Greetings. Welcome to the Hannon Armstrong Fourth Quarter and Full Year 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neha Gaddam, Senior Director, Investor Relations and Corporate Finance.

Thank you, operator. Good afternoon everyone and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing our fourth quarter and full year 2022 results, a copy of which is available on our website. This conference call is being webcast live on our Investor Relations page of our website, where a replay will be available later today. Some of the comments made in this call are forward-looking statements, which 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 stated. Today's discussions also include some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP 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; Jeff Lipson, CFO and COO; and Marc Pangburn, Executive Vice President and Co-Chief Investment Officer. Before turning the call over to Jeff, I'd like to announce that we are hosting an Investor Day on March 21st, during which we will discuss the company in more detail and allow investors and analysts to meet more members of our leadership team. More details on the event will be forthcoming. With that, I'd like to turn the call over to Jeff, who will begin on slide three. Jeff?

Thank you, Neha, and good afternoon, everyone. I'm pleased to report that the company continues to execute in 2022 with distributable earnings of $2.08 per share, up 11% year-over-year. We reaffirm our guidance for annual growth in distributable EPS of 10% to 13% through 2024 and 5% to 8% annual growth in our dividend for the same period. Our Board has declared a quarterly dividend of $0.395 per share, an increase of 5.3%. Please note that growing earnings faster than the dividend is intentional, in order to provide more retained capital for the growth and investments we are anticipating. As signaled in prior calls, we executed on strong volume in the fourth quarter with over $880 million in transactions, bringing total volume for 2022 to $1.8 billion. The average yield for newly closed transactions on balance sheet was more than 8% last quarter, a notable increase in the yield of new investments compared to an average portfolio yield of 7.5%. These new transactions will fund over the course of 2023. Finally, we announced our leadership transition, which will separate the role of Chairman and CEO and thus Jeff Lipson will become President and CEO on March 1st. Jeff arrived four years ago as a former bank CEO and has done a remarkable job building out our corporate assets finance capabilities, as well as running operations for the last two years. The Board and I have the highest conviction in his leadership of the company. Marc Pangburn will be promoted to CFO from his current role as Co-Chief Investment Officer. Marc has been with the company since just after the IPO in 2013 and has been instrumental in building out the company's investment portfolio and client base. I congratulate Jeff and Marc on their promotions and I'm highly confident we have the right people to lead the company. In the nearly 10 years since the IPO, I'm pleased to report that we have outperformed the S&P 500 by almost one and a half times on annualized total shareholder return, returning more than 18% per year. We did this while investing on the right side of the climate change line, setting the standard for measuring impact and climate solution investing. Most importantly, we've built a deep and highly skilled team of mission-driven professionals to continue to produce superior risk-adjusted returns while making a measurable impact on carbon emissions. I'm excited to focus on my role as Chairman and confidant of Jeff, Marc, and the rest of the leadership team's ability to execute our growth against the overwhelmingly supportive public policy backdrop. Let's talk about that policy backdrop on slide four. The Inflation Reduction Act will positively affect our business, as evidenced by our clients increasing their pipeline due to the long-term ITC/PTC policy certainty and tax credits for renewable fuels. Tax credits for battery storage have made standalone projects conducive for investment and example policy accelerating new investable asset classes for us. The transferability of tax credits will expand the tax capacity available for renewable projects, as well as provide an opportunity for us to participate in those transactions. And finally, the Infrastructure Bill and CHIPS Act provide a constructive policy backdrop for new transmission and on-shoring manufacturing. In my 40-plus year career, I never imagined this level of long-term policy support for the energy transition. This is unprecedented news for HASI. With that, I will turn it over to Jeff. Jeff Lipson.

Thanks, Jeff. Now that we have moved forward with our leadership transition, I would like to take a moment and recognize the enormous achievements that have occurred under Jeff’s tenure. Jeff has overseen the growth of this company from a small enterprise into a significant industry trailblazer and leader in climate solutions. The investment thesis that he developed was well ahead of its time, but it's proven to be a superior and durable strategic focus. Jeff has built a talented team which will carry on his legacy. Personally, I am honored to be selected as the next CEO and look forward to continuing to work closely with Jeff as executive chairman. I will note we are not announcing a strategic change as part of the succession plan. Our current strategy is working and we will continue to grow this business with a similar approach, adapting the strategy as necessary. Before discussing our results, I'd like to recognize our incoming CFO, Marc Pangburn. Marc has been an integral part of our investment team for many years. And I look forward to continuing to work with him in his new role. Marc will discuss our fourth quarter investment volume. Marc.

Thank you, Jeff. And thank you, Jeff. It is a privilege to support you both in our growth to-date and on the capitalization of the opportunity ahead. I've spent the past nine years with the company building deep relationships with the best clients in the business. I look forward to building similar relationships with our investors and analysts. Now, on slide five, we are pleased to report a great quarter with approximately $883 million of closed transactions across our markets. A significant majority of these investments will remain on balance sheet with an average yield above 8%, highlighting the upward trend in yields discussed on previous calls. The diversity of clients and asset classes is a noteworthy feature of our business. In the fourth quarter, we closed 18 transactions with multiple clients, eight programmatic clients, two with whom we've expanded existing relationships, and two new asset classes and one new client. These clients will continue to drive our business forward in the years to come. I'd also like to highlight the CarbonCount on one of our transactions we closed last quarter. It was an equity investment with AES and a 1.3 gigawatt portfolio of 18 projects across six states. We calculate a CarbonCount of 1.1, significantly higher than the portfolio average reported carbon count of 0.4, with the difference being driven by the specific location of the underlying assets. As a reminder, carbon count is heavily influenced by the energy mix of the applicable grid. These assets are displacing a larger amount of carbon emissions per dollar invested. I will conclude by restating that fourth quarter volume represents a strong diversity of clients, markets, and asset classes. They provide long-term recurring income with an upward trend on yield and play a key role in the energy transition. With that, I'll turn back to Jeff Eckel.

Thank you, Marc. Slide six displays our volume of $1.8 billion in 2022, consistent with recent history. One of the key reasons that we have successfully grown our portfolio is that our strategy incorporates multiple asset classes. If we were reliant on a single asset class, our growth would be unlikely to be as consistent. In 2020, grid-connected wind was a primary driver of volume. In 2021, grid-connected solar and public sector transactions led the volume growth. In 2022, volume was spread evenly across grid-connected solar, residential solar, and public sector, and we also made strong progress in sustainable infrastructure. This diversity is a result of a significant number of clients that we work closely with, many of them involved in multiple asset classes, as well as our ability to pivot towards opportunities quickly. Our business is becoming even more diverse as recent transactions in renewable natural gas and transportation indicate. Likewise, our 12-month pipeline of greater than $4.5 billion is also well-balanced, as our behind-the-meter pipeline is benefiting from increasing utility rates. Our grid-connected pipeline is primarily solar opportunities and our sustainable infrastructure pipeline is mostly clean fuels, transportation, and nature-based solutions. This balanced profile allows investors to participate across the entire clean energy transition market. Turning to slide seven, we show our $4.3 billion balance sheet portfolio as of year-end 2022, which represents growth of 19% over the prior year. The average yield of our investments is 7.5%, up slightly from the third quarter. The projects underlying these investments represent over 12 gigawatts of clean energy, in addition to the non-power related investments in the sustainable infrastructure market. Our investments are non-cyclical, resilient across economic cycles, and represent real assets with long-term income generation. On the right side of the page, we detailed our portfolio reconciliation. The portfolio increased nearly 10% for the quarter as we funded $458 million of investments. Funding expectations of previously closed transactions are now over $750 million, including the recently announced AES grid-connected investment, which we expect to fund in the first quarter. Summarizing our 2022 results on slide eight, we report distributable EPS of $2.08 and an 11% growth rate versus 2021 and consistent with our guidance range. The growth is primarily driven by distributable net investment income, which grew by 34% to $180 million in 2022, reflecting a larger portfolio and strong margins. We had another outstanding year securitizing assets, resulting in gains on sale and fees of $79 million in 2022, very consistent with 2021. These fees are primarily driven by asset mix and unaffected by interest rate changes or the ABS market. We expect our gain on sale and fees to remain roughly in the same range for 2023 and over time to represent a lower percentage of revenue as we continue to grow our net investment income. I will note our GAAP EPS was $0.47 for 2022, a lower result compared to 2021. This was substantially driven by mark-to-market losses on power price swaps at the project level. As energy prices rose, the project's value increased, which does not show up in the GAAP numbers, but the swaps incur losses which do result in non-cash unrealized losses. As we remind investors consistently, this project-level HLBV accounting is not a good indicator of our period economics, which is better represented by our non-GAAP measures. Slide nine summarizes the long-term consistent success of the business utilizing a variety of metrics. Our distributable EPS has experienced consistent growth despite all the challenges of the last few years, including the pandemic, supply chain issues, and interest rates, achieving an 11% compound average growth rate for the five years ending 2022. Likewise, our distributable NII has experienced an average growth rate of 28% over the last five years, as we have continued to build the balance sheet with creative investments. Our managed assets and portfolio as well as our investment margins have also experienced healthy growth over the last five years. The multi-year demonstrated success of our business as represented on this slide represents a strong foundation on which to build, which brings us to slide 10, reflecting that we continue to affirm our 10% to 13% EPS guidance, despite the macroeconomic challenges and market volatility. We expect to achieve our 2024 EPS guidance, growing approximately radically over the next two years. According to slide 11, we discussed our funding platform. Our liquidity as of year-end 2022 stands at over $870 million, even after making all the aforementioned creative investments in the fourth quarter. In the upper right, we note, we've been successful raising capital from diverse sources over the last two years. In 2022, we raised approximately $1.5 billion from our term loan A, on our unsecured revolver, commercial paper, convertible debt, and equity, whereas in 2021, we focused more prominently on unsecured bonds. In 2023, we expect to continue to raise capital to support our growth utilizing diverse funding sources, including securitization, incremental secured, convertible and unsecured debt, revolver utilization, plus equity issuance to maintain our leverage. We have no material refinancing risk until 2026. In our leverage and fixed-rate debt percentage remained consistent with historical ranges. I will also note we included our cash flow reconciliation in the appendix consistent with the disclosure we began providing in the second quarter. In conclusion, our track record of earnings growth has been outstanding, and we're well positioned for further growth, while our diverse funding platform continues to provide ongoing sources of capital and liquidity. And with that, I'll turn the call back over to Jeff.

Thanks, Jeff and congratulations. The company is in great hands under your leadership. Turning to slide 12, we note a number of ESG accomplishments as well as our periodic carbon and water count disclosures. Last quarter in collaboration with other leading corporates, we co-founded the Emissions First Partnership to improve corporate and investor emissions accounting by moving beyond megawatt-hour matching and focusing more on quantified emissions impact. We declared a social dividend to the HASI Foundation to support climate justice initiatives and some of those projects in 2022 include energy efficiency projects for non-profits, resilience hubs for disadvantaged communities, scholarships, and fellowships for climate-focused professionals. Finally, we have enhanced our governance protocol with the announcement of executive succession that would separate the roles of the Chairman and CEO. We will conclude on slide 13. The business outlook is the brightest it has ever been in this company's history. The energy transition to a lower-carbon world is accelerating. The support of public policy and the IRA, the Bipartisan Infrastructure Bill, and the CHIPS Act. Because of this, our clients' aspirations are expanding. We believe our long participation in this industry positions us well for continued programmatic investments with our top-tier client base. We have a proven strategy, executed by our mission-driven team, and our leadership succession sets the company up to prosper in its next chapter. I will close by thanking our clients who are doing the hard work of engineering this energy transition, our investors and analysts who have appreciated the opportunity for this business, my fellow Directors who have gotten me through this succession process, and finally, the HASI team, which continues to inspire me. Working with them day-to-day has been an honor. With that, I'll ask the operator to open the line for questions.

Thank you. We'll now be conducting a question-and-answer session. Thank you. Our first question is from Noah Kaye with Oppenheimer. Please proceed with your questions.

Thanks very much for taking the questions and I guess let me be the first analyst to congratulate you all on the leadership transitions and wish you all the best of success.

Thanks.

I guess not to take any attention away from analysts, because I'm sure you'll spend some time talking about this. But just at a high level, can you talk about why now is the right time for a leadership transition? We'd love to hear each of your perspectives?

Great question. We’ve been doing this as a public company for 10 years. I'll be 65 in April and there seems to be some symmetry around that. But really, the growth in the opportunity is such that there's a real role for me as Chairman, working on strategies and client issues, public policy, and thinking more about carbon. But this is going to be a much, much bigger business and Jeff and Marc are the right two people to take this on. When I left Hannon Armstrong in 1989, Mike Hannon sent me a note saying I should have created more space for you to stay with us. I feel that's true now; there’s so much opportunity that it’s good for this organization to evolve and grow. This is, I think, the best way to do that.

And I would just add, Noah, I think on Investor Day one of our themes will be how deep a team we have and you'll get an opportunity to meet more members of the team, in addition to Marc and myself. I think we're particularly able now to make this transition effectively given all the talent we hired, and this was entirely Jeff's unilateral decision of when he decided it was the right time for him. So, I think it’s really worked out well for everybody.

Okay, appreciate that and looking forward to it. And now to switch over to a very in-the-weeds question, just around the equity method income. It looks like on a non-GAAP basis, equity method income actually increased sequentially, it was consistent with last quarter, but can you just give us a little bit more color on how the market mark-to-market price swaps impacted the GAAP losses? And just remind us what the underlying economics represented by the non-GAAP actually reflect?

Sure. To reiterate, the non-GAAP accounting for equity method investments is fundamentally the IRR we expect to achieve and earn over the life of the investments taken on a ratable basis, and we do adjust that accruing IRR level for changes in the projects, as we did in the first quarter of 2022. But other than for incremental changes in the project, that accruing rate tends to stay in place for a very long time and we do believe reflects fundamentally the economics of our investment, which is why the non-GAAP measure is very helpful for investors and analysts. At the GAAP level, we're required to use HLBV as you know, and one of the items that occurs there is we have these power price swaps down at the project levels. As I mentioned in the prepared remarks, as power prices increased at the project level, the project itself becomes more valuable, but there's no actual immediate accounting associated with that. However, the swaps themselves become less valuable and are more out of the money while doing the exact hedge that they're designed to do, but they are worth less on a mark-to-market basis, which does have immediate accounting implications. So, you have losses at the project level that then become part of the HLBV calculation and part of the GAAP earnings on those projects. Likewise, a second item to mention is that when utility-scale solar projects are put into service, there tends to be an immediate one-time increase through the ITC that also flows through our HLBV financials, and there are a lot more of those in 2021 and 2022, which also affects GAAP income. Hopefully, that's a helpful way to understand the difference between GAAP and non-GAAP for equity method investments.

Yes. And so just to reflect back, fundamentally, these projects are more valuable now, they have higher revenue associated with them because energy prices are higher, and you haven't changed your IRR assumptions regardless. Is that…

That's a good thing.

All right. Thanks very much. I'll turn it over.

Thanks, Noah.

The next question is from the line of Chris Souther with B. Riley. Please proceed with your question.

Hi, guys. Thanks for taking my questions here and congrats on the new roles all around.

Thanks, Chris.

Maybe just, yes. Maybe on the gain on sale, historically, that was pretty lumpy recently, it hasn't been. It's been really steady until this quarter is down, I assume that's just a function of low public sector volumes in the quarter and not any change in spreads for that business. In fact, it looks like there’s a high receivables held-for-sale at the quarter-end, and I'm just kind of curious if you could talk about both the gain on sale and how the public sector market activity looks in the near term, obviously, it's a portion of them by the meter stuff and I wanted to get a sense of how that particular segment is looking these days?

Sure. There's no real trend to report there, Chris. As you know, it can get lumpy by quarter, and I think you picked up on there are some things that we didn't get a chance to securitize in the fourth quarter that will spill into next year. So, I won't read anything into that other than from one quarter to the next. In terms of the public sector pipeline, it remains very consistent. There are several transactions in the pipeline on the public sector side, and there are several transactions not in the public sector that include investments that will also securitize. So, that's where I was comfortable saying in my prepared remarks, we expect our gain on sale to be very similar again in 2023.

Okay, got it. Thanks. Makes sense. And then I was curious, obviously, you guys have had significant liquidity that you've been highlighting for several quarters. But looking at kind of the current liquidity and taking the AES deal closing in the first quarter, that probably cuts it in half or so, do you guys have like a target around liquidity that you'd have at any given point going forward? Just kind of curious, it seemed to kind of hover around where it is now, or kind of trending up. So, I'm curious if there's — if you guys are looking at that as like a metric we should continue to watch.

We do have a couple of liquidity targets internally that we've agreed upon with our Board. We've not disclosed them formally. But they are a function of items that you might expect, including availability on our revolver and near-term closings that we expect in our pipeline. I would say it's a very conservative measure, and we tend to maintain quite a bit of liquidity, even going back all the way to 2020. When the pandemic hit, we started to hold more liquidity, much more than we had previously in 2019 and previous years, and we've maintained that trend even as obviously markets have settled in a post-pandemic way. Given your question, we may consider disclosing a liquidity metric, but I will confirm we do have very specific minimum liquidity targets here internally.

Okay, that makes sense. And maybe just my last one, you called out they had a new client, curious what sector?

Excuse me, that was in the grid-connected space.

Okay, great. That's all I had. Thanks, guys. I'll hop in the queue.

Our next question is from the line of Mark Strauss with JPMorgan. Please proceed with your question.

Yes, congratulations to all of you. Well deserved. So, good to see it. Can I start with just the comments going back to the policy support, Jeff Eckel? Just can you talk about what you're seeing in the market as far as — I mean, so the transaction volume you have is, in my opinion, pretty impressive. To the extent that you are able to tell — I mean, how much of that can you directly tie back to the IRA or some of these other bills that have been passed? And maybe more specific to the IRA, your expectations for timing, what you're hearing from some of your counterparts as far as getting some guidelines from treasury, whatever it might be, if we can see a more material uplift as we progress throughout the year?

Thanks Mark. I think we can attribute zero in 2022 to the IRA, since it only passed in 2022 and hasn't really had an impact on our client's development pipeline. I think our optimism about that impact does come from our clients when they say we've got a gigawatt in development. And now they're saying, well, now it's two gigawatts. We, we see projects penciling that weren't penciling before. We query our clients periodically and get updates on their view, and they're just really quite optimistic. Is it 2023 or 2024 or 2025? We don't know. I'm not sure our clients actually know. You asked about the treasury guidelines. Some are coming out, but that's still the gating item before you can actually implement the law. You have to have the guidance, and that's not done yet. But I think it's important to take a big step back and say, with tax credit certainty for 10 years, this industry has never had that. Our clients are able to plan for much, much larger businesses in the US and it's, as I said, an unmitigated positive for the business. But always, timing is —

Yes. Got it. Okay. Thank you. Just one quick follow-up. Just fully appreciating, like you said, how diversified your markets are, just curious for your take on the state of the US residential solar market this year. Just that there have been some mixed commentary from some of the industry participants so far. Just curious kind of how you're thinking about that as your outlook for this year.

I’ll have Marc Pangburn answer that.

Thanks, Jeff. Along the lines of just taking a step back, we believe the long-term fundamentals of the US residential solar market remain very strong, driven both by the IRA and increasing utility rates. Obviously, there are some short-term headwinds, which have all been identified. But as it relates to our business, we're seeing the increasing cost of capital have a much smaller impact on leases and PPAs, which have been a majority of our focus to date. So we expect the industry will work through these and that our business will continue to benefit from this focus on leasing and PPAs.

Recent laws.

Recent laws.

Right. Makes sense. Okay. Thank you.

Thanks, Mark. Next?

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.