Earnings Call Transcript - HASI Q2 2024

Operator, Operator

Greetings, and welcome to HASI's Second Quarter 2024 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Aaron Chew, Senior Vice President of Investor Relations.

Aaron Chew, Senior Vice President of Investor Relations

Thank you, operator, and good afternoon to everyone joining us today for HASI's second quarter conference call. Earlier this afternoon, HASI distributed a press release reporting our second quarter 2024 results, a copy of which is available on our website along with the slide presentation we will be referring to today. 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 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 include some non-GAAP financial measures; a reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation. Joining me on today's call are Jeff Lipson, the company's President and CEO, Marc Pangburn, the CFO, and Susan Nickey, our Chief Client Officer. Susan will be available for the Q&A portion of our presentation. Now I'd like to turn the call over to our President and CEO, Jeff Lipson. Jeff?

Jeff Lipson, President and CEO

Thanks, Aaron, and welcome to the team. Thanks, everyone, for joining us today for our second quarter 2024 conference call. I'm going to begin on page three. The second quarter of 2024 was a terrific quarter for HASI as we achieved two longstanding goals of closing on a co-investment vehicle and procuring a second investment-grade rating. We also were able to continue to invest at higher returns and increase our adjusted earnings 19% year-over-year to $0.63. Considering these results and other positive catalysts that I will discuss shortly, we are affirming our guidance for adjusted EPS growth of 8% to 10% from 2024 to 2026 and for a dividend payout ratio of between 60% and 70% in the same period. And a reminder that our long-term goals are 10% annual growth in EPS and a 50% payout ratio by 2030. Turning to page four, we have now reached a level of scale in our business such that we think it is worthwhile to highlight not only the impact on our financials but the impact we are having on the energy markets as a whole. Excluding our managed assets, our portfolio investments in the first half of 2024 alone comprise 10 gigawatts of solar and wind capacity. To put that in perspective, that is enough electricity capacity to power more than 7 million homes. That solar and wind capacity is generating approximately 20 terawatt hours of renewable energy annually, which is about twice the annual electricity consumption of the entire city of Washington, D.C. Our portfolio has also invested in renewable natural gas projects with almost 6 million MMBTUs of capacity, which is about the equivalent annual energy required to heat more than 100,000 homes. Altogether, including the projects in our managed assets, we have invested in projects that in aggregate are avoiding approximately 8 million metric tons of CO2 annually based on the year one calculation of our carbon count methodology. In summary, our business already has significant scale and impact but is poised to take both this scale and impact a step change higher. Turning to page five, in the second quarter, several industry dynamics and HASI-specific milestones emerged that position the company particularly well over the next several years. First, there continues to be increasing consensus that U.S. energy demand will increase more rapidly than previously forecasted. This elevated demand for energy will result in corresponding supply increases, much of it from clean energy sources. In fact, we have fundamentally entered a new era of power demand growth with one of the largest drivers coming from AI-driven data centers, which are expected to become 8% of U.S. electricity consumption by 2030. The majority of these data centers prefer clean power. In partnership with some of the largest corporate buyers in the world, HASI remains determined to drive transparency in the climate impact of new load by ensuring that emissions, rather than simply megawatt hours generated, are credibly measured. Additionally, there is expected to be continued adoption of electric vehicles, which have an 8% and growing market share, leading to a significant shift from the oil markets to electricity markets. Furthermore, another trend is the heightened prioritization of domestic manufacturing, particularly concerning semiconductors. Together, these sources of growth are expected to account for an increase in U.S. electricity demand of more than 800 terawatt hours from a base of approximately 4,000 terawatt hours per year. This uptick in growth is expected to occur after approximately 20 years of relatively modest demand growth. In this period of lower growth over the last 20 years, clean energy became the overwhelming source of new generation. Therefore, as we enter this higher growth period, renewables and other low-carbon solutions will experience even more rapid growth. Solar energy represents the lowest levelized cost of electricity of any source, and solar and wind energy continue to represent the vast majority of new electricity capacity being added to the grid. Likewise, increased adoption of renewable natural gas is also forecasted, as natural gas will continue to be utilized to meet energy demand, and technology will continue to allow this gas to be produced more efficiently from municipal and animal waste. It is important to note that all these trends are unlikely to be impacted by the 2024 election results. There continues to be active discussion and speculation regarding public policy changes and the corresponding impact on the outlook for clean energy development. However, it is our view, shared by many others, that the megatrends of the energy transition itself and the aforementioned increase in power demand will result in continued considerable clean energy deployment without meaningful disruption from public policy changes. This forecasted supply of clean energy to meet surging demand will require hundreds of billions of dollars of capital investment. As the only public pure play investment company exclusively focused on the energy transition, HASI is well-positioned to capitalize on this trend, particularly in light of two transformative developments in the second quarter. First was the launch of our CCH1 $2 billion strategic partnership with the global investment firm KKR. This partnership provides enhanced access to committed capital, diversifies our revenue with incremental fee income, and generally positions us to scale our business. The partnership is also an affirmation of the differentiation of our strategy and a reflection that our underlying portfolio of sustainable investments is difficult to replicate. The CCH1 vehicle has been seeded with two investments and is functioning as designed; we expect CCH1 to be the primary financing vehicle for our balance sheet investments over the next 18 months. The second positive development in the quarter was our attainment of fully investment-grade status. We were upgraded by Fitch and placed on positive watch by S&P to go along with our existing investment-grade rating by Moody's. These ratings have provided us access to the investment-grade bond market, offering more stability, lower costs, and longer tenure, among other attributes that Marc will articulate. Summarizing CCH1 and the investment-grade ratings into a single sentence, we have reduced our capital needs by 50% and significantly lowered the cost for the remaining 50% we raise ourselves. Therefore, as we holistically assess industry trends and HASI's capital access, we are at a pivotal moment at the juxtaposition of several positive catalysts. As I said on Investor Day last year, we have a simple business model but a complex business. Our business model can be encapsulated as climate clients' assets, but our business requires a deep understanding of energy markets, structured finance, and the ability to establish and maintain long-term relationships. Our talented and experienced team is uniquely qualified to meet the capital needs of the energy transition. This combination of a differentiated investment strategy and enhanced access to diversified and stable sources of capital positions HASI perfectly to capitalize on these industry trends and continue to operate with increasing scale, strong margins, and profitable growth. And with that, I'll pass along the call to Marc to discuss the quarterly financials in greater detail.

Marc Pangburn, CFO

Thank you, Jeff. I'll start on Slide six. Before I cover the quarterly results, I'd like to take some time to emphasize one point Jeff just highlighted: our second investment-grade rating and how impactful this will be for our business. We see the change benefiting our business in three primary ways. First, on cost. The chart on the left shows the spread differential between BB and BBB bonds over the last 10 years, which has averaged 120 basis points. More specifically to HASI, within our previous high-yield platform, we raised approximately $3 billion in corporate debt at a weighted average spread of 339 basis points. Compare this 339 to the credit spread of our inaugural investment-grade issuance of 225 basis points, a greater than 100 basis point compression in cost. Second, we can now more reliably access longer maturity bonds, better aligning our asset and liability duration and minimizing our need for hedging activities. Third, when market dislocations occur, the investment-grade market is meaningfully more resilient, as evidenced by the graph on the left. For example, during the initial COVID dislocation, the high-yield market costs increased by 250 basis points more than investment-grade market costs. Generally, the best times to invest are during these dislocations, and now our largest funding source will be substantially more cost-effective during these times. Finally, there are intangible benefits, such as the affirmation of the credit profile of our investments. We believe that the combination of these factors will continue to drive attractive margins over the long term. Turning to Slide seven to cover the quarterly results. Adjusted EPS grew 19% year-over-year to $0.63, and adjusted net investment income rose 16% year-over-year to $63 million. Also of note, gain-on-sale fees and securitization income was $32 million, up about $12 million year-over-year. As a reminder, we expect gain-on-sale during the guidance window to be fairly consistent with '22 and '23. Stepping back a bit and moving to Slide eight, this highlights the expansion of our managed assets since 2020. As a reminder, our managed assets include our portfolio, the investments we have securitized, and CCH1. Since 2020, our managed assets have grown by more than 80% to $13 billion through the end of Q2. This includes new closings of approximately $260 million during Q2 or $823 million during the first half, which is consistent with our first half 2023. Perhaps more importantly, the new asset yield for portfolio investments during the first half of 2023 was greater than 8.5%, whereas today we're investing at yields greater than 10.5% with a consistent risk profile. Moving on to Slide nine, our portfolio stood at $6.2 billion at the end of Q2, up 27% year-over-year, and we continue our focus on maintaining diversification across our asset classes. Two items of note: given the size of CCH1, we have not yet broken it out separately, but it is currently comprised of one residential solar transaction and one commercial and industrial solar transaction. The portfolio also decreased approximately $200 million, driven by the seeding of CCH1 and our focus on asset rotations, where we have been selling or syndicating our lower yielding investments to reinvest at higher yields. Next on Slide 10, the narrative around our return on equity and margins remains consistent with the prior quarter. Our elevated first-half 2024 ROE is driven primarily by gain on sale. Our portfolio yield continues to increase as new transactions are funded. Our cost of debt has increased relative to 2023 but is actually down to 5.6 from 5.7 in Q1 of 2024. I'd also like to touch on our recent 2025 bond refinancing. The 2025 was a $400 million bond with a coupon of 6%. To manage interest rate risk, we entered into a forward-starting swap to lock the base rate for the expected refinancing. We actually refinanced the bond and unwound the swap. After factoring in the impact of the swap, the effective cost of refinancing was 6%, identical to the 6% coupon on the 2025 bond itself, with an additional nine years of tenor. Finally, on Slide 11, in terms of the balance sheet, a few important updates. Our leverage ratio declined to 1.8x, and after paying down our revolver, we are entering the second half of 2024 with $1.4 billion of liquidity. Additionally, on the right, we have minimal near-term maturities and continue to manage our liability platform to a laddered maturity profile. Our liquidity position and minimal near-term maturities provide us the opportunity to capitalize on our pipeline and attractive investment environment we see today. With that, I'll pass it back to Jeff for closing remarks.

Jeff Lipson, President and CEO

Thank you, Marc. Turning to Page 12, we detail various sustainability and impact items, including receiving the highest rating from S&P's Green Bond Framework and a notable award from Reuters regarding our sustainability culture. Let's conclude on Page 13. HASI remains uniquely positioned with a differentiated business model enabling us to remain the preeminent pure-play capital provider to the energy transition. Our existing liquidity and capital, paired with our improved access to growth capital and an attractive margin to our investment return, ideally positions us for success over the next several years. I would like to thank our talented team for another outstanding quarter as we look forward to a successful second half of 2024. Operator, please open the line for questions.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. The first question we have is from Noah Kaye of Oppenheimer & Company. Please go ahead.

Noah Kaye, Analyst

A lot of positive developments noted in your remarks. Maybe just a first quick housekeeping one. Looking through the cash flow statement, it looked like there was a really big number in principal collections from financing receivables. Can you just give us a little bit more color on that and what drove that? I assume we should treat that as not typical, but any information would be helpful.

Marc Pangburn, CFO

Hey, Noah. Thanks for the question. There were two components to it. One was, I would just say, ordinary course amortization of some of our loans that we do have a regular run rate on. However, it is larger this quarter primarily due to us identifying some loans that were at a lower yield and being able to bring in other parties to take a large piece of that. And that fits into the general asset rotation program we've been talking about, which looks to reinvest that cash at the higher yields we're seeing today.

Noah Kaye, Analyst

Okay, thanks. And then a follow-up. Do you have an update on the pipeline in the appendix? It looks like it primarily skews behind the meter and FTN. So, for confirmation, should we think about the likely yields on those as also 10.5 or north of that, which would imply continuing, in fact, increasing spreads given the favorable trends on cost of debt?

Jeff Lipson, President and CEO

Thanks for the question, Noah. I think you should think of the pipeline yield as being consistent with the recent closings. So, I believe most of what's in the pipeline is at that same level at which we've been closing transactions in 2024.

Noah Kaye, Analyst

Great. And maybe just one last one. Appreciate not breaking CCH out early in the life of the vehicle. But you did disclose the actual assets, I believe, in the vehicle in the release. Roughly what kind of size would it have to get to before you would think about breaking it out? And just to clarify for us what that would mean in terms of a separate revenue line or equity contribution, rather, I should say.

Marc Pangburn, CFO

Sure. In terms of how we would break it out, I think there are two components to that. One is in the deck itself in our various pie charts. It would likely either become a slice of a pie or we just create a new pie chart as it grows. In terms of how it would show up in the financial statements, the revenue stream from CCH1, for example, the recurring asset management fee and the upfront fees were simply too small to break out as line items on the financial statement. However, we will certainly continue to consider the right time to break those out in the future.

Operator, Operator

The next question we have is from Brian Lee of Goldman Sachs. Please go ahead.

Unidentified Analyst, Analyst

Hey, this is Tyler Bisslon for Brian. Thank you for taking our questions. First, are there any implications from SunPower no longer providing leases and PPAs on existing SunStrong funding? Additionally, you were involved in a portion of the $300 million project financing commitment SunPower announced earlier this year. So, is there any underutilized capacity on these existing funds that may be able to get returned or redistributed?

Jeff Lipson, President and CEO

Thanks, Tyler, for the question. I may answer that a little broader than you even asked it just to assume there will be other questions related to SunStrong. I would ask folks to turn to page 18 in the appendix. The sort of five things to understand about SunStrong and HASI are, number one, it's a very small portion of the existing portfolio. Number two, it's been a very small portion, less than 3% of origination since 2021. So, it’s unlikely to impact us from an incremental business perspective. Third, all of our mezzanine loans that are part of SunStrong are fully collateralized by underlying cash flows from leases and a little bit from loans. Number four, all of the leases continue to perform as the homeowners themselves are unaffected by any disruption from SunPower. Number five, the servicer can be changed based on the underlying documents. Hence, there is some chance there will be a successor servicer. Therefore, when you take these five factors together, we don't feel like the investments in SunStrong are at risk or at elevated risk given the challenges with the servicer. Hopefully, embedded in there are answers to your questions related to the specific facility that we have, and we're not funding under that facility at this point.

Unidentified Analyst, Analyst

Thank you. Super helpful. Additionally, there's been much investment happening in the data center world as it relates to power demand, which you discussed in your opening remarks. So, where can we expect to see this trend show up most for you? Have you seen any specific opportunities you can call out? Additionally, can you discuss how your agreement with KKR can allow you to better capture this growth? Any thoughts there would be appreciated. Thank you.

Jeff Lipson, President and CEO

Let me answer that last part, and then I'll let Susan Nickey answer the first part of the question. The KKR benefit is really more around access to committed capital, which allows us to scale the business and rely less on capital markets. This vehicle will just allow us to generally scale the business in all asset classes. As to where we might see elevated business from data center development, I'm going to ask Susan to answer that.

Susan Nickey, Chief Client Officer

Thanks, Jeff. Yes, the data center demand growth is really driving the increased forecast for energy. It seems like every week we’re getting another forecast that continues to escalate. As this translates to us, again, we finance the largest developer sponsors who are building projects to satisfy that energy demand, and we’re seeing that translate into our pipeline. Many of the data centers are certainly the big companies, the Googles, the Amazons, and other names who are the corporate off-takers that Jeff referred to in the beginning, looking for not only that energy but clean energy. Overall, this is driving our pipeline growth and positively impacting other parts of the sector as well.

Operator, Operator

The next question we have is from Julien Dumoulin-Smith of Jefferies. Please go ahead.

Unidentified Analyst, Analyst

Hey, good evening. This is Hannah on for Julien. Just a quick question around managed assets. How should we think about the pace of growth, given that they've been growing over 20% year-over-year for a few quarters now? Additionally, how should we think about the distributions and transfers from the KKR partnership impacting that pace of growth?

Marc Pangburn, CFO

Sure. Happy to take that. I'll actually take the second one first. In terms of the transfers to the CCH1 entity, I would expect that to be a one-time dynamic. We had some assets on our balance sheet and used those assets to seed the partnership. On a go-forward basis, new investments would just be closed directly into CCH1, so there would not be a transfer dynamic. But in terms of how to think about the growth of managed assets, I would tie that to our annual closed transactions. Whether they end up in our portfolio, in CCH1, or being securitized, you can consider all three of those prongs showing up in managed assets and also on the closed transaction side.

Unidentified Analyst, Analyst

Got it. Thank you. And then just as a follow-up, generally, how are you thinking about new partnerships going forward, especially given that your shares have recovered a bit in the past few months? Is the strategy still to seek out new partnerships?

Jeff Lipson, President and CEO

Well, it's unimpacted by the share price. Our business on the investment side has always been very client-centric. This often involves joint ventures and other partnerships with our clients, and that element of our strategy has remained unchanged. On the liability side, we've done this recent transaction with KKR, and think of that as more or less exclusive for the next $2 billion over 18 months. Therefore, we won't be seeking new partnerships on the liability side just yet, as we will focus on operationalizing what we have with KKR.

Operator, Operator

Next question we have is from Ben Kallo of Baird. Please go ahead.

Ben Kallo, Analyst

Could you discuss whether there have been any changes in deal flow, deal sizes, or terms related to the deals since KKR began providing capital? I know it's still early, so that's my first question.

Jeff Lipson, President and CEO

Well, we've not seen any changes in deal sizes or terms of deals as specifically related to having the CCH1 program in place. So, that's really invisible to our investment side of the business and client relationships. It simply is a capital element to our business, so it has not impacted how we've operated on the investment side.

Ben Kallo, Analyst

And I know you guys have operated under different administrations. But could you expand on what you're hearing in D.C.? I know it changes day-by-day. But anything you can clearly share regarding the IRA and potential changes?

Jeff Lipson, President and CEO

Sure. Thanks, Ben, for the question. I'm not sure we're hearing anything different than others are hearing. Our general view, as I stated in my prepared remarks, shared by others, is that substantial changes in public policy related to clean energy are somewhat unlikely. The economics, job creation, and the difficulty of changing the tax code make it seem that way. If there were, for instance, a Republican sweep, there may be some changes to things like EV tax credits and others, but nothing that would significantly impact our business. We deem that very unlikely. The energy transition demand growth and the economics are just too overwhelming for public policy to impair the deployment of clean energy, and therefore, the addressable market for HASI.

Operator, Operator

The next question we have is from Maheep Mandloi of Mizuho. Please go ahead.

Maheep Mandloi, Analyst

I apologize for the background noise here. This question on the SunPower joint venture, thanks for the details you provided. Just curious if it impacts your pipeline. Just trying to understand how much of that $5.5 billion pipeline is from residential solar as opposed to this. Additionally, how does the refinancing of the SunStrong ABS, do you think it is impacted by their decision to stop the leases in PPAs?

Jeff Lipson, President and CEO

I can take the first part, and Marc can take the second part. As it relates to the pipeline, there is very minimal impact. As we showed on page 18, SunStrong-related originations have been less than 3% of total originations since 2021. The portion of your question addressing how much residential solar is in the pipeline - when you see our pie slice of behind the meter being relatively large, a decent percentage of that is residential solar. It's still an asset class that we will continue to invest in. Hence, our partners there have portfolios that they continue providing to us, and that asset class continues to perform well. Thus, our overall strategy there remains intact. Regarding specifically the SunStrong ABS portion of the question, I'll ask Marc to answer that.

Marc Pangburn, CFO

Sure. Ultimately, the ABS investors focus on asset-level performance and the support that various service providers perform to ensure that asset-level performance. I would note that the ABS has, at this point, six years since issuance, and that asset portfolio has continued to perform extraordinarily well. As we've previously identified, the services that SunPower provides are done through service contracts, which can be replaced with other service providers if necessary. Hence, I expect the ABS investors to continue to focus on the performance of the assets.

Maheep Mandloi, Analyst

I appreciate that. Additionally, could you describe how the election might impact the $5.5 billion pipeline? If EV or the other tax incentives are at risk for these elections?

Jeff Lipson, President and CEO

Again, I believe something like the EV tax credit would not affect our pipeline at all. To repeat, I think any changes likely to occur would not affect our clients' development or correspondingly impact our pipeline.

Operator, Operator

The next question we have is from Jeff Osborne of TD Cowen. Please go ahead.

Jeff Osborne, Analyst

Just a couple quick ones on my side. If I understood your comments right, you mentioned the gain on sale guidance would step down in the second half, if I heard you correctly. Could you discuss what's driving that?

Marc Pangburn, CFO

Sure. What we've identified is that both in '24 and just generally within the forecast we performed, we are forecasting relatively flat gain on sale relative to '22 and '23. I think you're identifying that our first half of '24 has been a fairly strong half in terms of gain on sale, which would imply the back half could drop a bit. There is still plenty of time in the latter half of the year to continue originating and securitizing transactions. But at the end of the day, these can be somewhat lumpy, as we've discussed before. We've been successful in the first half of the year, and hopefully, we can continue that success, though we haven't been forecasting.

Jeff Osborne, Analyst

Just a quick follow-up on that: was the change in the REIT status a driver of the success in the first half?

Marc Pangburn, CFO

No, that has had no impact.

Jeff Osborne, Analyst

Got it. And then I think the portfolio yields have been quite high sequentially. How should we consider that for the second half, given your current pipeline?

Jeff Lipson, President and CEO

Jeff, I believe the trend as we continue to fund these more recent vintage closings will have a positive effect on portfolio yields. The dynamic thus far is that, as we reported in the first half, we closed transactions at that higher yield, but many of those haven’t funded yet. Hence, you haven't really seen it show up in portfolio yields. You'll see it gradually emerge. Given that it's a $6 billion portfolio now, new closings only impact portfolio yields so much. However, as these new closings fund, you'll see the impact here in the second half.

Jeff Osborne, Analyst

Got it. And my last question is about the investment-grade rating. Obviously, having longer duration capability will be great in lower rates, but does it change your approach to debt at the board level? Would you consider using more debt now that you can access it at a lower cost and for longer durations in terms of total maximum leverage ratio or your broader approach to debt?

Jeff Lipson, President and CEO

No, there is no change there. In fact, the rating agencies are very focused on leverage. To maintain the investment-grade rating, we have to keep leverage where it is, so there's no view towards increasing leverage. The primary change, as Marc stated, is the lower cost and longer duration.

Operator, Operator

The next question we have is from Ryan Pfingst of B. Riley Securities. Please go ahead.

Ryan Pfingst, Analyst

To follow up on Jeff's first question, as we're looking at full year guidance after two strong quarters in the first half, understanding gain on sale was pretty high: could you help us consider the next two quarters and if the strong performance in the first half could imply upside to the guide?

Jeff Lipson, President and CEO

I think that's premature, Ryan. The guidance obviously speaks to 2026. Thus far, we've had a good start in the first two quarters of a 12-quarter guidance period, but I don't think that causes us to bump up the guidance just yet. Our cadence has typically been to address guidance changes during our February call. So, that's likely when we'll have more to say, though we may or may not provide information. If we do have something to share, we will address it then. It’s not typical for us to adjust in July or November calls.

Ryan Pfingst, Analyst

Yes, fair enough. And then just one more on the election: understanding we've discussed what might transpire with a change in administration and the little impact you expect there. Can you discuss your customers' cadences ahead of the election? Has that been affected at all?

Susan Nickey, Chief Client Officer

Yes. Again, with the demand growth, it often appears as an insatiable demand from corporates. Many of our clients are global leaders in corporate PPAs and procurement. They are continuing to develop and follow those clients and provide them energy, whether in the grid-connected side or in behind the meter and other markets that are opening up in community solar. We see that. Macro trends are pervasive, and states have historically been a significant driver in opening up markets. We see this in community solar and other policies they're adopting to meet demand and capture remarkable economic growth opportunities for their states.

Operator, Operator

The next question we have is from Mark Strouse of JPMorgan. Please go ahead.

Mark Strouse, Analyst

Thank you very much. I joined late, so I apologize if this has already been addressed. Looking at the median-term targets and considering your cost of debt with the investment-grade credit rating: Is it just your cadence of not updating guidance until the Q4 calls, or are you signaling that there’s something potentially out there that could still get you towards the lower end of that existing range?

Jeff Lipson, President and CEO

I don’t think it’s really either. We’re comfortable with the guidance we’ve put out there. Again, we’ll revisit it in February. Marc already highlighted a question where we had a particularly strong first half in gain on sale. That may dip down a bit in the second half. There’s nothing thematic in that. It’s just coincidental based on the number of securitized transactions we closed in the first half versus the second half of the year. So, we feel comfortable with our guidance of 8% to 10% through 2026. As always, there are upsides and downsides out there, and we are constantly assessing these and reforecasting our business, but we are comfortable with the current guidance.

Mark Strouse, Analyst

Thank you, Jeff. Is it fair to say that you feel better about that range since achieving the investment-grade credit rating?

Jeff Lipson, President and CEO

Yes, I can affirm that. We do feel better about the business, the financial performance, and margins with having achieved investment grade. So the answer is yes.

Operator, Operator

Ladies and gentlemen, we have reached the end of the Q&A session. That concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.