Q1 2025 ECN Capital Corp Earnings Call
Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the ECN Capital 1st quarter 2025 results conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.
Speaker Change: To join the question queue, you may press star then 1 on your telephone keypad.
Speaker Change: 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 Katherine Moradiellos, vice president of finance and invest relations. Please go ahead, Katherine.
Katherine Moradiellos: Thank you, Jen. Good afternoon, everyone, and thank you all for joining this call.
Speaker Change: Joining us today on the call are Steven Hudson, Chief Executive Officer of ECN, Jackie Weber, Chief Financial Officer of ECN, Lance Hull, President of Triad Financial, Matt Heidelberg, Chief Operating Officer of Triad Financial.
Speaker Change: James Barry, Chief Financial Officer of Triad, Hans Kraaz, Founder and CEO of ISG, Mike Opdahl, President and Source I.
Speaker Change: A new release summarizing these results was issued this afternoon, and the financial statements in MDNA for the three-month period ended March 31st, 2025 have been filed with CR Plus.
Speaker Change: Presentation slides to be referenced during the call are accessible in the webcast as well as in PDF format under the presentation section of the company's website.
Speaker Change: Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements.
Speaker Change: These statements are based on assumptions that are subject to significant risk and uncertainties. I will refer you to the cautionary statement section of the MDNA for a description of such risk uncertainties and assumptions.
Speaker Change: Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations of any four-looking statements will prove to be correct.
Speaker Change: You should note that the company's earnings release, financial statements, MD&A, and today's call include references to non-IFRS measures, which we believe help to present the company and its operations in ways that are useful to investors. [inaudible]
Speaker Change: A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A. All figures are presented in US dollars, unless explicitly noted. With these remarks complete, I will now turn the call over to Steve Hudson's CEO . Thank you.
Steve Hudson: Thank you. Good afternoon. Before I begin my personal sort of prepared remarks, let me start by saying that the first quarter clearly demonstrates how robust and resilient our business is.
Steve Hudson: We're happy to report our first quarter earnings of three cents per share, which is the high end of our guidance. Triads adjusted operating income was just over 13 million, which represents a 44% increase year over year. High margin channel originations were up almost 44% and in April we're up almost 68%.
Steve Hudson: We're pleased to welcome JP Morgan and New York Life to try add family of flow partners.
Steve Hudson: An RV Marine adjusted, we're reporting adjusted operating income of 1.2 million.
Steve Hudson: And we're pleased to announce the extension of our partnership with Monroe Capital to include RV flow. James.
James: Thank you, Steve. Turning to slide 8. Try this please to report adjusted operating income of 13.1 million in Q1, and increase the 44% year over year.
James: As discussed during our Q4 update, public company overhead cost and interest expense has been allocated to the business segments beginning in Q1.
James: I would also point out that adjust to the EBITDA is coincidentally flat at 21.7 million compared to Q1 2024.
James: Origination margin of 7% was a head of guidance of 6.5%, reflecting a higher weighting of core shadow originations in our hedging program, which proved effective through an environment of elevated interest rate volatility in late Q4 2024 and into Q1 2025.
James: Although a managed assets grew approximately 12% to 5.8 billion, tried servicing yield decline from roughly 95 basis points in Q4 to 84 basis points due to the quarter over quarter reduction in loan sales consistent with seasonality in our business.
James: We reiterate our full-year guidance of approximately 90 basis points in full-year 2025. Tri-Sug growth in all three of our businesses and our commercial and servicing business units comprise 41% of revenues in Q1.
Lance: And with that, I'll turn it to Lance Rooft to review our expanded funding relationships.
Thank you, James. Please turn to page 9.
Lance: We're fortunate to have the strong relationships with Blackstone and Carlisle in our extensive network of banks and credit unions. As we increase our market share, it's important to grow with them and add new partners to further diversify our fund capacity.
Lance: With that in mind, we're excited to announce the continued expansion of our institutional investor, Fundy Capacity. I want to thank Matt Heidelberg and his team for the work they put in over the last few months to secure these two new forward flow purchase agreements. One with JP Morgan in April , and just this week, another with New York Life.
Lance: These are highly reputable partners that will increase our ability to better serve the market and have real value to try it in the years to come. [inaudible]
Lance: And just to add, because both of these new agreements include all loan drugs, we now have the added capacity necessary to meet the growing demand for loans across all eligible credit profiles. Thank you very much.
To please turn over to page 10. Thank you.
Lance: Retail originations crew sharply in Q1, and we're now well ahead of plan on the year. I want to point out three primary drivers for this increase first.
Lance: Our activity within the Champion Financing JV is much stronger than forecast. We are grateful for this partnership and continue to work with Champion to bring value to our mutual customers. Second, we're now executing on the structure and process improvements that we have put in place over the last 18 months.
Lance: This has led to a 15% growth in our look to book compared to Q1 of 2024. And thirdly, we have seen a return to normal and general activity following the impacts of the devastating hurricanes in the latter part of 2024. This has led to a return to normal and general activity following the impact of the devastating earthquake in the latter part of 2024.
Lance: I would also add that to date, tariff impacts have been minimal. When looking at our approval pipeline, our average loan amount is holding very steady.
Additionally, for further stability.
Lance: Some of the industry's manufacturers are beginning to introduce the inclusion of a small price protection line item in their home invoices to hedge against potential future tear-related price increases.
Lance: Turning on to page 11, Q1 was our largest first-quarter originations in the company history and capped by the record-setting march, where we funded more than $110 million in chattel alone.
Lance: While we're excited about the growth during Q1, we're equally excited about the momentum that began later in the quarter and continue through April and now into May.
Speaker Change: Shadow Originations in April exceeded the March record and were up 67% year-over-year. Core applications, approvals and originations remain above plan and strong momentum is carrying into Q2. And now, I'll turn over to Matt Heidelberg to share some performance updates.
Matt Heidelberg: Thank you, Lance. Starting on slide 12, credit performance remained strong at Triad. Delinquencies have seasonally moved lower year-to-date as you can see in the graph on the upper right corner of the slide.
Matt Heidelberg: On the bottom half of the slide, managed assets continue to grow with originations and net chart drops remain consistently low.
Moving to slide 13. [inaudible]
Matt Heidelberg: You can see commercial balances have grown to 455 million, which consists of roughly 70% floor plan balances and 30% rental.
Matt Heidelberg: We've seen that opening a rental relationship with a manufactured home community is helping to drive both additional floor plan and retail business. This is confirmation that having a full product menu is both broadening and strengthening tries relationships with its partners. Thank you very much.
For a quick update on champion financing on slide 14.
Matt Heidelberg: The champion financing joint venture is tracking ahead of planned year-to-date.
Matt Heidelberg: Retailers are utilizing the floor plan offering to acquire homes at the right mix and price point for their customers, while the retail loan products provide financing consumers need to complete their home purchase.
Matt Heidelberg: Champion Holmes has been a wonderful partner to work with and we look forward to continuing our success together.
Matt Heidelberg: Moving to slide 15, we wanted to take a moment to remind you that the manufactured housing industry has been resilient during multiple economic cycles. The graph on the left shows industry shipments relative to treasure yields over time. [inaudible]
Matt Heidelberg: The graph on the right shows the industry shipments relative to consumer sentiment. The lack of correlation for both supports our view that there is an affordable housing need despite the sentiment or rate environment. And we believe that manufactured housing is the leading solution to assist with this need. Thank you very much.
Matt Heidelberg: Finally, on slide 16, this table summarizes our historical quarterly originations, and with that, I'll turn it back to Steve.
Thank you. Turning to RV Marines.
Speaker Change: Our first quarter adjusted operating income, pre-tax was 1.2 million, and our originations of 205 million were up to 24%.
Speaker Change: However, we've started the second quarter with a slightly different picture with headwinds and a temporary slowdown taking place in the second quarter and likely part of the third quarter. We are seeing a forecast recovery in Q4. We are seeing a forecast recovery in Q4.
Speaker Change: We are implementing a strategy, we are implementing takeshare strategies in this temporary showdown, just like Hans did so effectively at IFG where he was able to grow share and volume during a period of slowness. [inaudible]
Speaker Change: Turning to the next page. As I mentioned earlier, I'm happy to welcome Monroe Kappel into the RV family. They are already part of the Triad family in funding rental paper.
Speaker Change: The completion of these institutional investment arrangement is the end of our transition from credit unions to institutional investment, which is consistent with our strategy.
Thanks, Steve.
Turning to Slide 20.
Speaker Change: Despite the challenging marine market, especially the market we focused on, which has used yachts and cruisers, we continue to gain market share and beat our competition.
Speaker Change: Point to info link technologies through February 2025. The out-and-cruiser sales were down approximately 4%. New powerboat, retail sales are down 7.4%.
And wholesale shipments are down 13 percent.
However, at IFG, Originations were up 22% year-over-year.
Speaker Change: That's in the first quarter. March was up in the stounding 43%. We see this momentum continuing in April with the originations up 24%.
Speaker Change: We're doing this incredible work by leveraging our long-term relationships with banks, brokers and dealers.
Speaker Change: Our old-fashioned style of knocking on doors and seeing our clients face to face, sprinkled in with some new technology as paying off as we continue to win dealers and brokers on a daily basis.
Speaker Change: Last year, we brought over a large sales team. They exceeded 25 million in originations in the first quarter alone. [inaudible]
Speaker Change: We've done this while maintaining expenses in line with our plan.
Speaker Change: Many of people have brought up tariff issues and how it will affect IFD's business.
At IFG, 70% of our business is used boots.
Speaker Change: This fares very well for us because number one, there are no tariffs on use boats. Number two, use boats are generally less expensive than new boats, and the tough market, that's where the consumer is looking to buy their boat.
Speaker Change: Number three, the major captive lenders are not equipped to handle used person-to-person transactions. [inaudible]
Speaker Change: This is where IFG shines, and this has always been our expertise. With that, I'll turn it over.
Speaker Change: Thank you, Hans, and congratulations on another great quarter. Good afternoon, everyone. Let's turn to slide 21.
Speaker Change: Q1 originations were up 28%, our largest first quarter ever, and this momentum carried over to April as we finished up over 40% year over year.
Speaker Change: Coming into our prime season, we have over 190 million approved applications in our pipeline and are well positioned for continued growth this quarter.
Speaker Change: We continue to focus on maximizing efficiencies across all RV marine, with operating expenses in line with plan.
Speaker Change: The IFG and epic initiatives we began last summer are beginning to scale, approaching 10% of our April
Speaker Change: Despite source 1 significant improvements this year, continued consumer uncertainty, due to macroeconomic pressures are affecting our industries.
Speaker Change: Dealerships sales continue to struggle with year-to-date, total registrations down 12% and as Hans pointed out, Reign sales and shipments are experiencing similar slowdowns.
Speaker Change: Despite these had wins, Source One is gaining market share, and we are well prepared to navigate through continued volatility.
With that, I'll turn it over to Jackie.
Jackie: Thank you, Mike. Turning to page 24 for our consolidated operating highlight.
Speaker Change: We close our first quarter of 2025 with adjusted operating income increasing year over year to $11.4 million, up from $1.4 million.
Starting to page 25.
Speaker Change: Our finance asset in debt levels remains consistent with the end of 2024.
Speaker Change: During the quarter, we completed a $58 million issuance of convertible debentures and use of proceeds to redeem our 2025 debentures.
Speaker Change: The issuance secures term liquidity and was net neutral to our total debt.
and many more. Thank you. Thank you.
Turning to page 26. [inaudible]
Speaker Change: Total adjusted revenue increased to 54.9 million, which excludes the impact of a non-cash gain of 1.8 million in the current period, resulting from a fair value adjustment related to the convertible debenture liability. [inaudible]
Speaker Change: The increase in revenue compared to the prior year quarter was driven by higher originations revenue and higher servicing revenue at both business segments.
Speaker Change: Interest income and interest expense, each decreased primarily due to lower on-balance sheet finance assets.
Speaker Change: Thank you for watching. I'm James Barry. I'll see you next time.
Speaker Change: Operating expenses increased modestly year-over-year to $29.4 million, adjusted EBITDA, increased to $25.5 million, and adjusted operating income increased to $11.4 million.
on page 27
Speaker Change: As previously announced, with our 2025 guidance, corporate operating expenses have been allocated to the business segment beginning in the first quarter.
Speaker Change: As part of our corporate simplification, we recognize a one-time charge of 6.7 million or 5 million after tax in the quarter.
Speaker Change: Cost savings related to this simplification were approximately 1 million in the quarter, and are expected to be approximately 5 million on an annualized basis.
Speaker Change: Lastly, on page 28, Health for Training Finance, Assets, or Down Modestly from Q4 at 202 million.
Speaker Change: We'll turn back to Steve for closing remarks. Thanks, Jackie. In closing, we are reaffirming our 2025 guidance of 19 to 25 cents.
ECN, as I said, is resilient and robust. [inaudible]
Speaker Change: But I'd like you to take one important message away from today's call, as we shift to a more aggressive posture in the remaining quarter of the 2025.
Speaker Change: ECN is blessed with excess funding exceeding $1.5 billion. $1.5 billion.
Speaker Change: We are in a very good place. We played some defense in the past years by building robust and resilient systems, and all of our business to position us for growth. [inaudible]
Speaker Change: Now that that work is complete we are going on the offense.
Speaker Change: We will take advantage of this excess funding capacity with a warrior-like sales culture to supercharge our growth. That's our vision for ECN.
Operator, we're happy to take questions. Thank you very much.
Speaker Change: Thank you. We will now take Analyst questions from the telephone minds. If you have a question, please press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speaker phone, please lift your handset before pressing any keys. You'll hear a voice. You'll hear a voice. You'll hear a voice.
To withdraw your question, please press pound then one.
Speaker Change: There'll be a brief pause while the participants register for questions. Thank you for your patience.
and many more. Thank you. Thank you.
Speaker Change: And our first question today will come from Nick Priebe with CIBC Capital Markets.
Okay, thanks. Let's start with a question at Triad.
Nick Priby: It looks like originations are trending kind of nicely through the quarter and into April . I think of originations reflecting the total volume of funded loans, which would be the product of orders that would have been placed a few months prior. Understand that originations were particularly strong in April . Just wondering how approvals would be trending subsequent to quarter and through April and May. Are you still seeing pretty strong double digit growth there? No. No. No.
Nick Priby: Yeah, thanks, Nick. This is Lance. And yes, we are. I just looked this morning through this period of May. We're up 25% year-over-year in approvals. And throughout the month of April , we were up more than 30% year-over-year. So we're seeing continued strong approval growth, yes.
Speaker Change: And I add to that, Lance, you're seeing strong approval growth and a better look to book ratio. Absolutely.
Speaker Change: Okay, that's good to hear. And then, higher margin, chattel loans constituted nearly 90% of originations in Q1. Do you have visibility on how the product mix is going to evolve through the balance of the year? Is that a realistic sort of composition for the balance of the year?
Speaker Change: I think we'll continue to see strong chattel growth, but I also know that we're rebuilding our land-home products and our land-secured products overall. So I think it will tilt a little bit more towards the land-secured products later in the year, but chattel will remain strong, a stronger portion that it probably did most of last year.
Speaker Change: Got it, okay. And then just on the funding side, you've got the new funding partners that you called out, JPMorgan, and New York Life. How would the gain on sale margins from those new partners kind of land on that continuum? Like would you expect those to be just generally comparable to any other institutional funding partners? [inaudible]
Speaker Change: Yeah, this is James. They're very consistent with prior agreements with a little bit more flexibility and what types of loans we can flow through, so it should be supportive to our forward origination book. But overall, we still stand behind our 6.5% origination margin yield for the year.
Got it. Okay, that's great color. Thanks very much.
Speaker Change: And the last one that I would make is that the New York life, all these are important relationships. The New York life is our first direct life co-relationship. Our asset management partners are important to us, but going direct to life co is part of our strategy. Thank you very much.
Okay, that's great. Thanks, Steve.
Speaker Change: And our next question will come from Jemmy Goyne with National Bank.
Jemmy Goyne: Yeah, thanks. Just wanted to clarify on the new funding partners and the ability to do more silver and bronze. Are those silver and bronze progress? Are they higher margin just to refresh my memory on that? And then, you know, how is the demand for those types of products? Or are you looking to...
Jemmy Goyne: Would you potentially see an increase in the share of silver and bronze now that you have these partners in place as we go forward?
Jemmy Goyne: Yeah, so as we previously discussed, being able to originate lower tier credit is more representative of the MH market at a whole, so it is a supportive of our four originations look.
Jemmy Goyne: And I think generally speaking, the margin between gold, silver, bronze is relatively consistent. There isn't too much variability within how they're priced. [inaudible]
Thank you. Thank you.
Okay, understood. [inaudible]
Just a quick one on the-
Jemmy Goyne: On the corporate simplification just remind me what some of those costs might have been that we're flowing through this quarter. So, let's see what we can do.
Thank you. Bye.
Jemmy Goyne: So the corporate simplification is our initiative where we're streamlining corporate back office functions in with Triad. The bulk of the cost is personal reductions. We've eliminated, we can get around 24 positions as part of the program. So let's get started.
Okay, that's Claire. Thank you.
We'll move next to Stephen Boland with Raymond James. Thank you very much.
Tyron, just a numbers question.
Jemmy Goyne: And the summer jumps around a little bit, but the retained servicing rights, [inaudible]
which is a non-tash, I don't know.
Jemmy Goyne: I know it's a discounted number. You know, big kind of movement, I think, this quarter. I want to be to just, like, talk about what assumptions did change. And does that slow into income at all? I'm just trying to understand it again.
Speaker Change: I'll start out here, and James can weigh in on the triad side. So servicing as a whole, if you're looking at the year-rear increase, it's not just from triad, it's also RV and marine contributing. On the RV and marine side, we did the majority interest acquisition at Paramount, and we've retained servicing under the forward flows that source one as well. So you have about half of the increase coming from that side of the business. And then on the triad,
Speaker Change: I had a side where James can speak further, but it does move around a little bit based on the assumptions and how many assets we've fold in the current period.
Speaker Change: Yeah, I think the only thing I would add is looking at Q1 specifically, we sold through about 40 million fewer loans, consistent with slightly low originations and modest growth in HFT.
Speaker Change: Of note, I'm looking forward into April HFT's actually reduced slightly from March, so you'll kind of see a kind of a normalized servicing yield at 90 basis points on the year of trial.
Okay.
Speaker Change: And does that change it? Sorry again, like, you know, it was an account many years ago. But does that change? Does it impact the income? Like is it going to the service income? Like is it an offset or a positive? Yes, it doesn't hit servicing income. That's correct.
Speaker Change: Okay, all right, thank you. Second question, I know you just talked about the restructuring, the costs.
Speaker Change: What is the timing of that merger between Triad and the corporate parent now? I think I don't know, I can't remember the regional timing, but when will that actually be merged officially?
Speaker Change: The process is underway. Your card we did announce it back when we put our guidance out.
In the later part of last year, we've made significant...
Speaker Change: Headcount reductions, as I mentioned, we've had a million dollars of cost savings already in Q1. Our primary focus so far has really been on headcounted personnel costs. We haven't formally merged the physical locations as of yet. [inaudible]
Speaker Change: Okay, and sorry, there was one other thing, I guess, Steve, on the last call.
Speaker Change: You mentioned there were some delays in two-four that would have been some income.
Speaker Change: When I just go back and look at the transcript from Q4, was that part of the reason you hit the high end of guidance? That Q4 stuff got pushed into Q1.
Thank you.
Speaker Change: This is Lance again. So on the on the triad side, yes, we did get some lift in Q1 from the business that we failed to pull through in Q4 last year. That's one of the reasons that we saw the large increase.
Speaker Change: We're also seeing increases for other reasons, but yes, we did see a pickup and we're kind of back to return to normal from the storm interrupted series that we had in Q4. [inaudible]
Okay, thanks very much.
Thank you.
Speaker Change: And as a reminder, if you'd like to ask a question, you can signal by pressing star one.
Speaker Change: And we'll take our next question from Tom MacKinnon with BMO Capital.
Yes, thanks for doing.
Speaker Change: Just falling on Steve's question here, I think he talked about 50 to 75 million.
Speaker Change: And try out originations that are going to be deferred into the first half of 2025. At least that was mentioned in the last call. Do you know if you picked up all of those in the first quarter? No.
Speaker Change: Yeah, Tom, I would say that you got a chunk of it in March as you've seen that.
Speaker Change: So the other increase you've seen in the April numbers, Lance spoke to him when he was getting a chunk of it, but somewhere in that 50 to 16 million is flowing in between March and April . But when you look at the approval pipeline, it indicates it's going to be strong through Q2 and Q3, the businesses. That's it sir.
Speaker Change: The affordability's thesis to this business is proving to be correct. [inaudible]
Speaker Change: And then I think you also mentioned 75 million of RV marine assets sales. We're pushing the first quarter into a new flow vehicle. That all come through in the first quarter as well.
Speaker Change: Hi, Thomas Jackie. We did complete a pool sale as expected at Source One under the new facility with Monroe. It wasn't the full 70 million, but it did contribute to Q1 results. [inaudible]
Speaker Change: Okay, and then Steve, you had suggested that almost three cents of earnings in the fourth quarter was deferred and would work its way into the first half of 2025.
Speaker Change: How much of, can you estimate how much of that three cents may have been, I think it was a penny and a half in each one of the segments. Yes, you may have got.
Speaker Change: Sorry, Tom, I'm going to catch you up. I think we're on track for that. You know, we've had a good, good solid first quarter. A small portion come that. You'll see some of that in the second quarter as well. Thank you.
He's going to perform it seemingly well.
Speaker Change: In 2025, as this IFG, we might seem to have softness and source one, but we're addressing that by adding proven sales leadership to Mike's team and the sales team. I see these.
Speaker Change: Temporary Turn Downs is an opportunity to take shares. Hans is successfully shown as an IFG.
Speaker Change: So you're at your question. You'll see that recovery over this quarter in the next two quarters.
And would tariffs have any impact on tribe's business? [inaudible]
Speaker Change: Yeah, I mentioned in the earlier slide, this is like, I'm sorry. We're not seeing the impacts at all. At this point, our average, if you look at our approval pipeline now, our average loan amount is holding very, very steady. And then I mentioned that some of the manufacturers are beginning to see some risks because they've added a line item to their invoices as a price protection line item. So that way the retailer and the consumer get a little better look at what their home might be two or three months from now if it comes offline then.
Speaker Change: But, again, those are fairly small amounts now, too. We're looking at three to four, maybe five percent. So, we're not feeling much impact at all right now and don't anticipate any large impacts at all.
OK, that's great, thanks very much.
Once again, it's star one to ask a question.
Jemmy Goyne: And we have a follow-up from Jemmy Goyne with National Bank.
For more information, visit www.FEMA.gov
Yeah, thanks. Just wanted to, uh, um...
Speaker Change: I guess kind of reconciled the growth in triad. So the child origination is obviously doing very well. I see total approvals of 19%, but origination is on a whole up 10.
Speaker Change: The guidance would suggest originations for the full year are going to grow at like 35 or something around that range. Can you? No.
Speaker Change: Did you hit guidance with just shadow originations or the bulk coming from shadow originations? Or do you need the commercial side of the business to pick up as well in the back to be able to hit that failure guidance? Yes.
Speaker Change: Yeah, so Q1 was marked by strong growth and chattel when we see that continuing we do believe that our land secured offering and also our community business will pick up towards the second half of the year as well. So we still feel comfortable with our guidance range between 17 and 19 on the year. Thank you.
That's good. Thank you.