HA Sustainable’s Q2 2026 Call: Pipeline Growth, KKR Strategy Shifts and Resource Claims Don’t Match

Date of Call: Aug 6, 2026

Financials Results

• EPS: Adjusted EPS of $0.75 per share in Q2, up 25% year-over-year; $1.52 per share for first half of 2026, up 31% from prior year period.

Guidance:

• Increased 2028 adjusted EPS guidance to a range of $3.55 to $3.65, up from prior range of $3.50 to $3.60.
• Affirmed guidance for adjusted ROE of greater than 17% in 2028.
• Expect minimal ATM issuance in 2026.
• Expect gain on sale revenue to be at a similar level as last year.
• Well on track to meet guidance of $2 to $3 billion of new balance sheet or CCH1 transactions in 2026.

Business Commentary:

Strong Financial Performance:

• HACI reported an adjusted earnings per share (EPS) of 75 cents for Q2 2026, up 25% year-over-year, and adjusted recurring net investment income grew 27% year-over-year to $208 million.
• The growth was driven by an increase in portfolio revenue, fee income, and gains on sale revenue, alongside more than $1 billion in new investments during the quarter.

Investment Activity and Demand:

• The company reported more than $1.7 billion in closed transactions for the first half of 2026, with a pipeline exceeding $6.5 billion.
• This robust investment activity is underpinned by strong demand for new power capacity and renewable energy infrastructure, supported by economic trends favoring renewables as a cost-effective solution.

Capital Efficiency and Cost Management:

• HACI maintained capital efficiency with zero ATM issuance and managed to achieve an effective cost of debt at 5.6% through successful hedging, which was 70 basis points lower than it would have been without hedging.
• The ability to manage interest rate risk and access diverse capital sources, including infrastructure funds and investment-grade bond markets, contributed to this efficiency.

Asset Growth and Diversification:

• Managed assets grew 20% year-over-year to $17.6 billion, with the portfolio increasing 14% to $8.2 billion.
• Diversification efforts are expanding into new asset classes like water infrastructure and sustainable agriculture, aiming to reinforce the resilience and non-cyclical traits of HACI's business model.

Guidance Revision and Confidence:

• HACI increased its 2028 adjusted EPS guidance to a range of 355 to 365, up from 350 to 360, and affirmed an adjusted ROE expectation of greater than 17%.
• The revision reflects the company's confidence in continued strong investment activity, fee income, and cost of debt, supported by significant long-term capital deployment.

Sentiment Analysis:

Overall Tone: Positive

• Management reported "another strong quarter" and "excellent results across all key metrics." They noted "more than $1 billion of new investments" and "Adjusted earnings per share in the quarter was 75 cents, up 25% year over year." The tone was confident, citing "outstanding growth," "robust investment activity," and "positive messages." They also increased 2028 EPS guidance.

Q&A:

• Question from John Windham (UBS): There's been lots of concern... about potential delays in some of the larger projects... Just any color you have on where you are in sort of early stage conversations about the pace of build as we go into the end of this year.
  Response: No systemic delays have been noticed in the pipeline; projects are varied in pace but no thematic delays are seen.

• Question from Ben Callow (PAIRD): The KKR partnership could just, it seems like it should be nearing capacity... Should we think about you guys just like doing an incremental raise again?
  Response: CCH1 is expected to hit capacity early next year; a seamless transition to a new vehicle, CCH2, is planned, with progress being made on its setup.

• Question from Ben Callow (PAIRD): ...if they go out a couple years um you know uh can that number [of investments] go up to five million
  Response: New asset classes like transportation, water, and sustainable agriculture are expected to become meaningful for diversification and growth, though no specific number was given; current resources are sufficient.

• Question from Noah Kay (Oppenheimer and Company): I wonder if you could just give us a bit of color on the nature of [the water infrastructure investment]...
  Response: It is a low-risk, contracted wastewater treatment facility with a municipality, already operational.

• Question from Noah Kay (Oppenheimer and Company): ...if you had to call out, you know, the one or two biggest factors in wastewater Raising the guidance here... is there any one factor...
  Response: Key factors include positive industry trends, strong pipeline, ability to raise cost-effective capital, and improved capital efficiency, providing greater certainty and comfort to increase guidance.

• Question from Chris Didrinos (RBC): ...looking at the pipeline, you know, I think it's up call it 500 million or so over the past 12 months. But when you look at the grid connected portion of that, I mean, I think it effectively has doubled... is that a function...
  Response: Growth is driven by rapid grid-connected business activity, new sponsor relationships, recycling of capital, and larger project financing capabilities.

• Question from Maheep Munloy (Mizo Securities): ...just a question on the guidance raise... Is there any limiting factor which would have caused you to be somewhat conservative on the guidance rails over here.
  Response: No internal limiting factors on capital or resources; the main external factor is the pace at which clients move their projects forward.

• Question from Maheep Munloy (Mizo Securities): ...Any thoughts on how's that changing in the model with all the information of the yields you're getting upside on the yields...
  Response: While increased EPS is positive, the ROE guidance remains at "greater than 17%" as other equity components are less predictable, though capital efficiency efforts support trending towards that target.

Contradiction Point 1

Pipeline Growth Drivers and Capital Requirements

Conflicting statements on whether internal resources are sufficient for growth.

Ben Callow (PAIRD) - Ben Callow (PAIRD)

2026Q2: The company's model relies on building relationships... existing staffing is sufficient; no dramatic additional resources are required for these new areas. - Jeff Lipson(CEO)

How much can investments grow annually, what internal staffing changes are needed, and could new asset classes like agriculture significantly increase growth? - Noah Kaye (Oppenheimer & Co.)

2026Q1: The pipeline increased significantly... The company is involved in many projects at various stages of speed. - Jeff Lipson(CEO)

Contradiction Point 2

KKR Partnership Vehicle (CCH1) Capacity and Strategy

Inconsistency regarding the primary growth strategy for the partnership vehicle.

Ben Callow (PAIRD) - Ben Callow (PAIRD)

2026Q2: CCH1 is expected to reach capacity... The intention is to have a seamless transition to a new vehicle, CCH2... - Jeff Lipson(CEO)

With the KKR partnership (CCH1) nearing capacity, will there be an increase in size or structural changes with different economic terms? - Ben Kallo (Baird)

2026Q1: The partner (KKR) remains enthusiastic... The company is working on a CCH2 to follow CCH1. - Jeff Lipson(CEO)

Contradiction Point 3

Growth Outlook and Guidance Precision

Shift from providing specific annual growth targets to only multi-year guidance.

N/A - N/A

2026Q2: The company provides 3-year guidance (out to 2028) rather than specific 2026 targets due to the lumpiness of gain-on-sale activity. - Jeffrey Lipson(CFO)

N/A (The 2026Q2 transcript does not contain a specific question about 2026 targets.) - Christopher Dendrinos (RBC)

20260213-2025 Q4: The company provides 3-year guidance (out to 2028) rather than specific 2026 targets due to the lumpiness of gain-on-sale activity. - Jeffrey Lipson(CFO)

Contradiction Point 4

Growth Drivers and Resource Requirements

Contradiction on whether new asset classes require significant additional resources.

What were PAIRD's earnings for the quarter? - Ben Callow (PAIRD)

2026Q2: The company's model relies on building relationships... and existing staffing is sufficient; no dramatic additional resources are required for these new areas. - Jeffrey Lipson(CFO)

How much can investments grow annually, what staffing changes are needed, and could new asset classes like agriculture significantly increase growth? - Noah Kaye (Oppenheimer)

20260213-2025 Q4: The primary drivers of improved equity efficiency... are the co-investment vehicle (CCH1)... and the issuance of junior subordinated hybrid notes—not just a play on debt leverage. The company is also focused on growing revenues faster than expenses and continues to invest in talent and technology for long-term operating leverage. - Jeffrey Lipson(CFO) & Marc T. Pangburn(COO)

Contradiction Point 5

Growth Drivers for the Grid-Connected Pipeline

Conflicting explanations for the primary driver of pipeline growth.

Chris Didrinos (RBC) - Chris Didrinos (RBC)

2026Q2: Growth is driven by rapid industry growth, new sponsorships, capital recycling from existing sponsors, and the ability to finance larger projects. - Jeff Lipson(CEO) and Susan Nickey(CCO)

Has the doubling of the grid-connected pipeline been driven by increased demand or the company's enhanced capacity to handle larger deals? - Christopher Dendrinos (RBC)

20251107-2025 Q3: The grid-connected pipeline was replenished with new volume, so the total pipeline remained above $6 billion... The pipeline activity is seen as ordinary course, not a result of demand being pulled forward. - Jeff Lipson(CEO)