Q3 2023 ECN Capital Corp Earnings Call
Okay.
Thank you for standing by this is the conference operator, welcome to the <unk> capital third quarter 2023 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions.
He joined the question queued in their press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero I would now like to turn the meeting over to Mr. John <unk>. Please go ahead, Mr went up.
Thank you Leanne.
Good afternoon, everyone first I want to thank everyone for joining this call joining us from ECM today are Steven Hudson, Chief Executive Officer, Michael <unk>, Chief Financial Officer, Lance Hall, President of Triad financial Matt Heidelberg, Chief operating officer of charges natural.
A news release summarizing. These results was issued this afternoon and financial statements and MD&A for the three months period ended September 32023, and filed with SEDAR. These documents are available on our website at Www Dot <unk> capital Corp Dot com.
Presentation slides to be referenced during the call are accessible in the webcast as well as in 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're sharing with you today includes forward looking statements.
Statements are based on assumptions that are subject to significant risks and uncertainties I'll refer you to the cautionary statements.
A description of such risks uncertainties and assumptions, although management believes that the expectations reflected in these statements are reasonable we cannot.
Obviously give no assurance that the expectations of any forward looking statements will prove to be correct.
You should note that the Companys earnings release financial statements MD&A for today's call include references to a number of non <unk> measures, which we believe helps you present the company and its operations in ways that are useful to investors. A reconciliation of these non <unk> measures to <unk> measures can be found in R&D.
All figures are presented in U S dollars unless explicitly noted.
These introductory remarks complete I'll now turn the call over to Steven Hudson, Chief Executive Officer, Thanks, John and good evening, turning to slide six our number of bullets here and I'll speak briefly to most of them.
We had our first board meeting today at ECM with Sky.
Skyline colleagues attending that meeting and went extremely well.
I continue to believe that this joint venture and strategic partnership as the extremely powerful engine that will drive our 2020 for growth.
The ECM corporate simplification plan is well underway, which is directly reducing our expenses and increasing our partnership between triad in skyline.
Our new funding arrangements are in place and we will continue to drive our 2024 growth in funding will speak to that in a moment.
Third alliances into a 100 day plan, which you'll speak to the second part of that was the decision to accelerate.
Bulk sales in the in this quarter after a portfolio review and a way to increase return on capital for the initiatives within the joint venture.
As I mentioned well through his 100 day plan he'll speak to that in a moment pleased to announced the new executive leadership at source one.
Which John will speak to in a moment.
Our strategic Marine review will conclude with his sales spend in the first quarter of 2024, we're also announcing the season and the expected sale of Red Oak, which is our RV marine inventory finance platform.
I'd like to comment over the last nine months management team has done an exceptional job. We've had extensive third party value validation for both equity.
<unk> got providers rating agencies, and senior management endorsement from industry leaders joining us I'm also pleased to reiterate our 24 operating guidance, which will be back ended driven by the growth of the joint venture as well driven by the incremental flow partners will speak to in a second.
Turning to slide seven.
This afternoon, Tawn Kelly Mark Yost Skyline attendance at our board meeting chaired by the Love Us.
As you can see from the website of.
<unk> is a leader in the U S mortgage industry, Mark as the CEO of <unk>.
Skyline Skyline as you know has been a partner of triad for the past two decades.
We have begun the implementation of the joint venture we formally launched both the Floorplan a rental.
And the retail launch will be formally launched at the Louisville manufactured home show show in mid January you're welcome to join US at that show schedule accommodate turning to page eight.
And it was highlighted this as are we.
We repeated this slide from our last quarter with these four platforms of growth, we are adding to the floor plan opportunity a rental opportunity, which is an expansion I believe that that Matt will speak to that in a moment, it's quite exciting.
Turning to page nine.
Our simplification process is underway, we announced this last quarter. We're on track two things I would highlight in the third box are there.
RV marine will be spun or sold in the first quarter of 'twenty four.
And off our very successful ABS East meetings, we are now in advanced discussions to al to add multiple new funding partners, both banks and insurance companies and to both platforms.
Turning to page 10, and this again is a repeat from the last quarter I'd look at that last bullet in reference to you that the institutional flow of partners are the backbone of our business, but we're now seeing the reemergence from some of our historical partners and credit unions in small banks are now back at the table.
Turning to page 11, I mentioned the significant.
Extensive validation of our core business, both the platform and processes validated through rigorous due diligence.
By four credible parties, namely that of Blackstone Carlyle funding champion Skyline and equity investment catch our improved service rating and finally, both glass and Mike did extensive due diligence before the accepted their leader leadership positions.
Triad and source one respectfully.
We're happy with that support and extremely proud of the validation.
Turning to <unk>.
I would highlight for you on Marine RV. The leadership addition.
Mike.
John will speak to that in a moment.
That's great news inventory finance balances.
<unk> continued to perform as promised I'll speak to rental as part of that I don't like the past.
This this discussion to Lance Hall Mr.
Mr 100 day plan, all the Cuba, well, thank you, Steve and good evening, everybody. It's Tom here turning to page 15. Please.
I just want to highlight three key points on here first.
And our efforts to continue to focus on the customer experience and and bettering the speed and efficiency. We formed the office of change management of a company and it's highlighted by run running by Asia Asia Con.
To support our planning the delivery of key initiatives to drive improvements across both <unk> and enterprise change.
And we're looking for great things out of Asia.
We also are.
One of our first projects so she's working on <unk>.
<unk> integrated our CRM and LLS. This is going to help us create much better workflow cues for our team members, which will improve their work environment and to allow them to provide better and faster service that will provide clarity and accountability and the things that they're doing so that both our customers our borrowers and our retailers have better insight into the loan price.
SaaS and its going to form a foundation for us to expand additional tech upgrades, including application upgrades and portal upgrades in the future.
We're also through Eric Lammons leadership, our servicing team and as Steve just alluded to a minute ago recently upgraded.
Fitch Rps III plus what.
But we are continuing to look for opportunities to strengthen some of our teams for some of our higher touch portfolios where our.
Are you seeing an immediate.
Results in terms of lower delinquency, which is going to allow us to.
Spanned our origination efforts into some of those higher touch portfolios.
On slide 16.
Adjusted operating income for the quarter of $7 9 million.
Q3 originations were up five 4%, but very encouragingly.
Our approvals in Q3 were up 17, 3% and I'll touch on approvals more in just a minute Steve.
Steve alluded to as part of my 100 day plan, we decided to accelerate our pool sales and recycle capital into our stronger growth initiatives, including rental and floor plan.
Our managed portfolios grew this quarter by 18% year over year to $4 8 billion.
We also as Steve alluded to close our.
Strategic partnership with Skyline, and we've now set on our way to establish the joint venture.
We're working very hard with our skyline champion team as well to make sure that we put great programs in place and on.
On schedule for our launch at the Little show in January January 18.
Lastly on this slide it's very encouraging to see US now were thanks in large part to Blackstone Carlyle and the funding commitments they make to our business. We're in very strong position in Q3 of this year as well as all of 2024.
Over to slide 17, I mentioned approvals approvals are accelerating and core channel strength is leading a recovery we're up 17%.
And approvals overall, but our core channel is up 22% year over year.
Currently also in the months of September and October we saw an increase in chattel originations of more than 30%.
Onto page 18, just a little closer look at retail originations if you'll notice the two small pie charts, you say you see a shift first and core chattel a year ago was just under 54% of our origination this year, it's a little over 60%.
And if you also noticed that very small sliver of pie, we are already beginning to see or a rental opportunity to grow which we're very excited about there's a lot of potential in the market for that and we see it now at two 6% of our originated volume.
On to slide 19 this.
This is the best look at how we're doing compared to the industry.
Industry shipments are measured monthly and you can see that year over year.
Industry shipments are down 26% triad's originations are down 2% so against that measure of industry activity, we are faring very very well.
Industry shipments are starting to that slow that slowdown is starting to recover some just in Q3 shipments were only down 19%. So youre seeing some return and shipment activity and backlogs are beginning to grow a little bit, but again, we continue to lead the way and outpace industry shipments and those trends are continuing into 2024.
On Slide 20, you can take a quick look at our portfolio credit trends.
Good news here is delinquency and charge offs remain well within our target ranges.
Turn it over now to Matt Heidelberg to talk a little more about our commercial products.
Thanks Lance.
So turning to page 21, I thought I'd start by defining what is rental finance Russell finance faster their loans to manufactured housing community owners that own and rent homes that are placed within their communities.
So these are community owners that were very familiar with their community unrest that we've underwritten before for things like floor plan that we've underwritten before to do things like submit retail loan applications to us we're targeting large well established.
Financially strong community owners, we have perfected lien on the home.
And we're not we're not going to be extending financing to anything greater than 80% of value and we want long term rental agreements in place and executed prior to us extending that financing.
We're not looking for your Airbnb or a weekend rentals, we're looking for long term established cash flows.
Yields on this program are similar to floor plan.
We're earning 11% plus today.
Durations are hashed out of our consumer loans are sitting at around four years.
So what is this mean for market size or opportunity for us as I take you over to page 22.
Yes.
With the increased inflation values of homes or higher interest rates are elevated as well demand for rental being more affordable has been increasing.
Manufactured housing community owners, we do business with today, there has been a strong amount of demand in the ask of us to come up with this program and expanded for them.
According to NHI.
There are 43000 manufactured housing communities across the country with $4 3 million home sites.
According to them, 20% of those are rented.
Which gives you an estimated total market size of about $40 billion.
From another survey performed through NHI.
That said that 69% of renters with an annual salary above $75000 or extremely likely to purchase.
That means it's going to be converting to a significant amount of retail flow for us looking forward just like our other programs like floor plan.
It's going to be another product that helps to feed other product lines for us as we look forward.
Sure.
So to take you to page 23 talk about what our commercial our commercial finance balances look like today.
Balances are down $142 million following the sale of several of these floor plan loans with our established flow through program that we've previously discussed.
And by the removal of the Red Oak assets to held for sale, which we'll discuss a little bit more in a minute.
Yields on the portfolio remains strong upwards of 11% more performance has been pristine and appetite for our partners for this product continues to be there and grow with the JV works, we're expecting to grow that managed portfolio of these floorplan balances quite a bit into next year.
Taking you to page 24.
Red Oak has been another successful launch for HCN.
The team that we have and they're led by Jeff Collins has surpassed expectations with balances over $140 million and a growing pipeline for more performance has been exceptional.
Yields north of 10%.
But we felt to best position Red Oak for its continued growth. It was in the best interest is to consider a sale of the platform with.
With that ECM is in advanced discussions to sell to a partner that's seeking to maintain our continued partnership with our RV and marine retail side.
It's important to us that we find somebody that wants to maintain that retail wholesale relationships, which we believe we've found.
The sale of the platform, we will release capital that will be redeployed to other origination platforms within ECM.
Page 25 is the origination growth tracker that we've shown you before.
With that I will turn it over to John.
Thanks Pat.
On page 26.
I am very pleased to announce that Microsoft <unk> joined <unk> as president.
To really don't receive the next phase of growth for the company.
Mike I'm.
Alright, Mike was previously the COO of automotive credit course of 2015, where he oversaw profitable turnaround at the Midwest Auto lender and returned the company to profitability to 2016 in each year.
It's also been CLO Westlake financial a regional sales manager at GE capital we have.
No Mike for many years and we're very excited that he agreed to join source. One he will improve operations sales and customer service driving growth of key objectives, including reducing cycle times improved responsiveness telecommunications customer experience in order to grow total originations in managed assets over time.
Moving to page 27.
Operating income was $2 3 million in the quarter.
Originations of $211 million originations remained slow for largely December since we've given we've noted for much of the year. Even so we've added another 300 dealers in Q3 and that was almost 3800 total.
At source of water.
And just on the.
The final bullet Steve already mentioned this one the strategic review is ongoing and we look to see it ending in Q1 2024 with the announcement of the spin or sale.
Page 28.
I just want to reiterate that we really believe the groundwork has been laid for significant growth 2023 has been it's been a difficult year for number of reasons, both from a macro perspective, and a timing perspective in terms of where we were rolling out various processes and programs.
Got through a lot of the things we had talked about early like licensing and establishing servicing capability it really creating the ability for geographic expansion.
This year, we hope to add some more funding partners and some other things like thats taken clearly longer than we initially expected but.
So you've seen most of what we've talked about generally.
In the left column, but I do want to comment on the funding side.
While we have seen somewhat of a slowdown from existing funding partners. We wait on some new funding deals to close.
Some of the some of those deals we've been working on for quite a while the good news is we're well along in the process. In addition to some of the partners that we've previously discussed we're also never talks with several new large banks, which we expect will likely close late in Q4 or in early Q1 of 2024.
You've also got some discussions of some new institutional investors that are interested in flow across several products.
New funding is what's going to drive origination and earnings growth.
In 2024 on the right side.
The college I just wanted to give people some context to how we see some of this growth evolving over time.
Some of the other metrics that we've not spoken about explicitly before but source, one really a material upside from improving customer and dealer experience, which is really what Mike is focused on today are Mike and his whole team.
Today, only about 20% of our dealers are less than 750 actually do at least one deal per month.
<unk> added more than 1000 dealers since we acquired the company just a 5% increase in those active dealers would add almost 25% new originations.
In addition, if we change that from one deal a month to 125 deals a month that would be another 25% combined almost 56% growth. We think both of those are doable next year, just from process improvements customer and customer service initiatives that we think.
Well, we'll get complete here in 2024.
Yes.
Sorry on page 29 origination.
Originations were down 31% like I said due to similar factors discussed previously discussed we believe these two new funding and Mike's leadership around process improvement, we believe 2020 will be a much stronger year.
Separately current application flow more than supports our 2024 guidance, we'll just need more funding in place to close those deals and we feel great about where we stand on the funding side.
Again, we anticipate getting that done very shortly here over the next several months.
Page 30 is our typical origination charts and with that I will pass it to Michael.
Okay.
Now turning to page 32 in the consolidated.
Alright.
Total originations of $571 5 million in the quarter, we were down 16% year over year.
Driven by the decrease in MH originations of approximately 5%.
Marine was down a little over 30% year over year as noted earlier.
The decrease in originations.
More originations as well as the lower MH origination revenue margins resulted in lower adjusted EBITDA adjusted operating income and net income applicable to common shareholders compared to the prior year quarter.
Of note. The Q3 results include a $4 million provision. The result of the classification of the Red Oak RV and Marine inventory finance business as held for sale.
This represents the best estimates of the cost to sell the business.
Turning to page 33.
Q3 results continued to be impacted by.
Lower margins related to the launch of land home.
And as noted earlier at the end of Q3.
Under Lance's leadership, we announced we accelerated the sale of some of these portfolios.
And the impact of that was an impact on revenue margins of approximately $10 3 million in the quarter.
Yes.
Yes.
We have reduced the manufactured housing guidance in Q4 as well as to reflect the to reflect potential additional bulk sales and expect to return to normal margin levels in 2020 'twenty four.
Pricing on core chattel remains robust and we are leading indicators point to strong loan production going forward as noted by Lance which will lead to further improve margins in Q4 and in 2024.
Turning to page 34, and the balance sheet highlights.
Can you guys highlight on the balance sheet that reflects the net equity raised from our strategic partnership with Skyline as.
As well as.
Slight decrease in finance assets, the net and that equity raise and the decrease in finance assets and resulted in total debt decreasing to just over $800 million compared to over $950 million in Q2, and more importantly, net debt is now down to two <unk>.
Approximately $29 million compared to $160 million at the end of Q2.
Sure.
Turning to page 35, and the income statement.
The key items.
As the loan origination revenues you can see the decrease year over year.
As a result of the factors that we've discussed earlier.
Other items to note our interest income and interest expense, obviously seasonally higher year over year, given the higher rate environment.
Turning to page 36 operating expenses.
Segment operating expenses.
Largely in line year over year reflect our continued investment in growth and operational improvement initiatives across our businesses corporate.
Corporate operating expenses of $3 1 million reflect the overhead reductions in each one 222023 as a result of our previously announced corporate simplification plan as well as the impact of the strategic review that the company has undertaken since our since Q1 of this year.
And with that I will turn it over to Steve for the Sunrise. Thanks, Michael Slide 38, four quick things to highlight the 100 day plan is well underway.
Impressed by what.
Okay.
Short period of time I got it.
Dealer setting and put a market turnaround.
That will include photos of those exits coming into the system.
Amazing thank.
As your executive Mike is now on board at source, one and Thats as Mike and I are back from.
From the North American RV Convention, and we've begun discussions with large manufacturers about two joint ventures captives as well he has been adding funding Mike. It has both experiences deepen the dealer sales side as well as in the securitization sites in place to have the executive that can see both the origination.
And funding.
Third our RV Marine strategic review has now concluded with either a spin or sale in the first quarter and the fourth.
Hello, he doesn't get enough recognition in our shop.
Under of ISG Cross through one month doesn't make a year, but in October had year over year income increase which is amazing given.
The strongest market for big boats, but well done to you and your team and with that operator, we're happy to take questions.
Thank you we will now begin the question and answer session.
If you wish to ask a question. Please press Star then one on your telephone keypad.
Pad well hear tone.
So acknowledging your request.
Okay.
Brian.
Your question. Please press Star then two.
Our first question is from Geoff Kwan.
RBC capital markets. Please go.
Uh huh.
Hi, Good afternoon I just had a question. My first question was on the on the gain on sale on the client side.
And I guess, what it sounds like is this the same issue that came up from last quarter.
And just was curious why it's kind of coming up again and it sounds like you're also suggesting that we may see that impact into Q4.
Just wanted to get some color on that.
Hi, Jeff It's Michael So if you look at page 33.
So it's a similar issue as you know we we.
And when we got the land home portfolio coming through what we've done at the end of <unk>. We took the mark on the interest rates in Q2, what we've done in this quarter.
Once <unk> completed this review will start to accelerate the sale of these.
Assets.
So outside of normal flow arrangements. There is an additional market take to get the sale done. So we've made the decision to accelerate those sales as quickly as possible and redeploy capital.
More productive uses.
<unk>. So it's an opportunity cost on that $10 3 million margin compared to what a normal sales margin would be so that's.
That's what that is.
Okay.
And then the second question the headwinds so.
So all the slide right in there.
I cannot agree with skyline. They were gonna get one board seat now its thing in one box one board observer.
I can probably guess what that is it can you just explain why did things change and what exactly.
Disappointments over there at all.
<unk>.
Yeah. Thanks.
Since we announced since we did the deal.
Tom Kelly has joined the board of.
Skyline you can go onto skylines corporate governance website section.
As the leading U S mortgage broker.
The largest in the U S. In fact, she has been a series of of captive failed finance companies on behalf of cycle kind of factors one of which is in Canada, which is about in the homes.
We thought that expertise was particularly important for lab. So we asked her to come on the board we didn't want to disenfranchise Mark. So we have quite an amount of some observers we got cartons.
Scale and expertise and market Mark in the partnership.
Okay. Thank you.
It doesn't it doesn't change the voting percentages at all.
The next question is from Nick <unk> with CIBC capital markets. Please go ahead.
Circle back on Jeff's first question regarding our gain on sale margins.
Am I correct in my interpretation that you had warehoused some loans on balance sheet.
That were subsequently mark down on sale in Q3, like I I thought those loans.
The balance sheet, Mark it's just an incremental $4 7 million on those just because I think that's a reflection of the incremental move in interest rates from last quarter. So.
The impact of the $10 three was the impact on realized sales in the four seven is just the impact from the bulk portfolio sales in the $4 seven as.
The incremental interest rate impact from the moving from Q2.
Understood, Okay, and just to drill into that a little bit further so your exposure to interest rate risk. My understanding is that you will issue a commitment for a fixed rate loan, but that loan fund for some number of months. After the date of the initial commitment. So the risk is that market yields would move higher in the interim period.
And so if you see markets rollover, you would kind of see an opposite effect on the gain on sale margin do I have that right.
That's correct yes.
Okay.
That's good I'll just ask one more.
I was just wondering if you could help us understand what.
The spin off of the RV and marine financing business might look like.
This be a distribution of a new public vehicle to existing <unk> shareholders.
Do you think the scale of that entity could accommodate.
The cost of being a stand alone.
Public company I'm, just trying to think through that scenario a little bit more.
Oh sure.
However, similar to the element ECM spin.
Shareholders would receive.
Sure as Sears and triad effectively and shares in a new RV marine business.
We're going to as Steve mentioned, we're going through that analysis now.
There is some.
As part of the strategic review, there's other things, we're looking at too to bulk up the RV and marine business to give it to scale to that it can stand up as its own standalone business.
Nick.
Confidence in either because we are pursuing both that it is.
On a spend that we will.
We will shortly internalized servicing function within RV marine and add incremental origination channels with.
With banks and institutional investors those conversations are well advanced that's all I can tell you now, but it would to your point it will have additional bulk and scale on a spin or sale.
Understood. Okay. Thanks very much.
Okay.
The next question is from Mario Mendonca with TD Securities. Please go ahead.
Maybe if you could just go back I just want to clarify a couple of things in the $4 7 billion. That's the amount you add back to your revenue to get to your adjusted revenue. That's the right way to look at it right correct yes.
And those marks you took.
Again, I'm so much probably other people on the line I thought that that issue was resolved that the company had appropriately hedged out the interest rate risk is so that's not the case, so these gains and losses could.
Could play out over subsequent quarters is that right.
I think I said, we're now we're trying to accelerate and sell a bunch of the portfolios is so there is interest rate risk. There's also if you want to sell a.
A large amount of show me your time there is there is.
Gonna take them incremental mark to do that so we're continuing to analyze that and just the opportunity.
So we made that we plan on.
Exiting these on balance sheet positions as quickly as possible.
We've reflected.
The Q4 guidance reflects our best estimate that there likely will be another portfolio sale had lower than expected margins and we've adjusted the guidance Accordingly.
How much is left over that of the bulk of these assets to unload.
Let's say about 115 to $100 million to $150 million, how much have you done so far.
Okay.
Yeah.
Sure. So the chart if you go look at.
Yes.
We sold were down to $300 million in held for trading.
And 100 just over 100.
We expect to reduce that.
We've cut into it by about $100 million and I've got another 150 to go in terms of the land home, Okay and.
The marks that we've seen so far.
$4 7 million or so.
I mean, if we compare that to the amount that's already been.
So could we use that as a good proxy for the level of losses, we can see going forward.
Or will it get worse going forward because there is more to do.
It's hard to forecast exactly which depends on.
How you are selling are and who you're selling to and what.
<unk>.
I definitely think the Q3.
It's better than Q2, and we expect Q4 to be better than Q3.
And have the issue behind us in 2024 is the way we look at it and just.
Fresh memory. This all happened why because of the that really long lag between.
The commitment and the actual funding.
Yes, it's a long lag between the commitment and the funding and the switch in the funding from credit unions and banks.
Two institutional buyers, Okay, and then maybe the $10 3 million just to make sure I understand this the 10 point you in 90 days.
I don't.
Thank you adjusted for that that we didn't adjust no just talk calling it out because it looks like people. So you understand why.
Origination revenues are down year over year, So we didn't I didn't adjust for it.
Just to.
For comparative purposes, So you and I can understand what the platform.
Origination capabilities should be in terms of origination revenue.
Yes.
The taxes, it was like a $12 million tax gain or recovery of that.
Big number at the 12 month it doesn't I couldn't relate just to what happened in the quarter or was there something else that happened that resulted in such a big tax gains.
You mean, you're talking about a tax provision.
Just a recovery based on operating losses right.
But the loss was $60 million and you recover 12.
Doesn't that seem a little high.
Okay.
If you look at the year to date.
So Q2 Q3 is when we follow a lot of the returns. So there's a lot of deferred tax true ups and things like that that happened in Q3.
Year to date number is probably a better.
Collection.
The provision.
Which is also again it's.
There's been a lot of moving parts a lot of the.
So we don't recognize deferred Canadian deferred tax assets. So it's the actual GAAP provision is there's just a lot of moving parts that makes a lot of fans I understand that and then the $4 million provision on the RV.
The size of that asset base before the write down was it something like $58 million or so and there was 100.
Sorry, it's $140, it's about $140 million portfolio.
And that's the portfolio that took the $4 million mark against it it's not a mark on the portfolio, we expect to sell that doesn't solve the portfolio at book as.
As long as well as the business.
The $4 million is just the exit costs. So.
Our fees lawyer fees et cetera.
So you're comfortable that despite what's going on in the marketplace that that can be sold at book, There's no need to close it if you remember the fall.
Inventory finance, which are all floating rate assets.
Okay see you again.
And that that value is appropriate you don't expect that kind of loss on sale of that business.
Otherwise, we would just run the business down if we can just accelerate the recovery of those loans they're.
Youre short duration and inventory finance loans.
Our preference is to it's a great business and it's got great growth profit prospects and its a great team. So.
We just need it and we just need to redeploy the capital into other areas and we found a partner that will.
They will be able to take that platform and grow it very profitably.
Nope harder as Matt mentioned with our RV Marine retail.
So that we can still have the benefits of a combined retail inventory finance floorplan.
Product offering to dealers alright.
Alright last question and I understand that Steve did you say Bill Love, it's on the line as well.
No Phil Phil chairing the meeting today is not at all I am sorry, if you said it was a lot maybe let me just ask you that theres been a fairly.
Meaningful increase in stock based comp now.
I hope, it's not into let's say, but it's not because of the stock's performance our earnings there's got to be something else, that's driving that meaningful yes.
The share based comp in this quarter.
So it's actually the opposite area so.
We obviously mark.
Our share based comp to market in terms of what we expect to divest each here given the performance to date.
<unk>.
Me too.
Effectively.
We're forecasting.
Almost zero vesting for management employees this year.
But as part of that we had hedges.
Our share based comp when we get to Derecognize. So it's an accounting.
Charge effectively but not an increase in actual cash out the door comp to employees or management, it's actually the opposite.
That's helpful. Thanks again.
Yeah.
The next question is from Tom Mackinnon with BMO capital. Please go ahead.
Yes, thanks very much good afternoon, just continuing on the origination margins with respect to the manufactured homes I thought that you use the 'twenty 'twenty four guide was down from 70.
78% range to <unk> 86, and a half to reflect the cost of locking in rates on our new products kind of given the rate volatility. We had are you still standing by that just given the fact that it didn't seem to cooperate the way you would've wanted to know do you have all these hedges in place or is that still part of this plan.
So it's a six and a half it's not <unk>.
Technically the hedging costs.
And mix between.
Who are funding partners are so that's what's driving.
Okay. The Lois.
The lower margins.
Hum.
That said we've had.
Going to the all the all of the loans were originating from the last four or five months, where we're at full margin and will fund at full margin.
Next year, it's really the.
So the land home portfolio.
Launched in 2022.
Is there, causing the issues on the marks.
Okay. Thanks for that.
I think that's talked about that.
That's running down and how much left is left of that if you could just.
Is that answered.
I believe I answered that.
The remaining portfolio to work out for us.
Around $150 million Mark.
Okay, and just with respect to our strategic review for RV and Marine yet at the same time, you have new management at source, one and a hole you know outline of how you're going to drive growth with respect to that so.
You seem to be reviewing it whether you want to keep it or not and at the same time you seem to be.
Stepping on the gas here.
Bringing in new management and driving growth for it so.
I'm just confused as to which one of these avenues do you really want to pursue you want to keep it and grow it or do you want to sell it.
Two part casino that we announced a strategic partnership with Skyline for Us 20.
20% deal hopefully go into 100% so that would take care of the triad business. If you will.
That leaves RV marine and wanting to maximize return for our shareholders. We have identified immediate opportunities too.
To grow RV Marine Federal will come out next quarter.
Having.
Having moving to someone owning 100% of triad, we are going to be left with RV marine and the best way to maximize value and that is either selling it or spinning it.
Yeah.
As we get through these corporate developments for the next 90 days, we'll return to that topic with you but.
As John correctly. His vision was when we bought this business there was an unprecedented opportunity in.
<unk> Marine it's the same credit profile as that of our manufactured housing customer students.
The funders buying the paper MH wants this paper as well.
And the.
The blip in the market in the RV Marine market has presented some interesting origination platforms and servicing platforms.
We tend to we intend to take advantage of that.
Okay.
Okay, well wait and see.
Yes.
Once again, if you have a question. Please press Star then one.
The next question is from James Coyne with National Bank Financial. Please go ahead.
Okay.
Yes. Thanks, just wanted to go back to the origination margin again, and just trying to understand what the yield would have been so the adjusted operating results for loan originations revenue was 18 million should.
Should I be adding $10 million to that number or should I be adding the $10 million to that.
Two 4 million more originations revenue.
Reported.
Okay.
How did you have that sort of thought through.
Through the to the $18 million was the $4 7 million.
It's really just to fund the balance sheet Mark. So if you add the 10 to the adjusted.
Revenue would be.
On a normalized basis.
Okay and then in terms of the guidance then the revenue for loan origination revenue was down.
$18 million and I'm, sorry, it's the adjusted loan origination down $18 million at the midpoint.
So I would suggest there is an 8 million dollar.
<unk> revenue impact in Q4 that you're assuming is that do I understand that correctly.
Yes.
That's in.
In the ballpark.
Okay.
Just making sure I have that clear.
You also mentioned that.
Cadence.
On your earnings profile being back loaded.
So you must have some visibility here in the next.
Thanks.
Nine months here. So the first half should we expect quarters that look similar to what we've seen.
In 2023 with very minimal.
Operating income.
So you'll have operating income just as we have enrolled the joint venture out that retail will lag the joint venture.
Your earnings will be up over over 23.
Q1 to slow we're going to go into the slower season anyway. So.
We would normally be backend loaded so keith but Q1.
She said Q.
Q2 thousand 2200, 24 will be better than 2012 free but.
I could have seasonality and the lag of implementing the JV I think we forecast a 20% increase in 'twenty four and I think that last comment about what occurred in September and October is a good harbinger of significant increases in volume in 2000.
So I think we're in good shape with $24 with seasonality will you will be profitable in 'twenty, four and starting the first quarter.
Okay.
And then my last question just in terms of the leverage so obviously the.
The equity investment from Skyline has helped quite significantly to bring leverage down to about three times debt to equity.
Do you have a target leverage in mind.
Is there a rating agency target leverage is there a skyline target leverage at that they want to see like how should we think and how are you thinking through your leverage ratios going forward.
So somewhere in that.
Two two to three range three at the top end to depending on the Olympic two to three times.
[laughter].
Okay. Thank you.
So that's the sale of Red Oak will obviously significantly improve that as well.
Yeah.
As there are no further questions registered this concludes today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
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