HA Sustainable Infrastructure Capital, Inc. (HASI) Q4 2015 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Hannon Armstrong's Conference Call on its Fourth Quarter and Full Year 2015 Financial Results. Management will be utilizing a slide presentation for this call which can be found at the Investor Relations page at investors.hannonarmstrong.com. Today's call is being recorded, and all participants will be in a listen-only mode. [Operator Instructions] At this time, I would like to turn the conference call over to Amanda Cimaglia, Investor Relations Director for the Company.

Thank you, operator. Good afternoon, everyone. By now you should have received a copy of the earnings release for the Company's 2015 fourth quarter and full year results. On the call today we have Jeffrey Eckel, our President and CEO, and Brendan Herron, our CFO. As a reminder, a replay of this call will be available later today on the Investor Relations page of our website. Before we begin, I would like to remind you that some of the comments made on today's call are forward-looking statements and 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. With that, I'd like to turn the call over to Jeff, who will begin on Slide 3. Jeff?

Thanks, Amanda. Good afternoon. We're announcing core earnings of $9.5 million for the quarter, or $0.25 per share, and $33.5 million, or $1.04, for the year. This is 12% growth year over year, consistent with our 15% increase in the dividend, but which is short of our 14% to 16% guidance range by approximately $600,000. Given the volatile Q4 market environment, we were able to negotiate better economics on several transactions, which delayed their closings to the end of Q4. While quarterly core earnings were impacted, the improved economics of more than 10X the cost of the delay will benefit us over the life of the deals. In addition, we worked hard over the last four months of the year to manage liquidity and interest rate risk by closing approximately $500 million in capital transactions, fixing out interest rates on 71% of our debt and increasing leverage 2.1 to 1. While these factors resulted in core earnings slightly below annual guidance, we believe these were the right actions to take to better position the Company for 2016. We financed $340 million of transactions in Q4, taking full-year volume to $935 million, up 7% from 2015. Given the volatile market, we are widening our guidance for 2016 to 14% to 19% core earnings per share growth. We expect double-digit growth for 2017 but are not giving more specific guidance at this time. Turning to Slide 4, we look at the headline risk that we're hearing investors worry about and describe the near-term and the 2016-2017 impact on Hannon Armstrong. As I mentioned at the top, market volatility afforded us the opportunity to achieve better economics on several transactions. This had a short-term impact of delaying several closings until the end of the quarter, leaving us $0.02 short of the low end of our target but significantly improving the economics over the life of the deal. The collapse in -- deals, excuse me -- the collapse in oil and natural gas prices has obviously roiled markets. While the price of oil has virtually no impact on us, short or long term, the price of natural gas can affect merchant power revenue. We protect ourselves through our senior position in the capital stack with the protection of our preferred return structure. The prospects for rising interest rates may have dimmed in the last month. We still have a bias to fix out at the high end of our target range of 70%. This gives us a stronger balance sheet as we look forward to 2016 and 2017. And while the 10-year Treasury has fallen to near-historic lows since year end, credit spreads continue to widen, which allow us to increase pricing. Our 6.2% forward-looking yield was up 20 basis points from last quarter. Banks are clearly having a more stressful time, and in response we accelerated our plan to diversify our lending sources in Q4, adding three new institutions. That said, longer term it feels like a positive for Hannon, as we're likely to see expanding lending opportunities. The YieldCo sell-off has been very much on investor minds, and we've reduced our exposure on a percentage basis from less than 15% to approximately 10%. While a painful sell-off for many investors, the net effect for Hannon is that pricing for capital is more favorable, as the notion that equity is cheaper than debt is now erased in borrowers' minds. We also responded to concerns that equity capital markets may close for an extended period. While we have a multi-decade history of prospering without access to capital, we have taken steps to improve liquidity to delay and minimize 2016 equity raises. That said, our pipeline represents an attractive opportunity to put capital to work, markets willing. The Supreme Court's stay of the Clean Power Plan is expected to have minimal impact near term and longer term, since our pipeline is driven by economics, not public policy. If the CPP becomes regulation, that's a positive, but not a necessity. The residential solar players are struggling with decisions in Nevada on net metering, and we simply do not have any resi-solar exposure in Nevada. And longer term we're focusing less on the resi-solar market going forward. Finally, we see minimal impact from the 2016 elections on our business. Together, the headline risks, however, cause us to widen our range for 2016 to the 14% to 19% range. Page 5 explains why we invest where we do. We invest across a number of diverse asset classes in order to get the best risk-adjusted yields. And I'm just going to summarize this page, as -- in contrast to prior calls. Our four asset classes, efficiency, distributed solar, utility-scale solar and utility-scale wind, all relate to the cash flows that come from the energy consumer ahead of investors in the utility capital stack. And within those asset classes we are generally senior to another slice of capital such as the sponsor equity. The increased market volatility we are experiencing -- the market is experiencing reinforces our investment thesis that the best risk-adjusted returns are in the senior or preferred position. Moving to Slide 6, despite all the volatility we believe our strategy is robust enough to stay the same in 2016 and 2017, and I'd summarize it as follows. We'll continue to grow in the originations and programmatic assets, all on the right side of the climate-change line, with the best clients in the industry. We continue to retain and attract smart, seasoned investment professionals who build enduring relationships with our clients. And, finally, our efforts to reduce our cost of equity in debt capital are helping us stay a competitive capital provider for our clients. Turning to Page 7, the extension of the PTC for wind and ITC for solar is an unambiguous positive for the clean energy finance industry in general and for Hannon Armstrong in particular. We look forward to the increased visibility for both markets over the next five years. And in our third year as a public company we are increasing our relationships with financing industry incumbents, like commercial banks and life insurance companies, which represent both additional market opportunities as well as sources of debt financing for our business. Page 8 details our pipeline. It remains strong at more than $2.5 billion for the next 12 months. As noted previously, we do see more opportunities for wind and solar to expand, balancing out our robust efficiency pipeline. As we do each quarter we calculate the metric tons of greenhouse gases reduced in every investment we make. This quarter our investments reduced approximately 300,000 metric tons of greenhouse gases annually, equivalent to a reduction of 148,000 tons of coal, the most impactful quarter to date as a public company. We go one step further in our analysis by calculating the impact by asset class, and for the second quarter in a row wind is the most impactful, largely due to the assets being located in the coal-heavy Midwest. Now I will turn it over to Brendan to detail our financial performance.

Thanks, Jeff. Turning to the Q4 and full year results, for the year we generated $33.5 million of core earnings, or $1.04 a share, as compared to $20.3 million last year, or $9.3 million a share, a 12% increase on a per share basis. We have adjusted the income statement, starting with this call going forward, to reflect a total revenue number from which we will deduct interest expense to get to core total revenue net. For the year we generated total revenue of $73 million, up from $48 million last year, over a 50% increase, which is in line with the increase in the size of our portfolio, approximately $1.35 billion from approximately $900 million at the same time last year. For the quarter, revenue grew to $20.5 million, from $15.5 million in the same quarter last year, again due to the increase in portfolio size. Investment interest expense rose to $26.4 million from $16.7 million last year and by almost $2 million for the quarter. We added almost $400 million of fixed-rate debt in the last four months of the year, to increase our fixed-rate debt percentage to the high end of our 50% to 70% fixed-rate debt target. For simplicity, we are now including the match-funded debt in the calculation. This change had only a 3% impact on the calculation, from 68 to 71. Our other investment revenue was $2.6 million in the quarter, a decline from last year but consistent with the third quarter. Our core total revenue, net of investment interest expense, was $13.1 million in Q4, an increase from $10 million in the same quarter last year. Other expenses core rose to approximately $3.6 million, comparable to Q3, and we ended the year at our target of $13.2 million. We expect that number to be slightly above $16 million for 2016. We remained very efficient, as total headcount was 33 people. On a forward-look basis, as of December 31, 2015, our average portfolio yields grew to 6.2%, with energy efficiency yielding approximately 4.4% and renewable energy yield growing to approximately 6.9%, from 6.5% last quarter, due to the increase in wind equity investments of approximately $155 million in the quarter. The chart on the right makes the case, as we have discussed, that originations in our business are lumpy. And while we have a strong pipeline, any one quarter does not make a trend. As you can see, when we did the October equity raise, we had visibility into a strong Q4, in a similar manner to the Q4 2014 and the Q2 2015 offerings. A quick update on the wind equity investments. As we have discussed, the best way to think about how we account for the wind equity in core is as an amortizing loan. Thus, we record in core earnings interest based on our estimated yield. Year to date, we have in core earnings $13 million of earnings from our wind equity investments. The projects are tracking to projections, and this year we have collected approximately $25 million in cash from the investments. The difference between core and cash is effected with the change in principal and reduces the investment balance for future core yield calculations. Turning to Slide 10, our debt portfolio consists of 45% of our assets from government obligors and 54% commercial transactions, with only 1% of our assets, or $13 million, not considered investment grade. Given the nature of the wind equity investments, we do not include those in the analysis. Our portfolio is widely diversified, with over 105 projects and an average outstanding balance of approximately $12 million per project. On Slide 11 we wanted to again focus on the potential impact of higher rates. Presently 59% of our assets are fixed-rate debt, with the remaining consisting of floating-rate debt, equity method investments and real estate. As we have discussed, new assets are originated at current rates, which is in effect similar to a bond ladder. On the debt side we were at approximately 71% of our debt is at fixed rates, and we were relevering from our equity raise back to our 2.5 to 1 leverage target and presently sit at 2.1 to 1. We have made a similar change in that calculation and now include match-funded debt for simplicity. The impact of the adjustment was to increase the leverage from 1.9 to 1 under the old method to 2.1 to 1 under the new method. Given continued low short-term rates we continue to focus on increasing our fixed-rate debt to be at the 50% to 70% fixed rates and raised approximately $380 million of fixed-rate debt in the last four months of the year. As of the end of the year we estimate that a 25% basis -- 25-basis-point increase in LIBOR would increase quarterly interest expense by $200,000, or less than $0.01 a share, certainly a manageable number. On Slide 12 you see the growth in our debt and equity raised. We continue to focus on diversifying lenders and look at both future on-balance sheet and off-balance sheet sources of financing. We will keep, as I said, our fixed-rate target at 50% to 70% and will raise equity as needed while taking into account the market conditions and our pipeline, among other factors. With that I'll turn it back to Jeff, who will wrap up the presentation.

Thanks, Brendan. Turning to the last slide, Slide 13, we've built Hannon Armstrong to survive in volatile markets and prosper in favorable ones. I've never been more optimistic about our growth potential than I am now. Our long-term cash flows from the senior slice of capital provides a stable dividend, delivering an attractive and growing dividend yield. Our portfolio is continuing to diversify with respect to the number of transactions, customer segments and technologies, and we pride ourselves on good governance and alignment of the managers of the business with the owners of the business -- you, the shareholders. Again, it is an honor to work with my colleagues at Hannon Armstrong, and I thank them publicly for another outstanding quarter as we continue to finance the future of energy. Now we'll open up the call for a few questions.

[Operator Instructions] Our first question is coming from the line of Noah Kaye with Oppenheimer. Please go ahead with your question.

Thanks, guys. So I'd like to start with your comments on the impact of the ITC and PTC extension. Noticing the 12-month deal flow is still -- deal pipeline, rather, is still in excess of $2.5 billion, I gather from that you're not really seeing any pushout of financing or project completion from the extensions out of 2016, if you could comment on that, and also maybe comment on how concretely you're seeing deal flow and economics being impacted for potential deals beyond completion in 2016 as a result of the extension.

Well, I think what you're really saying is there was going to be a rush to get every solar and wind project in 2016 because of the sunset of the ITC and PTC, and now that there's a five-year, will it reduce 2016 materially. And I think the answer is no. I think what it will do is make the industry rational for once and the pace more consistent. But our market share, while it's growing, is still relatively small within the entire market. So you could halve the wind industry and we wouldn't notice it. We just don't do that much volume in any one of our asset classes. So I think it makes for a much more predictable set of transactions for us, and our clients really now have a much more stable business, and we as an industry can all do more planning. Your second question on spreads, we are seeing pricing be much more interesting. I think people are now respecting providers of capital more than what we saw in the beginning of the year, and the ability to execute is now a factor, where frankly at the beginning of 2015 nobody cared about that. It was just who was cheapest. That's never a good market to lend into. So it's anecdotal, but it certainly feels like a good market for us.

Understood. And maybe just to follow up on that, I'd love to get some more of your thought on where in that group of utility, resi or DG and then wind you're concentrating your investment strategy. You mentioned you might be deemphasizing resi going forward, and it would just be helpful to understand is that really the sensitivity over potential policy risk or is there something more attractive that you're seeing in some of the other buckets that make you feel like that's the right concentration to have.

Well, first, I mean, it's really fundamental to our strategy is we don't target any of these asset classes, per se. We're really targeting the best risk-adjusted yield. And so, I mean, it could be all efficiency or all any of these classes. The fact is it isn't. You have opportunities in all the asset classes. There's nothing particularly about resi-solar that we're disinterested in. It's just that the distributed solar market looks more interesting, and the wind market looks more interesting, and efficiency continues to be great. That doesn't mean we wouldn't do a resi-solar transaction. Just right now pricing isn't as interesting as other markets.

Okay. Okay. And maybe just a final question from me, I'd like to ask you about energy storage continues to get a lot of writing, a lot of integrators and solution providers coming into the market. But what I would love to have is your view on kind of where the financing is for some of these storage projects and how active you are looking in terms of looking at storage and how much deal flow you are considering right now. Now, that could be part of the ESCO model or utility scale or what it may be.

Right. I think the way we look at any of these markets is it's going to take a service provider. Johnson Controls is the largest battery manufacturer in the world. We suspect they're going to have a role in the storage business. We're not in a rush to add storage, per se, unless to the extent it's a good risk-adjusted return. The Supreme Court decision, or the PERC decision, seems to help that market. But then we're also going to need creditworthy counterparties to engineer, construct and operate those assets. And I think that it's early days.

Yes. Thank you very much.

Our next question comes from the line of Charles Nabhan with Wells Fargo. Please go ahead with your questions.

Hi, good afternoon, guys. My question is about financing. You mentioned you have some conversations with new lenders that are ongoing. And I'm curious. In those conversations are you -- are your lenders pricing in a higher risk premium as a result of some of the volatility we're seeing in credit markets? And do you envision a potential increase in your borrowing costs over the next year or so?

Chuck, this is Brendan. I think spreads have widened. Certainly spreads have widened. We get a -- that means we can get a higher spread on our side. It also means the lenders can get and will look for a higher spread on their side. But we think we're still -- and increase the gap. So we think it's still a positive. Widening spreads benefits everyone, I think.

Okay. So I think you answered my next question. It sounds like net-net you're able to pass on that -- those wider spreads to your borrowers, as well, so --

Correct.

-- that's a positive. Okay. My other question is, staying with financing, you mentioned the target debt to equity of 2.5 times. Now, if equity markets were to remain effectively closed, do you envision a potential upside to that target? And if so how high would you be willing to go?

I think Jeff alluded to in his comments that we've had decades of financing at government energy efficiency at 20 to 1 or higher. So we certainly have the ability to do that. We'll continue to look at both on-balance sheet and off-balance sheet leverage solutions that allow us to continue to operate regardless of where equity markets are. And so I think we have flexibility. The 2.1, or the 2.5 to 1 limit is an internal limit set with our board in discussion with our focus on interest rate management. As you recall, we took it from 2 to 2.5, as we increased got more fixed rates. There's not a ceiling on that number. So it's really what we think makes sense in the marketplace given economics and given where equity markets are.

Okay. Great. Appreciate the color, guys. Thank you.

The next question comes from the line of Philip Shen with Roth Capital. Please go ahead with your question.

Hi, guys. Thank for taking the questions. So you guys did a great job improving your yields on assets, especially in renewable energy. How do you see that -- well, I guess you've talked about it a little bit earlier, you expect that to go up, or you see pricing improving. To what degree can you quantify how much they might be improving? Is it more so in the wind segment versus solar? And if you can touch on the outlook for asset yields for energy efficiency and the other category that would be helpful.

If you just look at the BBB spreads, which is not a perfect comp, but BBB spreads were up approximately 20 basis points in Q4. This year they're up another 10 basis points. Those -- generally we're able to track those. And I think they're going up in all markets for identical reason, is capital is a little bit more scarce than it used to be, and that's generally a very good positive for us.

Great. Shifting to the wind market, historically you guys have operated more in helping existing projects and players recycle their capital. With the PTC extension, do you expect this business to evolve at all and diversify away from that opportunity, or do you expect to continue to focus on capital recycling?

Well, we do, again, the best risk-adjusted deals. Some are new build and some are recycled capital-type transactions to allow those parties to finance new transactions. But we certainly expect to be able to do our preferred equity-type structure in new-build transactions now for the five-year runway versus the 12-month runway.

And what's changed, Phil, is you see a continued change in the way the tax equity is structured, so that the owner-operator gets a higher percentage of cash earlier on, and thus we can monetize that side of the cash. In the recycle transactions, the older transactions, the bulk of the cash was going to the tax equity side, so it made sense for us to be on the tax equity side. But under the newer models we can be on either side.

Okay. In terms of transaction volumes in 2016, how do you expect them to grow or evolve relative to 2015 and 2014?

Well, in 2014 I think we said we expected 2015 to be higher. It is. It was 7% higher. I would expect volumes to be higher in 2016, as well.

Great. One more, if I may. In terms of the C-PACE opportunity, can you just give us a quick update there? How is that market developing? What do the returns look like there? Just a general update.

Well, let's take the returns. Returns are generally going to be on the above-average for our efficiency portfolio, given that they're not a US government credit or state and local government credit. So we like those returns. Like all efficiency transactions, the whole service delivery mechanism has to be put in place. We applaud the Connecticut Green Bank for their efforts in developing a portfolio of these transactions, which we announced in December we were funding the take-out of those deals. So it's developing. But it -- I think Brendan has characterized it as early days, and it still is. But fundamentally it's an economic transaction. The finance structure works. Now all the delivery mechanism has to get put in place locality by locality. And that's happening.

Great. Thanks, Jeff and Brendan. I'll jump back in the queue.

Our next question is from the line of Carter Driscoll with FBR. Please go ahead with your questions.

Good afternoon, guys. Just, Jeff, getting back to your original statement about some of the transactions being pushed out in 4Q, is there a way you could quantify the volume of that? And then if I heard you correctly you said the economics, I couldn't hear personally with the fire alarm, what you thought the repricing would do in terms of the favorability and then maybe the timing of the impact. Does that all get pulled into first half or first quarter? And then I have a follow-up.

Well, the transactions closed in Q4. They just closed later in Q4. And if they were fee-generating transactions it wouldn't have mattered, but when they're investment income-generating transactions timing matters quite a bit. And it's a hard call to know you're kind of hurting your investment income but you're making a better deal, particularly when you're at the end of Q4. But we absolutely think it's the right impact. So we said roughly it was a $600,000 reduction in investment income. And the benefit on an MPV basis was 10X that, or more than 10X that. That's just -- I've said a few times, or quite a few times that we're in this for the long haul, and that's an example of it. That's a good transaction for shareholders, and we'd continue to do that every time we can.

Yes, no, I totally understand that. And then maybe, obviously you talked about some of the policy risks, and I think tried to qualify that. Maybe just get your view on why you believe the Clean Power Plan, if it gets stayed permanently, or do you believe it's a temporary stay and that it'll eventually be reinstated, and maybe try to think of the impact longer term on your business as a bridge for, obviously, very favorable rulings for both the ITC and PTC extensions.

I think the Clean Power Plan, I'd certainly hope it becomes an EPA regulation. I think there are lots of companies in lots of states that are already working on variations of it for their own selfish best interest. And when I say that it's minimal impact on us, it's because efficiency is really happening without regard to public policy, simply because it's an economic thing to do. People want cleaner, greener buildings. They're much, much better built environments. They don't always want to finance it, which is a good thing. That gives us the opportunity. But these things are going to happen. And I think solar and wind is far more impacted by the tax credit extensions than by the Clean Power Plan. Even if it gets successfully litigated, it's going to take years to implement. But activities on the ground are starting to -- you see from the Paris Climate Change Accord that people are starting to take notice that this is actually kind of an important thing, which is a great tailwind for us.

No, absolutely. Okay. Thank you. I'll take the rest offline.

The next question is coming from the line of Jeff Osborne with Cowen. Please go ahead with your question.

Yes, great, thanks. A couple of questions on my end. Jeff, I was wondering if you can give us an example of the delays during the quarter. Is it just that during the paperwork process spreads widened out during that couple-week period that you basically hit pause, or is your partner, Johnson Controls, or someone else? I'm just trying to get -- can you just kind of walk through an example of a delay of a typical project that you experienced?

Well, it was -- they were most often in the non-efficiency kind of market. The efficiency projects and the federal government, they have delays all the time, and for decades we've been frustrated over those delays. But that's nothing new. What we really saw on the wind and solar market was a chance to -- well, not a chance, but sort of the need to reflect changes from term sheets that were executed in the first half of the year but to close in the second half of the year. The world changed for everybody. And rather than not acknowledge that we went back to our clients and said look, this is a permanent change here and we need to react to it. And I won't say the clients said, wow, that's a wonderful, wonderful notion for you to renegotiate this. But the reality is they understood it. And they need the deals to close. And it's kind of like when you buy a house at one price and you try to sell it for a lower price, you know, or try to sell it at the same price when the market's declined. You know? Not going to work. So that's not a very specific example about what we did, but maybe ask it the other way. With interest rates starting to rise, with commodity prices weakening, with credit markets weakening, why would the price of transactions or certain transactions stay the same during that period? And all we did was reflect that reality in the negotiations.

And I think we also saw the cost of equity on projects rising. So, I mean, some of the people who had been in equity in projects obviously aren't quite as aggressive as they were. That, I think, to Jeff's point earlier that debt's getting valued more now, equity's getting valued more now, too. And so as that reality flows through the marketplace, and it was apparent in the quarter, that impacts on pricing and on economics and deals. And so we were able to take that into account and make adjustments in the pricing. But when you do that it just takes longer to close the deal.

Got it. No, that's helpful. I appreciate the details there. And then the last question I had was just what are kind of the two or three variables to keep in mind as it relates to 2016 to get to both the high end of guidance and the low end of guidance? I'm just trying to understand how you assessed that range, given it's wider and you called that out, but what are the key factors that we should be monitoring to get to both the high and the low end? That would be helpful.

I think the -- one, are equity markets open or not? And if they're open, are they open in the same way that they have been in the past? We were glad to see NextEra do their transaction. But we definitely batten down the hatches in case equity capital markets aren't very open to us. I think a lot of the variables, we took a lot of interest rate variability out of the mix. I'm looking at Brendan here to see what else. But it's -- maybe if bank markets completely collapse I can make an argument that's a really good thing for us and a really bad thing for the industry. But it really comes down to how much capital we can put to work and our ability to lever it up. The transactions are there. I'm really not worried about volumes. But, Brendan, what would you add to that?

I think it's that. I think there's an increasing selectivity on portfolio of what transactions we do. There was, for example, a transaction in Q4 we passed that we thought we were going to do that we passed on. I think you'll see us be more selective. And depending -- that may impact slightly on what we do for the year, which would then put us to the low end or the high end if we tended to be more selective in part because, as Jeff pointed out, the potential for equity markets to be closed. So we're right now being measured in what we're doing. We're doing things that make sense. And we'll see how the market develops during the year. But we just thought with the volatility that it was prudent to be a little conservative.

No, that makes sense. Just given the leverage ratios of 2.5 to 1, if you were to get there, without raising equity could you still do a billion in transactions, or would you need to raise the leverage ratio at the board level?

Well, if we can't raise capital or raise leverage, a lot of what we'd be doing is our historic securitization business. So theoretically we could do $1 billion of stuff and not raise a penny of capital or raise our leverage. In fact, we won't do that, and that does great things for the year in which you do it, say 2016, but it's at the expense of future-year earnings. But we can raise more debt than we have.

Got it. Thanks much. Appreciate it, guys.

Our next question comes from the line of Michael Morosi with Avondale. Please go ahead with your questions.

Hi, guys. Thanks for taking the questions. So, just looking at the pipeline of greater than $2.5 billion, that's relatively unchanged. But it sounds like your opportunity set has actually continued to grow. So is that just a reflection of your prudence and just the current equity market environment, or how has your opportunity set evolved?

Well, I think it's -- I mean, we were very careful in saying it's greater than $2.5 billion. You don't know whether that's $2.5.1 billion or $14 trillion. And that's by design. It's just -- it's a number. Obviously we think we're north of that. We keep having good comfort in the $2.5 billion. Perhaps it would've been odd to say it has gone up significantly in a market where capital is constrained. There are enough deals in the market for us to get to our earnings goals. I think there's nothing but supportive factors in the pipeline right now. We see we're not losing clients. We're gaining clients. We highlighted some of that in this presentation. I think the clients are putting more value on our service, and the market's really coming towards us. So feeling quite good about the pipeline.

Okay. And then you mentioned the volatility that impacted the top line, and did you have any deals slip into the first quarter, or was it more just timing of the deals that did close in the fourth quarter?

We always have deals slip from one quarter to another, and that will always happen to us. We've been saying that from the IPO. We don't control this. You've got big Fortune 500 companies and governments. So we're always heartbroken that deals move out. So, and we'll always have that. This particular pain that we put on ourselves we think was a good decision, but it was in the quarter, and we got the deals done, and they're good deals, good deals for our clients, good deals for us.

Okay. And then, finally, just internally, on the OpEx line how are you thinking about kind of managing OpEx given the potentially less certain environment moving into 2016?

I think we talked about on the call about a little over $16 million number. So it's growth again over this year. Obviously we can flex that somewhat if we found that we weren't achieving the targets that we expect. But that's based on the business that we expect for the year, and what we need. We have increasing cost of operating a public entity. We'll have SOX compliance this year, for example, that will add a substantial amount to it. So those costs will be there, and we factor those in to what we've given you as guidance. So we think we run a pretty lean shop. I mean, we've got 33 people right now. So I think we do a lot with 33 people. And so we continue to obviously watch SG&A, and we'll make adjustments as needed.

Very good. Thanks, guys.

At this time I'll turn the floor back to Jeff Eckel for any closing remarks.

Thanks. You ask great questions, and we look forward to speaking with many of you this evening. And we'll be on the road next week at the Morgan Stanley and UBS Utility and MLP conference and then out in -- on the West Coast the following week. So we're excited to talk about the business and look forward to meeting investors and analysts. Thanks so much.

Thank you. This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time.