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spk00: Thank you for standing by. This is the conference operator. Welcome to the ECN Capital fourth 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 will be an opportunity to ask questions. To join the question queue, you may 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 Wimsatt. Please go ahead, Mr. Wimsatt.
spk13: Thank you, Gaylene. Good afternoon, everyone. First, I want to thank everyone for joining this call. Joining us today from the company are Steve Hudson, Chief Executive Officer, Michael Lepore, Chief Financial Officer, Jackie Weber, VP and Controller, Lance Hull, President of Triad Financial, Matt Heidelberg, Chief Operating Officer of Triad Financial, Hans Cross, founder and CEO of IFG, and Mike Optall, president of SourceOne. The news release summarizing these results was issued this afternoon, and the financial statements and MD&A for the three-month period ended December 31, 2023, and filed to CDAR. These documents are available on our website at www.ecncapitalcorp.com. 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. Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. I'll refer you to the Cautionary Statements section of the MD&A for a description of such risks, uncertainties, and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance as any forward-looking statements 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-IFRS measures, which we believe help to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A. With these introductory remarks complete, I will now turn the call over to Steven Hudson, Chief Executive Officer.
spk06: Thanks, John. Turning to slide six, a few comments before we begin the formal slide review. 2023 was a difficult year for ECN. On a personal note, it was even a more painful year for me. Tough decisions have been made to place ECN in a strong foundation for 2024 growth and beyond. Turning to the content on slide 26, the strategic review, concluding in our strategic partnership with Skyline was successful. The cost implemented were higher than anticipated, but I know we've ended up with a phenomenal partnership with Skyline Champion. Land home challenges were worse than we anticipated as late as Q3 23. I'll speak to those specifically in a minute and the solution. Funding, although ECN took moves to measure, to diversify its funding prior to 23, bank and credit unions pulled back even more than anticipated resulting in an elevated balance sheet and the use of lower margin institutional investor money. While bank and credit unions have returned in 2024, we are pursuing a diversified fund strategy to renew our growth. And finally, on the origination front, economic uncertainty resulted in slower originations in 23, but we've seen a meaningful rebound late in 24 and early 25. Turning to slide seven, As I mentioned, we've completed our strategic review and our partnership with Skyline. It's gone better than I expected. Champion Financing launched its first component. The floor plan initiative was successfully launched at the Louisville Show in early 24 to great results. We've just launched in the last three days the Champion Financing retail component at the Biloxi Show. We've also completed our RV Marine strategic review and determined the best path to maximize shareholder value is to continue to execute on the significant growth in front of both Source 1 and IFG. We have significant funding in place for both of those businesses. We have improving originations, strong industry uptick, and we're building out a servicing platform, which I'll speak to in a second, very much like we did at Service Finance and Triad to maximize value. Turning to slide eight, the last component of our strategic review was to successfully complete the sale of Red Oak. That was accomplished by Michael Lepore, by Keith Lamb, and by our Chief Credit Officer, Algis Veltalos. It resulted in proceeds of $153 million, and we sold that book. All of that capital was applied to reducing the senior credit facility. Expense reduction and corporate simplification has proceeded. Assets, corporate assets were sold, real estate footprint was right-sized, and significant reductions in senior management personnel, realizing a spent savings of $6 million. The corporate simplification plan is a component of our expanded Skyline partnership, which is under continued discussion. Turning to slide nine, we spent $40 million of shareholder capital, which is a very material amount, to accomplish three things. One, to streamline the company. Second, to sell assets and make the company far leaner. And third, to complete the sale of Red Oak and be able to deploy that capital in the growth of our two businesses. We believe that we're well positioned to grow in 2024. We see 2023 as a significant reset year. Turning to slide 10, Let me first start by recapping some of the challenges that we've experienced in Land Home, but more importantly, to outline the actions, the significant actions that have been taken to address these challenges. I won't recap the challenges, but on the left-hand side of the slide, the challenges, the spectrum ranged from having the right team in place, the correct process, robust systems, and appropriate pricing. If I flip to the other side of this page, on the right-hand side, would have been the seven-point action plan that ECN has assisted, but Lance Hall has shown leadership on. Obviously, the new management team with Lance Hall and James Berry joining Matt Heidelberg. We replaced the entire land home team with a stronger, more professional, and experienced platform and team. Process changes have been implemented to reduce turnaround times. not to dwell on the past, but in the past, it took a month to clear conditions on the land home financing. Today, that is two to three days. I know that Lance's objective is, in fact, shorter than that. On the pricing front, we've had significant rate increases, which have been implicated across the LH business, and Lance has established an internal rate committee that meets bimonthly to ensure that we're priced appropriately in the marketplace. We have a significant and robust dealer platform being finalized, which will digitate documents and streamline underwriting and monitoring. We've improved the funding pipeline with incremental funding capacity for 24. It's amazing in the space of 12 months we've gone from a significant change in funding to potentially being overfunded by a material margin of 24. And finally and not last, Chris Johnson, a very experienced executive, And Wall Street has joined us to head up capital markets, including the funding. His responsibilities include hedging. Turning to page 11 on the land home update, I won't spend a lot of time here just to say both charts are important. The left-hand side shows that we're now at market rates. Why we got where we did is part of our past. We've addressed that decisively. And the portfolio is now been reduced to amount that is immaterial with respect to exposure. I would note as a somewhat related point at today's board meeting, the compensation committee confirmed that the CEO and CFO are receiving no bonuses this year. In addition, salaries for the two of us were significantly reduced, in my case almost 50%. As well, the incentive compensation payments through PSUs were placed at zero. Turning to page 12, leadership team at Triad is, I think, industry leading. We've previously announced Lance Hall joining as the president of Triad. We're very happy with Lance's progress, in fact, from my personal perspective, ecstatic at what he's done in his first 200 days. We have James Berry joining as CFO. James is not a known name to people in this call, but James has worked beside me for 10 years at ECN Corporate. I consider him a very accomplished finance and treasury executive, and we love the fact that he has joined the team along with Matt Heidelberg, who drives the funding side. Turning to 13, a guy younger than me, Mike Optal. That's not saying a lot. Mike Optal has joined as head of Source One, 20-year executive in specialty finance. He's done a lot in a very short period of time. You'll see Mike speak to originations in funding. We're Happy to have Mike on team as one of our senior leaders. His handsome face isn't here, but Hans Cross has been with us over 200 days. Hans was the founder and CEO of IFG, very accomplished, and similarly, what was a tough 23 is turning into a great 24. Under Hans' leadership, he's also responsible for significant cost takeouts in his business. I want to thank all of you. On the corporate side, Michael Lepori, my partner of over a decade, is transitioning to strategic advisory role post Q1. Jackie Weber, who's been with us for five years as vice president controller, has been appointed to CFO. Happy for both of you. John Wimsatt, who's been a partner for two decades, is transitioning to strategic advisory to myself. He'll be focused on future M&A and funding. He'll assist me in an orderly transition of the IR function. And as I mentioned earlier, Chris Johnson has been hired as Senior Vice President, Capital Markets, in charge of our funding, as well as our hedging across our businesses. Turn to page 16. I don't want to dwell on this. In fact, Lance and Mike and Hans will do a better job speaking to all of this. Other than say, you know, the fourth quarter was not a financial result that we're pleased not anywhere near pleased about, but it did mark the turnaround operationally for the businesses with respect to increased originations, increased liquidity, and I know we're about to turn the page. With that, Lance, I'm going to pass it to you.
spk09: Lance Jones Thank you, Steve, and good evening, everybody. As you heard from Steve, 2023 was certainly a challenging year, and it was a challenging year for Triad as well. But there were some very positive turns throughout the year also. Q4 originations We're up nearly 16%. And our managed portfolio grew by 13% to nearly $5 billion on the year. But perhaps most importantly is our loan funding options are in better shape than ever. And we have more than $2 billion in capacity going into the year. And it's a healthy mix of banks and credit unions, insurance and credit funds, as well as our community and rental partners. So I'm really excited about where we're positioned going into 2024. The next slide is a picture of our retail originations, and positive trends continue here as well. Our higher margin core chattel is up 41%, and that continues to grow into 2024 as January and February are up 22% year over year. It's also worth pointing out on those two pie charts that are changing our origination mix year over year. You'll see that in Q4 of 2022, our core chattel was just less than 48% of our total originations, and now It's at 59% of our total originations, and again, as that's our highest margin product, this mix bodes well for our increased origination revenues. Next slide, 21. In addition to the origination growth of the quarter, there's some improvement in other areas as well. As I pointed out on the last slide, originations are up 15%, but I'm also encouraged. by the continued growth in loan approvals, because today's growth in loan approvals will translate into tomorrow's growth in originations. For the quarter, we're up 6.4%, and again, our higher margin chattel business is up more than 8% year over year. And we're expecting this growth to accelerate as we move in through 2024. On slide 22, taking a look at related industry activity, and this is our first look at home shipments. And 2023 was a very challenging year for others as well. Many of the manufacturers struggled throughout the year as shipments declined. In fact, throughout the year, they were down 21% year over year. But that's not always the best indicator of the state of the business. What happens somewhat often in manufactured housing is the buildup of inventory from speculation or things that are driving near-term sales or even when backlogs beget more backlogs and you see a real buildup in inventory as you saw through most of 2021. and into the first half of 2022. But as with all things that grow that fast, there becomes a reckoning where that excess inventory was starting to get very expensive, especially as interest rates rose and the cost of carrying that inventory went up dramatically. So retailers worked very, very hard during most of 2023 to work those inventories down to a more reasonable level. And they were successful in doing that. In fact, inventory levels are now much more close to normal. And in fact, in January, we saw the first month-over-month increase in shipments, where January of 2024 was 7% above the year prior. And that's the first time we've seen an increase in shipments since the fall of 2022. On slide 23, we see another look, which is a forward look at shipments. The National Association of Home Builders is forecasting growth throughout the year. In fact, they're estimating a 15% growth in shipments to a total of 110,000 units, which is going to be a welcomed increase for the whole industry. This activity in new purchases and restocking will help drive growth for 2024. And I want to add, though, that regardless of shipment trends, Triad has a long history of outpacing shipments that stretches back many, many years. And we expect this trend to continue as we expand our business and grow our market share. On slide 24, we're taking a look at our originations outlook, and as I mentioned, that growth in our business and expanded market share we believe will lead to originations of up 27% this year, which will translate to a record-breaking year for Triad at $1.7 billion on the year. On slide 25, I want to take just a minute to flash back to the first time that I was able to speak to this group as a team member. of Triad and here with ECN. And at that time, I announced a series of initiatives that I wanted to put in place at Triad to help improve the way that Triad did business and increase our opportunities in the marketplace. And many of those incentives centered around better processing speed, improved communication, and enhanced the customer experience. And this slide highlights just a few of those. And while I won't mention all of them, I do want to spend a minute or two on just a couple of our recent wins. But first, I want to say that these wins and those that we're going to recognize throughout this year and beyond are only possible because of the quality of the team at Triad and the efforts by so many. During my first 200 days at Triad, I've been very impressed and encouraged by the abilities of the team and their dedication to the company and how they've been able to adapt to these changes and elevate our company. For example, by reorganizing our origination teams and providing more effective tools for them to work with, we've reduced our loan decision times by 50%, as we work towards an industry-leading KPI of four hours. This speed to decision will increase our capture rate and win more business for Triad in the months and years to come. And secondly, accessibility for our borrowers and accessibility for our retailers to our team is an absolute must. We just simply have to be available when those people that rely on us need us. So we put new systems in place that have allowed us to reduce unanswered calls by more than 90%, and reduced hold times by more than 75%. Simply put, when people call Triad, we expect the phone to be answered, and we expect them to get routed to the appropriate person as soon as possible to get them the service that they expect and need. On slide 27, I'll take just a minute and talk about joint venture. Steve mentioned it in his opening remarks, and this is the first time that we've had a chance to come back to this group since we launched. We were very fortunate in 2023 that Skyline Champion and ECN came together with this opportunity because they're a great partner, and it's going to be an outstanding complement to our mutual businesses. From that, we have two new board members. Tom Kelly, a Skyline director, joined us as a board member, and Mark Yeo, Skyline CEO, is a board observer. The JV we decided to brand in a joint effort with Skyline Champion. We branded it as Champion Financing, and it's drawing a lot of attention in the industry. As Steve mentioned, our first launch was at the Louisville show in January of this year, and that was for our floor plan and rental offerings. And I'll share a little more detail on that on the next slide. But just this week, in fact, two days ago, Champion Financing retail incentives were unveiled at the Biloxi Manufactured Home Show in Biloxi, Mississippi. Flipping over to slide 28, we'll talk about some of those incentives. First, on the retail incentives, they're directed at our mutual customer, and that is the homebuyer. Skyline Champion got together and had two new series of homes that are packed with features and values that are appealing to today's homebuyers. And we've coupled that with financing incentives for those that choose to finance through the JV. These will represent the lowest rates available from Triad and will significantly reduce the customer's borrowing cost. These combined incentives between Skyline Champion and us will drive sales for Champion and loan activity for Pryatt and the JV. The JV also offers incentives to retailers that choose to finance their home inventory with us. In fact, this was part of our initial launch in January. And towards the bottom of this slide, you'll see an indication that we've got $127 million worth of existing credit applications from retailers who have expressed an interest in floor planning their inventory through this joint venture. And that's exciting for a couple of reasons. First of all, we're going to draw income from the floor plan financing through the JV. But more importantly, we know from history that those retailers that choose to use our floor plan avenues tend to do significantly more retail volume with us. So we're looking forward to the progress that we're able to develop with the Champion team throughout the year. And with that, I'll turn it over to Matt. Thank you, Lance.
spk02: I'm going to pick up on slide 28, starting with Triad's funding evolution. I thought I'd take you back to the beginning when UCN acquired Triad. Triad was 100 percent bank and credit union funded with about $400 million of capacity. As we grew Originations, we also expanded partnerships to include insurance companies and investment managers, bringing the total to well over a billion dollars of funding. You'll see in 2023, the ratio of bank capacity shrunk to only 20%. This was partly due to our expanded partnerships with those investment managers, but also due to the slowing demand from the bank credit unions throughout the year that Steve had mentioned earlier. However, starting 2024, we've not only continued to grow our insurance capacity, but we also see our banks coming back. So we've already doubled their desired volume for the new year. Combined, we stand at over $1.8 billion of capacity for our consumer products, in excess of $2 billion when you add in our community programs, which positions us quite well for the growth in 2024 and beyond. Moving to slide 29, I wanted to remind everybody of the differences between these two types of partners. Our banks and credit unions on the left have been with us for decades in most cases. They focus more on our core product, tend to have shorter terms, but a fixed high yield. On the right side, our institutional investors provide a scale, multi-year commitments, and purchase a much wider spectrum of our product offerings, including silver, bronze, as well as additional offerings that we've spoken about, like the floor plan flowing through to our Blackstone partnership. With these benefits, there is a trade-off with a lower yield with these loans, as you see on the slide. Moving to page 30, tried menu update. Now, let me update you on what this looks like across all of our different products. We have one column showing you the distribution by our products from chattel, COP, down to CLP. You'll notice that the core chattel product is our largest weighting at 59%, and also comes with a healthy total revenue yield in the 7% to 9% range. And with some of our other product offerings, especially the newer ones like rental and CLP, may have lower revenue yields, but we make up for that with a higher servicing fee. So while we might not have as much revenue upfront, we are seeing continued and additional revenue over time. Blended together across all these products and looking into 2024, we're quite happy to see that we're returning back to normalized revenue yields. To give you an update on where our spreads are on slide 31, I wanted to focus you on the left chart. You'll see triage loan rates historically as compared to market rates, specifically the 30-year mortgage rate and the 10-year treasury rate. What's evident throughout 2023 is the compression you see relative to those market rates increasing to where we are. However, early into 2024, we've quickly widened back out towards our historical average. Our partners are going to benefit from this widening through the returns they earn on our loans. And with regards to delinquency, we have a closer look at that on the next slide on page 32. When it comes to credit trends, no news is good news. The 30-plus state delinquency rate is well within expectations. Net charge-offs on the bottom you'll see have ticked up slightly from historic lows, but are well within expected ranges as well. Moving to slide 33 for a commercial update. The one change, an obvious change that Steve had alluded to earlier, mentioned earlier, is the sale of our Red Oak division, which was sold in February. What stayed the same, We're maintaining high yields, 11% plus, and performance continues to be exceptional. Also the same from a trend recently, now that we're flowing through floor plan loans to partners, the likes of Blackstone, you see our retained balances remaining quite low relative to where they were a year earlier.
spk09: With that, I'm gonna pass it back to Lance. Yeah, thank you, Matt. Taking a look at slide number 34 on guidance for the year. In preparing our guidance, we segmented our business into three primary lines of business, retail origination, commercial origination, and loan servicing. And I'm really excited that each of these is in a great position for us to grow in 2024. Our forecast for originations is between $1.65 and $1.85 billion, and we're forecasting our managed portfolio to be between $5.9 billion and $6.2 billion by year-end. These will translate into a pre-tax income of $68 to $80 million on the year. And moving on to slide 35, while I'm encouraged about our opportunities in 2024, I'm very excited about our future beyond 2024. We now have funding relationships in place that are both stable and scalable, and we're making operational improvements that will allow us to scale origination and servicing activities in a more efficient and predictable manner. The changes that we're making at Triad today are not just to make us better for what we can do in 2024, they are to build our future and put us on a path to significant and sustainable long-term growth. And lastly, on slide 36, this is the monthly and quarterly data that you've seen before, so I'll leave this in your hands in the context that I've already shared, and I thank you, and I'll turn it back to Steve.
spk06: Thanks, Lance. Just to introduce RV and Marine before Mike and Hans speak, just on 38, the consolidated facilities, forecast for those two businesses. You know, you look at the fourth quarter, the originations continue to struggle as they did for all of 23 and for most of the industry. However, as I mentioned earlier, I believe the operational improvements began in the fourth quarter under the leadership of Hans Cross and Mike Opto. And in addition to that, we've seen significant return of funding and liquidity. I think we're well positioned. Turning to 39, you the program update. Again, focusing on what's happened. It was great to see, Mike, that in February, Source 1 had its biggest February ever, which is due to your leadership. A little bit of help from us, but due to your leadership. And continues in IFG, up 18% year over year. It's nice to have the wind at our back for a change. And the increased funding discussions that have been from both existing players coming back and through Chris Johnson's new relationships and John Wimsatz and Keith Lamb, it's great to have more liquidity. We're in a position in 2024 to have more funding than we need, which is, never thought I'd say that. Hans, I'm going to pass it to you on slide 40.
spk01: Thanks, Steve. I'll start on slide 40. Hello, everybody. I'm Hans Krause. I'm founder and CEO of Intercoastal Financial Group. I'm very excited to have this first experience to join you on this call and to talk about the company that I'm very proud of. I started the company 30 years ago, and I'm proud to say that we're the best in class in the high-end voting market. Our bank survey ranks Intercoastal Financial Group as consistently number one with our largest funding partners. We have a best-in-class team of sales professionals and a turnkey process from origination to closing, all done in-house. We're the only ones in industry with expertise to do this. Our funding relationships cover a broad spectrum of AAA loans down to subprime loans. I'd say these relationships that after 30 years are nearly impossible to replicate. Turning to the next slide on growth, Slide 41. Going forward, we are focused on continued growth of our sales team and looking at opportunistic tuck-in acquisitions. Technology investments and specialized programs that will fuel our growth through manufacturers, dealers, and not brokers. If I've learned anything over the past 30 years, it's that we need to create a framework to support growth, continuing to be the best at what we do, and by supporting our people, who, at the end of the day, are our number one asset. Thanks, and I'll give it to Michael.
spk10: Michael Opdahl Thank you, Hans. Good afternoon, everyone. I'm Michael Opdahl, President of SourceOne Financial Services, and I look forward to bringing you up to speed on the progress we are making. If you could please turn to slide 42. Over the last 20 years, SourceOne has presented a distinctive value proposition to our funding partners. and to our nationwide network of RV and marine dealers. Source 1 is very unique in what we do, and we are well positioned to scale. Conversely, for potential competitors, the barriers to entry are high, as our relationships with both dealer and lending partners have been developed over decades. This is particularly true when it comes to human capital, as the expertise of our team is not replicable, and their industry knowledge irreplaceable. We offer our funding partners access to a nationwide dealer network that offers them consistent, high-quality originations with a demonstrated track record of performance and the ability to scale to each partner's needs. This value proposition is symbiotic, as only Source 1 offers dealerships the ability to finance across the full credit spectrum to a lender network that without Source 1 they wouldn't have access to. To put it simply, We deliver to our lending and dealer partners what no other company in our space can. Moving on to the next slide, we'll review marine and asset performance. The good news is that our lending partners report back that both RV and marine verticals continue to outperform similar asset-backed consumer segments, both on yield and on a risk-adjusted return basis. With our largest lenders, we have a track record dating back over a decade. and their asset performance has remained remarkably consistent across the near prime to super prime credit spectrum. As the graphs show, RV and marine portfolios continue to outperform automotive loans, achieving higher yields combined with substantially lower losses. As a result of this steady performance and with return to liquidity into the market, most of our lenders' funding capacity is back up to or even above 2022 levels. and we continue to attract interest from additional lending partners. This performance is not confined to our external partners as Source One's held for trade portfolio is enjoying similar results. Moving on to slide 44. We are following the proven ECM growth playbook and have several initiatives that are beginning to bear fruit. We've invested heavily in technology with a focus on continual improvement of system processes and efficiencies. We are spearheading dealer adoption of e-contracting within the marine and RV industries through our proprietary origination platform. Furthermore, by leveraging some of IFG's state of the art internal procedures, we are continuing to reduce friction during the loan origination and titling process. We will have increased our sales team by 50% by the end of the second quarter and are aggressively growing our dealer footprint allowing us to make share in previously unrepresented markets. Our take share strategy is also working as well. Capture ratios are up substantially and originations are up 11% year over year. One initiative that no other company in our space has access to and will allow us to make share is integrating IFG's direct lending model into the Source 1 playbook. Only IFG and Source 1 are uniquely positioned to take advantage of our decades of experience across multiple verticals and take them to scale. And we are very excited about the opportunities these integrations will present. Steve, over to you, sir.
spk06: Thank you, Mike. Turning to slide 45, comment on the servicing platform and specific to that of Source 1. In order to maximize shareholders' value of Source 1, We need an internal servicing platform, and let me take you back a little bit in the history of VCN. We built with the team at Service Finance a very significant and robust internal servicing system, which provided more annuity-type income, which got a very attractive valuation on the sale of that business. With respect to Triad, when we were fortunate enough to invest in that business seven years ago, it was all servicing released over the last seven years. The management team at Triad has built a $5 billion servicing arm that is investment grade rated by Fitch. That servicing, internal servicing, is the key to maximizing value of any business. We're also on the verge of adding incremental and more profitable funding relationships for Source 1 that require in-house servicing. All that leads to you that in 2024, we will either build or modestly buy servicing business. We think it's very important to the value creation of Source 1. Turning to page 46, the guidance with respect to Source 1 and RV Marine, we're tracking towards 10 to 15 million. I would focus you more to the 15 than 10. And as Mike I'll mention a second, because of the investment in infrastructure and peoples and systems and processes and funding, I think we have a significant opportunity to grow over and above what we're laying out this evening for you in our forecast. Turning to 47, similar 36-month objective that Lance laid out for Triad, we believe that these two businesses combined are capable of originating 2 to 2.5 billion. That's certainly not today or 2025, but we believe it's achievable as we move into 26 and 27. We have made the necessary infrastructure investments, and funding arrangements are in place or are shortly coming, which will underpin those funding volumes. And finally, on originations, I won't speak to that, just the summary of the historical originations, as I mentioned earlier, a significant term in early 24. Michael.
spk08: Thank you, Steve. Turning to page 50 in the Q4 consolidated operating highlights, total originations were $503 million in Q4, down $571.5 million in Q4 2022, which reflected a small year-over-year increase triad to $374 million and a decrease in our RVM business to $129.3 million. Q4 operating results reflect a $14.6 million provision to our land home portfolio. As noted earlier, due to the decision made to accelerate the sale of this portfolio and improve process management to reduce backlog times, the combined land home pipeline and health for trading balance is expected to be approximately $160 million at the end of Q1, compared to almost $300 million at its peak, and with significantly improved rates. As a result, we do not anticipate any further below-the-line provisions in 2024. Adjusting for this provision, EBITDA was $5.5 million compared to $24.6 million in the same prior year quarter, primarily due to the lower origination revenues at triad. Q4 adjusted net loss applicable to common shareholders was $0.05 per share compared to adjusted EPS of $0.02 per share in the prior year quarter. Turning to page 51 in the balance sheet, Key highlights are that total assets of $1.3 billion were up by approximately $100 million over Q3, primarily due to an increase in finance assets due to the timing of portfolio sales. Total debt was also up approximately $100 million. In 2024, the company's focus will be on reducing leverage and increasing liquidity. In line with that focus, we expect total debt to be approximately $650 million at the end of Q1, following the sale of Red Oak, and additional help to trading portfolio sales. Turning to page 52 on the Q4 income statement, which provides a breakdown of income statement by line item. A key item to note is adjusted revenues were 40.2 million, down almost 25% compared to Q4 2022, again, primarily due to the lower regeneration revenues at triad. This, combined with our lower corporate revenue and higher operating expenses, resulted in the adjusted loss of $0.05 per share compared to adjusted EPS of $0.02 in Q4 2022. Finally, turning to page 53 in operating expenses, higher business operating expenses, partly driven by higher expenses at triad and higher corporate expenses. Higher Q4 corporate expenses were impacted by one-time state tax assessments of approximately $700,000. Corporate expenses of $4.1 million compared to $6.2 million in the same priority reflect the cost reduction. Sorry. We'll flip to the next slide. And finally, this slide just illustrates the movement in the held-for-trading financial assets balance. You know, post-Q3, we held up, and then what we're seeing in the financial reduction by the end of Q1 with the additional portfolio sales that will be completed in March. And with that, I'll turn it to Jackie for the forecast.
spk04: Thanks, Michael. Turning to slide 66 for the consolidated financial forecast, We have revised our 2024 EPS range to 10 to 16 cents per share based on our detailed bottoms-up approach. The chart below presents the breakdown of our guidance by quarter, which reflects the seasonality of our businesses. Next slide. A consolidated financial forecast assumes growth at each of our business segments, with manufactured housing contributing 68 to 80 million of adjusted operating income, and RV and Marine contributing 10 to 15 million of adjusted operating income. Corporate operating expenses are expected to be approximately 9 to 10 million for the year as a result of our corporate expense reduction program, and our tax rate is expected to be in the range of 20 to 26%, which drives our EPS guidance range of 10 to 16 cents per share. Turning to slide 58 for an update on our balance sheet. We are committed to decreasing our on-balance sheet finance assets and increasing our liquidity in 2024. As Michael mentioned previously, following the sale of Red Oak in the first quarter and with new and expanded funding commitments in process, we expect total on-balance sheet finance assets and debt to be materially lower at the end of the first quarter of 2024 and for the remainder of 2024 as compared to 2023. With that, I'll turn it back to Steve for closing remarks.
spk06: Maybe just returning to slide 57, 58, John? Yeah, 57 to 58. Just wanted to comment on the forecast range. Since preparing the forecast, in fact, we just updated this this morning, our gain on sale at 5.8% looks like it's going to be closer to 6.5% based upon existing and new funding arrangements triad. And although the range for tax is 20% to 26, I would hope through tax planning that we can reduce that. So I would guide you to the higher end of that range for 24. Turning to my final comments on page 61, I believe with all the change that's gone on, some of it very painful, both professionally and corporately, and personally, we now have the team, the processes, the systems, the pricing and the funding, Of those five components, this business now is Nebraska tough. I know that they will both succeed and they will exceed our expectations in 24. The liquidity is back and I'm, along with an exceptional team at Improved Systems, albeit painful, looking forward to turning the book and returning to profitability and growth in 2025, 2024, sorry. With that said, operator, we're ready to take questions.
spk00: Thank you. We'll now begin the question and answer session. 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 speakerphone, please pick up your handset before pressing two. The first question is from Mario Mandonga with TD Securities. Please go ahead.
spk07: Good evening. Just a quick question on the $14.6 million this quarter, the revenue. I guess the right way to call it is the revenue shortfall, as I'm coming to understand it. I remember last quarter the number was something, I believe it was 10.3. Perhaps, Michael, could you give us a summary of what it was for all of 2023? If you could help me piece it together, what that total amount was. Okay. Maybe help me understand why you think there won't be similar charges like this going forward. Like what has changed in your estimation that would cause these charges to go away?
spk08: Thanks, Mario. Yeah, I think the total charges for the year were 31.2 that we took, if you total them all up.
spk07: 31.2 is the total, let's call it revenue shortfall because of these unusual circumstances.
spk08: Yeah, these are the actual provisions that we booked.
spk07: Okay. Michael, when you say the word provisions, it kind of throws me off a little bit. These are amounts that you sort of essentially you added back to your revenue to arrive at your adjusted revenue. I want to make sure we are talking about a revenue item here.
spk08: Because the way that we account for our portfolio, it's on a fair value measurement basis. So if that loan to take to take a provision against the loan that the debit goes against revenue. That's just the way the accounting works. That's okay. And the way we adjust for that one and not opportunity thing is that is related to the portfolio that's on balance sheet and not, doesn't impact, wouldn't otherwise have an impact on sales in the quarter. So to aid comparability, like if you're looking at what was actually originated and sold in a quarter versus provision on a portfolio, that's the difference.
spk07: And then maybe just remind me or help me understand why you don't believe we'll see further charges going forward.
spk08: Well, I think we saw on the slide earlier, we've worked through the vast majority of the problem land home loans that were originated starting in 2022 through the first part of 2023. We had 70 million more come in through the pipeline in Q4. Like I said, we've been aggressively selling the portfolio down and accelerating it. This provision and the follow-on sales in Q1 of this year, that balance is down to a manageable level. All the new loan production is that we sell at full margins and have excess spreads compared to the benchmark. That's why we feel confident that in 2024 we'll achieve our targeted margin range, as Steve said, of 5.5% to 6.5%.
spk07: There were a lot of numbers there. I want to make sure I remember what reference there was to $160 million. You said it was down from $300 to $160 million. Is that the land home you're referring to? Yes. It is. Okay. And maybe just one final thing before we move on. Do you anticipate... or for anyone on the call, do you anticipate any other meaningful charges outside of this issue? It sounds like this issue hopefully is addressed. Are there any other sort of meaningful asset write-downs or other sort of below-the-line items that could play a role in 2024? Anything you can think of off the top of your head?
spk08: No. As you saw from the announcement today and what's happened throughout 2023, we've significantly turned over the entire management team of the operating companies and significantly downsized the corporate office. So we've taken care of all those matters. And as Steve said, we believe that we have the right team and the right structure in place to succeed in 2024.
spk06: Merit, Steve, we've taken the necessary marks and the right downs. There won't be a repeat of this in 2024. Okay.
spk07: Thank you.
spk00: The next question is from Jane going with National Bank Financial. Please go ahead.
spk12: Yeah, thanks. Question just around. I mean, this is this is a few quarters now of guidance revisions to the downside. Do you feel like you've set expectations? low enough or at a low bar here and I'm just trying to get around like a confidence interval and you sounded confident in the last quarter even to Mario's question about that issue with the land home portfolio being largely resolved and it pops up again in Q4 so just want to just sort of want to get your you know color and confidence level around these forecasts for both businesses.
spk06: Hi, Jamie. It's Steve. It's safe to assume that everyone around Land Home that resulted in this is no longer with us and that Lance has rebuilt that business from ground up. Lance, as you know, is the creator of Land Home Product. It's been, quote, unquote, rebuilt, retooled. And the rates for the last two quarters, quarter and a half, have been at or above industry rates. So we feel good about that business and its yields. There's a range in here at 10 to 15 cents. I think 10 cents is very conservative. I think that will track towards the upper end for the reasons I just raised. And we're gonna work hard to earn back the credibility.
spk12: Okay. A couple of questions then. First, in the manufactured housing finance business, guidance is for EBITDA margins of 59%, 60%. That's something that hasn't been achieved, at least in the timeline that ECN does own triad. So, you know, again, like what What were the changes, I guess, on the OPEX side, given that the revenue outlook is a little lower than what we would have previously thought that are allowing you to achieve a higher EBITDA margin?
spk02: This is Matt. I can let Lance add on to this, if he likes, but it's really coming from that slide with Lance summarizing all of the initiatives that he joined Triad to focus on. If you go through those, at the end of the day, they're all leading to efficiencies. We're trying to not have different sets of underwriting teams focused on different products. We're bringing that to one. We're speeding up the turn times on approvals. We're getting through them quicker. All of it's leading to efficiencies and an increase in that margin. That's what's driving that.
spk09: I think that's well said, Matt, and that's going to be our push for all of 2024 is to streamline both the structure of our team, streamline the way that we do business, and we know that speed will increase our ability to capture more business as well. So it's going to be all about improving from where we've come from.
spk12: Okay, understood. Last one for me then. Just on the corporate operating expenses, guidance is $9 to $10 million for 2024. I believe the last time guidance was provided, maybe in Q2, it was $5 million. Correct me if I'm wrong, if there's anything there, but what explains that step up, that corporate expenses would be higher?
spk08: That's correct, Jamie. So if you remember in Q2 and Q3, that $5 million was predicated on spinning the RV marine business and integrating ECN Corporate into Triad. We've made the decision that that's not the right thing to do right now, and so the $9 million reflects a regular corporate expense, which again would be $6 million lower than the 2023 run rate. So it's a reduced... corporate expense, but at the right level, that's required to continue to focus on the growth initiatives and supporting each of the two businesses that ECN owns.
spk12: Understood. I'll recoup.
spk00: The next question is from Stephen Boland with Raymond James. Please go ahead.
spk11: Yeah, just a couple of questions. One thing I noticed through the slide deck is improving you know, funding capacity, diverse funding capacity. I don't think I've heard you mention funding issues for many, many years, even your previous company. There was always demand. You had transitioned this company from the original to, you know, insurance and, you know, more credit unions and diverse. But, you know, there's a couple of slides where you're mentioning, you know, slide 10, you know, major credit union funding partner unexpectedly reduced capacity. Has there been a change in the industry in terms of, you know, form commitments and, you know, if one funding partner, you know, reduced capacity that you couldn't put it to another? I mean, I thought it was all kind of a black box for underwriting. So maybe you can just talk about something changed in the ability to funding, and then I have a follow-up, please.
spk06: Yep. So as you know, as we call both these businesses, Triad and SourceOne, we're 100% credit union funded when we acquired them. The credit union funding is by far our most profitable at 7% to 9% gain on sale, but it comes without a term commitment. As we've grown that business, as you know, in the fourth quarter of 22, the entire credit union industry in the U.S. basically shut down when we had some small bank collapses in the U.S. Nothing to do with us. It was industry-wide. We were fortunate enough to have in place relationships of Blackstone and Carlisle allow us to take up that excess and have a, not an at demand or at will funding, but having a two year commitment. Those commitments come with reduced margin because they're committing capital. There's no commitment fees, but the cost of it is reduced margin. So we've been balancing up between liquidity and increasing counterpart exposure and credit unions. I think the comment I would make to you is that all the credit unions are back now. We're not gonna pursue a strategy that's 100% credit union based. We don't think it's appropriate nor prudent to run the business in that measure. So we'll have a mix of insurance capital, alternative asset managers, credit unions, as well as capital markets. And we think that's the appropriate way to run the business. So we're not, there was never a case where we were unfunded. the case was always the mix. And we paid up to get that term liquidity, not dissimilar to what we did in the pandemic with service finance. When we executed that transaction with CPPIB, we paid up to get the long-dated commitment or longer-dated commitment. Does that answer your question?
spk11: Yeah, I mean, I think generally, you know, it's the first time I think any of us have heard about funding challenges. I know that it's a unique maybe, you know, market, you know, 2023. And maybe just a second, you mentioned Blackstone and Carlisle, I know it's on slide 28. You know, it's a two-year, like you said, it's a couple-year commitment, as you just said. Has there been any changes, you know, are those relationships active now? Are they active in the quarter? Has there been any changes for, you know, 2024 from those two credit unions or credit funds?
spk06: Yeah, one has been upsized and one is in the midst of being upsized. So they've been successful. The asset performance, not speaking for them, has been exceptional. So they're looking to commit a lot more capital space. Again, they're valued partners, important partners, but diversification of funding sources is critical. And I just want to go back, Steve. I think I was clear. We were never unfunded. In 23, it was the source of the funding. So because the untold story in the U.S. financial services markets, the credit unions went away. as an industry participant. The good news is we have an alternative source at lower margins. Okay. Thanks, Steve. I appreciate it.
spk00: The next question is from Nick Preeb with CIBC Capital Markets. Please go ahead.
spk03: Okay. Thanks. Just on the RV and marine strategic review, can you just expand a bit on what fell out of that and what led to the decision to take no action at current time, like you were contemplating a spin, is that option still on the table?
spk06: Yeah, we're, you know, well, the option on the table is to maximize value for our shareholders. And we think there's some work to do in the short term that's going to do that. So whether that's, it's a combination of increasing originations, incremental funding and a servicing component that will, you know, maybe it doubles value, maybe 50% increase in value, that stuff has to get done. Our skyline relationship remains in place. That dialogue is active. I don't want to comment on that in this call. It would be inappropriate, but I don't think, you know, we're pursuing both paths.
spk03: Okay. And not to belabor the point, but can you just help elaborate on the nature of that $14.6 million fair value adjustment on the land home? portfolio, like my understanding was there was some sensitivity to rising rates, but market yields were actually down between September 30th and December 31st. So can you just help elaborate on the nature of that fair value adjustment?
spk08: Sure. Well, one, there was more loans coming through the pipeline in Q4 that weren't reflected in the Q3 provision, so that had an impact. We say we're largely through that pipeline now. And we market to where we think the exit price is going to be, and that's an evolving measure, too, not necessarily fully dependent on interest rates, which I think I mentioned on the last call. The faster you want to sell and the larger the portfolio, there's always going to be a tradeoff between selling price and liquidity. And we've made the decision to accelerate the sale of those portfolios as quickly as possible. So that provision reflects us. That gives us the ability to do so.
spk03: But isn't that the $12.1 million that you're referring to, the accelerated pool sales, as opposed to the fair value adjustment? Or am I confusing those?
spk08: It's similar. The $12.1 is the notional what revenues would be if we had sold fully at our fully normalized margins in the quarter, which is just there to point out the impact. We don't adjust for that. That's not adjusted for. Whereas the provision, it's on the remaining balance. But going forward, this provision should cover... So in Q1, and we're in 2024, we expect margins to be in that 5.5% to 6.5% range.
spk03: Okay. Maybe the last question. In the press release and the prepared remarks, I'm hearing some optimism about the build of volumes in the early few months of this year. And I'm just trying to square that with the EPS guidance revision for the year ahead. So what's the major delta that has changed in your outlook between last quarter and this quarter? Is it volumes? Is it gain on sale margin? Is it the anticipation of some more charges in the year ahead? Can you just help walk us through that?
spk06: I think it's a sole function of conservatism. I think to say the range was 16 to 20 would be wouldn't be seen as credible. I happen to believe there's lots of upside. If we add 500 million of incremental funding, which I think we'll do, it would add two to three cents earnings per share. That's currently not in the forecast. But I think that we're in the environment where we need to show you that. So as opposed to saying, as opposed to Hudson saying it's going to 15 to 20, let me guide you to the upper end as your forecast and let me see if we'll we'll exceed that based upon the funding discussions we're having now, which are very material. The main verb here, I think, is liquidity is back. And our assets are amongst the best credit assets you can own. So conservative forecast, and we look forward to exceeding it.
spk03: Okay. All right. No, fair enough. That's it for me. Thank you.
spk00: Once again, if you have a question, please press star, then 1. The next question is a follow-up from Jane Gloin with National Bank Financial. Please go ahead.
spk12: Yeah, thanks. Just wanted to go back into the MH Finance guidance. And it includes a portion from Champion Financing, but I was wondering if you'd be able to break out what your expectations were for Champion Financing in 24 and then for the 36-month objectives.
spk06: I think, Jimmy, we put out guidance when we announced the joint venture. We're happy with that guidance. It was the retail part took longer to launch because of systems and compliance. So the Biloxi launch is quarter to quarter half late. But based upon run rate, I guide you to the lower end of the guidance we provided at 9 to 10. But I think the upside is easily in the 20 to 30 million range or more over that period. We have to launch it. We have to get acceptance by the dealers. and movement, but if you look to the floor plan as an example, the launch of floor plan was $100 million over a weekend at the Louisville show, so we're very excited about it. A little bit slower to get launched. Right now, we guide you to the previous announced guidance to lower end, but I believe we'll quickly recoup that. Okay, thank you.
spk00: 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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