Q4 2020 ECN Capital Corp Earnings Call
Thank you for standing by this is the conference operator, and welcome to the E C and capital fourth quarter, 'twenty and 'twenty results Conference call.
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I would now like to turn the meeting over to Mr. John <unk>. Please go ahead Mr website.
Thank you operator, and good afternoon, everyone. Thank you for participating in our conference call to discuss ECM Capital's fourth quarter and year end 2020 results announced earlier today and joining us for Steve Hudson, Chief Executive Officer, and Michael Apart.
Financial officer the.
News release summarizing. These results was issued this afternoon and the financial statements and MD&A for the three months period ended December 31, 2020 have been filed with SEDAR. These documents are available on our website at Www Dot ECM capital Corp Dot com.
Presentation slides to be referenced during this call are accessible on the website as well as under the presentations section and the website before.
Before we begin I want to remind our listeners that some of the information. We are sharing with you. Today includes forward looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties I'll refer you to the cautionary statements section of the MD&A for a description of such risks uncertainties and assumptions, although management believes that the <unk>.
Spectation as reflected in these statements are reasonable and we can obviously give no assurance that the expectations of any forward looking statements will prove to the correct.
You should note that the company's earnings release financial statements MD&A and today's call include references to a number of non <unk> measures, which we believe help to present the company and its operations and ways that are useful to investors. A reconciliation of these non <unk> measures to IRS measures.
Can be found in our MD&A.
With these introductory remarks complete I'll now turn the call over to Steven Hudson Chief Executive Officer.
Thanks, John and good afternoon before I start we've been dealing with.
Rolling blackouts from large friendly provider, Comcast and South Florida. The so if you hear of pause we haven't gone away, we will just be switching to our backups cellular network.
Slide seven.
As we announced at our Investor Day management and retention and the extension programs now, but the implemented through 2020 for which it should serve as of the existing management team and the operational heads more importantly are in place and executing on their strategies and happy to report strong results for the fourth quarter.
The adjusted net income of eight cents a share and.
Solid operating results across each of our businesses.
And we're reiterating our 2021 guidance given to you at Investor day of 46 to 51.
As well we are reiterating our initial guidance.
Guidance for 2022 of 55 to 64, but which will be updated mid year based upon the success of 'twenty one.
Updated to the upside.
The service finance and exceptionally strong fourth quarter with an expanded product platform.
The originated originations were up 34% year over year as well as manage portfolios up at the same percentage.
Service Finance all in one platform is now complete and the operational this as a one stop shop for all of our dealers and consumers. This represents a significant strategic step which was not discussed at investor day, but it will be reviewed this afternoon.
Fully funded through 'twenty, one and into 'twenty, two at full margins and try it as well had a strong fourth quarter with 37% originations of 39% and our core business and our expanded land home product is on track for the $150 million to $200 million of forecast of 21 originations.
And I'd like to point out that we did $45 million of land home approvals and January which is twice the monthly rate of the fourth quarter also of 14, New funding partners and 2023, New partners added in the first two months were feeling very confident about our $1 billion origination target for Tri Ed.
Kg had a strong fourth quarter with marketing services, beginning to rebound and <unk>.
And it's fourth quarter was in line with management's expectations.
EBITDA margin of 56% we are of a strong pipeline across partnership marketing and transactional services driving our 2021 results.
We're also seeing growth and new new marketing, new marketing and products, which we'll speak about and the second the Aaas stands for banking services, which we'll discuss in the <unk>.
G section turning to page eight as I mentioned, a moment ago, we're reaffirming our 'twenty, one and avs adjusted EPS guidance of <unk> 46 to 51.
Turning to service finance and <unk>.
<unk> 10.
Happy to reported operating income.
And for tax and the fourth quarter of $22 million, 40, and 34% growth and both originated and managed portfolios originations and managed portfolios. During the quarter. We did record of $2 4 million or $1 8 million of after tax provision for eliminating a California solar.
Dealer.
And the events and the quarter, California, reenter the Lockdown post our Q3 calls.
And the lack of project activity caused the full write them I did comment on the Q3 call. The that did not anticipate additional write downs. So clearly I got this wrong I Didnt anticipate further lockdown, we do expect recoveries on this account and the.
And in 2021, but given the uncertainty driven by Covid, we decided to Mark this account to zero.
And then finally, our January dealer growth grew at 64%, which is 64% above our five year monthly averaging continuing are evidence of our continued take share.
On page 11, and I thought it was a chance to take a moment. This is and the third anniversary of our investment and service finance and I wanted to step back of I can with you and make for observations, which I think are important the.
The first is in the upper right hand.
Box on slide 11 shows you the origination growth over that period, which is significant and consistent the second part is the matched growth in the servicing portfolio over that same period for <unk>.
And third observation I'd make for you is the dealer base growing on an annual compounded rate of 23% since our investment.
And the final observation I'd make for you is the substantially increased and diverse funding base of the service finance business, which gives us the basis for our 'twenty one 'twenty two fully funded.
Originations.
Turning to slide 12 as I am.
Mentioned and my introductory comments, we are pleased to announce this afternoon with you are all on one platform.
This represents an evolution of our MLP are multi lender.
<unk>, which has allowed us to offer other products other loans to our customer base on a referral base and Theres a lot to digest on slide 12, but let me just take a moment and.
Step back if I can and just tell you from my view of what's happened here is.
As the key business driver to our dealers and their customers as a one stop shop, which offers all types of credit and all types of financing loans leases rentals.
The two components, which are underpinning the all on one platform first component begins with technology, which evolved from our MLP, where we had of credit app for each lender with the separate credit pull and adjudication for each individual lender that has now evolved into a streamlined and the seamless.
<unk>, where we have one application and one credit poll for all lenders for all credit types and for all forms of financing.
Second component is the funding partners.
Which have had great portfolio performance with us have been attracted to this expanded platform and we're happy to announce for new funders are funding the expansion of the platform.
The third point.
Nearly this platform and without an industry peer and no one in the industry has an instantaneous seamless funding menu that drives from the kitchen table and drive not only additional growth, but opportunities like our big box, which is advancing quite nicely and will have information to report to you shortly on that.
And just finally and summary.
This is and expanded funding platform, which remains non recourse just like our core business referral fees and the 2% to 3% range and is largely incremental to the forecast that we gave you at our 2021 Investor day.
Turning to page 13, just an update on the fourth quarter.
A little color on the origination growth HVAC up, 48% Lennox up 41% windows and doors up 63%.
You also see the momentum going into 'twenty, one with 21 year to date of originations up 31% year over year, and we haven't even hit the season for home improvement. We are feeling very good about 'twenty one for service and in fact all of our businesses.
Turning to page 14, the <unk>.
Backlog is significant the January backlog and this business.
And which are deals of awaiting completion, where of improve them is up 80% year over year across all of our business lines.
John's provided the segmentation and fourth the HVAC window roofing and re modeling back.
The backlog alone equates into more than 220 million and the originations for the first part of 'twenty, One and addition to our regular flow.
Turning to page 15, we continue continue to have exceptionally strong credit performance of the managed portfolios on behalf of our institutional partners Deferment standard, 2% 30, 30% 30, plus delinquencies are well within historical range and loan losses of remained consistent with X.
Spectation.
This performance result, these portfolio performance results during a pandemic of what is what's driving strong additional demand for our credit product as well as for all in one platform.
Turning to page 16.
Assets held for trading decreased from $93 million.
And to $2 93 million from 122000 $28 million and Q3, we executed two portfolio sales and we'll have additional sales in Q1. It's also important to note that the one stop or the all on one platform will now transition and what were portfolio sales to a flow of business.
And we will have far less lumpiness moving forward.
17 of our originations, which I think speak for themselves.
<unk> is the guidance, which remains unchanged from Investor day, and we're reaffirming.
19, turning to triad operating income before tax is up 36% year over year originations up 37%.
We've been able to add 14.
<unk> thousand 14, new partners, and 'twenty, including branding and Fannie and Freddie and our first insurance company. We're fully funded and 21 at full origination of full servicing marked margins just like service finance.
Page 20 on program update.
Our high margin Corp, approvals are up 38% year over year, and Q4 with respect to land home, which I mentioned earlier and Q4, we were averaging about 22 million of month and approvals and the first month of January we're at 45 months and the $45 million for just that months of were up to X and that has continued and.
And to February.
The backlog of fully completed loans of waiting completion for homes has increased to $80 million for $50 million a year before <unk>.
21% demonstrates what this backlog we call of Doc so because of the documents have been executed.
Deposits of inmates. So we have of 99% close rate and this business suffice to say, it's large and growing and it increases our confidence and our $1 billion target for 2021.
Turning to the 22 similar to service finance, we've had exceptionally strong credit performance on behalf of our institutional partners Deferments are at zero 30 day delinquencies are within expected operating ranges and we've had no change and our loan loss trends.
Originations on 'twenty, three I believe speak for themself and.
And finally on 'twenty for unchanged from our Investor Day is our reaffirmed 2021 guidance.
Turning to kg on slide 25 adjusted.
Adjusted operating income and the quarter of $9 2 million credit card investment management is performing as expected and as we mentioned in Q3, our first transaction on our portfolio.
Origination syndication with other capital investment on behalf of ECM.
Marketing services revenue and I'm happy to report has returned to growth and 21, and although transaction services were deferred into 'twenty. One we also see that returning to growth this year.
I think we'll just take per second and chat about slide 26, our partnership revenue, which includes both our partnership accounts and our credit card investment management business performed quite strongly during 2020 as noted on the right hand side of the slide increased approximately 20% year.
Over a year and I think thats a function.
The partnership accounts side, where we're providing important advisory services, whether it's strategic division the visit development portfolio management for our partners.
And on the credit card investment management side.
Was historically of bank to bank of <unk> Treads for credit card portfolios has now become bank to institutional investors as another way and we believe we had a big role and introducing institutional investors into the space.
Page 27.
And happy to announce on behalf of kg of that they've been able to launch two new products, which are very important and the first is banking as a service the referred to earlier.
<unk>.
And what the Heck does that mean, we of a small credit union and that's a client of ours, where we have now structured the credit card offering where marketing of their credit card offering instruction of the marketing.
And we're set the adjudication standards for the credit card business and we're now managing the credit card portfolio. So we now have a product and it goes from beginning to and on behalf of the smaller institutions. We think it's an important evolution of this business.
Also on a risk and portfolio management side, we have of product credit Tech, which is our own proprietary system for managing credit results, which has produced strong and better outcomes and that's been evidenced in our credit card and investment management business. We have now begun to market that to third parties.
Turning to page 28.
Again, the guidance is unchanged from our Investor day and reaffirmed.
Over to you and Michael.
Thanks, Steve.
Turning to page 30, and the Q4 consolidated operating results.
And it'll originations for service finance and Triad financial services on <unk>.
$727 8 million and Q4 2020.
Over 34% compared to Q4, 2019 and drove strong operating results for the quarter.
Q4, adjusted net income applicable to common shareholders was $19 7 million or <unk> <unk> per share.
This includes the impact of onetime cost to rebalance, our foreign currency hedge positions of approximately $3 3 million of after tax following the Q3, <unk> debenture issuance and a change and our legacy <unk> asset balances.
As of December 31 of our balance sheet exposure is effectively hedged.
Q4, adjusted net income and adjusted EPS also includes the $1 8 million of after tax charge to fully write off of our California solar dealer exposure of that Steve referenced earlier.
We do not adjust for these one time items, we are committed to improving the quality and transparency of our earnings.
Finally, as discussed at Investor Day, and we recorded a provision of $22 $7 million after tax attributable to our legacy aircraft and aircraft related investments.
Turning to page 31 on the balance sheet key highlights on the balance sheet, our non <unk>.
The forecast and the previous quarter total assets and total debt were both down the.
Total assets.
And about 87 million and total debt down by approximately $42 5 million compared to the prior quarter. The decrease the total assets and total debt was primarily driven by the decrease and held for trading assets and service finance.
Managed and advisory assets are now approximately 33 billion comprised of $3 4 billion and servicing assets and service finance $2 6 billion and managed loans the triad.
And managed and advisory assets of $27 1 billion at kg.
Turning to page 32 of the income statement Q for 2020, adjusted EBITDA was $34 6 million compared to $33 $1 million and Q4 2019. The increase was primarily driven by the growth of at service finance and try and partially offset by lower revenues.
And the FX hedge rebalancing cost referenced earlier Q for 2020, adjusted EPS of <unk> <unk> per share and 31 per share for the full year in line with our previous guidance range. Despite the impact of these one time charges and.
And in Q4 of our effective income tax rate was 17, 4% compared to 19% and Q4 of 2019 for the full year effective tax rate was 18, 5% in line with the Q3 announced range of 18% to 20% due to the tax structuring completed in 2020.
Turning to page 33, and operating expenses key highlights of the higher business segment operating expenses, primarily driven by the growth and originations and managed assets at service finance and triad, partially offset by lower operating costs at kg corporate operating expenses of $5 4 million reflects the return to normal activity levels.
For business development of professional services and travel expenses.
Has announced it in the Investor day, we expect corporate expenses to be and the range of 22% to $23 million and 2021.
Finally, turning to discontinued operations on page 34.
The first we will be eliminating the discontinued operations segment in Q1 and 2021.
The second point on means that the provision taken in Q4.
Which we talked about earlier will help accelerate the exit from our aviation business. The provision is largely driven by the impacts on the aviation industry associated with the COVID-19 pandemic COVID-19.
And the industry has been very hard hit and there is no foreseeable recovery and asset values values.
For ECM will continue to pursue litigation and other recovery efforts.
Finally, the elimination of the disk ops segment, and 2021 will improve the quality of earnings of the difference between our reported and adjusted earnings will be materially reduced.
On that I'll pass it back to Steve Thanks, Michael.
Slide 36 to summarize we have successfully extended management retention through 2024, we delivered strong earnings of <unk> <unk> per share of this afternoon.
And totaling 2020 adjusted earnings of <unk> 31.
Roy will increase the 16, 5% to 18, 5% and 21 and 20% thereafter.
Service Finance originations were up 34% and Q4 more importantly is the all on one platform is going to drive both.
Significant incremental growth and the form of strategic and.
Terry will take share opportunities and new opportunities like the big box retailer that we're working on.
We're fully funded for service into 'twenty 'twenty, one 'twenty, two and full margins as well as well as try and triads core approvals were up 39% with home track sorry pardon me with land home successfully launched cagey is in line with strong partnership business continues with a deep pipeline.
And.
And we've launched new services from kg, leveraging our core competency with respect to capital management. The board approved a quarterly dividend increase this afternoon and up 20% to <unk> Canadian or <unk> 12 per.
And for annually, we closed the $75 million senior unsecured debenture due and 25 third quarter and we are active and CIB purchasing both preferred and common stock and John.
Hi.
On page 37, and I just wanted to take a second to remind everyone of <unk> management and the board of directors commitment to improving ESG policy impact and the disclosure of these issues to our stakeholders.
In 2020, we formally established and ESG management Committee to address ECS ESG impacts and disclosure.
This committee reports directly to the board of directors and we've already had several meetings disc.
And to discussing our 2021 approach.
We've engaged numerous stakeholders to better understand and plan our ESG disclosure for those who haven't had a chance to see it we put out on an initial report on.
On ECM for ESG commitment at our Investor day, and it is available on our website at the at the following link.
A couple of a couple of quick highlights ECM businesses of attractive end markets with positive ESG tailwind, we discuss quite a bit about how home and for me to manufactured housing are really reducing the energy consumption and costs for consumers. In addition to that when you largely use energy star rated equipment, it's really improving that efficiency.
ECM disclosure and now complies with FASB standards, which we're very happy about and lastly, just wanted to remind people that ECM as a founding member of the Canadian chapter of the 30% club and we're proud to have 30% of our board of directors.
Represented with the female board members.
With that.
And we'll move to move the questions. Thanks.
We will now take a question from the telephone lines.
You have a question. Please press Star then one on your telephone keypad.
You will hear of tone acknowledging your request.
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Q.
And there will be a brief pause and while the participants register for questions.
Thank you for your patience.
Our first question comes from Nik Priebe with CIBC capital markets. Please go ahead.
Yes, okay, thanks, and just thought.
Two questions on a couple of items of stood out to me and the quarter.
At service finance looks like servicing revenue came back faster than anticipated and the fourth quarter can.
Can you just comment on that and clarify whether that now reflects the return to normal or should we be expecting another small step up.
As we entered Q1, just some color on that would be helpful.
Sure.
Nick.
So if you look at.
And as we discussed throughout the year last year, we expected the number of the <unk>.
Concessions to sort of run off in the fourth quarter and to be fully gone by and by year end.
As you noticed the servicing fee of come back to almost sort of a full servicing fee.
We're happy about that and as we go into next year, we expect it to continue.
Got it okay.
And then looking at triad.
The nation's were flat on a sequential basis, but origination revenue was up 20%.
And just Directionally I would've expected the opposite relationship as the mix starts to gradually shift toward kind of the lower margin land home product and HFC assets were flat.
Quarter over quarter.
Can you just comment on that as well anything that's abnormal and reported would have accounted for that.
Yeah.
No nothing nothing nothing abnormal net.
<unk> and <unk>.
And remember.
And you have some seasonality and the fourth quarter is typically going to be a bit slower.
And then the third quarter.
On the land home originations really wouldnt have been coming through and the fourth quarter and Thats something that will start and the first quarter remember, we launched that business and August of last year and the backlogs are anywhere between three and six months. So we really didn't have much from origination perspective on the land home business and the fourth quarter.
And I would add two things one of the land home, it's really been the approval books of there are meaningful amount of.
Of originations and that number I would say that on their channel side, we were able to expand some of the pricing see youre seeing a bit of a larger gain on the channel business.
During that quarter, we didn't.
Hopefully that holds going into 'twenty, one, but we didn't forecast that increased.
And on the channel business for 'twenty, one and if you remember last quarter, Nick we had a little bit Jim I think brought it up on the call last time about we had a little bit lower gain on sale margin in the quarter that was the result of we retained more loans on the balance sheet and the quarter like we talked about memory of retaining.
Loans for bulk sales to new to New party for we were able to sell some of those portfolios in the quarter, which would result in some of those gains and if you look at the the blended mix on the gain on sale of improved obviously and the fourth quarter over the third.
Yeah, Okay, Okay fair enough.
Last one for me and it looks like corporate expenses have kind of.
Ticked back up to pre Covid levels.
On the inference from the commentary that that's kind of the new the new baseline or should we expect some more gradual growth as the economy continues to reopen.
No I think I think the Q4 is basically a new baseline for 2021 as well.
And we reiterated on our Investor day, and that's going to be around that.
The $23 million range.
Okay. Okay. That's good.
And that's it for me thank you.
Thanks, Doug.
Our next question comes from Geoff Kwan with RBC capital markets. Please go ahead.
Hi, there.
And I was just wondering on service finance and the new Big box retailer it sounds like you can't see.
And that is yet is that correct and then on the commercial side.
Is this the vendor debt.
Now doing small business and just.
And just tied into all of this with any of these new additions be included in your 2021 and 2022 guidance.
Hi.
The big box retailer, we're close but not there.
Very close and we can't.
There'll be a press release surrounding that and its not included in the guidance.
But again I think of you back into the into the into the all on one platform the <unk> platform.
The vast majority of is not on the guidance of the two.
The all of <unk> and its ability to offer.
And sooner all form of financing is an important driver.
And you had a third part of the question, there, which I forgot I apologize, yes, sorry, it was on.
On the commercial side of the vendors.
And the new relationship with debt.
Given the small business.
And we're going to what we have launched commercial both with with Beacon and with the with Lennox who are existing clients for consumer programs.
And the.
Partner buying those loans and someone who is an existing bank partner on.
On the consumer side.
As you know we've been testing of that for some time, probably a year and a half.
And we're happy to get it launched if you think about <unk> and Lennox truckloads of call at your home and then.
And we could finance and it goes down the street and it does Jon <unk> bike shop, we couldnt of finance that before because of that with a small business loans. So thats the change with this new program.
Okay. So thats. The commercial you are talking to you, it's not a new standard.
Okay, Yes.
The expenses as you know with Lennox, we're exclusive on the consumer side, we've had the ability to expand into the small business side you can assume we're doing that and this afternoon as well as with <unk> and those are the two of launching with and.
And we'll report the results as we go through the year.
Okay.
And then I know this brief but just the impacts that we saw this quarter from the winter storms and the U S. Just wondering if.
And that means that you have right now in terms of the impact on.
And I didn't have any sort of negative impacts on the richness of our even on the reverse side and actually do.
And demand for other HVAC or other housing related items.
Given the damages.
We haven't we haven't seen for <unk>.
Certainly last week and approvals.
And there was a dip last week of significant dip and Texas.
The only one part of the U S. We serve it came roaring back this week.
And we're up approvals up over 50% month to date and Texas in February at service Finance.
I think the one area, we will see impacted Jeff, but I think we're going to have more than enough and.
Improvement elsewhere as you could see some delay and manufactured homes being delivered to site. So you may see that dock out number grow but I don't see it will not impact of earnings we have enough.
Elsewhere to compensate for that.
And just my last question was the retention of clients for senior management I know you've got the Opex guidance at the call.
Current level, but just wondering what was the incremental financial impact on compensation expense versus what it would have been beforehand, just because I think I think some of these commodity stuff would be at the <unk>.
Holiday and level and some of it would be at the subsidiary level.
Yes.
For the retention agreements with the the business unit heads of those are those are all share based awards. So we saw that the increase in share based comp in Q3, and Q4 and all of those are related to those retention agreement. So that was more than half of our share based comp expense for related.
The retention agreements to the business unit heads.
And the other part of that Jeff is that with <unk>.
And our <unk>. Although these are five year programs for for retention and the best over five years based upon performance and time.
And our App are required to expense of 50%.
Two and a half years of that comp gets expense and the first year, which of the reason that 2020 share based comp was elevated and the reason why it will be down on 'twenty one.
And remember it is actually for the full year, but because we announced those in the third and fourth quarter, we actually had to take the full year's expense in two quarters.
And.
Just keep that in mind as well.
Okay perfect. Thank you.
And the next question comes from Tom Mackinnon with BMO capital. Please go ahead.
Yes, thanks very much good afternoon.
Just a question about maybe interest rates, we're all watching.
The interest rates go up substantially.
Every day here and.
Maybe just.
Yes.
Impact on maybe the propensity of customers to take installment loans in order to take.
Manufactured home loans.
Or what the impact on your funding partners.
All of the rates going up the I mean is it.
The concern and when do you get.
Service and.
And what has to happen to rates or spread for.
You would be weighted.
Yes.
Hi, Tom take you back to slide 11 for a SEC.
And go.
And go back a little bit of history. If you look from the fourth quarter of 2017 to the fourth quarter.
Of 18 into 19, and you saw a five year treasuries.
Run from $1, seven $1 75 to almost 3% and I.
I think Thats a good example of one we had the ability to price that in and two there was no theres no decrease again there is no decrease in demand for our product as you know a lot of our programs and the manufacturers are dealer sponsored or manufactured sponsored.
And they are able to buy down the rate. So don't think of it didn't impact us on the funding side and that didn't impact us on the demand side.
Yeah, and Tom just to add to that just to add to that Tom and remember.
The service Finance average ticket size is around $10000. We're amortizing the typical product amortize that over five years, plus if you think about 100 basis point change in rates, you're still talking about a very small change and the monthly payment of 100 basis points from from this level might change your monthly payment on the only by <unk> 15 to 30.
So if someone has a broke and HVAC and theyre trying to get that fixed it's typically not going to change customer behavior. So in order for an order for.
Tough to see real behavior changes I think you'd have to see something like the Russian ruble crisis. For example of some very major spike in rates very very quickly.
And what would change the behavior of your funding partners would it be have to be.
Spreads blowing out maybe just help us understand what which all of the.
What would change the behavior Tom is the ROI on the portfolios that they buy from us, but our portfolios have and our average ROA of.
About three and the quarter were on average mortgage portfolio today is.
One two to one for the latter we're twice that and we have.
Ben.
Committing through Hell or high water funding arrangements are funded through 'twenty. Two so it would have to be three of 400 basis point change and interest rates and it would impact 'twenty three funding.
The impact and so I don't see either one of those.
Happy to Tom and.
And then of course.
Yes.
Go ahead sorry.
And the follow ups on the all in one.
Yes.
And I think your excitement here and its ability to sort of the <unk>.
The increase of approvals.
Are you taking on any additional credit risk.
And what are the comments from.
From lenders with respect to the all went on.
And.
Brent.
So yes. Good question. Tom This is all of our core business on a non recourse basis, we get paid a referral fee.
We've been originating service finance, that's been originating 5% of of non prime paper for the.
Several years, so we have a lot of data on how it performs we're just not in that marketplace. So given the performance of of our paper and that 5% and the ability to do the seamlessly at the kitchen table. It's the combination of the technology advancement of all.
Of our learnings from the multi lender platform.
And the demand from investors and that's allowed us to launch this product. We've also been able to launch it for a lease product.
We obviously have ricks loans, but we were able to launch the lease product now because of we are a lessor that's approached us who wants that paper, but non recourse.
For all fees that given you a range on this would be largely incremental to the <unk>.
And to the forecast for 'twenty, one vast majority of it and we will report the results back on the quarter by quarter basis as we go forward.
It's a big evolution.
There are here and now.
All of our able to and in the past we had about a 40% approval rate for our dealers this will materially change that.
And the cost to build this program out is there any increase in opex or can you remind us for you.
Funded this already.
And already done and Tom It was the was the build out costs for the MLP platform over the last year year and half of all expense through.
Okay. Thanks very much.
Yes.
The next question comes from Vincent <unk> with Stephens. Please go ahead.
Thanks, Good afternoon, guys. Thanks for taking my questions.
The first one wanted to go into detail on the at all on one platform. So it sounds really interesting.
Maybe if you can remind us what the the volume of opportunity is there debt that youre declining and then.
Talk about maybe some more detail on the participants and how that where it makes the like how much volume.
And with the participants make or take currently.
And then maybe the pipeline of.
The incremental participants we're looking at also contributing to the program.
So for US if we used 20 of the guidelines Vincent.
Where we originated we originated funded $2 1 billion and.
And 'twenty, we rejected that same amount roughly make my math easy on late in the afternoon rejected probably $2 1 billion.
It might be closer to three but call it $2, one and 20 rejected credit.
This opening up the box if you will we'll probably capture half of that will probably pick up and an incremental 752 1 billion $2 50 of <unk>.
Paper that would have hit the floor and the past.
Newly launched in January so, we're watching and we're watching it grow and approval rates as I mentioned earlier to Tom. This is on non recourse, we're getting referral fees of approximately 2% to 3% on this block of business.
And the investors or institutional and base, two who have an appetite and lots of history and the near Prime space and very much want this paper and we will enable the shoulder and the performance of the five.
And 5% we've originated in the past I think we could add additional.
The additional investors right now we haven't got the flow for them. We are fully committed on this.
On this all on one platform the papers spoken for for for 'twenty one.
But happy to talk to people, who might have an interest and this paper.
I just want to add as well.
And as Steve as Steve said in his remarks earlier about this this is a new product for the industry. This is <unk>.
Something that.
If you had to ask folks and the industry I would say that they were have been looking for something like this for quite a while.
It really will create some dealer loyalty it could over time push more applications from our existing base through to us and ultimately drive more dealer growth. Because this is going to be the only only place you're going to be able to get this product.
Like Steve said, we had about two plus billion dollars worth of turn downs.
Last year that number should be somewhere between two five and $3 billion. This year.
At least so.
So we think we think there's a good opportunity here and obviously, we're not we're not building that end of the origination guidance at this point, because we'll have to see how it ramps.
Okay.
Quick follow up on that it's really helpful.
So thinking about potentially some 750 to 125.
And so and then youre getting 2% to 3% piece of it simply taking debt.
And so you could be making.
$30 million of incremental annual fees.
The recourse of no credit is just is just for you. So I wanted to kind of confirm that Matt and then too. So you mentioned that you could add an incremental of investors, but you don't have the flow for them. So the for investors you have.
Today could absorb debt $750 million of 125 billion and just wanted to come from that too. Thank you.
So the for investors can have committed to that flow none of them.
Your math is right, but it's got to be on an annualized basis right launched in January.
Track it for the reported to you, but once it's up and going and those will be the annualized numbers.
And like any of the program Vincent and there's a process to ramp this right like so we're going to have to roll. This out dealer by dealer you're going to have to train all of the different folks on these products you're going to have to make sure that people understand sort of what they're doing and they can go out and sell with this tool ultimately we think it's going to be a big contributor for US like we said, we'll wait and see.
See here at least for a couple of quarters to see how it ramps the.
The product is out there active and live with our major dealers and it's working quite well we've had some significant take share in January and February and away from other competitors.
No real need to stay with the credit card provider now that we have this product so the.
And the share is just not from installment base providers. It's also from revolving credit providers and home improvement.
So your math is right.
But it's kind of fully rolled out but it's in the first two months, it's performed very well.
Okay, and Thats really helpful. Thank you.
And I wanted to switch over to the banking as the service.
And the kind of similar question. So if you can talk about.
This is the credit Union that you signed up with.
Maybe if you could talk about the the fees.
The the volume potential debt the credit Union signed up for and.
So you have this one credit Union is this something where you can add.
And so many other credit union relationships from service finance and from Triad, and so just kind of curious about the pipeline.
Sure.
Sure, Thanks, Vince and so.
Is the effectively the same program, we call that turnkey at at.
And at Investor Day.
We it's a really interesting product for us if you think about it over time Kessler has developed some very significant.
And some very significant capabilities those those capabilities were put the year's for it and its partnership business and elsewhere, what what they've been able to do with this product is basically take that skill set and core competency and bring it down to what I'll call smaller institutions take take our launch client, it's a $4 billion ish.
And this credit Union that has a couple of hundred million dollars credit card portfolio has interest and doing more with that credit card portfolio and they've been able to do on their own.
We mentioned at Investor day that in year, one we thought there'd be about 1 million and $5 of revenues from that company.
You can go back and check that chart.
Expect it to grow the sort of $3 million plus maybe in year, two and <unk>.
And to grow with the size of the relationship.
And why we think that that is interesting is.
Scott and the team thinks they can add five.
10 of these kind of customers annually over the next couple of years and it could become a sizable business. What we like about it is really redirect and a lot of those core competencies of Kessler to this product and its really of banking as a service product that we're rolling out here across really across the country.
Okay, that's very interesting and very exciting thanks for the detail appreciate it.
Thanks Vincent.
And the next question comes from Kian.
With Stifel. Please go ahead.
Hey, guys and good afternoon, and I'm, just wondering with respect for the retail program could you walk us through the process of how that's going to work and our contractor goes into the big box store.
And as the credit well.
And how does that for them to you all on one program, which I think is tailored to the kitchen table.
On the profile. So maybe just if you can walk us through the mechanics of how that debt.
The program is.
And to work with.
Hey, John how are you doing good.
So the Big box program, I think Scott I'm, sorry, I think mark talked about it quite a bit and the Q&A session at Investor day, hopefully the to hear what he has to say about that but.
It's the program they've been working on the non working on for a while.
Interesting because it actually create some new revenue streams for service and ask because mark and his team will actually manage the leads and the jobs that come through the big box retailers both in the store at the kiosk and online through the digital offering so there'll be a revenue stream from elite.
Management part of the program.
And as well as potential financings, which obviously sort of stance will get a first look at so we're really excited about it I think beyond that we'll be we'll be ready to update more about that and the second quarter.
We can just talk about of more fully as the.
And gets rolled out.
One of the one of the impediments, you can imagine and launching a big box retail on any retail platform has been when you have of 40% to 50% rejection rate.
And it's kind of an impediment to the customer experience.
And if not a showstopper the.
The all of the one was underpinning these conversation, but it also will drive now additional take share from traditional dealer.
And distributor origination and like you said I mean the.
The all in one is designed it for the kitchen table, but it's also we're going to get the first look on all on all financing so to the extent that customers that come through the big box retailer need financing.
Run through the similar process at service finance, so youll have the opportunity to take advantage of the on one platform.
I appreciate the color there maybe just a quick follow up.
Two out of the turnover broke respect to average ticket size.
The Big box program and as your retailer I think and say it or not I don't know, but are they focused on any one kind of product like floor versus.
Sure.
Each bar for something like that.
Could you give us any color on the and product or is it diversified mix.
Yes.
Like I said I think we're going to wait on that until we have.
Our form of launch where we can talk more fully about the relationship and all of those things, but as you can imagine the ticket size for home improvement at similar type of on a premier network financing today, So I would suspect that the ticket size would be roughly similar to the.
10 of $11000 average ticket that we generally book.
So I appreciate that and maybe just an update on the funding platform. I know you guys are fully funded for you.
And your plans and Illinois.
This year of 2021.
All of the conversations progressing for 2022 and beyond and we're talking to more partners partners New partners just for an update on the appetite and the.
The.
Depth and breadth of the pipeline.
Yes, not really.
Good question.
And our funding for service is now well into 'twenty two on the committed basis. Every single funding relationship has now documented and is a hell or high water obligation.
And the.
The addition of of Canada pension investment Board as a fund of really has opened up new interest from and as you know we mentioned.
Three years ago, and acquired invested and service that market built a great company, we want to help and diversify funders and we've been able and he has been able to do that with.
For the likes of insurers of joined and now sovereign well. So I think you can assume that youll see it.
Expanded mix of continuing to expand and mix of funders.
And we're going to be faced the same challenge.
And the latter part of 'twenty two that we are facing today, which is we don't have enough product.
Yes.
But.
And at the end of the day I think the hallmark for all of these businesses.
Is the credit performance of the credit assets that we manage on behalf of our cost of the customers are banks are life insurer, our pension plan and pay us for originating and managing and advising and I will.
I'd say I would say they are they are on.
All happy with the relationship there and a little bit I'm happy that we can meet all of their requirements, but we will find a way of allocating.
Thank you very much.
The next question comes from Jamie <unk> with National Bank Financial. Please go ahead.
Yes, thanks, good evening.
First question is on the the land home originations with Fannie and Freddie the apps are looking fantastic, but still no origination disclosure can you give us a little bit of color on.
On originations at this point and approval rates at least for the the loans.
The loans that were approved.
On September.
Okay.
We've got flow of about.
Five to 10 million of month coming off the book, It's a long time, because you have to GAAP.
Yes.
Im referencing January and February.
With the origination numbers of the funded numbers. It takes some time here because this is an approval for a brand new built.
So the approval and then it gets built so there was a delay but we are of the fundings are now rolling through.
On the.
On the approval of this were from approval to funding. This book is of higher call pull the pull through rate of approximately 60% are traditional channel business has about a 40% pull through rate.
From from approval to funding so we're.
We're highly confident once approved and it's going to get funded when you approve it and you satisfy the conditions you are cutting a check to us for the committed for the committed land home financing and Youre signing of the documents so.
We feel good about the flow and then.
We just launched the business again in August right and we did.
<unk> previously that the backlog just across the industry have extended and so we never really anticipated having a lot of actual originations and this product until we got into 2021.
Think of <unk> said were running about maybe five to 10 million of month today I think we've actually originated about 20 million. So far off this program and total.
Okay.
That's helpful.
Going back to the the all on one platform.
Platform and correct me, if I'm wrong, but I.
I feel like the the $7 51.
And $1 two 5 billion number is quite a bit larger than maybe what was discussed at the Investor day, which I think was something more like.
And $150 million to $200 million so what.
What changed specifically that that would allow that to increase if I got that right or just some of it yes.
You've got 100% right.
At Investor Day, we're talking about MLP and.
This is the next evolution of MLP as MLP as you know MLP is every lender that comes on and MLP you have to get a new credit application and you've got to pull credit data and again. So it is a bit of a chunky process.
This wipes it all out it's been and development for six months now you have one credit app on behalf of all of the letters of one credit pool and the and the early early reception and January and February has been very strong.
Whether it's 750 or $1 billion I can't tell you, but it's going to be a significant increase of what we gave you but again, let's let it rollout fully and will report through the data to you.
Yes.
That was it was it was really driven by the.
The conversation with big box retailers, where they want to see of higher acceptance rate.
And the other way that we can accept more of the product is by having the right referral partners because we're not in this business.
So mark and his team came through once again and built the technology.
Jointly we brought some investors the table and now we formally launched it.
Okay. Yeah. So the tag upgrade is the driver there that's clear.
In terms of the funding partners.
In the all on one program. These are for unique partners that previously weren't service finance partners and can you provide a little bit color around what these partners look like are they national banks regional banks subprime specialists, what do they what do they look like.
They are one hundreds and hundreds of billions of institutional investors.
The large institutional investors with big asset management platforms.
And their credit books, they would have literally one hundreds of $1 billion.
Okay, So asset management firms not.
Non banks or credit unions like typical of service Finance program.
And we've got clear of the.
These were for new ones, we still have to traditional banks and the MLP or buying the paper Jimmy These for our very large there on the on the level of of CPP IV.
Both on dollars and sophistication.
Okay and remember.
Please go ahead.
There is the full credit spectrum across the board and so you could have different sets of of lenders or.
Our buyers across the credit spectrum, we actually have some of our larger banks, who are buying some of that upper and stuff and some of our supply type paper.
We have really all the way down to some really small not small but really.
The specialty finance type companies that are looking at some of the really lower FICO paper, but it really is across the board. It's not just for entities. It could be a whole number of entities and we continue to debt to look at the opportunity to add more over time.
Okay last one just to be clear on the the third.
$30 million amount that Vincent did margin profile roughly similar at 65%.
This is a referral business only so depending upon which the form of financing were referring through it's either at two two and half of 3% referral fee.
We'll give you the mix as we go forward Youre asking what the margin is on those revenues.
All things equal all things equal this is incremental revenue coming through and it should be at a at a higher margin on average, but we'll have to wait and see what the mix looks like I'm reluctant to go too deep on that discussion at this point, let's wait and see how it rolls through over the next couple of quarters, and we'll have a better idea.
Okay, Great can I sneak one more and just on the on the investment.
I don't know if theyre called legacy or non core of there was the write down this quarter.
What else is and this investment portfolio of what's the purpose of something.
And that we should expect going forward.
For the write downs or other decisions on that portfolio.
It's gone Jimmy.
Britain is down to the remaining transactions that we have.
So the agreements in place to sell it. So there is no further write downs coming.
I would I would anticipate recoveries being booked here.
Remaining part of the remaining part of 'twenty, one and 22, it's all a function of recovery of the aviation industry.
Okay, and Thats legacy and the investment portfolio of that included Sarah correct did I understand that correctly.
Correct, 100%, Okay, great. Thank you that's all for me.
The next question comes from Mario Mendonca with TD Securities. Please go ahead.
And even just to.
Final point on the referral programs just so we're clear there are no service fees attached is the just the 2% to 3% of that right.
Correct merits of two and 3% and youll be paying commissions out of the field or field reps and our field reps, but there are no. There's no other fees. The do you expect to maybe disclose the somewhat separately from the core originations so that we can.
The model earnings level of better.
Yes, the 100% of 100% we'll show you the referral revenue and will show you of the flows underlying and as we get it implemented across the platform.
Because these won't be part of the data sets or anything of the bill it would be helpful. The habit separately.
Yes, 100% and here, we're not we're not going to book of in the core core business. If you will on our EBITDA margins will break it out separately for you.
One final thing there were a lot of encouraging things about this quarter.
And that really.
Encouraging and so far as.
It's easy to see of period here, where.
Core earnings our adjusted earnings are not all of that different from reported earnings.
But before we sort of make that leap.
And I think its worthwhile highlighting the dose, but we really haven't seen.
Book value growth book value per share growth and three years for this company and arguably a lot of it and the first part of that three year period, where the buyback.
Even without the buyback there really hasnt been book value growth of this company and maybe the last year and a half.
Would it be your expectation that going forward.
Book value growth, we might actually start to see you on the per share basis.
And the reason why on focusing on this as you know.
I'm kind of old school here I think that book value per share growth is reflective of the.
Volume value added business.
So what's your outlook on on book value.
Yeah. So.
I do agree with your last comment of boat.
And it's an appropriate way to look at the financial institutions.
Would comment is the background there that we as you know we've divested of.
$5 billion of assets of 48 months, and where we had to take some haircuts. We took it because I wanted to get my hands on the cash in order to rightsize. The company, we bought back 40% of the stock.
So there is no doubt that that was a hit to book value as we bought because we sold off companies, but the bulk.
And return got our hands on the cash and.
Drove contributed surplus so.
More work to be done to your point and.
On the proof will be and the results that we report and you will see growth and book value and 21.
And we're cognizant of the feedback from our shareholders that they don't want to hear about below the line charges.
And to be clear when I say book value growth I always think of it excluding things like big share repurchases, because I think that's all obviously value additive as well.
The book value and the way.
Got it excellent.
Fitting out the effects of share of share repurchase, but and then Nathan and I appreciate your interest.
Correct.
Earnings less dividends, yes got it.
Thanks.
There are currently and no more questions registered at this time.
This concludes today's conference call you may disconnect your lines. Thank you for participating.
And have a great day.
Okay.
Yeah.
Yes.
Yeah.