HA Sustainable Infrastructure Capital Inc (HASI) 2021 Q3 法說會逐字稿

Good afternoon, and welcome to Hannon Armstrong's conference call on its third quarter 2021 financial results. Leadership will be utilizing a slide presentation for this call, which is now available 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 for the company. Thank you. You may proceed, Mr. Reed.

Thank you, operator. Good afternoon, everyone, and welcome. Earlier this afternoon, Hannon Armstrong distributed a press release detailing our third quarter 2021 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 this course of this call are forward-looking statements 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.

During this call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core financial results and guidance. 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 and COO. With that, I'd like to turn the call over to Jeff, who will begin on Slide 3. Jeff?

Thanks, Chad, and good afternoon, everyone. Today, we're reporting strong results for the third quarter with distributable earnings of $0.41 per share, a 14% increase year-over-year, and distributable net investment income of $32 million, a 79% increase year-over-year; continuation of our programmatic investment relationship with Sunrun, which I will discuss in the subsequent slide; 45% growth of our portfolio year-over-year to $3.2 billion and 28% growth on our managed assets to $8.2 billion; and declaration of a $0.35 per share dividend.

And starting this quarter, we will highlight the CarbonCount of one transaction in order to generate a more understanding of this important metric. As a reminder, CarbonCount measures the efficiency with which capital is used to reduce carbon emissions, something the financial industry needs to pay attention to, but does not currently. As a reference point, the average investment this quarter has a CarbonCount of 0.3 metric tons of greenhouse gas reduced per $1,000 of investment.

Our featured transaction has a CarbonCount of 2.7, 9x more efficient than the average. This is a behind-the-meter energy-as-a-service investment in digital controls for HVAC at a top retailer. This is part of a larger programmatic client relationship, an example of the power of digitization in the electric sector to save customers' money and reduce carbon. While every investment we make improves our climate future, not every investment is equally efficient at doing so, and we believe this level of rigor is where the market needs to go.

A few words on the legislative efforts in Washington. Both the proposed infrastructure and reconciliation bills were positive for our business. The biggest positives are the extension of tax credits for renewables and expansion of the tax credits to storage and EV charging. However, the more important aspect of the tax credit would be their conversion to direct pay, which potentially expands our ability to participate in more slices of the capital stack. We hope to have more to say in Q4 when the legislation is presumably finalized. Finally, and fortunately, our business success does not depend on either bill passing.

Turning to Slide 4, we provide an update on our more than $3 billion 12-month pipeline and provide a bit more color on our client base. I will go through a few examples of the more than 30 programmatic clients who drive our pipeline in the behind-the-meter, grid-connected and sustainable infrastructure markets. And we are adding clients each year as the climate solutions market grows.

The behind-the-meter market continues to be the majority of the pipeline and has the largest number of clients, more than 20. These clients range from Ameresco, for whom we have financed close to $1 billion of assets in over 35 projects since 2001, to residential solar firms, SunPower and Sunrun, all the way to Summit Ridge, a community solar company for whom we've closed over $250 million of transactions since 2019.

A note on the solar portion of the behind-the-meter pipeline. It remains relatively strong despite well-recognized supply chain issues. Because behind-the-meter projects offset the retail price of electricity and not the wholesale price, they can better manage the higher costs the industry has faced.

Turning to the grid-connected pipeline. We have more than 15 clients in the wind and solar markets, including ENGIE and Clearway, and the pipeline remains at about the same level as last quarter. We are seeing some projects experienced delays due to panel availability and the need to rework projects due to cost increases. Fortunately, we have not seen cancellations in our pipeline, but some transactions have indeed moved out in time. The transactions impacted the most are those with fixed PPA prices, but with costs which are not yet locked down and also those involving smaller developers. Over time, we believe the increases in PPA prices that we are seeing will restore balance to the market.

The sustainable infrastructure market is the newest market for us and as a result has the fewest client smallest pipeline. But we continue to see great upside in this market transaction volume, transaction size and eventually growth in the client base. Climate resiliency is going to be a big business because, unfortunately, the weather is becoming more extreme.

Building on the diversity of our clients theme, Slide 5 highlights an underappreciated strength of our business model, the diversity of our markets. As you can see, 2021 has been dominated by behind-the-meter investments while 2020 was majority grid connected. In each of these markets, there are multiple generally uncorrelated asset classes. In any given period, any one of these asset classes may produce investment opportunities while others may not.

This diversity in our origination platform and the breadth of our client base provides assurances that despite one asset class facing challenges like grid-connected solar this year, we should continue to find attractive climate solution investments. Bottom line, each of the markets we invest in are important to reducing greenhouse gas emissions, and we are built to invest across multiple markets and asset classes in order to increase the stability of the business, a result we continue to demonstrate.

On Slide 6, we provide some more detail on our more than $200 million investment with Sunrun and a portfolio of operating residential solar leases. This is our sixth investment with Sunrun, and we believe is a useful example of what we mean by a programmatic relationship. In addition to the attractive risk-adjusted return, this investment has long-term contracted cash flows, geographic diversity and significant average customer savings relative to the customers' utility bill. Sunrun is also an example of how our client base is evolving into an integrator of multiple technology solutions, adding storage, EV charging and efficiency into their solar offering.

Now I'll turn it over to Jeff L. to detail our portfolio performance and financial results.

Thanks, Jeff. Summarizing our results on Slide 7. For the quarter, we recorded distributable earnings per share of $0.41, had a strong quarter of distributable net investment income of $32 million, and another active quarter in our securitization program, recording gain on sale of over $16 million. On a year-to-date basis, we have achieved impressive growth in each of these metrics.

In the upper right, we note distributable EPS year-to-date growth was 19% as growth in equity method investment income and gain on sale primarily drove this result. In addition, as shown on the lower left, distributable net investment income was $95 million year-to-date, reflecting annual growth of 42%, driven by a larger portfolio and stronger margins. Lastly, our gain on sale from securitized assets was $64 million year-to-date, representing a 34% increase. These very significant year-to-date growth rates of 42% in distributable NII and 34% in gain on sale represent the ongoing success of our dual revenue model. Our guidance of 7% to 10% compound annual growth in distributable EPS through 2023 remains unchanged.

Turning to Slide 8. We demonstrate that our margins have improved as we have increased our portfolio yield while decreasing our cost of funds. Over the last 3 years, despite a competitive investing environment, our portfolio yield has increased by 80 basis points and now sits at 7.6%. Over the same period, our interest expense as a percent of our average debt balance has dropped by 70 basis points to 4.7% as we have optimized our debt platform and taking advantage of tightening corporate debt spreads and the strong bid for credible ESG debt.

As we discussed last quarter and consistent with most broader markets, the yield for certain climate positive transactions is compressing, although we have not experienced an impact of this trend. To the extent these market pressures were to impact our portfolio yield, we would not expect a significant impact on our margin as we believe any increases or decreases in our portfolio yield will be generally well correlated with our cost of funds. And as the chart indicates, we are already well positioned having issued low-cost debt.

In summary, we remain confident that over the long term, our margins will be strong and relatively stable given the combination of our diverse investment strategy and attractive debt platform. We expect these margins will facilitate continued strong growth and distributable net investment income.

Turning to Slide 9, we detail our $3.2 billion balance sheet portfolio as of the end of the third quarter. Our portfolio yield remained steady quarter-over-quarter at 7.6% and now includes over 260 investments with an average size of $12 million and with a weighted average life of 17 years. With no asset class comprising more than 30% of the portfolio, the diversity of our business remains a persistent strength. Behind-the-meter assets represent 54% of our portfolio and generate a yield of 8.1%. And grid-connected investments represent 45% of the portfolio, with a forward-looking yield of 7.2%.

Turning to Slide 10. We note our high-quality assets continue to perform within our expectations in the third quarter. This performance is driven in part by the credit quality of our obligors and the structural seniority of our investments, which have a meaningful impact in reducing our exposure to both operating and commodity price risk.

Moving to Slide 11. We detail our nearly $4 billion balance sheet as of the end of the quarter. In the third quarter, we funded $227 million of investments and executed several securitization transactions. The net result was a portfolio balance of $3.2 billion, an increase of 5% from the end of the second quarter. Funding expectations of our previously closed transactions is shown on the lower left. We expect these incremental fundings, along with a strong pipeline that Jeff referenced earlier, to contribute to significant growth in revenue. And as of the end of the quarter, we have over $400 million in cash on our balance sheet available to fund upcoming transactions.

On Slide 12, we highlight our recently launched $100 million CarbonCount commercial paper program, the first CarbonCount-based commercial paper program in the United States. Our program seeks to satisfy the significant interest for credible ESG and carbon reduction exposure among CP investors. Considering this CP program, our balance sheet cash and our revolving credit facilities, we have over $960 million of potential liquidity sources to support our growth. For the last quarter, our debt-to-equity ratio decreased from 1.9 to 1.6x, driven in part by the conversion of $136 million of our 2022 convertible notes into common shares. In addition, we raised $49 million of equity in the third quarter with our ATM program. Our remaining debt includes no material maturities until 2025. In summary, we remain confident our debt platform and liquidity profile will continue to facilitate growth in the portfolio.

And with that, I'll turn the call back over to Jeff.

Terrific job. Thanks, Jeff. Turning to Slide 13. We note a number of ESG accomplishments. With our CarbonCount-based commercial paper program, we're seeking to differentiate debt products based on calculated carbon reductions rather than some green label not related to carbon. As Jeff said, our credibility in reporting carbon impact stands in contrast to the amount of greenwashing going on in the financial services industry today.

On the social front, we're excited to meet with the initial cohort of our climate solutions scholars from Morgan State and Miami University in the coming weeks to support their interest in the growing climate solutions field. Finally, we've met with multiple SEC commissioners and their staff on the necessity of mandatory ESG and especially carbon emission disclosures so that investors, consumers and employees have the information they need to evaluate the impact of companies they're investing in, buying from or working for.

We'll conclude on Slide 14 on the 3 competitive advantages this quarter demonstrated. Our multi-client, multi-asset class investment platform affords us the ability to invest in a wide range of climate solutions, providing stability to the business. Second, our flexible funding platform drives strong and stable margins. And finally, we remain a leader on ESG and continue our advocacy for credible carbon metrics for investment frameworks. To sum up, our growth prospects remain bright and our ability to generate value for both shareholders and stakeholders remain strong.

Operator, we'd be glad to take some questions.

(Operator Instructions) The first question comes from Philip Shen with ROTH Capital Partners.

The first one is on -- Jeff and Jeff, first one is around what you're seeing with solar and how that might impact your pipeline. Specifically with projects possibly getting delayed, there is a meaningful amount of module supply that's not hitting the U.S. shores. And so as you think through the risk there, are you guys working to diversify your end markets to bring in other opportunities? And how do you expect that to kind of play out for you guys ahead?

Well, Phil, I think that was really the point around the diversity of our asset classes and our clients. Solar is important, but it is not our sole business. Obviously, the behind-the-meter market is much more diverse than just solar. So I think we may not have anticipated module delays, but we've always anticipated that some markets hit and some don't in any 1 quarter or any 1 year. I certainly hope the solar industry is back on its feet soon, but I'm confident we are fine. And one of the reasons Jeff reiterated guidance was exactly to make that point, that we're fine.

Fantastic. So that said, do you expect the slowdown in your grid-connected and maybe even probably less so resi, but especially the grid-connected solar side, do you see that's a real slowdown happening in your business in the coming couple of quarters? And certainly, the diversity of end markets is a strength of yours, but I just want to understand if that is a challenge ahead.

Well, I think one of the differences that I think the market is seeing is that large established developers, I think C1 reported earlier, kind of made this point, are going to do fine. They might be delayed by a month or a quarter, they're going to get a priority of what supply is available. Unfortunately, Clearway and ENGIE and others are -- in our client base are large companies. I think the smaller developers are probably going to be at the end of that line. And that should not affect us.

That's great. Okay. One last question here as it relates to gain on sale. I was wondering if you guys could help us think through what kind of gain on sale we could see in Q4 in 2022 if the level came down a touch in Q3. But any way to help us think through what that could be?

So Phil, I think last quarter, we had said that gain on sale for 2021 would be greater than $75 million. So we'll stick with that expectation for now. And then as for 2022, we'll have more to say on the fourth quarter call in terms of our expectations going forward. But we did say it will be greater than $55 million already, but we'll put a finer point on that next quarter.

The next question comes from Eric Borden with Berenberg Capital Markets.

I was wondering if you could expand on the volumes this quarter. Did you have any new clients that you signed? And then on the total transactions, is it fair to say of the $359 million of the transactions closed in the quarter, $200 million was on balance sheet and the remaining $159 million was from securitizations? Or is there some equity method investments baked in there as well?

Why don't I take the client question first. And Eric, I think this is the first time you and I have had a chance to talk. So nice to meet you, and thanks for following the business. We don't typically disclose clients every quarter and who's new and who's not. But over time, you'll start to get a sense of when we add new clients. I mean today, we mentioned Summit Ridge, but they've been a client since 2019, but we've never talked about them before. So we're trying to provide a little more color on the client base to demonstrate the diversity. So we don't really disclose it, but we'll give you information here as the quarters progress.

So Eric, on the second part of the question, just to clarify, transactions closed as announced on Page 3 relates specifically only that a transaction has closed, not that it's funded. So I don't think you can take that $359 million and fully allocate it to either balance sheet or securitization because some of it has not funded yet, which is why we provide the supplemental (technical difficulty) back on Page 11 as to how much of this quarter's investments are funded, which was $167 million. We don't really do any other disclosures other than what's been closed and what's funded. So I think that gives you a way to triangulate a primary answer to your question. But we don't give very specific. This is exactly how much was securitized in the quarter.

No, that's helpful. And then kind of going forward, how should we think about volumes into Q4 and into 2022? And then how should we think about new opportunities for HASI? Are you currently in conversations to deploy capital into offshore wind projects, kind of given the concerns around higher input costs for onshore? Any color there would be really appreciated.

The primary goal we have is to follow the best energy and infrastructure companies into whatever market they develop. We certainly are paying attention to offshore wind. We're paying attention to hydrogen and, of course, storage. But really until our clients start to do those at scale and they become proven, it's not one that's really on our radar. We know who they are, but there's work to do in the industry to get those to (inaudible) a lot. And frankly, the tax credits would help full storage and hydrogen if the reconciliation bill can ever pass.

So it's -- we're going to continue to talk about the conventional markets. And when we have a market that's more than $100 million of annual volume, that's when we'll start to talk about it on these calls. Until then, we're kind of fiddling around the edges. In terms of volumes for the year, again, the diversity of our asset classes gives us good comfort that we'll be in fine shape for, obviously, '21 and '22.

The next question comes from Christopher Souther with B. Riley.

The first one, maybe you could touch on how the higher power prices impacted the equity method investments. Can you just walk through which set of projects were impacted, what the total impact was there, what should we be watching for further issues there?

And then further on that, just are higher prices impacting the overall kind of portfolio yield or things that you're looking at adding on to the balance sheet? I'm just trying to get a sense of where that year-end portfolio yield could shake out, given you almost saw a slight decline in the year but you had given kind of a wider range on the last call.

Yes. Perhaps I'll start and Jeff can add. As a reminder, Chris, on our non-GAAP measure, we take a long-term view as to the yield on an investment and accrue income accordingly. So short-term fluctuations in power prices don't affect the non-GAAP yield on our portfolio. They do affect the underlying projects, but we generally view that as a short-term phenomenon unless it's something that causes us to change our long-term yield assumption. And at the project level, there's a fair amount of hedging going on. So in the same way that reductions in power prices don't affect us very much, increases don't affect us very much either. So -- and the earnings impact of higher power prices on the existing portfolio is virtually 0.

And just to build on that, when we do pref equity in those grid-connected projects, it's a conscious view that we would much rather avoid the negative impacts of $2 gas, persistently low $2 gas, than enjoy the upside of $6 gas. We're willing to make that trade.

Okay. Understood. So is that looking forward at some of the project additions that kind of wide range you'd get kind of trending at kind of the high end given we're at 7.6% this -- at the end of this quarter? Or how should we be thinking about, I guess, kind of the fourth quarter?

Well, I think the 7.6%, the portfolio yield on a $3.2 billion portfolio, so I think it's fair to assume that the incremental balance sheet investments in the fourth quarter won't move that number very much at all, just given relative...

They don't all hit the first day of the quarter.

Given the relative size of the portfolio, we're likely to close in an individual quarter. So I wouldn't look for a big change in that number.

Okay. Cool. And then looking at about 15 clients, over 15 clients in the grid-connected pipeline, I'm curious, how many of those are ones that are historically you've done projects with versus new folks that came out maybe post the ENGIE or Clearway deals?

Well, I think most of them have been existing clients. I mean we've been in the tax equity tail business for wind projects for a long time. We do a lot of land business with a variety of clients. I wouldn't call it like a coming out party with ENGIE and Clearway where people finally realize we existed. But there's a few new ones. We'll expect to add a few new ones. But generally, they're clients we've transacted with multiple times.

Okay. That's fair. And then just looking at the $575 million that are yet to be funded, I think last quarter, you had given kind of a graph that looked at the fourth quarter as kind of a large quarter for some of those funding, somewhere between $150 million, $200 million. So I'm curious how much of that do you think is pushed into 2022 given some of the supply chain and pricing challenges?

That's still uncertain, Chris. So some of that may fund here in the remaining days of this quarter, some of it may slip into the first quarter. We're not even entirely sure ourselves yet on a couple of these projects.

And that's why we collapsed the 2 because everybody is trying like heck to get these projects to close, but this is a tough market for grid-connected developers.

The next question comes from Noah Kaye with Oppenheimer.

I think the pervasive dynamics for this quarter and last quarter, just really robust demand and tight supply, broadly speaking, but certainly for the renewable sector as well. And the cost inflation that we're seeing, whether it's steel or the labor shortage, is pushing labor prices up, et cetera, et cetera, just for a very capital-intensive industry.

I think the first question here is really about project economics yields for developers potentially getting compressed and whether that puts the incremental pricing pressure on you as a capital provider. It sounds like that may be the case in the future, but you haven't yet. I just want to understand how that dynamic is impacting your pricing discussions.

So Noah, I think we've talked about this a few years ago, but one of the reasons I'm so enamored with energy efficiency is the high internal rates of return, just in case interest rates went up or supply costs went up. And so obviously, that's a big part of our business. That's -- you can take the same analogy to the solar business of -- yes, the costs are going up. And solar has always been a bit more challenged.

It's -- again, it's -- you've got the larger developers are going to do better than the smaller developers. It's a challenge for everybody. And I would say they wouldn't be a very good developer if their development fee was getting pressured, and they didn't want to make everybody help share the pain. But we're not obligated to invest in those projects either. If we don't like the return, we won't do it. But I would say every developer asks that's their job.

And I think higher PPA prices are part of the...

Yes, it's a counter. Yes.

Future economics as well.

Yes. I mean, we've actually seen PPA prices start to go higher for the first time in forever. So maybe that mitigates a little bit the pressure on you guys as well. I guess sort of the...

First time in my life, prices are going up.

It is pretty crazy. But the other part of this is just around yield hunting in an environment where (inaudible) stay stubbornly low. We've seen some aggressively priced private equity money come into some of these portfolio deals, some of those announced publicly. Just your thoughts on the competitive environment. And I know you're well diversified, but any dynamics to call out there?

I think Jeff L. did a great job of, yes, we expect yield compression at some point. And what really matters to us is not the gross yield, but the net margin. And some of that same pressure that drives yields down will benefit us with a correlated cost of capital. I don't know, Jeff, if I...

You said that well. Yes, exactly.

It's competitive as it has been.

Yes. I guess last one is really around the incentives that are being discussed and have been discussed, right, for many quarters now in a potential reconciliation bill. Just how does that actually impact dynamics of capital financing for projects at this point? I mean, if we're getting close to the finish line and there's a potential for a great lease amplified capital back in projects, whether it's a direct pay as well as [the spend] around the incentives. Is that having any impact on some of the business developments for you or for your customers? Do we get kind of any kind of (inaudible) pocket potentially? And then once we get clarity, the floodgates open? Or is it just not the case?

Working long hours at some of our developer clients doing 2 models, 1 under the current tax regime and 1 under the proposed new one. And they would probably be the great beneficiaries of Congress passing and the President signing this into law so they can only do 1 model. But here's I think that's what everybody has to do now. And development is a tough, tough business. And this is about as tough an environment as I've seen in a long time.

The next question comes from Julien Dumoulin-Smith with Bank of America.

This is Anya stepping in for Julien. So I guess first off, I wanted to ask -- I was wondering, could you talk about the energy efficiency opportunity under the current administration? I know one of your clients have been talking about the RFP activity on federal ESPCs. I'm just wondering just the potential for you guys to benefit from that trend.

Absolutely. I think there was some expectation of an executive order for the federal ESPC program. And then I think the relevant agency with DOE said, we really don't need to do an executive order because the prior legislation authorization said you shall do these. So it's already codified for the federal government to do these. And it's a market that we continue to benefit from.

And as Ameresco or Schneider or Siemens grows, those are our long-term clients, we expect to grow as well. I don't mean to eliminate other clients, but those are 3 that come to mind. So the good news, it also doesn't happen overnight as -- I didn't listen to Ameresco's call, but I'm sure they're very cautious and good intentions in RFP activity at the federal government may take 12 to 18 months to produce investable transactions. So it doesn't turn overnight. But it's going definitely in the right direction.

And then next, just as a follow-up, just wanted to follow up on the questions on portfolio yields. So it looks like the overall portfolio yield has kind of creeped down some 7.7% and 7.6%. And then just looking at DG and behind-the-meter investments, that's come down from -- to 8.1%, a little bit there. So I'm assuming that's driven by the Sunrun investment that implied yield on the Sunrun deal. Do you think that's indicative of current yields sort of in the near future, at least, in the resi solar space? Or because are you already seeing rising PPA prices just rising prices helping to adjust for that.

So I think the yield movements that you referred to are, in fact, relatively minor. And I think that's what we're seeing so far is not anything too significant. We're certainly cognizant of some spread compression as we talked about. And I think it's fair to assume, for example, the Sunrun deal was done at market levels considering we just did the deal. So I think we would sort of stick by the theme that we had talked about in the prepared remarks that we're not seeing yield compression yet. We may see it, and we've already prepositioned ourselves with tightening cost of funds to offset it.

The next question comes from Ben Kallo with Baird.

Just maybe on the mix, and sorry if you addressed this. Just going -- if I look at where your mix is now resi, the community to public sector and just maybe like your future opportunities with storage. You called out Ameresco, and they added a big project (inaudible) and where are the opportunities and how do we see this progress in your portfolio? And then what does that mean for -- I know there's a question about 10 basis points about your portfolio for pressing, but how does that change?

Well, I think, Ben, we'll finish the year with an interesting mix of projects across the asset classes. I don't know exactly how to address it other than what we said in the prepared remarks that we don't control which transactions close in which quarter. But they -- generally, with enough diversity of clients and asset classes, we've, I think, shown almost 8 years, that there's enough diversity to produce a good result. And again, that's why Jeff reemphasized the guidance.

On the 10 basis point, I'm not -- go ahead, Ben.

No, just the last question was just the compression of your yields was 7.7% to 7.6%?

Again -- Sorry, go ahead.

No, no. I just wanted how we think that trends.

Well, again, as we talked about with Anya, I wouldn't read too much into 1 quarter coming out 7.7% and other subsequent quarter 7.6%, especially with rounding, that could be a very, very minor change in the overall...

(inaudible) things out of the portfolio, they're going to be lower yielding. It's hard to get at the point you're trying to get out through the data we present.

And the reverse phenomenon, we're maybe holding some things at a lower yield that will securitize in the future. So I won't read too much into a 7.7% to 7.6% quarter-over-quarter yield movement. I think the broader context of yield, as we mentioned a few times, is how to think about it.

And you guys have always been kind of leaders in the space here and now there's so much capital flowing into the space. And I hate to ask competition because you get -- you've got it forever. But how is it changing right now just different people -- different entrants into the financing world everything you do from solar to wind to the efficiency in the future?

Thanks, Ben. Well, I think there is more competition, as we've said, in the larger grid-connected projects. We see some strong bids and some of those may not be for us. But frankly, that has not been our bread and butter for the 8 years we've been public. We're also seeing, just as there are new providers of capital, there's new clients. And we're not at all bashful about our ability to compete with our cost of capital against anybody coming into the market. The question we ask ourselves is, is that the right price for the deal? And if it's not, we have the luxury to not invest in something that we think is not priced correctly. And over time, this all sorts itself out.

The next question comes from Jeff Osborne with Cowen and Company.

Most of my questions have been addressed, but just 2. Jeff Eckel, you had mentioned EV charging in your prepared remarks. Can you just give us an update on EV charging? Have you done any investments there? As the build-out happens hopefully with reconciliation bill, how you're thinking about tackling that market? Is it more direct just stand-alone EV charging? Or are you looking at more like corporate fleets with a microgrid solution, solar paired with storage paired with charging?

I think I mentioned in the context of Sunrun, who announced their partnership with Ford as expansion of a home service, also noted the tax credits that will make storage, whether it's integrated or stand-alone, more economic as just positives. We have done EV storage. We haven't -- or excuse me, EV projects that've been related to -- integrated into other offerings. But if there's something notable, we'd be delighted to talk about it. But at this point, there's nothing we've disclosed.

Got it. And then my last question is just one of the -- I think, the pieces of the reconciliation framework is moving to the cash payment. And so a 2-part question. I'm curious what you think that does to both the SunStrong JV in terms of lease volume that's coming in the door. Would you anticipate if cash grants are provided directly for consumers that maybe don't have taxable income that, that would have an impact on leases and then sort of the counter point of that question is would you consider investing in solar loans directly?

I'll take the last one. We've been reluctant to do direct consumer lending. And I'm not sure much has changed in our view on that. There are certainly a lot of great companies doing a great job with it that it just doesn't feel exactly like our kind of business. In terms of the direct pay, I'd be thrilled to have the opportunity to widen our participation in the capital stack and frankly, make these transactions close more efficiently than they do now with 3 parties, including tax equity and maybe get it down to 2. So we look forward to direct pay.

There are no additional questions waiting at this time. I would like to pass the conference back to the management team for closing remarks.

We'll conclude the call now. Thank you.

That concludes the conference call. Thank you for your participation, and enjoy the rest of your day.