Good afternoon, and welcome to Hannon Armstrong's Conference Call on its Fourth Quarter and Full Year 2019 Financial Results. Leadership will be utilizing a slide presentation for this call, which is available now for download on the company’s Investor Relations page at investors.hannonarmstrong.com.Today's call is being recorded, and we have allocated 30 minutes for prepared remarks and a question-and-answer session. All participants will be in a listen-only mode. [Operator Instructions]At this time, I would like to turn the conference call over to Chad Reed, Vice President of Investor Relations and ESG for the company. Please go ahead.

Thank you, operator. Good afternoon, everyone and welcome. Earlier this afternoon Hannon Armstrong distributed a press release detailing our fourth quarter and full year 2019 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 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.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 Jeff Eckel, the Company's Chairman and CEO and Jeff Lipson, our CFO.With that, I'd like to turn the call over to Jeff, who will begin on slide three. Jeff.

Thank you, Chad, and good afternoon everyone. We are pleased to present our Q4 and 2019 results today, which were strong for both the quarter and the year. That strength is driven by the growth in our markets and our client base. Our leadership in climate change investing in ESG is finally being recognized and valued by both our debt and equity investors.Let's detail these themes starting on page three. Today we are announcing a 65% GAAP earnings growth year-over-year to $1.24 and core earnings per share of $1.40, which is above the mid-point of our 2019 guidance of $1.37.Our balance sheet portfolio grew by 10% quarter-over-quarter to $2.1 billion, even as we still rotated a few more assets off. As such, we are raising our dividend to $0.34 per share for Q1, 2020, which implies a $0.02 annual increase to $1.36 per share. This continues our practice of raising our dividend annually, but at a rate slower than we were growing earnings.We are confirming our previous guides for 2020, but expect annual core earnings per share in 2020 will exceed the midpoint guidance of $1.43. 2020 is the last year of our three year guidance, which we believe has worked well to allow both the company and investors to focus on the long term growth potential of the business. We intend to issue new guidance this time next year, that we expect will at least track growth consistent with currant guidance.I will wrap up this slide to highlight the large positive impact our business is having on reducing CO2, nearly 400,000 metric tons for carbon count of 0.3.Turning to slide four, we highlight the success of our investment thesis over the last five years. The chart on the left shows total annual shareholder return for Hannon Armstrong at approximately…

Thanks Jeff, and thank you to everyone for joining the call. I will focus my remarks on three topics: number one, our financial results; number two, a noteworthy accounting change; and number three capital markets.As we turn to slide eight, I want to reiterate Jeff’s comments and emphasize that we had an outstanding year – excuse me, had an outstanding fourth quarter and are very pleased with the full year results. We were equally pleased with how well the company is situated to take advantage of current trends, which we expect will result in further earnings growth.Summarizing page eight, we recorded GAAP earnings per share of $1.24 in 2019, an increase of 65% over 2018. Core earnings per share increased to $1.40 in 2019, up from $1.38 in 2018 and above the previously communicated 2019 midpoint guidance of $1.37. An increase in portfolio yield is a primary driver.In addition, core net investment income was $82 million in 2019, a 22% increase over 2018, while gain in sale and fees were flat at approximately $39 million. As you can see on the slide, our fourth quarter GAAP earnings significantly exceeded our fourth quarter core earnings. The transaction that caused this difference is an excellent example that validates our core earnings methodology.Specifically, in the fourth quarter we sold a portfolio of wind projects that had flipped. So we had already collected the vast majority of our cash flows and thus the purchase price was roughly equal to our core book value, so we had no core gain or loss on the transaction. However, due to the GAAP methodology that frequently delays earnings on equity method investments, our GAAP book value was much lower and the sales resulted in a GAAP gain of approximately $28 million.Since the market price of this asset was…

Terrific Jeff! Thanks. Turning to slide 13, I will highlight notable developments on the ESG front that continue to demonstrate our leadership.With our proprietary carbon count methodology, the positive environmental impact of the firm is unquestionably embedded in our DNA. At Hannon Armstrong an emphasis on a durable social fabric, including a diverse, engaged and fairly compensated staff is a material factor in our financial success. With the appointment of Teresa Brenner as our Lead Independent Director in 2019, we are now one of the few U.S. public companies with the woman as Lead Independent Director.And lastly, as one of the first U.S. public companies to implement TCFD in our financial filings, we can assure our shareholders that our team will stay on track and deliver results. In sum, we are proud to remain a leader in ESG performance and reporting.Turning to slide 14, we close with a brief summary of the key strengths of Hannon Armstrong. With a programmatic origination platform, a diversified portfolio, a durable capital structure, industry leading ESG and strong competitive positioning, we have demonstrated we can thrive in challenging interest rate and policy environments.For us, climate positive investing is not a fad or a newly adopted strategy; it is the reason we exist. We welcome others who have recently announced their focusing on climate change and believe that our competitive advantage will continue to serve all of our stakeholders well.Thank you for joining us today. Operator, please open the line for questions.

[Operator Instructions] And our first question comes from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Hey guys, this is Anya filling in for Julian today.

Hi Anya.

Hi, how are you? So first off, I am going to ask, could you talk about your long term strategy for exposure to distributed generation solar. What's a reasonable limit to assume it’s the center of the overall portfolio? And then in line with that, can you talk about opportunities you're seeing for solar relative to win over the next year or so.

We'll just take that in two parts; I'll do it in reverse order. So solar for wind, you have to split it between Grid Connected and Behind the Meter. We generally have not found very attractive economics in the common equity of wind projects and so that has led us to do more – relatively more solar land, which is where we see the best value.On Behind the Meter, we continue to see solar expand in residential as you asked, but also community and C&I and it's really getting combined with storage plus energy efficiency projects, so that technology distinction is blurring a little bit.There is a limit on how much exposure we’ll take to any one asset class, but actually what we would hope to take away is as the portfolio grows, those limits tend to grow as well. We’re – as we've demonstrated, we’re cautious on credit and the ability to sell down our risk is something we always have in the back of our minds.So I'm not going to give you a hard number, but Q4 demonstrates that we were able to add assets that weren’t resi solar assets and that just increases our capacity to grow all the asset classes.

Okay, thanks. And then separately, can you talk about the growth trend you're seeing in our federal, state and local government markets? Just lately, how are you expecting that to look going forward relative to other markets?

Well, clearly that’s been the legacy business for Hannon Armstrong for more than 20 years and I think the economics are doing nothing, but getting better when you have technology that is getting cheaper. It’s getting more capable and you have interest costs that are so low, we expect to see continued adoption with state and local and federal governments. I think there are lots of ways for that market to grow.What we've never actually seen it do though is double or triple, so I wouldn't expect that. It's nice steady growth. These are complicated transactions to do and that complication tends to limit the increase in their adoption, but it's a good steady market.

Okay, thanks. And the last question on the guidance, I guess the guidance raise that you guys have put out, could you add some color on what exactly is – anything more specific on what's driving that increase above the mid-point, and that seems to be before the accounting change, right?

Yes, that's without regard to any provisions we might take this year.

And so what's driving it, you know the growth in NII is reassuring that we become less reliant on fees and able to hit the higher end of the target. The excellent progress we made on the corporate unsecured debt has given us a lot more flexibility to increase that NII, so that is really why we're focusing people’s eyes to the north side of the mid-point rather than a fairly wide range.

Okay, thanks a lot. I’ll jump back in the queue.

Our next question comes from Chris Van Horn of B. Riley FBR. Please go ahead.

Good afternoon, and thanks for taking my call. You know it seems like there's a big acceleration in transactions in the fourth quarter relative to your commentary from the third quarter. Was that just a matter of timing and was it a similar mix in terms of your end markets that you’ve highlighted for the year.

We haven’t really disclosed the mix in Q4, but Q4 is typically a busy quarter. Obviously people want to book business at the end of the year. We did have some safe harbor facilities which are important to get closer at the end of the year, those are drivers. I would not say there's any one over-arching thing that would make you smarter about the timing of when business hits. As we've always said, we don't control that; our large client base controls that. But yeah, Q4, it should be a busier time for us just given the end of the year and the implications on particularly the solar tax credit.

Okay, got it. And then on the range of your EPS guidance, is you know – is there a timing component to the lower end versus the higher end and is gain-of-sales still a big driving force there. Any additional color would be helpful?

So gain-on-sale is important. It just becomes less important to achieving our results when we're able to add accretive transactions to the balance sheet. So we're definitely signaling that that seems to be the way things are going for us now.With respect to timing, do you mean quarter-to-quarter timing?

Correct, yep.

You know, we give annual guidance for a reason. Any one quarter is always difficult to predict. But again, a shift to NII away from a greater reliance on gain-on-sale will mitigate quarter-to-quarter variations, but certainly doesn't eliminate them.

Okay, okay, got it thanks. And then last for me, you know obviously 2019 had a number of international disasters that you highlighted in your kind of macro trends. When does that – what’s the typical – I know it’s probably hard to quantify. It depends on the region and the application, but is there a timing around an increase in you know, kind of your pipeline and your activity around those and have you seen anything kind of come down the pipe from what we saw in 2019 around those disasters?

There's nothing we can you know specifically tie one disaster to a communities decision to go do something around resilience. What is fairly obvious to us is all around the country people are feeling different impacts from climate change. It's different in Louisiana than it is in Florida versus Chesapeake Bay area, but every – not everyone, but it just seems to be a much more topical conversation as we meet with our clients that they are seeing the need and the community is starting to come to the recognition that whether they want to call it climate change or just weird weather, something’s different and they are going to have to make some investments; that all takes time for us. Sadly, the trend seems to be absolutely certain, so good for business, but not necessarily good for the communities where these impacts are being felt.

Okay, got it. Thanks again for the time.

Thank you.

Our next question comes from Mark Strouse of JPMorgan. Please go ahead.

Yeah, good afternoon. Thank you very much for taking our questions. Jeff, I know you give kind of long term targets of annual transactions of around $1 billion or so, but for the last couple of years you've been a bit north of that. I know it's hard to predict, especially this time of year, but I mean is there any obvious reason why it would slow back down to that $1 billion mark or should we be assuming kind of similar levels to what it’s been the last couple of years?

You know, I think we've used the $1 billion target almost for ease of math for some of the business model questions, but then I think this is our third year over a billion. It’s not – I don't think we're looking at a hockey stick necessarily, but you know hopefully the tone of the thing that we just did is pretty positive, there is growth in all of these markets. Do they hit in 2020 or do they hit in 2021, that's really tough for us to say, but the general trend is very positive in terms of origination. So I don't see anything that's going to take it back down. Hopefully we’ll continue to see growth in accretive transactions with pricing and structures we like.

Okay, thank you. And then Jeff L, can you – I know this is probably hard to predict as well, but how should we think about the potential impact of CECL to EPS this year?

Well – yeah, one of the reasons we are doing the guidance on a pre-provision basis is we're still working through exactly what provisions will be on certain categories of assets. I would ground you in the notion that for example equity method investments will not have any CECL required provisions. So to the extent that ends up being a large part of our volume, CECL will be a non-event. By the same token commercial receivables, we’ll have required provisions and so if the business migrates in that direction it'll be a little bit more of an impact.So as Jeff said, the transaction volume itself is difficult enough to protect. The types of transactions and the timing of when they close become that much more difficult to predict, which in turn makes the CECL, post provision EPS challenging to predict and that's why we don't want to get too specific about that just yet. We want to go through a couple of quarters and see where we come out before I provide too much guidance on a post provision basis.

Yeah, fair enough. Okay, and then just one more quick one. So looking at your 2020 guidance, you would assuming this to be at least two years in a row now where your dividend growth is a bit slower than your EPS growth. Can you just provide your latest thoughts around kind of long term target payout ratios.

What we've said Mark is, we started out paying 100% and as people got to know the story a little bit better, the need for growing that dividend at the same pace as earnings was less. So we're a pretty conservative bunch and having some gap between earnings and dividend is we think helpful.We don't have a target payout ratio. This is not related to any rules or anything like that for reasons I don't want to get into now, but you know for the next while, we’d like to see that gap grow.

Thanks, thank you very much.

Our next question comes from Jeff Osborne of Cowen & Co. Please go ahead.

Great! A lot of good questions were asked so far, but maybe for ’19, just going back to the CECL, can you talk about what the equity method investments were as a percentage relative to commercial receivables? Is there a way to frame what the exposure would've been if 2022 were to be a mirror of ‘19 in terms of mix.

Good question.

Yeah, good question. I would say commercial receivables were significant – I don't have that in front of me, but were a significant percentage of the balance sheet growth in 2019.

Can we talk about categories like Community Solar, would have been.

Community Solar is a commercial receivable. Yeah, safe harbor, land, resi, solar. So but what we don't have today for you guys is exactly the allowance factor, meaning the percent of the asset that would be required to go through provision. So even I tell you ex-$100 million of 2019 growth was commercial receivables, I'm not prepared to say yet exactly what that would have meant in terms of actual levels of provision, so keep that in mind. That’s something we’ll be disclosing as the quarters progress throughout 2020.

Got it! Okay, and then maybe around the fourth quarter itself, can you give us a sense of what percentage of transactions were securitized and how we should think about that same metric as it relates to the guidance for the year.

Well, in the fourth quarter it was roughly 50/50. I would sort of point to that metric being less helpful as we go forward as it's been in the past. So for example, our C-PACE business was on balance sheet quite a while and then we securitized during the fourth quarter. So this notion, that what was originated in the quarter is exactly what was securitized in the quarter, is sometimes not the case. So I'd be a little – I would give you some caution about using that number in your models.

Okay. Any sense about securitization percentage for 2020 or what’s the size of the balance sheet we should use for modeling purposes?

I think we would say that we would expect most of the originations in 2020 to remain on balance sheet without putting out a specific number. It's mostly the energy efficiency transactions and C-PACE that we would look to securitize and most everything else we would expect to put on balance sheet.

Okay, I think in the past you had talked about 30% of $1 billion in transactions were sort of the rule of thumb. I don't know if that's changed meaningfully.

Actually in 2019 we had said it's going to be closer to 50/50 and I think Jeff L is saying you know probably maybe flip more to 30/70 and from the 50/50.

And again not to repetitive, but I would de-link in many ways your analysis of our company in terms of originations and securitizations occurring simultaneously. We may look to syndicate for example assets that have been on the balance sheet for a while, and so that would create a difference in the way you're looking at it, if you are always tying originations to securitizations in the same quarter.

Got it! So I had two other quick ones. One, just given the topic with of the debate going on, can you remind us what you've seen over the past around elections and whatnot as that impacts the federal government business in particular? Is there any slow down or speeding up into the election and any material impact poste the election?That was question one, and then question two I had was just around rebalancing, you’ve had in the past. Was there any in the quarter itself in Q4? I just wasn't sure as the yield has gone up and leverage has come down. How you are thinking about rebalancing in general and if you can give us the amount for the fourth quarter would be helpful.

In terms of the election question, the good news is our civil service is largely apolitical and is not that sensitive to the election. So we don't expect that – the presidential election to have any impact on which business gets generated at the federal government level.

And on your other question, you know we have been talking for a few quarters about this rotation of lower yielding assets off the balance sheet. I would say, directionally we are coming to the end of that. Obviously we only had a finite amount of lower yielding assets on the balance sheet, and we did a fair amount of that in excess of $100 million I think in the fourth quarter, we’ll get you the actual number. But I would guide you towards what we're sort of coming to the end of that rotation.

Excellent! That’s all I had, thank you.

Thanks Jeff.

Our next question comes from Noah Kaye of Oppenheimer. Please go ahead.

Thanks, good afternoon. Thanks for taking the questions.

Hey Noah.

Hey Noah.

How are you? The growth in the portfolio, a large part of that sequentially was from the commercial non-investment grade receivables. Is it fair to assume a significant opponent of that was the Freddie Mac BP's; is that correct?

Some of it was, oh that’s equity method actually. Because own those two – yeah, I’m sorry. We own those two through a joint venture, so they come up as equity method.

Okay, so what would have been the other kind of key drivers of the commercial non-investment grade? I shouldn’t say other – what are the key drivers of commercial non-nothing grade growth? Is it the Community Solar, and what kind of key assets?

Yeah, the resi solar just talked about the safe harbor, and there's some C&I solar in there as well.

Okay. Just kind of given the success of the KG series, any visibility to further deal potential with Freddie or with Fanny. How do you think about a pipeline of opportunity there?

Well, I would say that’s in some ways obviously dependent on Freddy's program for these type of green transactions, number one. Number two, as we've disclosed our partner, there is a company called Morgan Properties. So their ability and willingness, availability to be selected to purchase on what's typically a rotating basis, these Freddy Securities will also be a driver of our volumes there. So we feel good that Freddie will continue to issue and that Morgan will continue to be part of the rotation, but we're dependent on those two things in terms of we achieving our volumes.

Okay, and can you talk about the pipeline for some of your other newer offerings like Energy as a Service. And also if I could sneak one more in, was this the first time you securitized C-PACE, you know if not can you remind us when that started and if so can you talk to us a little bit about how that penciled out in terms of your expectations and loan to value.

C-PACE first.

Yeah, let me take the second one first, which is yes, it's the first time we secure C-PACE and we were quite pleased with both where the rating agencies came out, the advance rate on the transaction and the pricing on the transaction was all, I would say at or above our expectations in terms of what we expected as we are originating the business.

And Noah on Energy of the Service, I mean we announced the number of transactions. They are relatively smaller companies, but I think – and so I’d wouldn't – to be clear I don't see a lot in the pipeline that we haven't already announced. These are programmatic relationships that still those programs need to be filled. So I think what we've announced as is pretty close to what's in the pipeline.That said, Energy as a Service is a pretty neat offering and as we've gained comfort with it, we're starting to see new potential clients and there is some in the pipeline. It’s a very exciting market. But again, like all of our new markets, they are relatively slow to develop.

That's very helpful. Thanks for taking the questions.

Thanks Noah.

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation. You may now disconnect.