Greetings! And welcome to the HASI’s First Quarter Earnings Conference Call and Webcast. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neha Gaddam, Senior Director of Investor Relations and Corporate Finance.

Thank you, operator. Good afternoon everyone and welcome. Earlier this afternoon HASI distributed a press release detailing our first quarter 2023 results. A copy of which is available on our website. This conference call is being webcast live on our Investor Relations' page of the website, where a replay will be available later today. Some of the comments made in this call are forward-looking statements, which are subject to 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 stated and today's discussions also included some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is available on our posted earnings release and slide presentation. Joining me on today's call are Jeff Lipson, the company's President and CEO; Marc Pangburn, CFO. Now I’d like to turn the call over to Jeff, who would began on Slide 3. Jeff.

Thank you, Neha and good afternoon everyone. First, I'm pleased to report that the leadership transition we announced last quarter has been smooth and successful, and I'd like to thank Jeff Eckel, our Board of Directors, my colleagues, as well as our clients and shareholders for providing their support of Marc and me during this transition. I'll note we've had two significant milestones in the last two months. Number one, our first Investor Day, which occurred on March 21. And number two, we rang the closing bell at the New York Stock Exchange on April 13, commemorating the 10th Anniversary of our IPO. As we begin our second decade as a public company, I want to begin with an assessment of the long-term trajectory of our business. Our business is as strong, if not stronger than ever. During the first 10 years as a public company, we've built a managed asset balance of over $10 billion and achieved annual average growth of 11%, and earnings and a total shareholder return in excess of 15% per year, which was well above the S&P 500 over the same period. As we think about the next 10 years, we are optimistic this demonstrated track record of success can be built upon to achieve even greater success. This optimism is in part driven by the fact that we are in the early stages of the energy transition and our addressable market will continue to grow substantially as our clients will continue to construct and develop projects that facilitate this transition. We believe our differentiated business model and our strategic relationships with our clients will result in ongoing growth in the size and profitability of our business. Consistent with this trajectory, in the first quarter we are announcing distributable earnings of $0.53 per share and…

Thank you, Jeff. It has been an exciting quarter for me to transition to the CFO role. To leverage Jeff's themes around strength of the business, we are delivering on EPS growth, higher asset yields, and access to capital, all while managing a diverse and quickly growing base of managed assets. I am excited and optimistic for our growth prospects over the next decade. I will start on Slide 6. In the first quarter, we recorded distributable earnings per share of $0.53 and GAAP earnings per share of $0.26. Over the last year we grew our portfolio by 25% to $4.7 billion and managed assets 15% to $10.4 billion, both driven by the continued strong investment opportunity in the energy transition. From this base, we are reporting distributable net investment income of $47.1 million, up 11% year-over-year despite higher costs of capital. We also recorded $19.5 million of gain on sale, fees and securitization income. I’d like to highlight two important forward-looking themes on this slide. First, changes in interest rates are expected to have a limited impact on these performance metrics, with NII variability being minimized with our hedging activities and our fee-based income having no meaningful interest rate exposure. Second, the growth in our portfolio and managed assets provides stability in our earnings profile. Let's turn to Slide 7. To review our recently closed transactions and portfolio, we are reporting record level of Q1 transaction closings at $389 million. Asset yields are increasing. The weighted average yield on new investments in Q1 is greater than 8%. Additionally, these closings came across six asset classes, showcasing the diversity of our pipeline. Record closed transactions and increasing yields are contributing to one of our key themes from Investor Day, profitable growth. Next, our portfolio grew 9% last quarter alone to…

Good job, Marc. Thank you. Turning to Slide 10, I will note we released our 2022 impact report that details our approach, targets and performance across a broad array of material ESG issues, including the progress of the HASI Foundation, and we encourage investors to read the report. In fact, reading the impact report is an important step in understanding our company. I'd also note we're delighted that Kimberly Reed joined our board as an Independent Director. She brings significant perspective on regulatory and public policy matters as a former Chair and President of the Export-Import Bank of the United States. Now let's wrap up on Slide 11. We are pleased with the performance in the first quarter and our outlook for the future remains optimistic. I thank our talented and dedicated team in continuing to drive HASI's growth and success. I will conclude by reinforcing the key pillars of HASI's strategy: climate, clients, assets. A simple business model which will continue to offer a unique value proposition to investors, providing access to the energy transition with a diversified portfolio and non-cyclical business model. That concludes our prepared remarks, so we can open up the line for questions operator. Thank you.

Thank you, sir. [Operator Instructions] Our first question is from Noah Kaye of Oppenheimer.

Thanks for taking the questions. One of the more interesting nuggets you shared at Investor Day, at least as it relates over the next several years, is that your eight largest customers had approximately $50 billion in project capital needs through 2025. Maybe picking up on the comments you had earlier Jeff, can you talk to us a little bit about the project development environment those customers are seeing and your visibility to continuing to pick up the pace of originations as we move throughout the year here, and particularly in some of the asset classes like grid-connected that I think investors are looking at. Thanks.

Thanks, Noah. In my prepared remarks I did touch on some timing headwinds, and some of that is in grid-connected, whether it be panels or permitting or transmission. There are some timing headwinds there, but I think we're seeing those in the transactions we're looking at being relatively immaterial, and most of the projects are moving forward. As a reminder, we tend to work with the largest infrastructure and energy companies, and I think that makes a difference in terms of being able to move projects forward. And then to reiterate something else I said, we have so much to invest in, it doesn't tend to impact our pattern and our consistency of investing, even if there are some delays in certain projects. Some of what we do is recycle capital and operating projects when our clients request that we do so. So it's a relatively minor impact. It is out there, and we should recognize it, but we're not seeing a very significant impact on our pattern of investing right now.

Okay, thanks. And I guess moving to the funding side, it looked like the transactions that were funded this quarter, you largely drew on credit facilities and commercial paper. Can you talk about how you're thinking through the range of funding options going forward here? It looks like you have roughly $400 million at least of additional transactions you expect to fund over the course of the year.

Sure, thanks Noah. So what I'd ask you to focus on is some of the comments we made on Investor Day around the diversified funding platform, and reiterate it here to a much smaller extent on that front. We have raised capital from a number of different markets, continue to evaluate those markets for which ones are relatively attractive at the time, and then we'll continue to pursue whichever provides the best margins for the business. We obviously don't want to talk about our funding plans for the future, but that's our approach.

Thanks very much. Nice to see the origination volumes in the quarter. I'll turn it over.

Thanks, Noah.

Thank you. The next question is from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Hi there! This is actually Cameron Lochridge, one for Julian. Thank you for taking our questions. I wanted to real quick start on the backlog growth or the pipeline growth, up nicely quarter-over-quarter. Just any kind of early indications of what that might mean for origination trends, transaction trends as we go through the rest of this year into ‘24, and how that impact or could impact the expected EPS growth, again post ‘24. And on that note, when would we expect to get some sort of guidance on ‘25 EPS and beyond? Thank you.

Thanks, Cameron. So, I did allude to that our investment is in a generally consistent pattern, but not entirely consistent. So there is some lumpiness on timing, and we tend to try and not get too ahead of ourselves on when transactions are going to close. That's completely out of our control. But we do expect this greater than $5 billion pipeline to result in a significant ongoing volume of closed transactions to follow-on with our success from the first quarter, throughout both this year and next year. We're very comfortable with the guidance that we have out there for this year and next year, and we would most likely speak to 2025 guidance in our fourth quarter call in February of ‘24. That's our ordinary cadence, unless something comes up that drives us to speak about it positively or negatively before that, that's when you should expect us to update our expectations for 2025.

Perfect. Thank you for that. I appreciate it. And then for a follow-up, at Investor Day you talked about RNG as a Renewable Natural Gas, as a growth driver going forward, a potential growth driver going forward. Just kind of curious to get your thoughts, specifically around some of the EPA's proposed renewable volume obligations, as well as your thoughts on EU wins and their potential to be shifted out beyond, call it a ‘23 activation date so call it. Anything you can share on that and kind of how that's trending? Thank you.

So on that front, what I would actually point us back to is our pipeline. Generally speaking, developing and the direction of development for any asset, including RNG is taken on by our clients, and our role is to generally speaking, underwrite cash flows of the assets and provide financing either at construction start or the operations phase. And so we have talked a lot about RNG on that front and that is heavily driven by what we see in our pipeline. We continue to believe the long-term trajectory of that market is very interesting. In terms of specific development activities, I wouldn't say we necessarily have a strong view one way or the other.

Understood. Okay, great. Well, thank you. I appreciate it. That's all I have.

Thank you.

Thank you. The next question is from Chris Souther of B. Riley. Please go ahead.

Hey, guys. Thanks for taking my questions here. It’s just, you called out in the press release a mix change on the game and sale and securitization. Can you just kind of walk through a little bit of what is changing there within the mix?

So, what we’ve done is continue what we introduced at Investor Day, to break out gain on sale and fees and also securitization income, which is the recurring portion of that fee stream. Did that answer your question? Is that what you are referring to?

Yeah, the press release seemed to suggest that there might be some different kinds of assets that you are securitizing. So, maybe that's not the case.

No. I think the universe of assets that we securitized in the quarter were consistent with prior periods. There is sometimes a general mix change between government and non-government that I think may be incorporated in the sense that you are referring to.

Okay, got it. And then you called out in your prepared remarks the opportunities around customers looking to recycle capital with some of your investments. Can you frame how large that opportunity is within the pipeline? And I assume it’s mostly kind of a grid-connected pipeline, but are there other sectors where you are kind of looking at similar opportunities there?

It is mostly in grid-connected. I don't know that we would be able to characterize off-hand how much of what is in there is construction versus recycled on operating projects. It’s I would say mostly construction. But my point in calling that out during the prepared remarks was the recycled capital component does allow us to invest in a more consistent pattern when sometimes there is development delays, but I would say most of it is new build.

Got it. Okay. Maybe this is my last one here. You had commented at the Analyst Day around the evaluation process for reapplying for REIT status. Just any update there would be helpful, and then, I’ll hop in the queue.

So, it is not we are reapplying. It is just whether we would continue to select it, and we have selected REIT status for 2023. I think what we’ve indicated on Investor Day is that we are taking a very deep dive assessing whether that is the best long-term structure for us, and we’ll have more to say about that as the year goes on. I would say we, in any event, will have a very tax-efficient structure, whether it’s REIT or otherwise. So I don’t think investors should focus on future tax liabilities being meaningful. And I think that’s the important point. Everything else will fall into place in terms of the optimal long-term structure for the business. But we’ll have more to say about that as the year goes on.

Understood. Thanks.

Thank you very much. The last question is from Jeff Rossetti of Cowen. Please go ahead.

Good afternoon. Jeff, I believe in your prepared remarks you called out the pipeline growth being attributed to programmatic clients, growth in the investment team and IRA. I just wanted to see if you could drill down a little bit further on those and if you are seeing any benefit from IRA earlier than expected.

I am not sure earlier than expected, but I think that goes a little bit with – number three and number one go together a little bit in terms of our clients and certain asset classes are accelerating their pipelines because of IRA. Some of that’s in grid-connected, some of that is in storage, some of that is in RNG where you are seeing some acceleration there. So it’s the first indication in some cases of the benefit of IRA, which as we have said and others have said, will be more pronounced probably more in the 2025 timeframe, but in certain asset classes we are starting to see some benefit now.

I think you also called out the ForeFront investments and so I just wanted to get any more detail about that in terms of how they – if there is anything unique about the investment and just your thoughts. I know you called out solar plus storage. I just wanted to see how you are looking at it, looking at battery attach rates right now and just any impact from the NEM 3.0 in California.

Sure. I will try to break it down into two parts and please let me know if I missed anything. On ForeFront, there was nothing inherently different about that opportunity. We are very excited about it. It was a follow-on from an initial investment that was already made. As you know we talk about the programmatic nature of our client partnerships. So the fact that it was a follow-on was something that we are very excited about. The assets and the structure fits very much within the day-to-day work that we do. You also talked about NEM and when Jeff made the comment around battery attachment rates, that was more focused on residential solar than the ForeFront opportunity. So on NEM 3.0, obviously, we have seen the same trends that everyone else has in terms of a lot of volume coming through and a lot of backlog being built before the transition to NEM 3.0. And whatever happens after that, one of the areas that we are particularly focused on and feel very strongly about in terms of how we approach the markets is the clients that we partner with are the market leaders. And when periods of volatility come up, we firmly believe they will navigate those and potentially pick up some market share, which again all translates into pipeline opportunities for us.

Thank you.

Pleasure.

Thanks Jeff.

Thank you very much. Ladies and gentlemen, we have no further questions in the queue and we would like to thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day!