Good afternoon, and welcome to Hannon Armstrong's conference call on its Q3 2020 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 Q&A. [Operator Instructions] At this time, I would like to turn the conference call over to Chad Reed, Vice President, Investor Relations and ESG.

Thank you, operator. Good afternoon, everyone, and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing our third quarter 2020 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 on 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 take 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 the 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 3. Jeff?

Thank you, Chad, and good afternoon, everyone. Today, we are announcing that we've grown core earnings year-to-date 18% to $1.19 per share with $0.36 core earnings for the quarter. Closed $716 million of transactions in Q3. This is inclusive of the previously announced $500 million investment with ENGIE, which puts us at a $1.1 billion of investments year-to-date. We've lowered our cost of corporate debt and extended its duration through our successful issuance of more than $500 million of green bonds, which Jeff will describe in more detail later. We recorded our highest quarterly avoided carbon emissions with an estimated 1.2 million metric tons, representing a CarbonCount score of 1.67. Finally, we declared a dividend of $0.34 per share. We're pleased to report these results, and also note that since the global pandemic and resulting economic recession erupted in March, we've raised and committed to invest over $1 billion in climate change solutions, while our portfolio continues to perform and generate historically strong earnings. Our teamwork has been excellent during this extraordinary period, and we remain thankfully in good physical health. Furthermore, we're counting on -- continuing our ESG leadership. We've been using CarbonCount since 2013 in order to measure the efficiency with which our capital is reducing carbon. With our recent membership and the Partnership for Carbon Accounting Financials or PCAF, we have joined with over 70 financial institutions to help drive the development of a global transparent standard that will build on the CarbonCount concept. We've also continued to move forward on a number of social initiatives, which we'll discuss in the subsequent slide. Before we move on, a few words about the election. The resiliency of the Hannon Armstrong business model to political changes has been proven over the last 40 years and particularly over the last…

Thanks, Jeff, and good afternoon. Summarizing our results on Slide 6. We recorded core earnings per share prior to any CECL provisions of $0.36 in the second quarter compared -- in the third quarter compared to $0.38 in the third quarter last year. Higher revenue from both the portfolio and gain on sale was partially offset by higher interest expense resulting from the recent green bond issuances. Note that for the quarter, in accordance with CECL, we increased our allowance on receivables by $2 million, primarily as a result of additional loan commitments made during the period, which resulted in core earnings per share of $0.33. On a year-to-date basis, core earnings prior to CECL provision is up 18% versus last year to $1.19 as we remain on pace to exceed the midpoint of our 3-year guidance. I'll also note that year-to-date core net investment income increased 16% year-over-year to $67 million. This increase was despite the fact we maintained an outsized low-yielding cash balance during the second and third quarters. In addition, we recorded another quarter of solid gain on sale income, as our access to private capital remains strong, including over $18 million in the third quarter, our year-to-date gain on sale income is over $47 million. With significant year-to-date growth in both NII and gain on sale our dual revenue model continues to generate strong results despite the ongoing recession. As we turn to Slide 7, we highlight that this continued growth we've seen in core NII has been driven in large part due to growth in our portfolio and our ability to maintain an attractive portfolio yield of 7.7% despite a low yield environment. In addition, we continue to prudently manage our leverage. Turning to Slide 8. We display the dynamic that capital markets continue to…

Thanks. Let's now turn to Slide 12, where I will highlight notable recent developments on the ESG front. In addition to our recent PCAF membership and green bond issuances, our renewed commitment to racial justice, diversity and inclusion continues. We made meaningful contributions in the third quarter to the NAACP Legal Defense and Educational Fund, Campaign Zero and the Baltimore Action Legal Team. Our diversity, equity and inclusion consultant continues to help us develop a multiyear plan for impact on these persistent challenges. In addition, we're pleased to report that our ESG score was recently upgraded by MSCI by 2 notches to single A. We'll conclude on Slide 13. The ongoing pandemic and recession has tested the business models of companies across the spectrum and the resilience of our business model has once again proven strong. We remain poised for growth with a robust pipeline from leading energy and infrastructure clients and recent strategic investments in people and systems to support our increasing scale. Finally, our ESG leadership is being increasingly recognized by others, and we expect that to continue as we ramp up our social initiatives while also leading the industry to report on the carbon intensity of investments. Our investment thesis, earning better risk-adjusted returns, investing on the right side of the climate change line continues to be proved out. Thank you for joining us today. Stay well. And operator, I think we'll take some questions.

[Operator Instructions] The first question comes from Noah Kaye from Oppenheimer & Company.

To start with, if I'm correct, I think this might have been a record quarter for originations. So feel free to correct me. But I just want to understand, Jeff, I think you mentioned that a large portion of the ENGIE investments are going to hit the balance sheet, hopefully here in 4Q. I'm assuming they're included in the originations you reported for this quarter. If not, please correct me again. But essentially, you reported this large number of investments, but a lot of them have to hit the balance sheet here in 4Q and then possibly a little bit into 1Q, and that's going to absorb the majority of the cash balance. Is that correct?

That is a very good assessment. I did not research if it were a record quarter, but clearly, it's one of the largest quarters we've had.

It is.

And then, yes, the way we announced transactions in that $716 million number, those are transactions closed, but not necessarily funded. And you accurately described that we expect much of it to fund in the fourth quarter, and that will be a large utilization of the existing cash. We did add recently, I think it was last quarter on what's Page 10 of the earnings presentation, a balance sheet reconciliation as to what funds in the quarter. So that's the best way to track what's been funding.

That's great. I think if you back out ENGIE from the transactions, it looks like you still did a healthy volume. It would be in sort of the 200 to 300 range of originations that..

That's right, Noah. it's -- as I said, the -- and this is the other, Jeff, you have so many Jeffs to choose from on this call. But as I said, virtually every one of our 10 origination markets is performing quite well. So strong quarter even without the ENGIE investment.

Okay. And that leads me to the final question here, which is it looks like the percentage of your portfolio that's performing to metrics, at least based on the framework you have to report, that actually improved by a point. But just do you see any potential trouble spots in the portfolio as we get late in the year here, either on the consumer or the commercial side? What if anything has you worried? Do you need further stimulus? Or do you feel comfortable with these performance metrics continuing to hold up?

Go ahead. You have a very good answer on this that I appreciate.

We don't -- clearly, to the first part of the question, if we saw something that we were specifically aware of, we would have to account for it now. So I think the clear answer to the first part of the question is no, we're not seeing anything. To the second part of the question, are we worried? Of course, we're always worried. But the portfolio has held up well. And again, as we always talk about, the portfolio is constructed in a way whereby the counterparty typically is incented to continue making payments, particularly, I think part of your question was alluding to resi solar, where the counterparty is incented to make payments. It is a less costly form of energy for the home. And we're not seeing anything concerning yet. And obviously, the recession has been ongoing and high levels of unemployment have been ongoing since March. So with each passing month and quarterly reporting that we get, we continue to see a strong performance in the portfolio and don't have any specific reason to be concerned at this point.

Next question comes from Julien Dumoulin-Smith from Bank of America.

This is Anya stepping in for Julien. So I guess, first off, I just wanted to ask, when do you expect to roll forward the EPS CAGR? And what other updates could come on that call in terms of growth expectations?

Well, Anya, as we've said, we're reaching the end of our 3-year guidance period. We'll discuss additional guidance with the Board and any extension of guidance will come out of those discussions. You should expect, if there is any, it would be in Q4, and that is also -- in the Q4 call, and that is also when we have, as a matter of practice, reconsider the dividend level as well. So that's the quarter to look at without committing to any actual action.

Okay. And a follow-up, what kind of growth could you expect over the next few years potentially coming from energy efficiency installations for our government facilities?

Good question. Presuming a Biden presidency and a Republican senate, we don't expect any sweeping federal energy legislation. But back during the Obama-Biden years, the federal efficiency market really boomed to record levels, some of which we're still seeing through the Trump administration due to executive orders. The executive order process is very meaningful to the energy management groups, and they take them seriously. The lack of leadership on a White House on this issues, if it were to persist, would limit that market. But assuming Biden does when the presidency, you can expect he would be a strong supporter of expanding the ESPC, UASC and other federal markets. So we're promise -- it looks promising. And I'll just reinforce that these programs have been enjoying since they were first put in place during the Reagan administration bipartisan support. Nobody doesn't like saving the government money, creating jobs in all 50 states and improving conditions for the war fighter. So we generally get support on both sides of the aisle, if it was needed. But with executive orders, you really don't need it.

Next question comes from Chris Souther from B. Riley.

Congrats on the quarter. On the guidance, it implies just $0.24 for the fourth quarter to hit the midpoint that you've talked about exceeding there. Obviously, a lot of cash is still to deploy at the end of the quarter there and then paying interest on the debt. But just curious, given there was high gain on sale this past quarter, are you seeing similar market conditions where we could expect that community to be elevated? Just realize we're a month in, so maybe it might be coming later in the quarter, but I was curious how you feel about the gain on sales for this coming quarter here.

Maybe I've been watching so much politics on TV. I'll take a page from a politician and say, it's too early to say, but we're feeling pretty good about things. Yes, we have reaffirmed that we'll be at the high end of our guidance. So feeling pretty good about things, Chris.

Understood. And as I'm looking at kind of the pipeline mix, it looks like grid-connected was back up compared to the last quarter. And obviously, you had taken the ENGIE portion out in the second quarter when you gave those metrics. But I believe it might have been in there in the first quarter. So we're seeing kind of similar percentage of the pipeline in that grid-connected we saw before the ENGIE deal was announced. Do you see the potential for similar large types of deals like that in the grids connected space over the next couple of months, quarters here? Just wanted to see if there's anything we should be pushing out there?

Yes. No, I think you've made a correct observation. It is up somewhat. I think anybody in this -- in the developer side of the business is rushing to get projects developed should tax credits start to expire. So to me, it's not surprising that, that pipeline remains strong.

There are no more questions in the queue. This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.