Greetings, and welcome to HASI's Second Quarter 2025 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Aaron Chew, Vice President of Investor Relations.

Thank you, operator, and good afternoon to everyone joining us today for HASI's Second Quarter 2025 Conference Call. Earlier this afternoon, HASI distributed a press release reporting our second quarter 2025 results, a copy of which is available on our website, along with the slide presentation we will be referring to today. This conference call is being webcast live on the 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 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 discussion also includes some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation. Joining us on the call today are Jeff Lipson, the company's President and CEO; as well as Chuck Melko, our Chief Financial Officer. And also available for Q&A are Susan Nickey, our Chief Client Officer; and Marc Pangburn, our Chief Revenue and Strategy Officer. To kick things off, I will first turn it over to our President and CEO, Jeff Lipson.

Thank you, Aaron, and thanks, everyone, for joining our Q2 2025 call. We are pleased to report another strong quarter and remain very confident in our business model and strategy. Our business model focused on climate-positive investments with programmatic clients, investing in non-cyclical revenue-producing projects is indeed the ideal strategy for today's environment. In addition, our thoughtful approach to leverage, capital and liquidity likewise positions us well for long-term growth in all policy and macroeconomic environments. Importantly, we also value diversification, investing in several different asset classes and consistently expanding our scope to create additional opportunities for growth and avoiding any material impacts of slowdowns in a particular market. Our FTN business has grown meaningfully over the past few years, and we continue to explore opportunities beyond our historical focus, including investments that have very limited public policy ramifications. The impact of this consistent approach to our business has led to a number of accomplishments in the second quarter. We have increased our pipeline, which now exceeds $6 billion, and our new business year-to-date has an average yield greater than 10.5%. On the capital raising side, we issued $1 billion of term debt and used $900 million of the proceeds to pay off maturing convertible notes and near-term senior debt. We also successfully closed nearly $600 million debt offering on our CCH1 joint venture, expanding its capacity and extending the investment period until late 2026. Our adjusted EPS for the quarter was $0.60, slightly down from last quarter, simply due to the timing of gain on sale revenue. And we are introducing a new metric that reflects the recurring revenue nature of our business entitled, adjusted recurring net investment income, which is 19% higher year-to-date as compared to 2024. I'm also pleased to reaffirm our guidance of 8% to 10% compound annual adjusted EPS growth through 2027 as we remain on track to meet this target over the next 3 years. Turning to Page 4. I'd like to provide context for why certain recent macroeconomic, legislative and policy items will result in positive outcomes for our business. First, the United States remains at a current and forecasted level of power demand that requires an all-the-above energy strategy. In fact, even with an all-of-the-above approach, supply is unlikely to keep pace, leading to higher power prices, which in turn will drive additional development, including renewables. The impact of changes in tax credit policy for renewables is still a few years away and given existing safe harboring more than enough time for the industry to adapt, particularly when economic viability without tax credits has fundamentally already occurred. Storage ITC will also incrementally improve solar economics well into the next decade. And RNG remains an attractive asset class bolstered by the extension of the clean fuels PTC. For our business, these developments have a number of implications. The value of our existing portfolio increases as power prices increase. And although we don't mark-to-market our assets, we may see a higher yield on these investments over time. Our pipeline remains unimpacted by any policy changes, which I will discuss more in a moment. We also maintain a diversified approach to the business, and we continue to expand our scope. This approach, coupled with lower risk asset-level investing allows us to be significantly more insulated from policy changes than other business models. The lack of tax equity in the project capital stack a few years from now may create additional opportunities for HASI Capital to fill the void, and we are also well positioned to continue our long-standing client solution of providing capital recycling. Finally, we expect the policy environment to result in less competition for project-level investments. In summary, we have no need to make any material changes to our existing strategy to thrive in the current operating environment.

Thanks, Jeff. Before I get into our quarterly results, I would like to take a minute to discuss the ways we create value for our shareholders. First, we generate returns from closing accretive transactions into our portfolio, either through our CCH1 structure or directly onto our balance sheet and minimizing the cost of capital related to our funding sources. Second, once we have funded the investment, we can further optimize the portfolio and also reinvest cash received into other high-yielding investments. And lastly, we generate recurring and one-time fees related to our securitization activities and CCH1. These fees typically do not require any equity capital, which further enhances our return on equity. Now to take a look at our transaction activity. On Slide 8, we have closed approximately $900 million in transactions in the first half of this year, which is 9% higher than last year. Q2 was lower than Q1 and was not the result of a particular theme, rather normal course changes in the closing timeline. Given the strength of our pipeline, we feel good about the outlook of closings for the remainder of the year and the total being higher than 2024. We continue to be successful in closing transactions with double-digit yields and had a weighted average closing yield of greater than 10.5% and continue to execute across all of our asset classes.

Thanks, Chuck. Turning to Page 14. We present our sustainability and impact highlights, noting our cumulative carbon count and water count numbers reflect the significant impact of our investment strategy over time. Including on Page 15, our business model has produced the powerful combination of robust investment activity, access to deep pools of capital, attractive margins and results that are non-cyclical and sustainable in all interest rate and policy environments. The core components of this resilient business model have been in place for several years, validating its true durability. Successful execution of this business model relies on a talented team, and my HASI colleagues continue to flawlessly and relentlessly overcome all obstacles reflected in our ongoing ability to achieve our goals. As always, thank you to this outstanding team. Operator, please open the line for questions.

Our first question comes from Chris Dendrinos with RBC Capital Markets.

Maybe to start here, we noted that you all were an acquirer, I think, of the ServiceCo from NOVA. So can you maybe chat a little bit about that transaction and what that does for you all going forward?

Sure. Thanks for the question, Chris. So just to clarify, SunStrong is a joint venture that's 50% owned by HASI and is a servicer of residential solar leases. SunStrong has been awarded the servicing by the purchasers of the Sunnova portfolio. And we're certainly pleased by that. We're pleased by the progress of SunStrong overall. We have a good management team there. The company is well positioned in the current environment and the Sunnova transaction will provide scale to the business. So we're certainly very pleased with the progress of our SunStrong team. But that's a 50% joint venture in terms of HASI's ownership.

Got it. And I mean, I guess, any kind of color you can provide on how that might impact EPS going forward? And then I have a quick follow-up as well.

Yes. Chris, it's Chuck. So right now, SunStrong, as Jeff mentioned, is a joint venture and the JV that we'll be servicing, at this current time is not really coming through in our results that you can see. But as the servicing platform does get some scale with the Sunnova assets coming into it over time, whatever other activities that might get into, we will start to see some of the margins from that business come through most likely with where you see our other equity investments coming in.

And then, I guess, just a related note on resi performance. I think there was an article in the Wall Street Journal a couple of weeks back, highlighting some underperformance of loans out there, I think they mentioned kind of GoodLeap specifically. But anything to comment on as far as that portfolio is performing? I think you've highlighted that you have really low losses. So I assumed that you all weren't being impacted, but any kind of thoughts there?

Thanks for the question. And you did say loans in your question and the Wall Street Journal article specifically referenced loans. More than 95% of the HASI portfolio is leases and lease customers have significant incentives to continue to make the payments much more so than loan customers. And our portfolio continues to perform very, very well. And many of the issues that were brought about in that article were present in residential solar loans are just not present in leases. So that's a little bit of apples and oranges there.

Our next question comes from Brian Lee with Goldman Sachs.

This is Tyler Bisset on for Brian. You've seen steadily increasing adjusted ROEs, suggesting ROEs on new deals is meaningfully higher than your legacy deals. You also called out some incremental ROEs of 19% and up to 28% with the additional CCH1 leverage. So can you discuss how you expect your adjusted ROE to trend from here? And could you see a meaningful bump as you work through the CCH1 funding?

Thanks for the question. Maybe I will start and Chuck can add on. I just want to make a clarification that the ROEs that are on Slide 7 are incremental ROE dollars invested without taking into account expenses, or SG&A or anything like that. There are illustrative ROEs of incremental dollars put to work under the more capital-efficient structure that we're displaying on that slide. So that doesn't relate directly to the ROEs on HASI's business. But ROEs on HASI's business do have an upward trend, influenced by some of the same impact on this slide, but I wouldn't compare them specifically to the ROEs on the full business when we include the operating expenses of the business. And Chuck, if you want to add anything to that?

Yes. I think the other thing I'd add is in the prepared remarks, we mentioned some commentary around capital efficiency. And to the extent that we continue on that trend to reduce the amount of equity needed to fund our investments and some of these activities we're getting into with asset management fees with CCH1, to the extent we're increasing our earnings there because they don't need equity, we will see a steady increase in ROE. But I wouldn't say that there's going to be any big jump. It will most likely just be a gradual increase.

Regarding the CCH1 debt, how will it affect your income statements? How do credit rating agencies view this debt? Will it impact your leverage ratio?

Yes. Regarding how the debt is reflected in our financials, CCH1 does not fully appear on our balance sheet as a joint venture. The debt secured by CCH1 does not show up in our financials. Instead, it will impact our results by slightly increasing our returns on CCH1 as investments are financed with the proceeds. We have communicated with the rating agencies about this, and I believe S&P mentioned in their report that for these types of structures, as long as the debt-to-equity ratio remains below 0.5:1, it is not considered significant. Therefore, it is essentially a non-event. We do not plan to exceed that leverage ratio, so we anticipate being in a good position from the perspective of rating agencies.

Our next question comes from Maheep Mandloi with Mizuho.

On Slide 6, just looking at the mix here, could you just talk about what is included in Next Frontier? I think for the first time we saw this broken out, what's in there? And secondly, just on the mix of BTM solar and BTM energy efficiency. Could you talk about like historically, how has that trended? Are you seeing more of energy efficiency now? Or how to think about that?

Thanks, Maheep. So on the Next Frontier, just as a reminder, in our February call, we put forth this notion of Next Frontier where we may expand the business. I talked a little bit about that in the prepared remarks. The relevant slide is on Page 17 in the appendix in this afternoon's deck. And so the progression from disclosing in February where we may take the business next to disclosing that we have some of these investments in the pipeline is sort of the natural chronology. We're not going to talk specifically about exactly what's in the pipeline. The third step of that will be to actually close a transaction, and then we'll talk about it. But I will say I'm very pleased that in relatively short order, we've identified Next Frontier investments, and they're at a stage where they are in the pipeline. So I think we feel good about that and the diversification that it will bring to the business. On the second part of your question, I think the breakout in behind the meter between solar, which is primarily community and residential solar and storage and a little bit of C&I solar and the energy efficiency is just something we thought would be helpful. I think that split, which this quarter is roughly 50-50 is relatively consistent in terms of the relevant sizes of those 2 pieces of business. So hopefully, that's helpful in understanding what's in the pipeline.

I just wanted to clarify something. On Slide 4, I noticed a mention of replacing tax equity. Can you confirm if this is related to the post-tax credit timeline, or is it an initiative you're considering for the next few years as well?

Maheep, it's Marc. We would not anticipate replacing tax equity in the current structure. But as tax credits go away, there is less need for tax equity, and that will create more room in the capital stack for investors like us who focus on monetizing cash positions. So this is primarily a post-tax credit opportunity.

Our next question comes from Noah Kaye with Oppenheimer.

Last quarter, you talked about, I think, a record volume of inbound client requests, and we saw that with the pipeline expanding quarter-over-quarter. I would just like to get a sense of what you and really your customers are trying to solve for in the current environment. I think you made some comments in your opening remarks around the shifting policy environment and your expectations that transactions will kind of continue to pick up in the back half. But we would just sort of love to get an understanding of how you and your clients are approaching some of the policy and regulatory changes here as it relates to developing not only the 12-month pipeline, but further out opportunities.

Sure. Thanks for the question, Noah. I'm actually going to ask Susan to go ahead and answer that.

Yes. Thanks, Noah. And really, the fundamentals are so strong. That's what's the core tailwinds for our clients' business. And then obviously, we follow on as those projects and their pipelines mature. But with the demand side of the business, not only on the utility scale side, but behind the meter, Sunrun and some of the other clients have reported out, that's really where the fundamentals are. And then clearly, everyone is now navigating through what's passed with the OBB, but have invested through safe harboring to be able to continue and plan and build out their pipelines for not only next year, but for the next several years. But our pipeline, again, is that we report out is for 12 months.

Yes. And to follow up on the previous question, I mean, I believe certainly for grid-connected, but probably for a decent chunk of the overall portfolio, there's been substantial safe harboring already. So this future opportunity around replacing tax equity, I imagine that might flow first to behind the meter and later to utility, but over a multi-year period. Is that kind of the right way to think about it?

I think that's right, Noah. And again, as Marc said, that's still a couple of years out. We just wanted to plant the seed that there's now going to be a void in the capital stack and with an outcome of this tax policy change may be that HASI is able to put more dollars to work per project. But again, this is not for a couple of years. And I think the way you laid it out is likely the way it will play out.

Great. If I could sneak one more in. I just want to talk about cash generation. The continued helpful disclosures around adjusted cash flow from ops and other portfolio collections. I do notice that, that is somewhat down on a run rate versus 2024. Can you just talk through any kind of expected timing and cash generation for the back half?

Noah, this is Chuck. Let me start by explaining what's behind these numbers. Our cash collections from the portfolio include all the cash distributions related to project operations, but there are also other activities at the project level, such as debt refinancing or new debt arrangements that come with favorable financing terms. These can lead to additional distributions, which makes it challenging to identify a consistent trend. In 2024, some of this activity contributed to what appears to be a slight downtrend. However, I do want to point out that this quarter we experienced an increase in cash received from both our equity investments and our loans, indicating a positive trend. I believe that the current trend will likely continue throughout the year and align with the growth of our portfolio.

Our next question comes from Moses Sutton with BNP Paribas.

Closed transactions seem rather low. I think you noted the year-to-date numbers, so it implies around like $190 million, if I'm getting that right. So how should we characterize that and the timing element? And then conversely, on the adjusted cash from operations plus other portfolio collections, that was back up to like $200 million from the negative number in the first quarter. I know that's also a lumpy thing based on how you get collections. Should we think of that as returning to like a $300 million plus a quarter number? So just those 2 on transactions and then the adjusted cash from operations.

So thanks, Moses, for the question. I'll take the first part. I'll ask Chuck to take the second part of that question. I would encourage you to read absolutely nothing into the second quarter volumes in isolation. I think we've consistently talked about the lumpiness in the business and the nature of closings being out of our control and really driven by our clients. And so sometimes we have outsized quarters and slower quarters in terms of actual investment volume. It's part of the reason we do guidance over 3 years and certainly on a number such as volume in the business. I'd encourage you to at least look at a 1-year number and not a quarterly number. And as Chuck mentioned in the prepared remarks, it is our expectation at this point that volumes will exceed last year. So I wouldn't read anything into the second quarter. For the other part of the question, Chuck?

Yes. Moses. So I think the answer to your question really is tied into the response to Noah's question here. When you're looking at the trailing 12-month from last quarter going to this quarter, it drops off a little bit because the last quarter and the trailing 12 months that was in there last period had some of the, I'll call it, one-time cash distributions coming off of some of our projects. So I wouldn't read into that decline in the trailing 12 months at all there in terms of run rate.

That's very helpful. If I could ask one more question. If I remember correctly, a couple of years ago there was some confusion among investors regarding the timing of cash collections and the cash flow structure in projects. This structure indicated that at a certain stage of a project's lifecycle, after making a significant number of equity investments, the earnings would exceed the adjusted earnings reported. Is there a specific time frame we can expect that, even while continuing to make equity and preferred equity investments, some of the older projects will start generating cash at a notably higher level as tax equity meets its threshold? Would that be around 2025, 2026, or 2027? Is that a reasonable expectation, and could you provide some quantification? Sorry for the lengthy question.

Yes, it's difficult to specify exactly when that will occur. It will begin to happen, and as I mentioned before, we are starting to see some cash coming in. However, since we are still making similar investments, we can't provide a specific date for when you will see that reflected in our portfolio. But it has begun to happen with previous deals.

Ladies and gentlemen, at this time, there are no further questions. The conference of HASI has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you.