Good afternoon and welcome to the Hannon Armstrong's Conference Call on its Third Quarter 2021 Financial Results. Leadership will be utilizing a slide presentation for this call, which is available now for download on the company's Investor Relations page at investors.hannonarmstrong.com. At this time, I would like to turn the call over to Chad Reed, Vice President, Investor Relations and ESG for the company. Thank you. You may proceed, Mr. Reed.

Thank you, Operator. Good afternoon, everyone, and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing our third quarter 2021 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 and Exchange Act of 1934 as amended. The company claims the protections of the safe harbor for forward-looking statements contained in such sections. The forward-looking statements made in this call are subject to the risks and uncertainties described in the Risk Factors 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 a 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 Eckel, 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, who will begin on slide three. Jeff?

Thanks Chad, and good afternoon, everyone. Today, we're reporting strong results for the third quarter with distributable earnings of $0.41 per share, a 14% increase year-over-year, and distributable net investment income of $32 million, a 79% increase year-over-year. We continue our programmatic investment relationship with SunRun, which I will discuss in the subsequent slide. We achieved a 45% growth of our portfolio year-over-year to $3.2 billion and 28% growth in our managed assets to $8.2 billion, alongside the declaration of a $0.35 per share dividend. Starting this quarter, we will highlight the carbon count of one transaction to generate a better understanding of this important metric. As a reminder, carbon count measures the efficiency with which capital is used to reduce carbon emissions; something the financial industry needs to pay attention to but does not currently. As a reference point, the average investment this quarter has a carbon count of 0.3 metric tons of greenhouse gas reduced for each $1,000 of investment. Our featured transaction has a carbon count of 2.7, which is nine times more efficient than the average. This transaction involves behind-the-meter energy as a service investment and digital controls for HVAC at a top retailer. This is part of a larger programmatic client relationship, showcasing the power of digitization in the electric sector to save customers money and reduce carbon emissions. While every investment we make improves our climate future, not every investment is equally efficient at doing so, and we believe this level of analysis is where the market needs to go. Regarding the legislative efforts in Washington, both the proposed infrastructure and reconciliation bills are positive for our business. The most significant positives are the extension of tax credits for renewables and the expansion of these tax credits to storage and EV charging. However, the more crucial aspect of the tax credits would be their conversion to direct pay, which potentially increases our ability to participate in more segments of the capital stack. We hope to provide more updates in Q4 when the legislation is presumably finalized. Fortunately, our business success does not rely on either bill passing. On slide four, we provide an update on our more than $3 billion, 12-month pipeline and offer some context on our client base. I'll go through a few examples of the over 30 programmatic clients who drive our pipeline in the behind-the-meter, grid-connected, and sustainable infrastructure markets. We continue to add clients each year as the climate solutions market grows. The behind-the-meter market remains the majority of our pipeline and has the largest number of clients—over 20. These clients range from RESCO, for whom we have financed close to $1 billion of assets and over 35 projects since 2001, to residential solar firms like SunPower and SunRun, all the way to Summit Ridge, a community solar company with whom we've closed over $250 million of transactions since 2019. A note on the solar portion of the behind-the-meter pipeline: it remains relatively strong despite well-recognized supply chain issues because behind-the-meter projects offset the retail price of electricity rather than the wholesale price, allowing them better management of higher costs the industry has faced. Regarding the grid-connected pipeline, we have more than 15 clients in the wind and solar markets, including ENGIE and Clearway; the pipeline remains at about the same level as last quarter. We do see some projects experiencing delays due to panel availability and the need for project rework due to increasing costs. Fortunately, we haven't seen cancellations in our pipeline although some transactions have indeed moved out in timing. The most affected transactions are those with fixed PPA prices but with costs not yet locked down, particularly involving smaller developers. Over time, we believe the increased PPA prices we are witnessing will restore balance to the market. The sustainable infrastructure market is our newest market and therefore has the fewest clients and the smallest pipeline, but we continue to see great potential in this area, including transaction volume, transaction size, and eventually growth in the client base. Climate resiliency is poised to become a significant business due to increasingly extreme weather conditions. Building on the diversity of our client's teams, slide five highlights an underappreciated strength of our business model: the diversity of our markets. As you can see, 2021 has been dominated by behind-the-meter investments, while 2020 was primarily grid-connected. In each of these markets, there are generally uncorrelated asset classes. In any given year, one of these asset classes may present investment opportunities while others may not. This diversity in our origination platform and the breadth of our client base provides assurances that despite one asset class facing challenges, such as grid-connected solar this year, we should continue to find attractive climate solution investments. Ultimately, each market we invest in is crucial to reducing greenhouse gas emissions, and we are positioned to invest across multiple markets and asset classes to increase business stability, which continues to demonstrate our progress. On slide six, we provide more details on our over $200 million investment with SunRun in a portfolio of operating residential solar leases. This is our sixth investment with SunRun, serving as a fine example of what we mean by programmatic relationships. Beyond the attractive risk-adjusted returns, this investment has long-term contracted cash flows, geographic diversity, and substantial average customer savings compared to their utility bill. SunRun also demonstrates how our client base is evolving into an integrator of multiple technology solutions, incorporating storage, EV charging, and efficiency into their solar offerings. Now, I'll turn it over to Jeff Lipson to detail our portfolio performance and financial results.

Thanks, Jeff. Summarizing our results on slide seven for the quarter, we recorded distributable earnings per share of $0.41 at a strong distributable net investment income of $32 million, and another active quarter in our securitization program recording a gain on sale of over $16 million. Year-to-date, we've achieved impressive growth in each of these metrics. In the upper right, we note distributable EPS year-to-date growth was 19%, driven primarily by growth in equity method investment income and gain on sale. Additionally, as shown on the lower left, distributable net investment income was $95 million year-to-date, reflecting annual growth of 42% due to a larger portfolio and stronger margins. Lastly, our gain on sale from securitized assets was $64 million year-to-date, representing a 34% increase. These significant year-to-date growth rates of 42% in distributable NII and 34% in gain on sale demonstrate the ongoing success of our dual revenue model. Our guidance for 7% to 10% compound annual growth in distributable EPS through 2023 remains unchanged. Turning to slide eight, we demonstrate that our margins have improved as we've increased our portfolio yield while simultaneously decreasing our cost of funds. Over the last three years, despite a competitive investing environment, our portfolio yield has increased by 80 basis points and now sits at 7.6%. Over the same period, our interest expense as a percentage of our average debt balance has dropped by 70 basis points to 4.7%, as we’ve optimized our debt platform and capitalized on tightening corporate debt spreads in the robust market for credible ESG debt. As we discussed last quarter, and consistent with broader market trends, the yield for specific climate-positive transactions is compressing; however, this trend has not yet impacted us. To the extent these market pressures affect our portfolio yield, we believe they won’t significantly impact our margins, as we expect any increases or decreases in our portfolio yield to correlate with our cost of funds. As indicated in the chart, we are positioned well after issuing low-cost debt. In summary, we remain confident that our margins will stay strong and relatively stable in the long-term given our diverse investment strategy and attractive debt profile. We expect these margins to facilitate the continued strong growth of our distributable net investment income. In slide nine, we highlight our $3.2 billion balance sheet portfolio as of the end of the third quarter. Our portfolio yield remains steady quarter-over-quarter at 7.6% and now includes 260 investments with an average size of $12 million and a weighted average life of 17 years. No asset class comprises more than 30% of the portfolio, showcasing the diversity of our business as a consistent strength. Behind-the-meter assets represent 54% of our portfolio and generate a yield of 8.1%, while grid-connected investments account for 45% of the portfolio with a forward-looking yield of 7.2%. Turning to slide ten, our high-quality assets continue to perform in line with our expectations in the third quarter. This performance is driven partly by the credit quality of our resources and the structural seniority of our investments, which significantly reduces our exposure to both operational and commodity price risks. Moving to slide eleven, we detail our nearly $4 billion balance sheet as of the end of the quarter. In the third quarter, we funded $227 million of investments and executed several securitization transactions. As a result, our portfolio balance reached $3.2 billion, reflecting a 5% increase from the end of the second quarter. Funding expectations for our previously closed transactions are shown on the lower left. We anticipate that these incremental fundings, coupled with the strong pipeline Jeff referenced earlier, will contribute to significant revenue growth. As of the end of the quarter, we hold over $400 million in cash on our balance sheet available for upcoming transactions. On slide twelve, we highlight our recently launched $100 million CarbonCount commercial paper program—this is the first CarbonCount-based commercial paper program in the United States. Our program seeks to satisfy the considerable interest for credible ESG and carbon reduction exposure among commercial paper investors. Along with this commercial paper program, our balance sheet cash and revolving credit facilities offer over $960 million in potential liquidity sources to support our growth. Additionally, our debt-to-equity ratio reduced from 1.9 to 1.6 times, driven partly by converting $136 million of our 2022 convertible notes into common shares. We also raised $49 million of equity in the third quarter using our ATM program. Notably, our remaining debt entails no material maturities until 2025. In summary, we are optimistic that our debt platform and liquidity profile will support portfolio growth, and with that, I'll hand the call back to Jeff.

Great job, Jeff. Turning to slide thirteen, we note a number of ESG accomplishments. Through our carbon count-based commercial paper program, we aim to differentiate debt products based on calculated carbon reductions rather than vague green labeling unrelated to carbon. As Jeff mentioned, our credibility in reporting carbon impact contrasts sharply with the significant amount of greenwashing occurring in the financial services industry today. On the social front, we’re excited to engage with the initial cohort of our climate solution scholars from Morgan State and Miami Universities in the coming weeks, supporting their interest in the expanding climate solutions field. Finally, we have met with multiple SEC commissioners and their staff regarding the necessity of mandatory ESG disclosures, particularly on carbon emissions, so that investors, consumers, and employees have access to the critical information they need to evaluate the impact of the companies they invest in, buy from, or work for. We will conclude on slide fourteen, where we highlight three competitive advantages demonstrated this quarter. Our multi-client, multi-asset class investment platform enables us to invest in a wide range of climate solutions, providing stability for the business. Second, our flexible funding platform drives strong and stable margins. Lastly, we remain leaders in ESG and continue our advocacy for credible carbon metrics in investment frameworks. To sum up, our growth prospects are bright, and our ability to generate value for both shareholders and stakeholders remains strong. Operator, we would be glad to take some questions.

The first question comes from Philip Shen with Roth Capital Partners. Please proceed.

Hey guys, thanks for taking my questions. The first one is around what you're seeing with solar and how that might impact your pipeline specifically with projects possibly getting delayed. There's a meaningful amount of module supply that's not hitting U.S. shores. Can you think through the risk there? Are you guys working to diversify your end markets to bring in other opportunities? How do you expect that to play out for you guys ahead? Thanks.

Well, Phil, I think the key point is the diversity of our asset classes and our clients. While solar is important, it is not our sole business. The behind-the-meter market is much more diverse than just solar. We may not have foreseen module delays, but we always anticipated fluctuations among markets in any particular quarter or year. I certainly hope the solar industry recovers soon, but I'm confident we are fine; one of the reasons Jeff reiterated guidance was to make that point clear.

Fantastic. That said, do you expect a slowdown in your grid-connected market, and possibly even less so for residential, particularly with the grid-connected solar side? Do you see that becoming a real challenge for your business in the coming quarters? Thanks.

I think the market is indicating that large established developers will do fine, even if they're delayed by a month or a quarter, as they’ll have priority access to available supplies. Fortunately, clients like ClearWay and ENGIE, among others, are large companies. Smaller developers may face more challenges but that will not significantly impact our operations.

That’s great. One last question here relating to the gain on sale; could you help us gauge what kind of gain on sale we could expect in Q4 and in 2022? The level came down a touch in Q3, but any guidance would be appreciated. Thanks.

Phil, last quarter we mentioned that gain on sale for 2021 would be greater than $75 million, and we'll stick with that expectation for now. As for 2022, we’ll provide more specifics on our fourth-quarter call regarding our future expectations. However, we did indicate it would be greater than $55 million already; we'll clarify further next quarter.

Thank you, Mr. Shen. The next question comes from Eric Borden with Berenberg Capital Market. Please proceed.

Hey guys. Thanks for taking my questions. Could you expand on the volume this quarter? Did you have any new clients signed? Concerning the total transactions, is it fair to say of the $359 million of transactions closed in the quarter; $200 million was on balance sheet and the remaining $159 million was from securitizations or is there some equity method investments included as well?

Why don't I take the client question first? Eric, it’s nice to connect with you. We don't typically disclose new client information every quarter, but over time, you'll start to get a sense of when we add new clients. Today, we mentioned some, but they've been clients since 2019. So we're trying to provide a bit more context on our client base to illustrate its diversity. As for the second part of your question, just to clarify, transactions closed as announced on Page 3 pertain specifically to transactions that have closed, not fully funded. Therefore, you cannot directly allocate that $359 million to either balance sheet or securitization as some of it has not yet been funded. That's why we provide supplementary details on Page 11 regarding how much of this quarter's investments have been funded, which totaled $167 million.

Eric, on the second question, just to clarify again, we don't disclose exact amounts for securitization within this figure. It is solely about the transactions being completed and how much has been funded, so this information gives you a way to triangulate the answer to your question.

That’s helpful. Thank you guys. What about forward volumes into Q4 and into 2022? Also, are you currently in conversations to deploy capital into offshore wind projects, given the concerns around higher input costs for onshore? Any color there would be much appreciated.

Our primary goal is to follow the best energy and infrastructure companies into whatever markets they decide to develop. We are keeping a close eye on offshore wind, as well as hydrogen, and of course storage solutions. However, until our clients begin implementing these developments at scale and they become proven, it remains outside our immediate radar. We're aware of who the developers are but the industry still has work to do for wide-scale implementation. To reiterate, we see solid assurance in our diverse asset classes that we will be in good shape for both 2021 and 2022.

Perfect. That’s all for me. Thank you, guys. It was nice to talk to you, Jeff and Lipson.

Thank you.

Thank you, Mr. Borden. The next question comes from Christopher Souther with B. Riley. Please proceed.

Hey guys, thanks for taking my question here. The first one is about how the higher power prices impacted the equity method investments. Can you walk us through which types of projects were impacted, what the total impact was, and what we should watch for in any further issues? Also, are higher prices impacting the overall portfolio yield or potential additions to the balance sheet? I’m trying to gauge how the year-end portfolio yield should look given we saw a slight decline here but you previously gave a wider range for it. Thanks.

To start, remember that on our non-GAAP measure, we take a long-term view regarding the yield on an investment, accruing income as necessary. So while short-term fluctuations in power prices don't significantly affect the non-GAAP yield on our portfolio, they can influence the underlying projects, but we generally regard those fluctuations as short-term challenges unless they prompt us to adjust our long-term yield assumption. There’s considerable hedging occurring at the project level, so both power price decreases and increases have minimal impact on us. Consequently, the earnings effects of higher power prices on the existing portfolio are virtually negligible.

Building on that point, when we prep-equity in grid-connected projects, we consciously opt to avoid the negative influences of persistently low gas prices rather than gain from potential higher prices. We are willing to make that trade.

Understood. So moving forward, regarding some of the project additions, should we expect the year-end portfolio yield to trend towards the high end, given we are currently at 7.6%? What should we anticipate entering the fourth quarter?

The 7.6% yield represents a portfolio yield on a $3.2 billion portfolio, so I think it’s safe to assume that the incremental balance sheet investments in the fourth quarter won’t significantly shift that number. Given the relative size of the portfolio, closing additional investments in a single quarter won’t make much of a difference.

Okay, cool. And regarding the over 15 clients in the grid-connected pipeline, I’m curious about how many of those are new engagements compared to historical clients post the ENGIE or ClearWay deals.

Most of the clients have historically been active. We've engaged in tax equity deals for wind projects for a long time and do extensive land work with various clients. It’s not a recent awakening with ENGIE and ClearWay realizing we exist; we expect to add a few new clients but primarily, they are clients with whom we've transacted several times.

Understood. Last question, concerning the $575 million that is yet to be funded, last quarter you mentioned Q4 would be a large time for funding. How much of that do you imagine will carry over into 2022 due to supply chain and pricing challenges?

This remains uncertain, Chris. Some of that may indeed fund before the end of this quarter, while some might delay into Q1. We're unsure regarding a couple of these projects.

That’s why we've consolidated the inquiries; everyone is striving to close these projects, but it’s tough for grid-connected developers in this market.

Understood. Thanks, Jeff.

Thank you.

Thank you, Mr. Souther. The next question comes from Noah Kaye with Oppenheimer. Please proceed.

Hey, good afternoon. Thanks for taking my questions.

Hi, Noah.

The dynamic this quarter revolves around robust demand and tight supply in the renewable sector, with cost inflation driven by steel and labor shortages, which could further compress project economics yields for developers. I’m curious if this leads to incremental pricing pressure for you as a capital provider. I understand that may be the case in the future, but please provide insight into how this dynamic is impacting your pricing discussions.

We discussed this previously years ago. One reason I’m excited about energy efficiency is its high internal rates of return, especially if interest rates or supply costs increase. While costs are rising, solar remains a bit more challenged. The larger developers will manage their projects better than smaller developers. Everyone faces challenges, and I believe they will seek to share the burden of increased development fees. Importantly, we're not obligated to invest in projects if the returns are not appealing; we'll walk away if necessary. Higher PPA prices have also started surfacing.

This is the first time I've seen PPA prices rise. It seems unprecedented. Another question concerns the competitive environment. We are witnessing aggressively priced private equity money entering the portfolio deals. What are your observations of the competitive landscape?

As Jeff Lipson pointed out, we expect yield compression at some point. Our main focus is not the gross yield but the net margin. The pressures reducing yields will often assist us with correlated cost of capital. Jeff, would you like to elaborate?

I think the predominant message is that we believe we’re well-positioned to navigate these pressures.

Lastly, regarding the incentives being discussed in reconciliation, particularly direct pay, how do you believe this will impact capital financing dynamics for projects? If clarity emerges leading to a simplified capital stack, will that significantly influence leasing volumes?

Yes, our developer clients are actively modeling the current and proposed tax regimes concurrently because a legislative change would significantly simplify their modeling process, helping them reduce complexity.

Great, I appreciate the insights. I hope we receive some clarity soon.

Thanks, Noah.

The next question comes from Julien Dumoulin-Smith with Bank of America. Please proceed.

Hey guys, this is Anya stepping in for Julien. I wanted to ask how you think you will benefit from current energy efficiency opportunities under the administration? One of your clients mentioned RFP activity on Federal ESPCs, so I'm curious to hear your thoughts on any potential benefits coming from this trend.

Absolutely. There were expectations of an executive order for the Federal ESPC Program, but the relevant DOE agency clarified that prior legislation already mandates these under existing authorizations. It's a market through which we continue to benefit, particularly as clients like RESCO, Schneider, and Siemens expand. However, transactions resulting from federal RFP activity may take 12 to 18 months to materialize, so these shifts won't unfold immediately but are certainly moving in the right direction.

Thank you. I wanted to follow up regarding portfolio yields. Overall, the portfolio yield has decreased slightly to around 7.6%. The decline in the behind-the-meter investment yield also appears to be connected to the SunRun investment. Will that yield represent the near future for residential solar, or are there upward trends in PPA prices helping to counterbalance that?

The yield movements you refer to are relatively minor, which we would characterize as not particularly significant trends at this time. We're mindful of potential spread compression but, as per our previous discussions, we haven’t detected substantial yield compression yet. We remain cautiously optimistic, given that we’ve sufficiently prepared with tightened costs of funds to offset any such events.

Got it. Thank you. I will rejoin the queue.

Thank you.

Thank you, Mr. Souther. The next question comes from Ben Kallo with Baird. Please proceed.

Hey guys, thanks for taking my question. Maybe regarding the mix, apologies if this has already been addressed, but with the community and public sector focus, what future opportunities do you foresee with storage? You mentioned RESCO had a large project in the works—what progress should we expect in your portfolio? You also mentioned the 10 basis points concerning your yield compressing—can you provide additional context for that?

I believe we will finish the year with an engaging and diverse project mix across asset classes. While I’m uncertain about how to quantify opportunities, as mentioned in our prepared statements, we cannot control which transactions close in which quarter. Nevertheless, the diversity in clients and asset classes has consistently demonstrated good results over the past eight years, which is why Jeff reiterated the guidance. Regarding the 10 basis point yield change, I wouldn't overanalyze that minor movement—current variances could merely represent rounding and are unlikely to indicate a significant trend.

Thank you again. You’ve consistently been leaders in this space, but I wonder how the competitive landscape is evolving? New capital is entering the market across all sectors, from solar to wind to energy efficiency. Can you provide insight into how the competition is changing?

Competition is certainly increasing, particularly within large grid-connected projects where we’re seeing strong bids. Some of those bids may not align with our strategy, but this trend has not affected our operations, as our core business has always focused on diverse client portfolios. As we see new capital providers enter the fray, we also recognize new clients; we are confident in our capacity to compete effectively by using our cost of capital. The critical question we continually evaluate is whether the pricing aligns with the projects. If it doesn’t, we're fully willing to sit out and refrain from investing.

Got it, thank you.

Thanks Ben.

Thank you, Mr. Kallo. The next question comes from Jeff Osborne with Cowen and Company. Please proceed.

Yes, good afternoon guys. Most of my questions have been addressed, but to Jeff Eckel, could you elaborate on EV charging involvement? Have there been any investments made here? As the buildout occurs, especially with reconciliation, how do you envision tackling this market? Are you focusing on standalone EV charging or more integrated solutions, such as corporate fleets combined with microgrid solutions?

As mentioned in the context of SunRun, who recently announced their partnership with Ford, this expansion of home service could also incorporate ST modeling, leading to substantial economic advantages through storage. We have engaged in EV projects but they’ve primarily been integrated into other offerings. While we’re open to new opportunities, there’s nothing notable to disclose at the moment.

Got it. The final question concerns the reconciliation framework. What impact do you foresee the shift to cash payments having on the SunStrong joint venture regarding volume? Specifically, do you anticipate that if cash grants are provided directly to consumers lacking taxable income, how would that influence leasing volume? Additionally, would you consider investing in solar loans directly?

We remain hesitant regarding direct consumer lending. While many companies excel in this space, it may not align perfectly with our business model. In terms of direct pay, I believe it would enhance our ability to participate more fully within the capital stack and allow transactions to close more efficiently without necessitating involvement from tax equity, reducing the complexity to just two parties.

Thank you. That’s all I had.

Thanks Jeff.

Thank you, Mr. Osborne. There are no additional questions waiting at this time. I would like to pass the conference back to the management team for closing remarks.

That concludes the call now. Thank you.