Good afternoon, and welcome to the Hannon Armstrong's conference call on its Q2 2018 Financial Results. Management will be utilizing a slide presentation for this call, which is available now for download on their Investor Relations page at investors.hannonarmstrong.com. Today's call is being recorded and we have allocated 30 minutes for prepared remarks and Q&A. All participants will be in listen-only mode. [Operator Instructions] At this time, I would like to turn the conference over to Amanda Cimaglia, Investor Relations Director for the company. Please go ahead.

Thank you. Good afternoon, everyone, and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing its second quarter 2018 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 would like to remind you that some of the comments made in the course of this 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 Factor section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those described during the call. In addition, all forward-looking statements are made as of today and the company does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations. Please note that certain non-GAAP financial measures will be discussed on this conference call. 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 Jeffrey Eckel, the Company's President and CEO and Brendan Herron, our CFO. With that, I'd like turn the call over to Jeff, who will begin on Slide 3. Jeff?

Thank you, Amanda, and good afternoon all of you. Today we are announcing GAAP earnings of $0.32 per share and core earnings of $0.39 per share. Originations for the quarter were approximately $200 million. We are a bit lighter than we expected to be for the first half of the year in originations but we have had several significant transactions slipped from Q2 and early Q3 and those transactions are now closing. We are still on track to reach our $1 billion annual origination target for 2018, so it would be reasonable to expect second half originations to be at a higher level than the first half. We further reiterate that our 2018 core earnings should grow at our guidance level of 26% with the midpoint being equal to $1.32 per share. As discussed last quarter driving the higher levels of securitizations for gain on sale income in 2018, a large contributor to our core earnings results this quarter. We expect that variability in earnings determined by the level of assets held on balance sheet versus those securitized could continue through this flat yield curve period. I will speak more on the benefits of our flexible business model in a few minutes. We are pleased to announce the closing of our first storm water remediation investment this quarter, a market we’ve been discussing for quite some time located right in Chesapeake Bay region, this transaction will help to reduce nitrogen and phosphorous runoff into the Chesapeake Bay. This investment meets our sustainability screen of having a positive environmental impact with a neutral impact on carbon. This is a new market that will take time to scale, but we look forward to additional programmatic transactions in this market in the upcoming quarters. Continuing our persistent focus on tracking carbon, this quarter…

Thanks, Jeff. Turning to Slide 6. For the quarter, total GAAP revenue grew to $35.8 million and a 27% increase from the same quarter last year. This was the result of growth in the average portfolio and increased level of securitization with securitization volume up almost 50% year-to-date compared to last year. Interest expense grew to $19 million from $15 million in this quarter last year, primarily because of the increase in fixed rate debt in 2017 used to fund our portfolio growth. Comps and general and administrative expenses increased by approximately $1.1 million and after adjusting for stock-based comp, core comp and G&A rose by approximately $700,000 over the same quarter last year. The increase is a result of our continued investment in the growth of the business. Income from equity investments increased by approximately $2 million due in large part with one-time HLBV impact of the lower taxes. On a year-to-date basis, income from equity investments decreased by approximately $4 million. The decline is primarily the result of the non-cash HLBV loss recognized on the one equity investment we discussed last quarter. That project is performing in line with our revised expectations. For the three months ended June 30, 2018, we recognized a GAAP profit of $17 million for the quarter, an increase of $5 million from the same quarter last year. As a reminder, the GAAP earnings do not includes the full effect of the cash we received from our investments. In the first half of 2018, we collected $70 million in cash from these investments, up from $39 million last year. Since we’ve based our investment on future cash flows, discounted back to a present value, we believe the cash we received reflects both the return of capital and a return on our investment. Thus we…

Thanks, Brendan. Turning to Slide 9 to finish up, we remain very optimistic about our business. The market opportunity is enormous with estimates of up to $100 trillion to be spent over the next 35 years in climate, mitigation and adaptation. While the investible market is quite large, in any one period of value in some of the markets ebbs and flows, our flexible business model allows us to pursue the best risk-adjusted return among a broad and uncorrelated set of investment opportunities. As a 37 year old company, although we’ve only been public five years, we also have a great deal of experience over political and economic cycles including several of the big downturns in the clean energy industry, as well as in the broader markets. Still we have continued to prosper and we are well positioned to grow earnings over time. Finally, we believe we are doing something important addressing climate change while earning superior risk-adjusted returns consistent with our investment thesis and our strong ESG commitment. As a top shareholder in the company, I am pleased with the continued execution of our team and continually evolving our origination platform, seeking returns across varied asset classes, the flexibility of the business model to adapt the various market conditions and finally the great opportunity to invest in assets reducing the impact of climate change. Thank you to Hannon Armstrong team for your hard work and your continued commitment and thank you to our investors and interested investors for joining us today. I’ll now open up the call for a few questions.

[Operator Instructions] And our first question will come from Noah Kaye with Oppenheimer & Company.

Good afternoon. Thanks for taking the questions. Let me start with a question on commercial PACE. So in the past quarters we’ve seen some early examples of securitizations of financing getting Double A and even Triple A rated. Just wondering what’s your ability at this point to securitize those CPACE assets? How over-collateralized do you think that need to be? And what kind of appetite do you see in the market?

Noah, I have to admit you broke up, but I think your basic question is, how financeable are the Commercial Pace transactions. We certainly think they are financeable that’s why we are investing in them. Our ability to lever them, we think is still to be tested, we are early days. We haven’t built up enough of a portfolio to really test that. But some of the early signs are investors will appreciate the collateral and the legal strcutre and we think we can get paid for our ability to aggregate these relatively small assets into a larger pool. We are very optimistic about CPACE. And forgive me if I’ve missed your question, as I said you are breaking up a bit.

Yes, the signal is a bit patching in our end as well. So, hopefully it’s not something other folks are hearing. But, I think you answered the question well. Just it looks like the equity in methane investments, that’s stepped down on the balance sheet. But you mentioned kind of the asset, glad to make an adjustment for last quarter are performing in line. So just, how do we bridge from last quarter to this quarter, the value of the equity method investment on the balance sheet?

I am sorry, no, again, I lost half of your question. I think you asked about the balance coming down as we talked about, we got $70 million of cash in this quarter. So, when you get cash and that reduces the balance and that’s up substantially from the cash we got in this time last year. The project that we did had the adjustment for last quarter is performing in line with revised expectations.

Great. Thank you very much.

Our next question will come from Chris Souther from Cowen.

Hey, thanks for taking the call. I think there might be kind of an issue, because I am getting the same kind of hiccup here. So excuse me if it does kind of breaks. It looks like the grid connected was up when looking at the 12 months backlog. Do you guys, it seem to kind of shift from some of those markets in the recent quarters? You mentioned a few areas where you are seeing opportunities now. Can you just talk a bit about what some of the factors are there making those markets more attractive now?

I think, Chris, the – as I said, I think the wind and the solar industry collectively had to adjust tax reform, all of the tax equity investors had to adjust their pricing and then you got to laid a lot of stuff. I think we have continued to think the wind industry real large and the solar industry on the utility side are strong, it’s just - that has not been the largest area of focus for us. It’s more Behind The Meter. That said, as those two technologies start to get back on their feet from a development standpoint, we are going to see opportunities which is I think what you saw in the pipeline.

Got it. And then, on – sorry, and then just, looking at the HLBV which is higher than the kind of core earnings adjustments for this quarter, is that reflecting like a tax [Indiscernible] Can you remind us how that works and what you might be expecting for the rest of the year there?

Yes, so that was – the GAAP number was high, because some adjustments were coming through in HLBV from the tax rate change where we get a benefit because of the lower tax rate coming through in HLBV. So that’s why GAAP this time was higher. It was a one-time adjustment this quarter to the high side. So it was actually higher than what we would have recognized under core which is why we have the negative core adjustment.

Perfect. I’ll hop back in the queue.

Our next question will come from Philip Shen with ROTH Partners.

Hi everyone. This is Justin Claire on for Phil today. So, first…

Hi Justin.

Hey everyone. So in Q2, it looks like many of the escrows reported pretty strong sales growth. I was just wondering if you could talk about the demand that you are – with your escrow partners and how that might contribute, potentially an increase in originations in your Q4?

Well, I think it’s – there is a very strong correlation. We continue to follow the best companies in the industry, many of their logos appear on our pipeline page or business model page and what’s good for them is good for us. I would say a couple trends we are seeing more comprehensive retrofits properties that makes for a larger escrow job and that makes for a larger financing for us. These still are real big investments, but as the scope of work gets more complex, adding storage, adding cogeneration, adding EV charging and things like that, it’s become more interesting kind of many grids for the owners of the properties and generally that’s good for us.

Okay, great. And then, turning to the yield curve, so the curve has continued to flatten since last quarter. I was wondering if you could give us a sense for the mix of the assets that you are securitizing versus holding on the balance sheet and then, if the curve continues to flatten in Q3, Q4, would you anticipate a increasing mix of securitization?

It very much depends on the mix of originations, not as that we originate, it’s the candidate for securitization hopefully it’s an attractive asset to the add of the balance sheet and we will continue to add assets to balance sheet which is on the margin, with a flat yield curve and a strong institutional bid for some of these assets that we can aggregate, I think it makes great sense for the shareholders to securitize. So, not giving you precise percentages, because frankly we don’t know and that – and more importantly, we don’t have to now. We have that flexibility in the model to shift real-time based on market conditions.

Okay. I appreciate the color. Maybe just one last one for me here on CPACE. So you mentioned that transactions are becoming larger and more frequent. Can you give us a sense for how much CPACE lending you did in Q2 and how large those transactions might be getting at this point?

Yes, we haven’t broken out individual markets or the size of the markets. But, it’s probably, this quarter we’ve talked about CPACE, we’ve talked about counterpoint shifting that from showing sustainable real estate. We are clearly focused on developing this market and I think the way that one sees in sustainability and virtually every aspect of business is going to affect the real property business and we think that is nothing but a positive for our transactions which, a CPACE transaction is generally accretive to an owner as it substitutes some part for higher cost mezzanine capital. And so, the economics are in the favor of us expanding as well as the general market trends towards sustainability.

Okay. Thanks for the questions. I’ll step back in the queue.

[Operator Instructions] And our next question will come from Carson Sippel from B.Riley FBR.

Hi this is Carson on Carter, and I just had a quick one. Some of the tariffs you’ve seen, how does that affects you in the near-term and then maybe more in the long-term like the 12 to 24 month range?

You mean the solar tariffs?

That’s right. The solar tariffs…

Yes, I don’t think there is much of an impact. I mean, solar is not a big piece in our pipeline. But the solar panel tariff is only a portion – affects only a portion of the project cost. It’s much more of an issue for the manufacturer of a panel that’s subject to tariffs and then one is not. But from our standpoint, that impact is relatively muted, because it’s I think less than 50% of the total cost to install and it’s even less than that for Behind The Meter solar. So, it’s a struggle if you are a manufacturer for sure. We honestly don’t sense any impact on our business.

Great. Thank you.

And we do have a follow-up from Chris Souther from Cowen.

Hey, just on storm water remediation, I just wanted to get an idea of what the size of that kind of transaction was? And how performing a transaction you are going to see in the market kind of open up?

Well, the backdrop for this is, mandate to the states around Chesapeake Bay to reduce phosphorus and nitrogen runoff which happens when you increase pavement. It’s pretty – gravity does a good job of getting the pavement cleaned and phosphorous and nitrogen running into streams. So, these are relatively low technology, civil engineering projects that slow down the pace of water, increase the amount of filtration that’s done by soil. So that the nitrogen, phosphorous can be captured in the soil rather than dumping in the Bay and create algae blooms. Because, pavement is relatively localized, the projects are relatively localized. It’s generally going to be smaller, which kind of fits our appetite of $1 million to $10 million to $20 million kinds of investments. They have private partnerships and you are doing transactions with a number of parties who maybe relatively new P3 type structures. Patience is rewarded in this market. You have to help people understand the economics of using a taxable capital versus tax exempt capital. And I think , the more precedence that are out there, the more governmental entities that transact in these – the more confidence other governmental entities will have that this is a good sound way to accelerate the required investments.

Thanks a lot.

Thank you.

And that does conclude our Q&A session for today. And at this time, I will turn the conference back over to Jeff Eckel for any closing remarks.

Well, thank you. Good questions. We will be, I guess, in New York and Boston next week talking to a number of investors. So, thank you for your time this evening and have a good evening. Good night.

That does conclude our conference for today. Thank you for your participation.