Hannon Armstrong Sustainable Infrastructure Capital(US:HASI)2020-05-11 11:01PART I. FINANCIAL INFORMATION Financial Statements Unaudited condensed consolidated financial statements for Q1 2020 are presented, detailing balance sheets, income, equity, cash flows, and accounting policies Balance Sheet Summary (in thousands) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,524,487 | $2,387,274 | | Total Liabilities | $1,487,932 | $1,447,362 | | Total Stockholders' Equity | $1,036,555 | $939,912 | Income Statement Summary (in thousands) | Item | Three Months Ended Mar 31, 2020 (in thousands) | Three Months Ended Mar 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $40,834 | $33,143 | | Net Income | $24,410 | $13,708 | | Diluted Earnings Per Share | $0.35 | $0.21 | Cash Flow Summary (in thousands) | Activity | Three Months Ended Mar 31, 2020 (in thousands) | Three Months Ended Mar 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $11,655 | $3,453 | | Net Cash from Investing Activities | ($45,467) | $26,577 | | Net Cash from Financing Activities | $127,542 | $16,758 | Note 2. Summary of Significant Accounting Policies This note details financial statement presentation and key accounting policies, notably the adoption of ASC Topic 326 for expected credit losses - The company adopted ASC Topic 326 (Credit Losses) on January 1, 2020, resulting in a cumulative-effect pre-tax adjustment to retained earnings of approximately $17 million to establish an allowance for commercial receivables74 Note 5. Securitization of Financial Assets The company's securitization activities generated a $5 million gain in Q1 2020, with $4.1 billion in securitized assets held in trusts Securitization Activity (in millions) | Activity | Q1 2020 (in millions) | Q1 2019 (in millions) | | :--- | :--- | :--- | | Gains on securitizations | $5 | $7 | | Cost of financial assets securitized | $48 | $302 | | Proceeds from securitizations | $53 | $309 | - As of March 31, 2020, the company's managed assets totaled $6.2 billion, of which $4.1 billion were securitized assets held in unconsolidated trusts. No securitization credit losses were reported in Q1 2020 or Q1 201997 Note 6. Our Portfolio The company's $2.1 billion on-balance sheet portfolio is detailed by asset type and credit quality, with new Topic 326 loss allowances - The total portfolio on the balance sheet was approximately $2.1 billion as of March 31, 2020. 99% of the portfolio is rated as Performance Rating 1 or 2, indicating a low to moderate risk of not receiving invested capital98101 - Upon adopting Topic 326 on January 1, 2020, the company recorded an additional pre-tax allowance for loss on receivables of $17 million. As of March 31, 2020, the allowance was increased by another $1 million, primarily due to the potential impact of the COVID-19 pandemic106 Note 8. Long-term Debt This note details the company's long-term debt, including $633 million non-recourse, $505 million senior unsecured, and $148 million convertible notes Long-term Debt Carrying Values (in millions) | Debt Instrument | Carrying Value (Mar 31, 2020, in millions) | | :--- | :--- | | Non-recourse debt | $633 million | | Senior unsecured notes (2024 Notes) | $505 million | | Convertible senior notes | $148 million | - Subsequent to the quarter's end, the company issued an additional $400 million in principal amount of senior unsecured notes maturing in 2025 with an interest rate of 6.00%133 Note 11. Equity Equity activities include a $0.340 per share dividend and the issuance of 4.5 million shares for $115 million net proceeds Common Stock Offering Details | Period | Shares Issued (millions) | Avg. Price Per Share ($) | Net Proceeds (millions) | | :--- | :--- | :--- | :--- | | Feb 27, 2020 to Mar 27, 2020 | 4.500 | $25.84 | $115 | - The Board of Directors declared a dividend of $0.340 per share on February 20, 2020, payable on April 10, 2020143 Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2020 financial performance, liquidity, COVID-19 impact, portfolio composition, and reconciles GAAP to non-GAAP metrics - The company's investment pipeline consisted of more than $2.5 billion in new opportunities as of March 31, 2020, with 54% related to Behind-The-Meter (BTM) assets and 28% to Grid Connected (GC) assets169 - In response to market conditions, the company increased liquidity by issuing $115 million in common stock during Q1 2020 and an additional $400 million of senior unsecured notes after the quarter ended176213 Key Performance Indicators (in millions) | Metric | Q1 2020 (in millions) | Q1 2019 (in millions) | | :--- | :--- | :--- | | Net Income | $24 million | $14 million | | Core Earnings (Including Topic 326) | $30.2 million | $20.9 million | | Core Earnings per Share | $0.43 | $0.33 | Impact of COVID-19 The company's Q1 2020 results were not materially impacted by COVID-19, but loan loss provisions increased by $1 million due to anticipated effects - The company's financial results for Q1 2020 were not materially and adversely impacted by COVID-19. However, the provision for loan losses was increased by approximately $1 million due to anticipated impacts from the pandemic177 - Actions were taken to increase liquidity during the pandemic, including issuing $150 million in common stock and $400 million of senior unsecured notes (subsequent to quarter end)176 Results of Operations Q1 2020 net income increased 71% to $24 million, driven by higher equity method and interest income, partially offset by expenses Key Financial Performance Metrics (in millions) | Item | Q1 2020 ($M) | Q1 2019 ($M) | $ Change ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 41 | 33 | 8 | 24% | | Total Expenses | 31 | 26 | 5 | 19% | | Income from equity method investments | 16 | 5 | 11 | 220% | | Net Income | 24 | 14 | 10 | 71% | Non-GAAP Financial Measures Key non-GAAP metrics are reconciled, showing Q1 2020 Core Earnings of $30.2 million ($0.43 per share) and Managed Assets of $6.2 billion Reconciliation to Core Earnings (in thousands) | Metric | Three Months Ended March 31, 2020 (in thousands) | | :--- | :--- | | Net income attributable to controlling stockholders (GAAP) | $24,308 | | Core earnings adjustments | $5,892 | | Core earnings (Including Topic 326 provision) | $30,200 | Reconciliation to Managed Assets (in millions) | Metric | March 31, 2020 (in millions) | | :--- | :--- | | Total Portfolio (On Balance Sheet) | $2,138 | | Assets held in securitization trusts (Off Balance Sheet) | $4,077 | | Managed Assets | $6,215 | Liquidity and Capital Resources The company maintained strong liquidity with $173 million cash, a 1.4 to 1 debt-to-equity ratio, and 89% fixed-rate debt - Unrestricted cash balances increased significantly to $173 million as of March 31, 2020, from $6 million at year-end 2019213 Leverage and Debt Structure (in millions) | Metric | March 31, 2020 (in millions) | December 31, 2019 (in millions) | | :--- | :--- | :--- | | Total Debt | $1,439 million | $1,393 million | | Equity | $1,037 million | $940 million | | Leverage (Debt-to-Equity) | 1.4 to 1 | 1.5 to 1 | | Fixed-rate Debt % | 89% | 98% | Quantitative and Qualitative Disclosures about Market Risk This section details primary market risks, including credit, interest rate, liquidity, commodity, and environmental risks, all magnified by COVID-19 - Primary market risks are identified as credit quality of counterparties, market interest rates, asset liquidity, commodity prices, and environmental factors, with many risks magnified by the COVID-19 pandemic237 - The company is subject to interest rate risk on its variable-rate credit facilities, which had $153 million outstanding as of March 31, 2020. A hypothetical 50 basis point increase in LIBOR would increase quarterly interest expense by $0.2 million244 Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal controls in Q1 2020 - The CEO and CFO have concluded that the company's disclosure controls and procedures were effective as of March 31, 2020253 - No material changes to the company's internal control over financial reporting occurred during the three-month period ended March 31, 2020255 PART II. OTHER INFORMATION Legal Proceedings As of March 31, 2020, no legal proceedings are expected to materially impact the company's financial position or operations Risk Factors Updated risk factors highlight COVID-19's potential adverse impacts on financial conditions, capital access, project operations, and counterparty creditworthiness - The COVID-19 pandemic is identified as a major risk factor, with potential adverse impacts on the company's financial condition and results of operations259263 - Specific risks from the pandemic include difficulty accessing capital, disruption to project construction and maintenance, inability of counterparties to meet obligations, and potential impairment of investment values263 Unregistered Sales of Equity Securities and Use of Proceeds This section reports Q1 2020 common stock repurchases related to employee tax withholding for restricted stock awards Common Stock Repurchases | Period | Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | Feb 2020 | 165,090 | $38.13 | | Mar 2020 | 267,653 | $36.14 | Exhibits This section lists exhibits filed with Form 10-Q, including corporate governance, debt indentures, employment agreements, and SOX certifications