ECN Capital Corp.

Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Second 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. 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, then 0. I would now like to turn the meeting over to Catherine Moradieos, Vice President of Finance and Investor Relations. Please go ahead, Catherine.

Thank you, Jen. Good afternoon, everyone, and thank you all for joining this call. Joining us today on the call are Stephen Hudson, Chief Executive Officer of ECN Capital, Jackie Weber, Chief Financial Officer of ECN Capital, Lance Hull, Co-CEO and Vice Chairman of Triad Financial, Cody Pierce, Co-CEO of Triad Financial, and James Berry, Chief Financial Officer of Triad. A news release summarizing these results was issued this afternoon, and the financial statements and MD&A for the three-month period ended June 30th, 2025 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 will 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. 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 will 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, I will now turn the call over to Steven Hudson, Chief Executive Officer.

Thank you, Kathy, and good evening. Welcome to our second quarter call. Turning to slide five, I'd like to reference four highlights for you. The first is to report $0.04 of adjusted per share income, which is in line with consensus. The second highlight is in the second quarter, originations of $436 million reflect the best quarter ever in triad history. and a 40% year-over-year increase. The third highlight is managed assets. Our service business grew to over $6 billion, a 15% increase in Q2. Just by background, our servicing business was at $1.9 billion when we acquired Triad. Today it's at $6 billion, which represents a 16% CAGR over the past seven years. Servicing revenue, as you know, is a source of strong recurring revenue and now represents 20% of the company's total revenue. And finally, the fourth highlight is in mid-second quarter, we commenced with Source 1, a upgrade strategy mirroring the similar successful Triad upgrade strategy. The early results of that Source 1 strategy are encouraging with 60 million originations in July for Source 1. Turning to page six, since mid-23, we have implemented a four-phase upgrade strategy at Triad. with Lance Hall being hired as president. Lance, as you know, has 25 years of industry experience. He is a proven leader, including experience with 21st Mortgage. During the past two years, and actually this afternoon, the senior represents Lance's second anniversary. Congratulations, Lance. Thank you. He has implemented successfully improved systems and processes with several successes. One I'd like to call out is the application to funding ratio, which is impressive. with an 18% growth rate, well done. The second phase was Lance Hall was promoted to Triad Co-CEO and Vice Chairman. His scope includes operations servicing, technology, human resources, and corporate development. Two additional successes under Lance's leadership include the $6 billion servicing business I just referenced and $2 billion of incremental funding capacity. Third phase is Cody Pierce has been hired as Triad's Co-CEO He has 25 years of industry experience like Lance. He is the founder of Cascade and most recently the senior officer of Yes Communities, the second largest U.S. manufactured housing REIT. His scope includes sales culture, loan origination, product menu, and corp development. The final phase, now that we have a battle-ready back-end business, is to complete the building the fortress on our front-end business, under Cody's watch and leadership, which is a review of sales culture strategy and go-to-market team. Turning to page seven, source one has commenced a similar upgrade strategy based upon Triad's successful program. It's comprised of four phases. The first is improved sales team structure and culture. We've recruited a very recognized and successful chief growth officer. We've enhanced reporting to track and manage sales representatives as well as providing better sales tools, incentive structures, and a warrior attitude. Second phase is product and underwriting enhancements. I'd call out two major product additions, our 240-month amortized aiding product, as well as our seasonal incentives. We also have dramatically improved our decisioning time. Our turnaround time used to be two to three days. It's now two to three hours, while the customer is still in the dealer. The third phase That's been an aggressive marketing push to land new dealers, which we've successfully done, as well as tailoring loan campaigns and extended promos for these dealer groups, as well as increased visibility at RV shows. And the final phase is improving flow programs, which are optimizing origination margins in the second half of 2025. With that, I'll pass to you, Lance.

Thank you, Steve. If I could have you turn to slide 10 for the manufactured housing highlights. There's a lot of information on this slide, but I want to focus on three successes in the quarter and then provide some clarity regarding origination revenue margins and adjusted operating income. First, as Steve highlighted, our origination growth in the quarter resulted in an all-time record at $436 million. Second, we've grown our managed assets to more than $6 billion. As a result, our diversified business model continues to strengthen and with recurring revenue from servicing alone representing 28% of our total revenue in the quarter. And based on our progress at $17.2 million in adjusted operating income, Triad now represents more than 80% of the total revenue of ECM. Now pointing to revenue margins and operating incomes, origination revenue margin was slightly below target for the quarter, and the lighter growth relative to the top line originations is primarily attributed to just two factors. First, In the quarter, we had a lower mix of sales to our higher margin bank and credit union partners in line with our plan. And second, performance through the Champion Financing JV continues to outperform relative to plan. As a reminder, while Triad's reported originations include both Triad and JV loan production, our pro rata share in the JV is recorded in other revenue and not origination revenue. While Q2 margin came in slightly below target, we are tracking to 6.3% on a year-to-date basis, and we are maintaining the 6.5% guidance for the second half of the year based on the outlook for mix, sales channels, and JV performance. And lastly, the lower adjusted operating income in Q2 2025 versus last year is partly due to the allocation of public company overhead costs in connection with the previously announced corporate simplification plan. Turning over to slide 11, chattel originations continue to exceed plan. We first broke through the $100 million in a single month in March of this year, and since then have broken monthly origination records for chattel in each of the last four months, with July setting the high mark at $133 million. Chattel comprised 85% of originations in Q2 versus 70% in Q2 of last year. In line with our plan and as a result of our expanded flow arrangements with our institutional partners, bank and credit union sales accounted for just 17% of our total sales in Q2, down from 30% in the prior quarter. And with the prior two years dedicated to upgrading our platform and building a solid foundation to support growth, we are now actively pursuing more aggressive go-to-market initiatives and key resources for H2 in the years ahead. And to lead that effort, as Steve mentioned in his opening remarks, we've had the opportunity to have Cody Pierce join us as our co-CEO. I've known Cody for more than 15 years, and his 26 years of experience in the industry and success in building strong sales teams and effective results is unparalleled. We are certainly glad to have him in the company. I've known him as a competitor and as a friend and now as a partner, and with that, I'll introduce Cody. Cody? Thank you, Lance.

I'm truly excited to join the Triad team. As mentioned, Lance and I have known each other for many years, and I have tremendous respect for his leadership, values, and integrity that he brings to the organization. I'm looking forward to working collaboratively to continue growing both the business and the team. Turning to slide 12 are chattel loan originations. Chattel originations continue to show strong momentum, increasing 71.5% in Q2 and 72% in July. Applications, approvals, and fundings are all trending ahead of plan. This performance reflects the strong foundation that Lance and his team have built. Since Lance joined Trad, application volume has grown by 38%, signaling significant market share expansion. Additionally, our applications to funding ratio has improved by 18%, reinforcing our confidence in future growth and supporting our guidance. These are all strong leading indicators for continued performance and a testament to Triad's ability to capture market share. Turning to slide 13 for a commercial update, I was brought in to compliment this retail growth with a dedicated focus on commercial expansion. In Q2, commercial balances totaled $446 million, which is relatively flat compared to the $452 million in the prior year. However, we are still gaining floor plan market share despite overall inventory levels declining across the industry. As part of our commercial upgrade strategy, we are implementing targeted initiatives to reignite growth and to expand our footprint in the space. Now turning to slide 14, our joint venture with Champion Homes continues to perform ahead of plan. We're seeing increasing penetration at captive stores, which reflects the strength of the partnership and the alignment of incentives between Triad and Champion. With that, I will turn it back over to Lance.

Thank you, Cody. If you'd turn with me to slide 15, please. Taking a look at our portfolio credit trends, our credit performance remains within plan, with quarter delinquency falling and net charge-offs holding steady. And as mentioned previously, our managed assets grew to just over $6 billion in the quarter. And I want to take this time to thank Eric Lammons and the entire servicing team at Triad for their hard work leading to this strong performance. On slide 16, we are confirming our guidance for the year. And then if you would flip with me to slide 17, this is a slide that we've included most every quarter, and it's a picture of historic originations. And normally we just pass through it, but today I do want to just take, again, a moment to thank the origination team at Triad for all their hard work and congratulate them on a record quarter. And with that, I'll turn it back to Steve.

Thanks, Lance. Turning to slide 19, the second quarter adjusted operating income for RV and Marine was approximately $3.1 million. Industry headwinds reduced volumes and there was a delayed sale of assets for Source 1 in the first half of 25, which impacted income. IFG, however, was not impacted and is in budget and has successfully completed its upgrade strategy under the strong leadership of Hans Cross. Turning to Source 1 on page 20, three highlights I'd like to make. First is that June originations and July originations have rebounded and are evidencing the early results of Source 1's upgrade strategy. Second highlight is year-to-date has been impacted by lower volumes of budget, a slight compression to margins, and the delayed asset sale I referred to just a moment ago. There are four specific components of SourceOne's upgrade strategy I'd like to call out. The first is the sales team structure, the second is product and underwriting enhancements, the third is an aggressive marketing push to dealers, and the fourth has been improved flow programs. All four of those components will drive increased profitability in the second half of 25 and into 26. Turning to IFG's business, four highlights I'd like to reference. First, our June originations are up 24%, and July up 26. IFG continues to take market share through strong relationships and regional expansion. This is all in the light of a new U.S. boat registration, which are down 12%, yet the business originations are up 12, that 24% gap. is due to the leadership and execution of Hans Cross and his team. Congratulations. The fourth item is in the growing industrial headwinds that the industrial, sorry, that the upgrade strategy has been completed by IFG. Turning to slide 22, let me recap RV and Marine 2025 guidance. As I mentioned a moment ago, H1 was impacted by industrial headwinds and a delayed sale of assets at Source 1. 2025 adjusted the operating income before tax. ECN share of $14 to $18 million was from the original $16 to $26 million. The average $5 million of earnings reduction was due to the lower volume and the related reduced asset sales.

Jackie. Thanks, Steve. Turning to page 25 for consolidated results. Total originations were $804 million for the second quarter, adjusted EBITDA of $31.5 million, and adjusted operating income of $17 million. Adjusted net income to common shareholders was $10 million, or 4 cents per share. Turning to page 26. Our total asset and debt levels remain consistent with the first quarter of 2025 and down from the prior year quarter, as we've continued to maintain total finance asset balances below $450 million for the first half of 2025. Turning to page 27, total adjusted revenue increased at $62.2 million, up from $58 million in the prior year quarter, which is driven by higher originations revenue and higher servicing revenue at both different segments. Interest income and interest expense each decreased as a result of lower on-balance sheet finance assets in 2025. Operating expenses increased year over year to $30.7 million, which we'll visit on the next slide, and adjusted operating income increased to $17 million, up from $14.5 million in the prior year quarter. On page 28, Manufactured housing operating expenses of $22.7 million were up modestly from Q1 with the growth in the business. RV and marine operating expenses increased $7.9 million from $7 million in the first quarter of 2025, which was due to the growth in origination, as well as investments in the upgrade strategy that Steve previously spoke to. Turning to page 29, we continue to maintain helper trading assets below $250 million, with the second quarter ending at $240 million. And lastly, turning to page 30, as Steve previously mentioned, we're updating our RV and marine guidance, and we expect adjusted operating income for RV and marine to be in the range of $14 to $18 million. As a result, our consolidated adjusted EPS range is now 52 to 64 million, or 18 to 23 cents per share. Back to Steve.

Thanks, Jackie. Turning to slide 32, I would like to comment on three items in closing. The first is 80% of the company-wide upgrade strategies have been successfully completed, and the remaining 20% will be completed in the second half of 2025. company has been materially improved. The second, on guidance, we're reaffirming the MH finance guidance of 78 to 90. We are narrowing the RV marine guidance to 14 to 18, and we are tightening consolidated EPS guidance to 18 to 23 cents. Finally, notwithstanding Q2 specific RV slowdown, Triad has met or exceeded my expectations, and the RV business is accelerating as we start the third quarter. With that, operator, we will take questions.

Thank you. We will now take analyst questions from the telephone lines. If you have a question, please press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please lift your handset before pressing any keys. To withdraw your question, please press pound, then one. There will be a brief pause while the participants register for questions. Thank you for your patience. And our first question will come from Stephen Boland with Raymond James.

Thanks.

Steve, could you just provide any update on discussions with Champion and the standstill and, you know, any possible corporate development there?

Our joint venture is meeting or actually exceeding both parties' expectations of the operating side, Steve. I can't comment on the investor rights agreement, as you know. Its end date is the end of September. I have to leave it at that, Steve.

Okay. And then, I mean, I understand the RV Marine, you know, the changes. you know, this upgrade you're talking about, Steve. I mean, is this, you know, the management, you know, changing sales? I think you added Krimker as the head of sales there. You know, is that part of the, like, I'm just wondering what the operating leverage or, you know, expense growth there, like, what's the impact of doing all these changes?

Yeah, I think, you know, Mike Optal, it's a good question, Steve. Thanks for it. Mike Optal's done a great job seeing this business and he's there beside, you mentioned Joe Krimker. Joe Krimker's got a very established improvement record of turning around sales finance businesses and especially finance sector. So we're happy to have him as the Chief Revenue Officer. I would say his impact, Steve, in the last two months has been dramatic. We've landed two new large dealer groups that we didn't have before. He's spent a lot of time rejigging the sales team. The turnaround time I refer to of two to three days to two to three hours is Joe and the people around him that we brought in. So I've been very impressed. And they know the proof will be Q3, but the July start of $60 million was a number that almost met our budget. My budget was aggressive for this business. So I'm happy with his enhancement to the sales team, his product development. is execution of process, i.e. decreasing the response time and the book ratios up. So things are moving in the right direction. As you know, Steve, in downturns, I think there's some really great competitive teams you can hire, like we have at IMG, and we have that at Triad, and we're doing the same thing here.

Okay. Let's go. One more. Sorry. And maybe this is probably for Jackie. You know, I asked this last question about this on the cash flow statement, this change in retained servicing rights. And I thought it had something to do with discount rates and, you know, maybe interest rates, something to that. I can't remember. I apologize. But it looks like the number went up again. So can you just remind me what impacts that number? Because it does go into income, right?

It does go into income, and there are two components. There's that you have your cash, well, servicing revenue in total, you have cash, and then you have your intangibles for your servicing rates. If you're looking specifically at the cash flow statement, Steve, the increase in the current quarter is really just the higher volume at triad. So as they have higher asset sales and servicing rates related to those, it'll tend to tick up. There have been no changes to any assumptions underpinning how those are recognized in the current quarter.

Okay, so we should expect this to be a, like, this should be an ongoing, like, it's recurring basically at this point. Is that what we should expect? I'm just thinking about modeling this out a little bit more.

Yeah, you will have a non-cash revenue item in there each quarter.

Okay. All right. That's it for me. Thanks, guys.

And once again, if you'd like to ask a question, please signal by pressing star 1. And we'll move next to Jamie Goyne with National Bank Financial.

Yeah, thanks.

Good evening. Question on the triad and, you know, looking forward to seeing some of the results of the co-CEOs. Just curious on the sales side, the origination side. I mean, results have looked pretty good over the past few quarters here. So just wondering now, you know, where are the gaps? Where do you see... inefficiencies, I guess, and what are you looking to implement here in the near term? I guess it's questions for Cody. Sorry.

Well, I've been in the seat for 30 days. What Lance and team have built is impressive. We're seeing tremendous growth on the retail side. I see great opportunity on the commercial side, and that's what I'm going to be heavily focused on.

I think, Jimmy and Steve, I don't think there's a single person who's happy with the flat growth in the commercial business. And Cody has a deep expertise in that, both at Cascade and at Yes Communities. So I think there are a series of initiatives coming on that specific business to turn back on the growth.

Okay. And then with respect to the... the Blackstone relationship looks like it was renewed this quarter. Can you give us a little, you know, I guess more color on that deal in terms of like size, maturity of the deal, maybe a little bit more color too as to your discussions with your other key funding partners here for the Triad business?

Sure. So this is James. So all our funding agreements are substantially similar, and we don't go into details on the specifics. But effectively, we're offering kind of these bespoke investment portfolios that meet their targeted returns. So they vary slightly in terms of the product mix and also on the program side. But they're materially similar, especially from a margin standpoint, and they typically have terms of 12 months to 24 months.

I would add one thing to James' comment was that we are having started these flow programs approximately, we're now in BX4, so four years ago. We're now in a position of being overfunded by approximately $1.5 billion. So we have, it's a nice position to be in. So now we're faced with decisions on how to allocate our product flow. I think it's fair to assume that we we will get better pricing going forward given the excess demand for home improvements. There is only one platform to buy home improvement loans, sorry, manufactured homes, and MH loans in the U.S., and that's from the Triad platform. All the Clayton stuff from 21st and Vanderbilt flows into the Berkshire Hathaway family, so it's nice four years later to see this strong excess demand and having established a a new asset category for US life goals.

And staying in triad for one more, just looking at the origination revenue margin below 6%, I get the full year is close to the six and a half guidance, but it seems to have been mixed driven, which on a separate slide, you know, seems to indicate that the mix in Q2 was more in line with forecasted mix. So I guess the question is, what shift or what change should we see in the second half to bring that 5.8 back closer to the 6.5?

So I think the bigger driver was more the sales channel on a year-over-year basis. So there was slightly more sales to institutional partners in Q2 2025. And then as Lance was explaining, the outperformance of the JV also has an impact on margin. So I think when we look at the second half of the year and we're looking at product mix, sales channel, and also where we see the JV going, I think we're comfortable with the 6.5%. And the other data point that I would share is we're just wrapping up our July reporting cycle and the margin for that month was 6.4%. So again, it's recalibrating back to the 6.5% on a full year basis.

Okay, that's helpful. And then just last one, going to the RV Marine upgrade strategy. I'm not sure if you disclosed it in the MD&A or somewhere else, but the costs associated to launching that strategy and implementing that strategy, that seems to be the biggest driver of the operating income strategy. before tax mess in the business line in Q1 and Q2. Can you quantify those costs or those costs disappearing in H2 or should they continue? Yeah, maybe just a little bit more to help us on that side.

I would put the cost of the program between $750,000 and $1 million. A chunk of that has been incurred and H1, approximately 6% of it. The rest will be incurred in H2. But the H2 stuff will be offset with increased originations and margins, so it'll have less of an impact in H2 than it did in the first half of the year.

Okay, so actually not as much as I would have expected if we're going to go from about just over 4 million of AOI in the first half of 25 to about 14 million or more of AOI in the second half.

Yeah. Well, you do have a bit of seasonality in this business. The third quarter is always the strongest. The first quarter is very little that happens in the winter. We had a volume miss that was significant in the first half. And the other part, when you have a volume miss, It also impacts the – you have less assets to sell through, which impacts that as well as there's less servicing rights. So it's a multiple impact on when you miss volume. The good news is the start of H2 is strong.

Great. And then the last one, and I'll turn it over. Thanks for being patient here. The asset sales from Source 1 that have been delayed, are they just – deferred or are they gone? You're not able to sell them or you're going to have to sell them for pennies or a dollar, let's say, in terms of an origination fee.

When I say delayed, that's the wrong term. We had less originations in the first half, so we had less assets to sell. That impacted the asset sales. We have about $40 million on our balance sheet that will move in H2 at better margins. We have a new funding partner coming on, which will help. But, you know, less originations begets you less sales.

Okay. Okay, I understand. Thank you very much.

And our next question will come from Tom McKinnon with BMO Capital.

Yeah, my question was asked and answered as part of James' laundry list of questions. Thanks.

Thank you. And as a reminder, if you have a question, you can signal by pressing star 1 at this time. We'll pause for just a moment to allow everyone an opportunity to signal.