Q3 2022 ECN Capital Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the ECM capital third quarter 2022 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the call over to Mr. John and Jeff can you go ahead Mr. Linzess.
Thanks, Kelly and good afternoon, everyone first I want to thank everyone for joining this call from ECM joining us today are Steven Hudson, Chief Executive Officer, Michael <unk>.
Chief Financial Officer.
News release summarizing. These results was issued this afternoon and the financial statements and MD&A for the three months period ended September 32022 have been filed with SEDAR.
Documents are available on our website at Www Dot ECM capital Corp, Dotcom presentation slides to be referenced during this call are accessible in the webcast as well as in the PDF format under the presentations section of the company's website.
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 refer you to cautionary statements section of the MD&A for a description of such risks uncertainties and assumptions, although management believes.
The expectations reflected in these statements are reasonable we can obviously give no assurance that the expectation of any forward looking statement will prove to be 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 helps to present the company and its operations in ways that are used to investors. A reconciliation of these non <unk> measures to iff's measures can be found in our MD&A is always all figures are based on U S. Dollar.
Unless explicitly noted.
His introductory remarks complete I'll now turn the call over.
Thanks, John .
Turning to slide six on Kessler sale, we maintained our 2023 guidance of 36 to 42 cents announced.
[noise] announced at Investor day in 2022.
This guidance was comprised of two components first.
30% to 35 cents of organic earnings and second six to 12 and M&A related earnings.
While our businesses remain very strong we are clarifying.
Our estimated twenty-three organic guidance to 25% to 30.
Reflecting a more conservative view, while still remaining very optimistic about 23.
That.
We continue to expect meaningful accretion from our tuck in M&A strategy in 2023, but in the current environment. It pays to be patient and selective already we have found some more interesting opportunities and improved valuations and we believe even better value may be had as we move forward into 2023.
As you move on to page seven we'll give you a little bit of a update on our tuck in strategy and while we've discussed at length previously the strategy. We wanted to give an update since we last spoke.
We have a large current pipeline of opportunities that we have source and since the <unk> investment we will routinely haven't business is reaching out to us directly discuss possibilities. So the list of potential opportunities continues to grow.
We are currently in advanced discussions with three marine and RV platforms that would add roughly $5 million to $7 million and adjusted operating income in 2023. These investments will both add volume opportunities to push through our broader platform, but also add some adjacent products, which will be additive across all of the entire platform.
We have several other opportunities under LOI and many many others under review.
We think the opportunity is enormous to accretively consolidate the marine and RV finance segment and create the premier platform in the space, even though the environment lends itself to patients and we will execute the right deals at the right time.
We see attractive platforms at good valuations, but we anticipate even better value as we move into 2023 as a result, we continue to believe that the six months to 12 cents is a reasonable outlook for M&A, but the timing of that accretion may push later in this year with.
With that I'll hand, it back to Steve Thanks, Jon turning to slide nine we are pleased to report strong third quarter results of five which also reflects moving kessler into discontinued operations.
We're highlighting on manufactured housing triads results continued to be robust and strong in the third quarter, specifically triads Q3 originations were up 20, 27%, indicating continued healthy robust customer demand.
Okay.
Eric Hurricane Ian and flooding in several states pushed $20 million to $40 million in the committed originations from the third quarter to the fourth quarter. As you know these are docs out where the customer has signed contracts 99, 9% of originations do close at least originations had closed in Q3, we would.
Have been up 37% they will close in the following quarter.
Third <unk> still has the most affordable housing option I'll speak to that in a second in fact, it's better than rent.
Fourth we are reiterating our 2022 guidance of 70 to 75 million for Tri Ed and we're fully funded for 'twenty, two 'twenty three and into 'twenty for.
Marine and RV a couple of highlights Q3, combined originations were up 21%, indicating continued strong robust demand.
Robust demand for prime and Super Prime consumers continue.
We're adding <unk> to our 'twenty two guidance with a combined operating adjusted income before tax of $17 million to $19 million.
Specifically turning to triad on on slide 11.
Adjusted operating income for the quarter up $21 million up 30, 30%, we anticipating this growth rate continues into 2023.
Q3 originations were up 27%, notwithstanding hurricane Ian and Multistate flooding that occurred in Texas, Mississippi, and Kentucky in July and August .
If those transactions had those deferred transaction had closed the Q3 originations would have been up 37%.
Try it is fully funded into 'twenty three 2022 'twenty three 'twenty four to Blackstone partnership is planning is work. We're also with advanced discussions with two other similar institutions for similar type Blackstone programs I do want to make it clear on this call that there is no wholesale funding whatsoever, including securitization, which.
<unk> has never been a funding structure for HCN and either triad or marine RV groups.
A really the guidance is $70 million to $75 million for 'twenty two.
Turning to page 12, our Q3 approvals on a dollar basis are up 25% <unk> up 27%.
The CRP program, which is our re program is down marginally due to the due to some of the lower FICO borrowers delaying purchase decisions notwithstanding that our core retail and community programs that more than compensated for the slowness of that.
That segment and you see that 700 plus communities year to date have signed up with Tri Ed expanded product groups. Our floorplan balances are up to $355 million as you know floorplan balances allow us to drive both prime and Super Prime loans.
Turning to 13 my earlier comment on manufacturer.
The affordable housing solution try.
Try its current pants monthly payments are $829, which is just about a third of a traditional mortgage payment. It's also important that you put the 829 in the lens of the average national rent in the U S is 19 $800 manufactured homes are are more palatable consumer.
When it comes to lower monthly rent in this case, a loan or a mortgage we've highlighted in the box before a chart, we saw before but current triad mortgage or chattel or $829 a month up 218, whereas traditional mortgages are up 202.
2000, and $235 a change of $1141.
And this this this is driving the robust demand for our product turning to page 14.
If you looked at <unk>, which is an important factor in and consumers deciding to borrow and lenders decided to grant credit.
In the tradition of the housing market <unk> has reached 39% which are right. They have not seen since 1984 important that in our business. Our average PTA is just 15%.
Try as affordable manufactured housing has remained resilient with originations growing more than 41% year to date through September .
Turning to slide 15, affordability drives demand and shipments remain elevated and retail demand remains robust year to date industry shipments are up 30%, 13% and up 10% in Q3 in comparison total existing traditional home sales were down 5% year to date and <unk>.
13% tracked by units.
Page 16, some commentary from publicly traded manufacturers, we've highlighted a series of comments I would draw your attention to skylines comment about continued strength in consumer demand in the quote activity being very strong also in cab co I would draw your attention to the notably manufacture.
Housing shipments.
New homes have been around 10% to 15%.
In recent years in the last six months that shares now increase the high teens to low 20 people who have bought traditional homes in the past are now moving into.
We are replacing that decision with that of a manufactured home purchase.
Turning to <unk>, our focus on prime and Super Prime credit rewards as well with continued strong credit performance in both delinquencies and net charge offs.
18 is a chart that we provide each quarter four you're showing the strong.
[noise] origination both on a year over year basis.
And on page 19, as I've mentioned, a couple of times, we are raising our we have reiterated our raised guidance, which we as last quarter to $70 million to $75 million and adjusted EBITDA margins have improved to 54% from Woodford the forecasted 50%.
John .
Thanks, Steve.
On page 20.
We are presenting source one in ISG as our combined RV and rig I'm, sorry, Marine and RV segment going forward.
<unk> operating income.
For the quarter was $5 million in Q3 on originations of $298 million combined <unk>.
Asian revenue as a percentage of originations was down slightly quarter to quarter as ISG earns a bit less gain on sale of in source one, but we think the margin is now a reasonable proxy for the go forward given the current program mix.
We have made significant progress on our growth initiatives, which we will detail more in a moment. These investments has resulted in some upfront expense that is necessary to build out the platform <unk>.
This process is identical to what we did at both service finance and triad that has resulted in substantial long term growth profiles, we see the same opportunity in marine and our day.
Page 21 <unk>.
Detail some of those investments.
A number of them we have spoken about before we.
We have completed our national rollout with the addition of our northeast sales rapid source one in Q3.
That concludes we've added reps now in Florida, the southwest the west.
The northwest and the northeast.
We are far along in our licensing project with licensing completed in 29 States and we now expect to be fully licensed in over 90% over 90% of our originations are by year end 2022, with the balance coming over the next couple of quarters licensing will allow us to originate in our name and sell through on a program basis, improving turn times and.
Customer service.
Servicing with Washington in August and we have successfully piloted balances, which will allow us to offer servicing to our funding partners going forward. In addition to creating a new revenue stream servicing will allow us to expand our funding partner network and provide us with better long term data.
We launched marine and RV floor plan and have added 13 dedicated professionals as we've demonstrated.
In MH Floorplan drives meaningful retail volume already we are introducing dealer rebate programs for dealers to incentivize retail participation.
We've built several new programs, including complementary flow Canadian loans, and expect progress pay to be launched before year end. Each of these programs will offer the industry new products expand our reach and drive profitable incremental volume for 2023.
We are active in recruiting additional sales teams as well as underwriting and processing personnel to facilitate growth going forward. As you can see we have a lot of projects going on which will cost some money upfront, but will enable us to grow substantially in the future.
On page 22, Q3, marine and RV volumes have remained robust with approvals up 62% in originations up around 21% combined with.
We continue to see a resilient consumer demand resilient consumer for our prime and Super Prime customers.
While we have.
A number of quotes on the following pages I would just like to highlight that the Fort Lauderdale boat show was just a couple of weeks ago and the results were really fantastic with both record sales and turn out.
Separately, we've seen some results from some companies like master craft. So they continue to raise guidance and see excellent growth.
On page 23, we go through some of that industry commentary I won't run through these other than to note trends are similar robust robust consumer demand continues inventory is still tight in the marine but it has improved and RV as we've seen throughout the year still backlogs remain high.
Page 24 is our typical origination chart that we provide every quarter and page 25 is the updated guidance, which is really just combining <unk> one for the quarter.
And with that I'll turn it over to Michael.
Thanks, John .
Turning to page 27 in the Q3 consolidated operating results first I'd like to point out that Kgs is presented as a discontinued operation in Q3 as a result of the sale that closed in early October .
Total originations were $680 million in the quarter, including $381 million in manufactured housing and $298 million in originations from our marine and RV segment.
Strong operating performance from both our business segments resulted in adjusted net income applicable to common shareholders of $11 8 million or <unk> per share compared to $3 $5 million or 1% per share in the prior year quarter.
Turning to page 28, and the balance sheet.
Key highlights on the balance sheet or the total assets were up over $160 million, primarily driven by the increase in on balance sheet finance assets at triad.
The $700 million in on balance sheet finance assets of triad are composed of three components first accounts receivable of 100 approximate $170 million, which are loans that have been sold to partners and are awaiting funding. This balance is correlated to total originations will grow in line with total originations growth.
Secondly, as Steve mentioned, our Floorplan product is currently at $355 million and this is a core asset that drives prime retail loans that we sell through to our partners.
These loans are very profitable in their own right the 9% yield in Q3.
However, we received a proposal from a large partner in Q3 to buy Floorplan loans under a flow agreement and are currently in negotiations and expect to have the agreement in place by Q1 2023.
Our current target is to hold approximately $400 million to $500 million of Floorplan balances on our balance sheet and flow anything above those levels to our partners.
Floorplan is a very high demand product and therefore, we can flow as much of the balance we want to in order to manage liquidity levels.
Finally held for trading assets were $160 million as at the end of Q3 and these are these balances are comprised of qualifying loans that originated on behalf of financial partners that buy bulk portfolios on a monthly basis agreements or incentives to buy all of <unk> products products core through brands and the results to HFC balances expect.
To decrease to approximately $90 million to $100 million by the end of the year and on a go forward basis.
Total debt was up approximately $175 million compared to.
Q2, which is primarily driven by the increase in finance assets total debt of 900, and approximately $990 million at quarter end included $150 million in senior unsecured debentures that are fixed rate and they are used as long term capital to finance acquisitions and for which the company can settle the issuing common shares our senior line revolver as floating rate debt.
Generally used to finance our on balance sheet triad finance assets.
Pro forma debt after completing the sale is kg in early October was approximately $800 million and pro forma net debt after deducting the $680 million of non balance sheet triad finance assets was approximately $120 million, which is very manageable.
Turning to page 29, and the income statement total revenues of $58 million were up over 73% compared to Q3 2021, reflecting the strong growth of Tri Ed and the addition of in our Marine and RV Finance business segment in 2022.
Our strong operating performance of the manufactured housing and marine and RV businesses drove an increase in adjusted EBITDA of 225% to $31 4 million and a 2% and 31% increase in adjusted operating income to $16 5 million and as noted Q3, adjusted EPS was <unk> <unk> per share compared to one <unk>.
<unk> per share in the same prior year quarter.
Turning to page 30, and operating expenses key highlights our business segment operating expenses, primarily driven by the growth in originations and manage assets.
New products of Tri, Ed and the inclusion of our marine and RV Finance business in 2022 overall business segment operating expenses increased by approximately 64% year over year.
Compared to the revenue core revenue growth of over 73% corporate operating expenses of $4 2 million compared to $4 6 million in the same prior year quarter and $4 4 million in Q2 this year.
And with that I'll pass it back to Steve. Thank you Michael in closing comments before taking questions on slide 32, we have clarified our 23 EPS guidance, although our business remains very strong we are taking a conservative approach and up getting organic EPS to <unk> 25, sorry, 25% to 30.
<unk>.
Consumer demand in both manufactured housing and marine and RV remains robust and will continue into 2023.
As John mentioned, we've had success in our tuck in strategy.
We're very we think there are a number of transactions.
Both.
And pipeline.
Have a high probability and we believe in this environment with elevated interest rates will get better value at the time to be patient and these will be just these will occur over the next few quarters.
And we're happy to report a nickel of earnings for the third quarter EPS with manufactured.
We've tried originations up 27%, 37% for the two weather environment, which is a temporary deferral not a loss.
<unk> guidance of $70 million to $75 million of adjusted operating income.
<unk> remains the most affordable choice available to any U S consumer.
With payments monthly payments at $863 versus $9800 for traditional housing grant we.
We are full flooded into 'twenty, two 'twenty three and into 'twenty four.
Marine RV with originations up 21% adjusted guidance to include <unk>. We are in the midst of building the premier platform in Marine and RV just like we did in home improvement just like we did in manufactured housing.
The progress in marine and RV.
Capital management, we've declared a dividend Michael set of <unk>, and we repurchased 2 million shares in the quarter.
With that operator, I would open the call for questions.
Thank you.
Now take questions from the telephone lines. If you have a question. Please press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
The next speaker phone please pick up your handset before pressing any clues to withdraw your question. Please press Star then two.
Our first question is from Geoff Kwan with RBC capital markets. Please go ahead.
Hi, good afternoon.
I'm just trying to reconcile your comments about demand seemingly robust in all of your segments, but yes.
The wording in your guidance for 2023.
<unk> reduced the organic EPS guidance from 30 to 75 cents down to the 25 to 30. It just I'm just wondering if you can clarify why the conservative view unless maybe youre seeing.
Very early signs of some slowing.
Hey, Jeff.
Well I mean.
We're certainly seeing it in other segments that would be adjacent to where we are I mean clearly.
Rates have moved up faster than they've ever moved up in history, we've seen.
Really poor numbers out of the mortgage segment with purchase mortgages down over 40%.
Year over year, we continue to see pretty robust demand across across MH, we expect that to continue the affordability is fantastic but.
We'll have to wait and see how we go into next year, we're just trying to be a little bit more conservative.
We had given just given the environment.
As far as both on our Visco we've seen.
As long as long as we're talking about the prime and Super Prime segment, we've continued to see pretty robust demand going into this selling season with.
The boat shows doing well and we continue to see both applications approvals and.
Originations trending along pretty well.
That said, it's been a pretty robust year for both <unk>, one and and <unk> and we're just trying to be a little bit more conservative going into next year.
Okay.
And then just with the Hurricane and storm season, and whatnot I can appreciate it disrupted try its ability to deliver manufactured homes.
She has affected areas, but just wondering are there other factors.
Two hurricanes or other natural disasters or whatnot that could.
Further delay the delivery of manufactured homes to people that have placed orders for triad.
Sure.
Jeff It's David I think the maybe the opposite is true.
Terrific Hurricane on the West Coast of Florida was terrible.
Now there is a need for six to 10000 homes to begin the rebuilding effort.
We're active in those conversations that kind of dialogue is not in our forecast.
We think we've absorbed the disruption.
We think our forecast is female Scott.
Super priority right on on the production lines that can they can take units that are ordered by the consumer re tassels as FEMA.
But I think we're through that and work and we're now looking at an opportunity how we could participate.
And the recovery of those units.
Yes, sorry, some FEMA could take priority for.
Getting manufactured homes that may have been originally earmarked for your customers.
Correct, but we.
We don't think Thats, if we've looked at it we've scrubbed that Jeff we don't see any of our units being impacted.
And the 6000 units have already been identified by the manufacturer.
With not impacting our flow. We think there is an opportunity we are in discussions with both seem in the state of Florida about how we might provide financing on that but nothing to announce yet.
Okay, and if I could just ask one last question. Just you previously signed letters of intent today to date stipulate.
Would agree to pay if you agreed to transact or just given the economic environment has changed in recent months.
And since you signed letters of intent are you able to negotiate a lower price than maybe what you would have been willing to pay a few months ago.
Yes, I mean, a letter of intent Jeff <unk>.
Almost always includes.
Price and the price is always contingent on ongoing due diligence. So as you get through your due diligence process and youre getting deeper into things.
You can always negotiate price doesn't mean it doesn't mean that we do sometimes you settle at the exact same price, sometimes sometimes it changes somewhat.
So.
<unk> are with their either letters of intent.
We usually are pretty far through our due diligence by the time, we get to an LOI process. So we have an idea of what we think of the business.
We.
Typically we'll we'll set a price as part of that LOI process, but it could change.
Okay, great. Thank you.
Thanks, Jeff.
The next question is from Tom Mackinnon with BMO capital. Please go ahead.
Yes. Thanks.
Just wondering what may have changed with respect to our late August when you were looking for I mean, Jeff asked the first part the second part was six to 12 and M&A related earnings.
Clearly you had some sightline, there and you had letters of intent.
Now you have three loi's, and it's really only going to be.
$5 million to $7 million and adjusted operating income. So that's just a couple of pennies. So what was in that six to 12 <unk> and <unk>.
Why are you backing away from that and then what do you how many LOI with what was the extent that the LOI or in that six to 12.
Yes, Tom, but we're not backing away from that six to 12. So we still think we can get to that six to 12. The question as to the timing like initially we thought we would we would move much faster, but given the environment Thats out there patients is going to reward you probably with some better values, especially because the pipeline has grown so much. So we think that there could be some better opportunities to <unk>.
Some things in sort of 2023 versus earlier than that what we're saying is.
We had several other wise, what we announced previously we are now in discussions with three separate we're in advanced discussions with three separate smaller transactions that will add $5 million to $7 million those ones, but we have other ones. In addition to that.
The only difference is we still think we'll get to six months to 12.
The timing will be dependent on when we close those deals.
How many LOI is do you have right now you have these three and how many more yes. We are we have we have several we have a number.
The three that are in advanced discussions plus plus a couple of others.
Plus we have multiple other multiple other transactions in earlier stage discovery.
And Ken the other party walk away with an LOI, if they're not happy with the prices well I assume that's the case.
But I think well they wouldn't sign the LOI Tom we.
For the last 30 years, our structure has been to secure transaction on exclusive basis.
And then we go through it and we have the walkaway on the satisfactory due diligence we have agreed upon price, it's our exclusivity and we have the ability.
<unk> exclusively and not to be satisfactory to walk away.
We don't we don't enter auctions.
But the other party then has to take the price how can they walk away.
Okay.
You've got terms and conditions, but you basically have price concluded.
Do you have working capital adjustments and other stuff.
So.
The other party.
Got it.
They can't walk away.
Work to get the deal done is that correctly that if I shake your head Tom and I'll give you an LOI you've agreed to exclusively deal with me as.
As we conclude satisfactory due diligence.
Alright, and so it's it's Steve.
Steve Hudson is unhappy with the due diligence Steve Hudson Walkaway by Steve Hudson is happy with it and the other party has to accept the deal.
Correct.
And.
Why didn't you.
<unk> any of these six to 12 and like do you think that.
Is there a likelihood that you're going to get like a quarter of these in by the.
I mean, why just go for a conservative isn't my can CFO for organic but why why actually take all of the M&A outlay.
We're just we're just trying to clarify for people what we think about what we think the components of earnings where I mean, we obviously got some pushback the stock reacted. However, it did we wanted to make sure people understood, where we were coming from both from the organic side of the business and what we think the potential is for M&A.
Okay trying.
To take a more conservative approach on the organic side of the business going into next year, given given given the environment. We will see if things continue as they are maybe maybe were a little better.
But we wanted to be conservative about it.
And then two we've kind.
Laid out what we think M&A could look like for next year. The timing is going to matter in terms of what actually flows through in the calendar year and we felt we had a couple of larger ones come our way in the last couple of weeks, which we can fund off of our balance sheet. So we're now onto those but as you know better than anyone else no. One can tell when the fed is going to stop increasing interest rates and those increase.
The impact of P/e multiple.
And I don't want to overpay for P. Multiple ends up going from <unk>.
Six to five or six months before.
<unk>.
We have these transactions engaged in what that we want the p/e multiples will settle down.
Okay and then just the last one when is the Investor day for 2023 or is it are you looking at a February date candidly.
Yes, I mean, the timing would be about the same end of January beginning of February will be allocated shortly.
Okay. Thanks.
Sure. Thanks, Tom.
The next question is from Jeff Fenwick with Cormack Securities. Please go ahead.
Hi, good afternoon, everyone.
I just wanted to.
Just maybe get some color from you in terms of what you're hearing from your funding partners. I mean, we've seen a lot of volatility obviously in debt markets and.
Do you have any concerns there that you might end up seeing some requests for any any sort of fee concessions or or any changes in the economics. There just given what's going on right now.
Yeah. That's a great question, Jeff as you know, we don't we don't have any wholesale funding and our business.
Our funding is our senior lineups committed for the next four years and our forward commitments for institutional investors.
We've added new investors this quarter.
But we can't satisfy the demand for our loan product, we have a specific flow program with a forward commitment.
And I mentioned on the call.
Absolutely no securitization securitization market is disrupted.
Or the opposite side with more demand for our loans and we can fulfill.
And I think I think that Thats based upon the fact of the credit performance of these portfolios that they performed better than expected and our focus on <unk>.
Prime and Super Prime credit as I mentioned, we've been approached by two other institutions like Blackstone.
We've entered into conversations with.
To have them joined the quote unquote the club if you will so fully funded.
Excess demand for our loan product and credit performance status.
Very good.
Those terms are effectively locked in and then over that that commitment period now they can't come back and try to cut a new deal with the <unk> correct, yes.
No they.
They are committed to purchase the loans, we are not committed to sell to them, but we do manage to get about 70%, 80% filled for them.
And then maybe just moving on to the Marine and RV segment there.
Obviously, it seems like a portion of the market that that's going to be pretty cyclically sensitive. If you do run into a recessionary period could you maybe just speak to the capacity to grow there in terms of your relative size.
Just meaning if the market slows can you still make gains there or what's your market share in new product and how much you concerned about the cycle, there versus just being able to drive through it from.
Expanded offerings in that in that space.
Well.
Thanks, Jeff.
So we're very excited about the marine and RV space.
Yes.
I've talked to a lot of people that want to characterize it is far more cyclical and clearly there is some element of discretionary spend when you talk about those.
Those areas however.
We are really just dealing in that prime and Super Prime space.
And.
Well a lot of things have changed out there.
We continue to see very robust demand across that segment.
Of buyer borrower or whatever you want to call it.
I think from our perspective, you'll have.
Maybe you do see some slowdown broadly speaking in the $24 $25 billion.
For marine and RV, but.
Sure.
We have a lot of incremental things going on I think we've listed a whole bunch of them for you. There is a number of different revenue sources. Other products all of its incremental geographies are going to change for next year. We're all over the country now where we weren't before we've got an awful lot of places, where we can show incremental growth. So I think barring barring a sort of really really awful.
The economic environment.
I think we will be.
To be able to grow at pretty pretty nicely I would just one just a little more color to John's comment. These decisions are lifestyle not hobby. These are.
People like myself from the fifties.
Early sixties, who were purchasing assets that I would draw your attention to the both map Master craft Brunswick.
Net of release recent guidance, where they've increased their guidance in this sector.
So don't think of us financing.
21 year old buying recreational.
Vehicle or <unk> or small bulk think of those financing.
Individuals with 40 to 60 range by the manufacturers who selected so we feel.
While the manufacturing results that were released almost last week speak for themselves.
Okay, that's great color, thanks, I'll re queue.
The next question is from Jamie <unk> with National Bank Financial. Please go ahead.
Yes. Thanks.
Just first off a quick clarification question is the five to 7 million potential M&A is that pre tax.
Or after tax.
No its just normal adjusted operating income to be pretax.
Pre tax okay.
Im relatively they are three relatively smaller transactions that we've continued to pursue because they've got some very interesting components to them like Steve said, we've run across a number of much larger transactions and we're working through those as we speak.
Yeah. So.
Just a follow up on that the three that are in advanced discussions now that are producing the $5 million to $7 million.
Presumed these are three different businesses that you.
Then the four that you had an LOI and we're targeting as of the last quarter that that could've generated up to the 6% to 12%.
Of Etfs and so I guess my question is what was the change was that ECM walking away from those deals based on price.
Or what were the factors.
Well I don't think its necessarily characterize exactly correctly like we had a number of LOI. Some of these might have been part of that.
We had a number of other situations that we were discussing we've identified opportunities that we think are high probability opportunities that can get us to that six to 12.
Those weren't all necessarily represented just in those four LOI.
So.
We.
Now we've got a couple here that we are in advanced discussions that we think are very likely to to move forward, which should add like like we said the $5 7 million.
But we've got many others that we're also working on.
Our issue is is just timing on some of those transactions.
Got I mentioned too Tom.
Waiting for price earnings multiple to settle down we've got these transactions, we can close them.
I don't want to overpay.
Yeah.
Right.
At this stage, it's really just about around the <unk>.
<unk> targets accepting a lower that price.
Right.
Without getting into the otherwise they are indexed to effectively interest rates.
There is a p/e multiple embedded in the price.
And the index to interest rates you said so obviously.
The lower pricing at the peak.
Yes, the <unk> gets driven by the by interest rates.
Got it.
Going back to the the organic earnings guidance.
If I think about like the commentary and then the outlook for the two business lines manufactured housing.
Versus marine and RV.
<unk>.
Mike My takeaway or my conclusion from your comments is that the manufactured housing business remains fairly solid and the bulk of.
That downgrade in organic earnings power is primarily the marine and RV finance is that a fair statement.
First a fair statement because the market has taken this down to 25% to 30.
At the analysts took us to $25 30, I think they are going to outperform over that and we're going to beat the estimates that we've given you.
But to be clear.
And we will give you detailed guidance on analyst day.
I would say we took a more conservative approach across the board.
Get to get the to get the numbers to get the numbers down I mean look we've got two great businesses.
That.
We think we'll have very very robust years next year, especially on any sort of relative basis.
But the environment is fluid and we've seen an awful lot of change here over the last couple of months, we're still seeing some very good.
Across the board, but we wanted to be more conservative going into next year.
Okay. Okay.
I think that's it thank you.
Okay.
Alright.
Once again, if you have a question. Please press Star then one.
Follow up question from Tom Mackinnon with BMO capital markets. Please go ahead.
Yeah. Thanks, I was wondering if you might be able to.
Let the.
The marine and RV to 98 origination between source one in ISG, just so we can for them.
Sure.
Comparability between those two.
They are now committed to one but if you can give us an idea.
Going forward, we are going to report them on a consolidated basis because over time. They will become we think more consolidated so it just makes sense to do that but just for information sake for this quarter I believe source one was around $176 million.
Sure.
<unk> would have been the difference it's like $122 million.
Okay.
Alright. Thanks.
Sure.
The next question is from Stephen Boland with Raymond James. Please go ahead.
So I don't want to beat the Titans question, but.
Is there anything in that in that guidance number related to corporate or is it just some changes in conservatism at the operating company level.
I don't we.
Michael you can say, we haven't made any changes to what we think in our model anyway, we think corporate opex or something like that could look like and it's really just assuming that.
The macro economy, or whatever is a bit slower, which leaves us a little more conservatism from a growth rate perspective going into next year and we'll kick off our detailed budgeting process right. After this quarter. That's when we start really scrubbing the numbers in <unk>.
John said, we'll give you updated guidance at Investor day.
As you know Steve we took.
Corporate expenses down when we announced the sale of.
Of service finance, we reduced executive compensation to other matters to bring the run rate down.
You always look as part of the budgeting process, we will again review corporate expenses.
Okay.
Second question, maybe a little bit strange, but when I looked at the discontinued op of Kessler.
I think it's a note for like it was it was breakeven in the quarter I'm just wondering if there is no.
I don't know onetime expenses in there that could come back to ECM like it just seems weird that it was a it was a break even to the $10000 mark on the <unk>.
What happened was the entire team got focused on closing the deal we have gone firm on the transaction. They spent their time closing the deal. They then deferred with transactions to the following quarter.
Yes, it was all hands on deck to get it done.
Okay, but is it just a coincidence that the revenue equaled the expenses in the quarter like it was.
Theres nothing that could come back to you Ken.
It's just a coincidence.
Okay, Alright appreciate it thanks guys.
Next question is from Tom Mackinnon with BMO capital markets. Please go ahead.
Yeah. Thanks, just as you are as this deal flow in this investigation into these.
Into potential deals in the pipeline grows is it could we conceivably see higher corporate Opex next year.
No.
No Tom.
And.
Why why would that why wouldn't it wouldn't there be a additional expenses related to.
All of the necessary due diligence corporate team is here.
Do our job on flow programs, the risk that that team is.
Not getting larger and Youll pick up your businesses on an operating basis.
We have the team here to manage additional investments.
Okay. Thanks.
There are no further questions.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Thanks.
Okay.
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