ECN Capital Corp.

Thank you for standing by. This is the conference operator. Welcome to the ECN Capital First Quarter 2022 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the meeting over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.

Thank you, operator. Good afternoon, everyone. First, I want to thank everyone for joining this call. Joining us today are Stephen Hudson, Chief Executive Officer, and Michael Lepore, Chief Financial Officer. A news release summarizing these results was issued this afternoon, and the financial statements and MD&A for the three-month period ended March 31, 2022 have been filed with 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 that the expectations of any forward-looking statements will prove to be correct. It 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. All figures are presented in U.S. dollars unless explicitly noted. With these introductory remarks complete, I will now turn the call over to Stephen Hudson, Chief Executive Officer.

Thanks, John, and good evening to our shareholders and our analysts. Turning to slide seven, we've seen this slide before. Just to quickly recap it, the three key business components of ECN, first and foremost, is our proven prime credit origination platforms with deep bolts surrounding those platforms. Second is our committed funding partnerships with large institutional investors. That focus on prime credit has led to superior credit performance, which I'll speak to in a second, as well as we have continued strong demand from new investors who would like to join the program. Unfortunately, we're unable to accommodate all that demand currently. Turning to slide eight, we continue to actively pursue talk-in acquisitions of prime credit originators. As you know, source one we announced and has been very successful. At the time of announcement, there was a 15% increase in EPS. It's actually tracking higher than that. You know, we have a series of criteria that have to be met. When we look at these transactions, I've itemized those for you. That's the six points under the third bullet, but accretive transactions, asset life, more importantly, prime credit assets in demand by our existing funders. We don't acquire something that our funders don't want. Limited integration risk. and high visibility on driving growth through our existing business. Actually, on that point, we're in Jacksonville this afternoon. We've celebrated our fifth year of owning Triad, as you know, $6 million invested in systems and products and people over that five-year period. And that's allowing us to take Triad's extensive infrastructure in the form of funding partners, in the form of floor plan and servicing, and leveraging that infrastructure and these token acquisitions. And commenting on the current environment, we are seeing a number of opportunities for prime credit origination platforms with very attractive values. Turning to slide nine, with respect to the first quarter, we're pleased to announce six cents of earnings per share, which is ahead of our four to five cents, which we guided in February at our investor day. As referenced in late February, I'm with increased confidence reiterating our 22 and 23 guidance based upon the results of Q1 and the forward visibility that I now have for the rest of the year. Turn to triads, very strong results, 57% originations over and above in Q1. Approvals which began originations up 47%, those approvals will turn into Fundings originations in the next nine months, so that allows me to have an increased confidence. I just referred to industry backlogs continue at over nine months and we are fully funded. We're unable to accommodate new partners at this point. And, you know, keystone to that funding arrangements is our previously announced partnership with Blackstone. Turning to source one, originations were at 33% above, approvals at 83%, exceptional number. With those approvals, again, we get originations, which will turn in those originations in a six- to nine-month period, which gives me the increased confidence, which I referred to earlier. And we're actively pursuing modest-sized tuck-ins, which will be very accretive on the prime asset originators within this space. KG, Kessler Group, came in line at budget at $13.6 million, and the growth momentum continues across partnership, credit card investment management, and marketing. I think very good results for the first quarter. Turning to slide 11, with respect to the highlights of Triad, pre-tax operating income up 78% year over year at $12.6 million. Originations up year over year at 57%. Floor plan stood at $221 million at the end of March 31st, actually $250 at the end of April. Triad had a very strong April. As you know, those floor plan assets are the foundation of our prime retail loans. A dealer who uses our floor plan produces three times the retail loan of someone who doesn't. So it's a critical component of our prime retail platform. We're fully funded for 22 and 23. We're actually turning away institutional investors looking to participate in our loan investor programs. All of that, as I mentioned earlier, gives me increased confidence to guide you towards the top end of not just earnings, but also originations. Turning to Q1 program update, if you look to approvals in the top line, focusing on the right-hand side, you see the increasing momentum in approvals, 18% in Q3, 21, 24% in Q4, 21, and 47.3 in 22. The turbulence that's occurring in the traditional housing market, which I'll speak to in a second, has created unprecedented demand for manufactured houses. Turning to the expanded, what's leading to this increased share, it's our expanded funding partners, it's our loan menu, and our flow plan. All three of those are driving results. We're pleased that we added 400 new MH communities in the first quarter. That's 15% growth in the quarter-over-quarter. That's an exceptional foundation. That growth in communities combined with our growth in floor plans speaks strongly to the remaining part of 22 and to 23. These increased originations have also accelerated the growth in our managed portfolio, which is increasing our service revenue. Turning to slide 13, you've seen this before, but we have completed the full menu of offering for our dealers and manufacturers. We're quite proud of this program and we're quite proud that we offer this on behalf of a hundred institutional investors, all be banks, credit unions, insurance companies, GSEs, REITs, and credit funds. Speaking to a bit of the turbulence in the marketplace on 14, there's no doubt that the traditional housing market is going through some rough times. That's an opportunity for us. If you look to affordability on page 14, you saw on February that price increases were up 20%, which is very significant. You combine that, actually a little more color on page 15, You look at the increase in mortgage payments, which has reached record highs on average of 1,800, which is up 70% since COVID. Payment to income, which is an important credit matrix, is at 32.5%, is approaching the all-time high, 34.1%. Black Knight, which is our provider of software, significant player in the mortgage area, estimates that another 50 basis points of rates or a 5% increase in housing prices would push affordability to the worst level on record. Turning to 16, what's the solution to traditional manufactured housing? Sorry, traditional built homes, it's manufactured homes. We are the affordable solution for traditional housing. I want to have you focus for a second on two items. Monthly payments, if you look to the monthly payments at Triad pre-COVID, that's $611 per month. At 760, that's an increase of $149. Traditional mortgage has gone from $1,094 to $1,884, so it's up $790 Manufactured housing at triad is only 40% of the level of traditional mortgage. That is what's driving our exceptionally strong origination numbers and our backlog of loans and mortgages awaiting delivery of homes. If you look to PTI, currently we're at 14.1%, up a little bit from 12.3%, but as I mentioned earlier, the traditional mortgage PTI is approaching all-time levels. it's a great time to be in manufactured housing. And you'll see that I referenced a couple of our partners in the manufacturing side and their comments on recent public releases. And an interesting point when you think about monthly payments and PTI, the credit performance of manufactured housing over a 50-year period versus traditional mortgages is three times better than the mortgages in that sector. That's one of the reasons why exceptionally strong demand from institutional investors for our product. Turn to slide 17, impact and interest rates. Every 25 basis point increase in rates increases monthly payments of $100,000 home at about $15. It's not material to the average consumer buying our homes. 75 basis points increases at just under $45 a month. Also, as we increase interest rates, our origination fee goes up as well, 25 basis points. increases by $90. Some commentary that I alluded to earlier on page 18, Skyline Champion is the second largest manufacturer of manufactured homes. Some recent commentary, I'd highlight two items in their commentary, which is the combination of housing shortage, interest rates, and inflationary pressure are all favorable to the manufactured housing community. I'd also comment on the third comment, which is inflationary times. manufactured housing becomes a far more effective cost solution. Capco, which is the number three provider of manufactured homes, look at three of their commentaries. We're in a mode where we're turning away business at this point. We're taking meaningful share, i.e. share away from traditional homes into manufactured homes. And basically, the wind is at their back. And a rising interest rate market has had a very muted impact, I would say, a positive impact on manufactured housing. Turning to our credit performance on 19, extremely strong. You see our delinquencies and net charge-offs, and this is driving investor demand, funding demand for our credit assets. 20 is just a month-by-month review of the originations I referred to earlier. Turning to page 21 on guidance, I'm again reiterating with increased confidence the high end of our guidance. for 22 at $1.6 billion of originations and over $70 billion of operating earnings. We have outsized performance in Q1, and we have strong visibility into Q2, Q3, and Q4. John?