HA Sustainable Infrastructure Capital, Inc.

Greetings, and welcome to the Hannon Armstrong Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Naya Gadam, Senior Director, Investor Relations and Corporate Finance. The floor is yours.

Thank you, operator. Good afternoon, everyone, and welcome. Earlier this afternoon, Han and Armstrong distributed a press release detailing our third quarter 2022 results, a copy of which is available on our website. This conference call is being webcast live on the investor relations page of our website, where a replay will be available later today. Before the call begins, I'd like to remind you that some of the comments made in the course of this call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. The company claims the protections of safe harbor for forward-looking statements contained in such sections. The forward-looking statements made in this call are subject to risks and uncertainties described in the risk factor section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today and the company does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations. During this call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core financial results and guidance. A presentation of this information is not intended to be considered in isolation or as substitute for the financial information presented in accordance with GAAP. A reconciliation of GAAP to non-GAAP financial measures is available on our posted earnings release and slide presentation. Joining me on today's call are Jeff Echo, the company's chairman and CEO, and Jeff Lipson, our CFO and COO. With that, I'd like to turn the call over to Jeff Echo, who will begin on slide three. Jeff?

Thanks, Neha. Good afternoon, everyone. I'd like to begin on slide three with a few key business highlights. We demonstrated continued strong performance in the third quarter with distributable earnings of 49 cents per share, a 20% increase over last year. We're pleased to affirm our prior guidance for annual growth and distributable EPS of 10 to 13% through 2024 and 5 to 8% annual growth in our dividend for the same period. And our board has declared a quarterly dividend of 37 and a half cents per share. As anticipated, yields on new investments are starting to improve. Higher energy prices are continuing to drive new PPA prices higher, and the clean energy industry is adapting to the higher price of capital and starting to reprice with their clients. While the yield on our $3.9 billion portfolio remains unchanged in the quarter, we expect the yield will increase proportionally as we fund new investments. Our 12-month pipeline increased to more than $4.5 billion, up from more than $4 billion last quarter. The increase represents new opportunities with existing clients as well as several new clients. Notably, this increase has little to do with the IRA, with that upside still to come in the 2024-25 time period and beyond, as we will discuss later. Today, we're pleased to announce a successful debt raise of $383 million, contributing to our strong liquidity position, including cash from operations of over $1.2 billion, which gives us ample runway for funding new deals. Moving to slide four, we provide more details on our updated 12-month pipeline, which, as I said, we've increased to greater than $4.5 billion with growth in each of the individual markets. The behind-the-meter pipeline remains strong in residential and community solar, along with increases in governmental efficiency opportunities. The grid-connected pipeline remains predominantly solar, with a significant portion expected to close in the next several quarters. We address the sustainable infrastructure market more fully on the next page. Turning to that page, slide five, we've always believed the climate solutions market was larger than the electric power sector, which represents only 25% of U.S. greenhouse gas emissions. The rest of the GHG emissions come from industry, transport, agriculture, and the built environment. We have been building a team to commercialize these opportunities and are pleased with their early successes, with two investments I will highlight now. First, we've entered the renewable natural gas market with $125 million senior investment in a set of operating projects developed and operated by Amoresco, a long-term programmatic client of HACI's. As they have been in so many other markets, Amoresco has been a successful pioneer in R&G, and we're pleased to expand our investing relationship with them. Second, we also completed a $72 million transaction in support of school bus modernization through software and eventually electrification with Zoom. Zoom has a significant and growing client base among investment grade rated school systems around the country. Our investment permits the modernization of standard, proven technology, in this case school buses, into a more nimble, efficient fleet. These are both shorter tenor transactions, and because tax equity is not involved, have a superior near-term cash profile than many renewable projects. Our flexibility to reach across industry sectors is evidence that our overarching strategy to invest in assets that decarbonize is a massive one. Turning to slide six, we lay out a timeline of when and how we expect IRA policy support to have a meaningful impact on HACI's business. This year and next, we expect improved economics on current projects in the pipeline, with the anticipated extension and step-up in tax credits and election of certain solar projects from ITC to PTC. While our clients are seeing these benefits in grid-connected projects, it is happening faster in the behind-the-meter projects because they're quicker to build, leading to faster utilization of these benefits. R&G and transport benefit from the clean fuel credits and the ITC, respectively. In speaking with our clients about their pipeline in the 2024 to 26 period, we're hearing a significant increase in ambition and resulting volumes in both grid-connected and behind-the-meter developments. It stems from the clarity and certainty of the IRA provisions, including the ITC adders. We think the transferability provision could be a significant opportunity for us, along with standalone storage. 24 to 26 looks to be a pivotal time when our clients scale up project development, which will then reflect volume growth in our pipeline. To be clear, our pipeline is a 12-month pipeline and does not reflect these increases. By 2026 and beyond, we expect significant new markets to develop in green hydrogen, transmission, and grid modernization. Bottom line, the energy transition is starting to accelerate, and yet it will take time for that acceleration to appear in our pipeline. Now I'll turn it over to Jeff El to detail our financial results.