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Operator
Greetings and welcome to the Han and Armstrong second quarter 2022 results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Aheva Dam.
spk09
Please go ahead. Thank you, operator.
spk00
Good afternoon, everyone, and welcome. Earlier this afternoon, Hanan Armstrong distributed a press release detailing our second quarter 2022 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 the course of this call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. as amended in Section 21E of the Securities and Exchange Act of 1934 as amended. The company claims the protection of the safe harbor for the forward-looking statements contained in such sections. The forward-looking statements made in this call 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 described in the call. In addition, all forward-looking statements are made as of today and the company will 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 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 today on today's call are Jeff Echo, 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 Echo, who will begin on slide three. Jeff?
Hanan Armstrong
Thank you, Neha. Good afternoon, everyone. Today, we are pleased to report continued strong performance in the second quarter of with record distributable earnings of $0.60 per share, a 5% increase over last year. Also, continued growth in net investment income of 44% from last year and up 13% from last quarter, a dividend of $0.375 per share. The on-balance sheet portfolio grew 30% year-over to $3.9 billion and demonstrates programmatic execution of investments with key clients as well as new ones. Given our confidence in the business outlook, we once again are pleased to reaffirm our prides for annual growth in distributable EPS of 10% to 13% through 2024 and 5% to 8% annual growth in our dividend for the period. Our investment in this quarter in an efficiency upgrade in a light industrial building in Baltimore, Maryland, results in a carbon count score of 1.6%. This relatively high carbon count means our investment has a much higher impact on carbon reduction per dollar spent. Turning to slide four, I'll touch briefly on the macro trends in the climate solutions industry. As many of you know, the climate provisions in the inflation reduction introduced last week would offer a powerful policy tailwind to our industry. If enacted, the bill would further accelerate renewable energy deployment, by extending and simplifying the tax credits on these projects. Further, it would dramatically expand our investable universe of climate solutions, particularly by accelerating energy storage and hydrogen deployment in the U.S. While our business is not reliant on the IRA becoming law, there is no doubt that HACI and our clients would significantly benefit passage. Next, the economics of renewable energy. renewable energy projects are improving as the industry is continuing to adapt to inflation by raising PPA prices, which on average have risen almost 10% year-over-year. These price increases are generally less than the price increase customers have experienced due to rising natural gas prices reflected in the wholesale power market, leading to pricing power for our clients. We expect the global demand for U.S. LNG in light of the Ukraine-Russia war will keep natural gas prices elevated. Increasing retail utility rates make solar and efficiency investments even more compelling to the behind-the-meter end-user keen to blunt the impacts of inflation and higher utility rates. Finally, the investments our clients are developing are increasing in sophistication beyond just producing or saving energy. Combining multiple technologies in a project creates more economic value to the end user, and thus risk-adjusting return for investors. Climate solutions are rapidly expanding beyond electric power into fuels, agriculture, and transport. Moving to slide five, we provide an update on our 12-month pipeline, which we continue to report is greater than $4 billion, with a substantial volume weighted to the last half of 2022. I would like to highlight the growth in the sustainable structure pipeline, growth we have foreshadowed in prior calls. Sustainable infrastructure includes standalone storage, renewable natural gas, transportation, in addition to stormwater remediation and climate resiliency investments. At 17% of our pipeline, SI further diversifies our client base and pipeline. Behind the meter pipeline remains strong in residential community and C9 solar, along with consistent governmental and industrial efficiency opportunities. The grid-connected pipeline remains predominantly solar with a smaller amount of onshore wind. Turning to slide six, we detail our $3.9 billion balance sheet portfolio, which has grown 30% from $3 billion over the year, and the yield has picked up slightly to 7.4% in the quarter. Our portfolio now includes over 350 investments across eight asset classes with a weighted average life of 18 years. The diversity in our portfolio in terms of clean energy asset classes, geography, and clients remains an underappreciated strength of our business. The fact that these assets generate more money each month is an important fact with the prospect of a recession on the horizon. Now I'll turn it over to Jeff Elk to detail our financial results. Thank you, Jeff, and good afternoon. Summarizing our second quarter results on slide seven, we recorded distributable earnings per share of 60 cents, had a strong quarter of distributable net investment income of $48 million, and recorded gain on sale of approximately $23 million. On a year-over-year basis, we continue to demonstrate substantial growth, distributable net investment income, and steady realization of gain on sale fees as our dual revenue model continues to bolster our distributable EPS. In the upper right, we note year-to-date distributable EPS growth was 12% year-over-year, resulting from higher revenue from a larger portfolio and a slightly higher portfolio yield, offset by modestly lower gain on sale. In addition, as shown in the lower right, our gain on sale from securitized assets for the year-to-date was $45 million, modestly lower than prior year by interest rate movements, remaining at a level that reflects continued strong activity in an investments that we typically securitize, coupled with ongoing robust demand from our securitization partners. On the lower left, distributable net investment income was over $90 million year-to-date, reflecting year-over-year growth of 43%, driven by a larger portfolio and ongoing strong margins. Our NII is expected to grow each quarter as we add assets to the balance sheet, provide ongoing stability and visibility into our future earnings growth. Therefore, as Jeff indicated, we are affirming our guidance of 10% to 13% compound annual growth earnings per share through 2024. Although we typically do not spend much time talking about gap earnings, I'll note why we had a gap loss in the quarter. At the project level, for certain of our grid-connected investments, swaps are put in place to hedge energy prices. As energy prices have been rising, the swaps, although performing exactly as intended, incur mark-to-market loss on the project's financials, and those financials flow through to our GAAP results. These marks will reverse as power is delivered. Therefore, although not a reflection of affiliate economics, nor are cash collected, we record a GAAP loss driven by these swap marks. Turning to slide eight, we detail our Q2 portfolio reconciliation. We funded $370 million of investments, resulting in portfolio growth of 5% in the quarter. Funding expectations of previously closed transactions is shown on the right, with over $570 million expected to fund to the end of 2023. To be clear, the amounts in this table reflect closed but unfunded transactions and are entirely incremental to the portfolio growth we expect from our greater than $4 billion pipeline. On slide nine, we are pleased to highlight our inaugural credit rating by Moody's of BAA3, which is investment grade. and a major accomplishment in our long-term financing plan. The rating reflects our solid track record of investing in clean energy while sustaining profitability and appropriate leverage. It is also a reflection of the strong credit profile of our portfolio. Shifting to interest rates, as we have noted several times in previous calls, we have a demonstrated track record of increasing our earnings at various levels of rates and fluctuating slopes of the yield curve. Our margins remain strong, and we expect increases in our cost of funds will remain manageable. In fact, when we established our most recent guidance, the forward curve reflected future increases in rates out of the corresponding increase in our future cost of funds at that time. Therefore, now that rates have increased, we are able to reform our guidance. I'd also note that the 10-year yield has decreased approximately 75 basis points from its recent peak. and the forward curve is reflecting an expectation of generally flat rates over the next year. Notably, we have further prepared for higher rates by opportunistically pre-funding our future pipeline by issuing lower coupon debt in 2020 and 2021. The excess cash proceeds from those transactions, coupled with our $600 million unsecured revolver, have allowed us to continue to fund new investments without needing to access the public debt markets and have created a transition to a higher rate environment. We've built a diverse funding platform, and we are well prepared to shift to other sources of debt, including private debt, so that we can continue to fund new investments. These prudent funding decisions have allowed us to operate business as usual, despite the increase in rates. We also believe our investment-grade rating will assist us in accessing public markets quickly and efficiently in the future. In the second quarter, we issued $28 million of equity and $200 million of convertible debt. Cash proceeds from these transactions combined with availability in our credit facilities resulted in total available liquidity of greater than $740 million at quarter end. Fixed rate debt has declined modestly to 93% due to higher utilization of our revolver, and we have no material debt maturities until 2025 as we continue to manage our market risk by utilizing modest leverage, ladder debt maturities, and diverse funding sources. Turning to page 10, we have received investor feedback requesting a more detailed description of our cash flows and non-GAAP measures. So in this quarter's call, I will take the next few moments to provide a more detailed description of these items. We've provided a simplified example of the accounting and cash flow of an illustrative grid-connected solar project in which HACI has an equity investment. The cash flow we perceive is depicted by the green line. In most projects, the tax equity investor receives a cash allocation in the early years of the project, which at some point becomes the decreasing percentage of project cash flows, resulting in a corresponding increase in cash flows to the other equity investors. The PIN depicts a typical GAAP earnings profile utilizing hypothetical liquidation of book value or HLBV accounting as prescribed by GAAP. Often, as the tax equity investors receive the tax attributes, The remaining investors are allocated large gains. As we have said many times, these large AD gains are not indicative of our period economics, but are the property under GAAP. Therefore, since we've been public, we've utilized non-GAAP measures that we believe better reflect our economic earnings. The dotted line in the graph reflects our typical distributable earnings methodology. Record earnings consistent with our long-term expected IRR for the investment. We rigorously model these investments frequently and adjust this earnings accrual rate if new that our existing rate is not consistent with our expected IRR. In fact, in the first quarter of this year, we lowered the earnings accrual rate on two investments to the lower projected project revenue as a result of congestion in the Southwest Power Pool. As depicted by note three on the slide, combining the cash flow with the distributable earnings methodology results in a cash earnings relationship such that we often record earnings greater than cash in the early years due to the cash allocated to tax equity, and in later years we receive more cash than earnings. This non-cash earnings component is fully expected in writing, and the result of the structure of the transaction, including the tax exhibitions, it is not the result of any distress in the project. Over the full life of any individual project investment, earnings, distributable earnings, and cash are expected to be equal. Our grid-connected portfolio historically has been comprised of investments in more seasoned projects, as depicted on the right side of the graph in which cash has exceeded earnings. In fact, since 2018, our cumulative cash collected on equity method investments has been roughly two times our cumulative earnings, a definitive track record that our earnings have been realizable in subsequent cash collections. Currently, due to our recent success in growing the grid-connected business since 2020, Most of our new grid-connected investments are in an earlier stage, during which tax equity investors are receiving cash distribution and our earnings exceed our cash. Moving to slide 11, we've also had several questions recently about our cash flow statement. In the appendix is our historical GAAP cash flow statement, on which we have highlighted items that represent adjusted operating cash and portfolio collections. On page 11, we created a table that reflects portfolio collections together with our adjusted operating cash flow provide more than adequate funds to cover our dividend. As the cash flows in our portfolio are reasonably predictable, we have calibrated our dividend and expected dividend growth informed by these forecasted cash flows. The table also reflects that the excess portfolio cash flows are utilized to fund incremental investments supplemented by our capital raising activity. In summary, we pay our operating expenses and dividend from portfolio collections using excess portfolio collections for reinvestment and raise capital to fund our growth. As our guidance indicates, we have adequate earnings and cash flow to continue to increase our dividend by a compound annual growth rate of 5% to 8% through 2024. And as displayed on the prior slide, as more of our investments reach later stages of their life cycle, we expect to receive an increasing amount of cash flow to support continued dividend growth. Police and companies that invest in clean energy projects report cash flows from the projects and cash flow from operations because they consolidate the projects. Because we do not consolidate, we report those same cash flows in cash flows from investing. In summary, it was another quarter of strong earnings and NII growth. The portfolio is performing as expected, and our liquidity profile remains excellent. And with that, I'll turn it back over to Jeff. Thanks, Jeff. Terrific. Turning to slide 12, an update on our ESG activity includes establishing an internal price on carbon and continued engagement with the SEC on mandatory climate disclosures. Of course, we continue to measure the impact arms have on carbon and water savings and believe we have best-in-class reporting on this metric. We'll wrap up on slide 13. Our robust pipeline programmatic clients drives our consistent execution quarter over quarter. We expect to convert a significant portion of the pipeline into closed transactions in addition to our committed fundings and the growth and sustainable infrastructure opportunities. The conversion of the pipeline to portfolio investments in addition to stable margins will continue our strong NII growth in future quarters. With our strong first half of 2022 and bright prospects for the second half, we reaffirm our guidance on distributable EPS growth of 10 to 13% and on dividend growth of 5 to 8% over the 2021-24 time period. With that, we will conclude our remarks and open up the line for questions. Operator.
Operator
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Noah Kay of Oppenheimer. Please go ahead.
Noah Kay
Good afternoon, and thanks for taking the questions. First, I want to start with the Inflation Reduction Act, as it looks like we may get some fairly near-term action on that front. A lot of these provisions are something of a repeat from what was contemplated in Build Back Better, but wondering if you could give us, as you look at what's contained in the draft legislation, an overview of how this affects the business. Obviously, it improves the opportunity set for customers, but how does it affect the business as a capital provider?
Hanan Armstrong
Well, I think I know. This is Jeff Ackle. One thing, simplifying tax equity structure through transferability, it's a huge gain for the industry. it allows the transactions to be much more aerodynamic than they are now. So that's just sort of the normal business gets easier. And then extending the tax credits, you know, for 10 years is a fantastic runway for the industry. As you remember, it used to be year to year. Then we went four years for tax credit extensions. But to actually embark on the clean energy transition, It's going to take a lot more than 10 years, but 10 years of tax credit visibility is fantastic. And then expanding the tax credits to include storage and hydrogen and the various other above energy sources, most of which will reduce greenhouse gas emissions, as I said, just increases our opportunity set.
Noah Kay
Okay, that's very helpful. You know, I guess picking up on that big step up in the sustainable infrastructure pipeline, you mentioned RNG and transportation and standalone storage. It seems like, you know, that development took place really before we saw these provisions. Certainly, the ROI on them goes way up if the IRA is passed, but Have these assets gotten to the point where not only are they passing your hurdle rate, but you feel like they're sufficiently dearest for you to consider carrying them on the balance sheet?
Hanan Armstrong
Yes. These are meant to be balance sheet investments. Returns are slightly better. For instance, renewable natural gas, it's been around a lot longer than than it's been in our pipeline, and we've learned a lot from the industry and hope to use what we've learned to make our underwriting strong. These things are proving themselves out.
Noah Kay
Very helpful. I'm sure others have a lot of questions, so I'll go back and queue.
Operator
Thanks, all. Our next question is from Chris Sather of B-Reilly. Please go ahead. Hey, thanks for taking my question.
Chris Sather
Maybe you could just talk a little bit about how the mix of assets that are being securitized is going to change over time, as well as the energy efficiency pipeline, just given by the announcement of Climate Smart Buildings Initiative, how incremental do you think this could be, and when are we going to start seeing the impact of this, as well as that December executive order around federal buildings?
Chris
Thanks. You asked about securitization mix, and I'll answer for Jeff.
Hanan Armstrong
It's hard for us to predict, but the opportunities that come to us cleave into something like energy efficiency, which is low-yielding, great credit quality, which we historically securitize to higher-yielding assets we put on the balance sheet. With respect to the executive order on energy efficiency, we're pleased with it. It will have an impact on government agencies that procure energy efficiency upgrades. It will not have an immediate impact, however. It takes time for these projects to get proposed, developed, and implemented.
Chris
Okay.
Chris Sather
And then just on the Inflation Reduction Act, you know, Maybe just talk a little bit about, you know, the impact we could see from, you know, tax equity. I think in the past we've talked about you guys would probably have benefited from, you know, ITC expiring to some extent given you could potentially be financing a larger slice of project economics. And, you know, maybe it's too early to tell, but just the impact that you guys would see from, you know, direct pay or some of these other, you know, options that might be available in some different kinds of projects.
Hanan Armstrong
Chris, on direct pay, that's for governmental projects, which there may be some small positive for us. But the conventional renewable projects, transferability is applicable. And that is not – we're still not a taxpayer. It doesn't necessarily create a bigger opportunity for us. But as I said to Noah's question, anything that can – make tax equity closings more aerodynamic and increase the supply of tax equity is a huge positive for everybody in the industry.
Chris
Okay, that was helpful. Thanks.
Operator
Our next question is from Mark Strauss of J.P. Morgan. Please go ahead.
Mark Strauss
Yes, thank you very much for taking our questions, and thank you very much for the increased disclosures in the slide deck. It's very helpful. Jeff, I wanted to go to slide 16 if we could. And just within the EMI section, are you able to kind of break that out a little bit further as far as the return of capital versus return on capital, which is something we've been getting questions about from investors?
Hanan Armstrong
So the return on capital is going to primarily sit in the equity method investments line in the operation, and that's going to be a sort of reconciliation of the difference between cash and the HLBV earnings. And the return of capital is going to be primarily in the equity method investment distributions received.
Mark Strauss
Okay. Okay. Got it. Got it. And then as far as the securitizations go, Jeff, I take your point earlier about kind of hard to predict, but I believe you have been saying at least earlier this year that you had expected the revenue contribution from that line item to grow in 22. Is that still your stance?
Chris
I believe what we said was it would be –
Hanan Armstrong
relatively similar to 2021, I think is what we've made in previous statements, and I think we're still on track for that. So I think that would be the primary guidepost that I would use at this point.
Mark Strauss
Yeah. Okay. Okay. My mistake there then. And then on the residential solar, going back to whatever slide that is, sorry, it looks like it took a pretty good step up this quarter as far as the mix of your portfolio. I just wanted to go back to your comments from, I believe it was the last quarter, maybe the 4Q call, just talking about increased straight equity investments in some of those projects. Are you starting to see that already in 2Q? If not, when do we expect that to kick in? And can you kind of talk about the mix of preferred investments versus straight equity investments over time?
Hanan Armstrong
A couple of things in your questions. Um, I'm not sure the, the resi, um, resi did tech tick up. We did, uh, do more business with our, our partners. Um, but it's not necessarily an equity, uh, uh, it's not the kind of equity I referred to on a two calls ago. Yeah. Um, and you know, we'll see where I did foreshadow a busy second half. Um, and, uh, Our pipeline is very skewed, a lot of second half closings, and I think that's when we are likely to see some of those equity investments.
spk08
Okay. Thank you.
spk09
Our next question is from Steven Bird of Morgan Stanley.
Operator
Please go ahead.
Jeff
Oh, hi. Thanks for taking my questions and for the disclosure in the presentation. I wanted to just talk about the gain on sale and try to understand sort of the relationship going forward and the magnitude. I think there's been some concern that as interest rates rise, gain on sale income could go down. Are there any metrics that we could think about, whether it's the spread between the return as you look at it versus the return that a buyer gets? is targeting in general, not for any particular single transaction, but are there any other guideposts or other ways for us to try to forecast what this number is going to look like in the future?
Hanan Armstrong
Yeah, why don't you start, Jeff, and I'll add a little background. It's always a challenge to forecast gain on sale, and I realize it's been a challenge for the analysts. It's a bit challenging for us at times as well. because it can be episodic. But I think the long track record we've had of maintaining a very significant amount of gain on sale should provide some comfort as to what it may look like going forward. And we do try and add, as I did a moment ago, some directional comments as to the level of gain on sale we would project in a period or a year moving forward. On the first part of the question, And there was a bullet point related to this on page nine, which I didn't actually expand upon in my prepared remarks. But our securitization platform really does not have much, if any, interest rate risk. So most of the transactions are done virtually simultaneous to the actual closing of the investment and the closing of the securitization itself. And those that aren't are usually a very short period, and that short period we usually enter into a rate lock. There's virtually no interest rate risk in the scarification program, and we don't expect interest rate movements up, down, sideways, steepness, flatness to impact our gain on sale number. It's going to be volume-driven, not rate-driven.
Jeff
Understood. Thank you. And then just on the cash flow page on slide 11, you're showing a number there, the first number being adjusted cash from operations plus other portfolio collections. If we're trying to think of a metric that's essentially sort of the free cash flow before dividends and before investment, is that sort of what you're suggesting that measure is? It's sort of the free cash available to shareholders before, again, before you make those investments and before, I guess, a few other sources and uses? Could you just expand on that sort of first line item? Because it strikes me as very important in trying to think through the cash generation capacity of your business.
Hanan Armstrong
Sure. I think honestly we went out of our way to not necessarily create a new metric. I think what we tried to do here was create more of a sources and uses understanding of collections coming off the portfolio to cover operating expense and dividend. There's always some excess there as well to fund new investments, and then the difference becomes the capital raising. We weren't intending to create a performance metric. We weren't intending to create a free cash flow metric. We were simply trying to clarify the cash flow statement into more of a digestible sources and uses schedule. And hopefully we were successful on that front, but that's all we were trying to do here.
Jeff
Understood. Thank you very much.
Operator
Our next question is from Jeff Osborne of Cohen and Company. Please go ahead.
Jeff Osborne
Just two questions on my end. Going back to securitization, sorry to keep going back to that one. I understand your side of it and locking in as the deals close. I'm just curious. I think you typically are selling those to a counterparty. That's a life insurance company, John Hancock, mass mutual, et cetera. And so I'm curious as rates change maybe quickly, like we saw in parts of Q2, what is their outlook around, you know, buying securitizations from you or, or using that as a vehicle?
Hanan Armstrong
Jeff, coming back to 2000, when we did our first handy may, closing the uh... the single biggest complaint from any of our insurance company partners is with the ball and give us more even in a late no mind that was uh... the financial crisis that was uh... that was still true the fact that we can have long-dated uh... uh... upgrade quality cash flows at a premium to the u s treasury that's about as scarce a financial product that uh... as is out there so we're That is, you know, 22 years tested through up and down cycles. It is a very strong buying side for that business.
Jeff Osborne
That's helpful, Jeff. One clarification, another question. On the page 10, which is helpful on the illustrated example of a solar project, there's no change to the accounting treatment you would have if transferability of the ITC takes place and the IRA passes. Is that a safe assumption or no?
Hanan Armstrong
That would not affect our accounting methodology. No, it would not.
Jeff Osborne
Got it. And the last question I had was just you made reference to private funding. Could you detail that on the debt side, what that would look like now that you're investment grade?
Hanan Armstrong
There's a variety of forms and sources I could take. That could be a project level debt financing. It could be a bank unsecured debt financing. I think the point was when markets are volatile, we look at other options and find that they are available to us, and that is certainly a comfort, and we keep those channels open. But it could look like those two examples or others as well. And, Jeff, just remember, prior to coming on board and creating our unsecured funding platform, that's all we did was finance in the private markets. So we've been a little bit spoiled with the corporate unsecured, but, you know, We've got more than 40 years or 39 years of financing ourselves in the private market.
Chris
That's helpful context. I appreciate it.
Operator
Thank you. The next question is from Julian Timlin-Smith of Bank of America. Please go ahead. Thanks for the time.
Julian Timlin - Smith
Nice to chat with you guys.
Hanan Armstrong
Hi, Julian.
Julian Timlin - Smith
Hey, guys. So just first on the securitization, just coming back to that, I just want to set expectations here. What do you think about the growth outlook for that business? Again, I know you say it's flattish. There's a percent of overall earnings going forward. Obviously, you've got a cadence on your earnings. Should we assume that continues to grow off this 22 base at that trajectory, or do you think that kind of flattish is the new norm and then we'll kind of supplement to hit your earnings with some of these other sources?
Hanan Armstrong
So I think the flattish was 22 versus 21, which was a very, very large increase over prior years. So I think in that context, flattish shouldn't be seen as a negative. It's a very robust gain on sale from securitization. I don't think we have a 23 or 24 vision on that just yet. But I would say for context, that could remain relatively flat to 21 and 22, and we would still be able to achieve our guidance.
Julian Timlin - Smith
Right, yeah, I was just more curious about the composition. Oh, yeah, go for it.
Hanan Armstrong
Yeah, sorry. As a percent of total earnings as compared to NII, it should drift down over time. The portfolio continues to grow. Margins are strong. The NF, as you can see, it was 43% year over year. That should create an expectation that came on sale on a percentage basis. should decrease over time as a percent of revenue.
Julian Timlin - Smith
Yeah, that makes sense. Thank you, guys. Yeah, and I appreciate the bump up last year as well there. All right, excellent. And if I can pivot back here in brief with respect to, you know, maturities, financing strategy, private debt, as you alluded to a second ago, how do you think about the evolution of interest expense from here You know, we were at 4.2, we're at 4.3. I mean, you don't really have sizable maturities for some time. Should we expect to kind of stick in this ballpark here, especially if you tap into some of these private debt opportunities? Or how do you think about that cadence of interest expense reflecting the interest rate environment where we are relative to the fact that you don't have many maturities as you document for at least three years there?
Hanan Armstrong
I think the context, as you said, of not having upcoming significant maturities is And in addition, the sort of portfolio of debt is relatively large now, so I think incremental debt issuances over the next year or so are not going to move that 4.3 very much. They will very likely move it up, because whether it's private debt or other forms of debt, they're likely to be a bit higher, obviously, than they were last year or the year before. But I think the level of increase of that bottom line on the graph on the bottom right of page 9 should be relatively modest, and as I said in my prepared remarks, was also completely contemplated. So we looked at the forward curve when we did our guidance. We expected that to happen. Cost of funds will go up. They will tick up here a little bit, but modest, and it won't be at a level that will impact our guidance.
Julian Timlin - Smith
Yeah, understood. Sorry, just a quick clarification here on the transferability. Just want to make sure we're on the same page, what you were saying a second ago, just to make it more explicit. Are you basically saying in transferability for IRA being an opportunity, you're saying that by freeing up tax equity for others to absorb tax credits, that makes more of a traditional capital structure for renewables for you all to participate from a credit perspective? Is that what you're saying? I just want to make sure I understood your IRA transferability comment.
Chris
No, all I said was it makes it more dynamic to close. Got it.
Hanan Armstrong
Okay. All right.
Chris
Fair enough. I'll leave it there. Thank you guys very much. Thank you, Julian.
Operator
Ladies and gentlemen, we have reached the end of the question and answer session. This concludes today's conference. Thank you for joining us. You may now disconnect your lines.
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