positive adjusted EBITDA for the second quarter, which reversed a longstanding trend. An early focus of the new team was to examine the profitability of each of our scheduled routes. This analysis identified unprofitable routes we have begun to discontinue. As mentioned, last quarter, we added two new routes between Purdue University and O'Hare and between Williamsport, Pennsylvania and Dulles. Next, we are focused on our essential air service routes, which currently serve 20 markets, and the anticipated positive impact from the passage of the FAA Reauthorization Act, which raises the cap on subsidies. The raise cap will potentially make existing routes more profitable when they are rebid and open new markets that would be attractive for us to bid on. Third, we are implementing new systems, processes, and workflows coupled with real time operational and financial KPIs to accurately measure performance against aviation standards. We are developing a best-in-class operations center, network of maintenance facilities, and stations to more effectively support our geographic footprint. Fourth, we are applying rigor to identify new growth markets for scheduled services and mapping out the timing of our needed equipment. We will be taking delivery of eight new Caravan aircraft in the third and fourth quarters of this year. These initial deliveries will replace aging equipment and will have an immediate positive impact on fleet availability and completion rates, which in turn will drive increased revenue and maintenance cost reductions. Going forward, we are optimizing the quantity and timing of new aircraft deliveries to most effectively deploy new aircraft to growth markets, further expanding our leadership position as the largest commuter airline in the U.S. by departures. To put it simply, our first priority is improving our existing operations and our second priority is ensuring that we enter new markets profitably. Last, it is important to understand that we work today with over 15% of the part 135 operators in North America booking charter flights. These operators are vendors to us today and will be our customers tomorrow for our surf OS software platform and our electrification products. As evidenced by the revenue growth we have achieved in on demand services, our distribution platform continues to expand further enhancing the network effects in our business model. To govern the transformation of Surf Air Mobility, I have implemented a strategic process across people, process and technology which is serving as our roadmap for change. I look forward to discussing these pillars with you in more detail when we host our Investor Day in a few months. At that time, we will also discuss the early signs of progress from the work we have done, as well as our revised go forward strategy. Now, let me take a moment to summarize what I have shared with you. We are moving fast. We are repositioning our strategy to drive profitability, reduce our capital needs and expand our industry leadership. We are partnering with exceptional companies such as Palantir and Textron to leverage our joint capabilities and further distance ourselves from the competition. We have new leadership, new systems, processes and workflows, and a new strategic roadmap that we are executing against. We are notching early wins. We have a commitment to success and we look forward to keeping you informed of our progress over the coming quarters. With that, I will now turn the call over to Oliver to discuss our Q2 results and our outlook for the third quarter. Oliver? Oliver Reeves Thank you, Deanna. Revenue in the second quarter of 2024 rose 13.2% over the prior year period on a pro forma basis to $32.4 million, exceeding our expectations of $28 million to $31 million. This double-digit revenue growth was driven by 13.8% growth in scheduled service revenue and 11.7% growth in on-demand service revenue. The increase in scheduled service revenue was primarily driven by the launch of subsidized flight operations on the Lanai route in Hawaii and the Purdue and Williamsport routes. The increase in on-demand service revenue was driven by a 13.1% increase in departures over the comparable period. As Deanna mentioned in her comments and as we discussed on our call last quarter, we undertook an analysis of all of our scheduled routes and have taken steps to either discontinue or improve the profitability of underperforming routes. Overall, increased subsidies and necessary cost cuts contributed to our improved profitability. As a result, our regional airline operations produced positive adjusted EBITDA for the second quarter. Importantly, this did not come at the expense of revenue growth and as expected, does not yet reflect any positive impact from the FAA Reauthorization Act. On a pro forma basis, adjusted EBITDA loss increased modestly year-over-year to $11.8 million from $11.1 million. We are very pleased with this outcome as it is materially better than our expectations of an adjusted EBITDA loss of between $16 million and $18 million for the quarter. Renewed rigor on cost control implemented by the new management team is already beginning to show results and we are now targeting positive adjusted EBITDA at our regional airline operations for the full fiscal year. Turning to liquidity, as of June 30, 2024, Surf Air Mobility had $1.5 million of cash on hand with the ability to draw $90 million in committed draws and up to $296 million in follow on draws subject to the terms of the GEM share subscription facility. As a reminder, we continue to purposefully manage our cash balance to minimize the utilization of the GEM facility. Recently, we closed on our previously announced $35.2 million convertible security with GEM Global High Yield. The new security cancels a significant portion of GEM's currently issued and freely tradable shares in the company. It imposes a volume restriction on daily trading and gives us the flexibility to redeem all or part of the security in cash at 115% of the then outstanding par amount. Importantly, as Deanna mentioned, we have agreed to form Surf Air Technologies, a venture with Palantir and we will be working together with them to bring in outside investment to sub-capitalize and fund our Surf OS software initiatives and thereby reduce the spend from Surf Air Mobility. Now, turning to our guidance for the third quarter we expect. Third quarter 2024 revenue in the range of $25 million to $28 million. Pro forma adjusted EBITDA loss in the range of $10 million to $13 million, which excludes the expected impact of stock-based compensation, changes in fair value of financial instruments and other non-recurring items. The company's expectations for the third quarter reflect the impact of unplanned maintenance of aircraft over the last two months, resulting in lower completion factors. Due to these factors, the company currently expects that its regional airline operations will be marginally unprofitable on an adjusted EBITDA basis in the third quarter. Importantly, the company continues to execute a series of actions to improve profitability and is targeting profitable regional airline operations for the full year. With that, let me turn the call back over to Deanna for some closing thoughts. Deanna White Thank you, Oliver. In my new capacity as Chief Operating Officer and interim CEO, I would like to take a moment to share with you why I'm so excited about the opportunities ahead for this company. We are the largest commuter airline operator in the U.S., and we are advancing the very notion of air mobility. We operate in a vast marketplace ripe for disruption. By partnering with Palantir, Textron and other leading organizations, we are bringing new innovations to the market. We are pioneering the path into fertile territory, empowering our operations to capture market growth, drive efficiencies and profitability, and expand our offering across air mobility networks worldwide. We are still in very early innings, but we cannot be more excited about what lies ahead, and we look forward to keeping you apprised of our progress. I would like to thank everyone who has been with us on this call today. I will now turn the call over to our operator, so that we may take some of your questions. Thanks, Deanna. [Operator Instructions] And while we're waiting, just want to remind you again, joining us today to answer your questions are Deanna White, Chief Operating Officer and interim CEO; Oliver Reeves, Chief Financial Officer; Sudhin Shahani, Co-Founder of Surf Air Mobility; and Ido Gruberger, Chief Strategy Officer. And it looks like our first question today comes from the line of Austin Moeller with Canaccord Genuity. Austin, please go ahead. Austin Moeller Hi, good afternoon. Just my first question here, what was the passenger load factor on the Purdue and Williamsport routes currently, and how many flights do you schedule per week? Deanna White This is Deanna, thank you for your question. You broke up a little bit. It was hard to hear the second part of it. But you were talking about the load factors on our newly launched Purdue and Williamsport routes. The load factors are in the 50% approximately, and improving. And both of those routes have shown us to be profitable for the time we've operated them right out of the gate with the private subsidies we have with those two partnerships. Austin Moeller [Indiscernible] How many flights do you have scheduled per week... And how many flights you have scheduled on those routes per week? Deanna White Austin, this is Deanna. I think you said, how many flights do we have scheduled on each one of those routes per week? I don't have those exact numbers with me that I can get back with you and circle back with an answer after the call. All right, thank you, Austin. And ladies and gentlemen, that does conclude our prepared remarks today. Thank you so much for joining, and you may now disconnect. Have a good day, everyone.