ECN Capital Corp
TSX:ECN
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.61
3
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
ECN Capital Corp
You don't have any saved screeners yet
Thank you for standing by. This is the conference operator. Welcome to the ECN Capital First Quarter 2019 Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]I would now like to turn the meeting over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.
Thanks, operator. Good afternoon, everyone. Thank you for participating in our conference call to discuss ECN Capital's first quarter 2019 results announced earlier today. Joining us are Steve 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 3-month period ended March 31, 2019 have been filed with SEDAR. These documents are available on our website at www.ecncapitalcorp.com. Presentation slides to be referenced during the call are accessible on the website as well as in the PDF format under the Presentations section of the company's website.Before we begin, I want to remind our listeners that some of the information we 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 expectation 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 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. You should also note that as of January 1, 2018, the company changed its presentation in functional currency from Canadian dollars to U.S. dollars. In addition, readers should note that legacy operations have been discontinued and classified as held-for-sale as of the fourth quarter of 2018. All figures are presented in U.S. dollars unless explicitly noted. With these introductory remarks complete, I'll now turn the call over to Steven Hudson, Chief Executive Officer.
Thanks, John, and welcome to the first quarter call. Let me turn immediately to Slide 8. We have completed the transition of ECN to its U.S. head office and business. As way by background, as many of you know, I agreed with the Board to lead the transition, which is now complete, and the Board recently asked me to extend my contract and oversee the growth of our 3 businesses. And I'm very excited to do that, and I'll be with you through 2023.Although Jim is not on this call, I want to acknowledge his tremendous effort and commitments in our transition as well as creating 3 phenomenal businesses. Jim is both a great partner and a friend. And Jim, I know you're listening. I just want to say a personal thank you. ECN does not anticipate additional restructuring charges related to these matters. The transition is now complete. As a result of the senior management changes, we have lowered the corporate operating expenses between $18 million and $19 million (sic) [ $19 million to $20 million ] down from $20 million to $21 million.Turning to slide -- Slide 9 with really 4 things that happened with Kessler. The first and foremost is Scott Shaw has, after 27 years of being with Kessler, has assumed the CEO position. We're quite excited with Scott's leadership. And we also, coterminous with that, acquired a minority interest held by Howard Kessler. Third thing, Scott and his team conducted a significant ops review of the business resulting in significant expense savings. And finally, we have an improved revenue pipeline. All of those 4 items have led to significant increase in the forecast for Kessler. I want to close by recognizing Howard Kessler as, I think, one of the true visionaries in the U.S. and the world who literally created the industry on its own. And we're quite excited how we're to take it to the next level.Turning to Page 10. We've increased the EPS guidance for '19 from $0.23 to $0.25 to $0.25 to $0.28. We also increased the range for 2020. 3 drivers of that change have been the solid quarters by Service Finance and Triad, solid and in line with our expectation. Kessler guidance increased for the minority interest acquisition, cost savings under the ops review and a stronger revenue pipeline. And combined with those 2, there's been the reduction in corporate expenses, which has driven the increase in the forecast.Turning to Page 12. Mark Berch and his partners had a good first quarter, solid and in line with our expectations. That's significant given the size of business that Mark and his partners have to grow over year. I would draw your attention to the 30% increase in originations, excluding the PACE product, which is not a continuing product with ECN. Turning to Page 13. You'll note the significant recovery in Lennox. As you know from our call last year, Lennox experienced a significant disruption in one of their large manufacturing facilities. That's "back online." And you see the nice increase through March of '19, Lennox's relationship. A significant, strategic initiative was closed this quarter when Service Finance signed its first life insurer partner and is beginning to fund. That's important as we continue to increase the depth of financial institutions purchasing our loan products.And then finally, although there's been no deterioration in our partners' credit portfolios, we have prudently made a couple of changes to our portfolios to ensure the long-term performance continues unchanged. We've increased the FICO score on the bottom end. We've increased pricing a little bit on FICO. We're focusing more on HVAC, which has shortened the duration of book, which is a good thing for institutions. And we've been able to minimize any origination disruption from 1 of our origination dealers who declared bankruptcy last year.On Page 14. The focus of ours, as you know, has been to use our capital on our balance sheet prudently and modestly to really create 2 things: one, permanent funding vehicles. The example in this case would be the dealer advances in Kessler's -- sorry, Triad's case would be floor planning; and secondarily, to create new loan products. As you know, in the latter part of '18, we created solar loans on behalf of our partners. We grew that book, and we're happy to report almost all of those solar loans have been sold and that are now being sold in a regular flow basis. $75 million remains in the held-for-trading assets. The largest part of that is the PACE assets. As you know, that PACE is a product that although it's a phenomenal credit, it is a loan that trumps the mortgage. So it's AAA-rated. It is a market that doesn't have liquidity that we would have expected for on sale. We will clear last part of our PACE loans shortly. But again, as I mentioned, they are high quality without risk to our capital.And on Page 15, highlighting the originations that I briefly mentioned earlier, strong and very impressive. Turning to Kessler. We had a very strong quarter, which is ahead of expectations. And we have a strong pipeline. As I mentioned, pipeline revenue mentioned earlier, the combination of the ops review by Scott has taken significant cost savings in this business, approximately $5 million in annual compensation expenses. The pipeline and the increase in the ownership position has allowed for a significant increase in the forecasted earnings for this business. As we mentioned at our investor -- recent Investor Day, we continue to develop our credit card asset management business, and we will update you through the year as we further develop this business.And then finally, we have completed the succession planning and have a clear runway forward on the Kessler business. On Triad. Don and his team are off to a great start this year. They are 10% ahead of our internal budgets. Well done, Don. As you know, 25% increase in quarter 1, Q1 of '18 versus Q1 of '19. That's a great start, and we're very excited about Triad for 2019. Originations are -- as posted on '18, was strong growth. With that background, I will pass the call to Michael Lepore.
Thank you, Steve, and good afternoon, everyone. I'll turn you to Page 20, just the Q1 consolidated highlights. Just to point out, strong originations of $419 million in Q1 just reflects the strong year-over-year growth in both Service Finance and Triad. And that drove the -- that, together with the strong performance with The Kessler Group, drove the great Q1 EBITDA performance and Q1 EPS of $0.05 per share.Just to note, the leverage is up from year-end, and that is due to the impact of the SIB that closed in the middle of January as well as the buyout of the 20% noncontrolling interest in Kessler. I'll turn to the balance sheet on Page 21. Key highlights are the asset levels continued to drop as we progressed through the wind-down of our legacy businesses as well as the sell-down of the held-for-trading loans originated by Service Finance. And the increase in debts from year-end again reflects the SIB and the impact of the NCI buyout at Kessler. And we expect debt levels to decrease from this point on as we continue to sell down further loan sales at Service Finance as well as the wind-down of our aviation and rail legacy businesses.Turning to Page 22 on the consolidated income statement. Again, this still illustrates the strong results across the board from all 3 business segments, strong year-over-year growth. Again, great performance in the first quarter. And then to Page 23. Summarizes the operating expenses. Key point to note here, as Steve mentioned earlier, corporate OpEx down to $5.5 million reflects the completion of the -- our transition to South Florida. And as mentioned, we now expect total corporate expenses to be in the range of $19 million to $20 million in 2019.Finally, on Slide 24, just the highlights from our legacy businesses. The key point is that we remain on track to -- for the wind-down and expect to realize significant proceeds later in the year through the wind-down process. And with that, I'll turn it back over to Steve for a summary.
Just turning to Page 26. We're very pleased with the results of our operating partners at a $0.05 this quarter versus the range of $0.02 to $0.03. We're very confident in raising our guidance to $0.25 to $0.28 for this year, and the forecast looks strong. We are in the first quarter, so I would like to see what that Q2, Q3, Q4. But the pipeline looks very strong.And we've tightened the range up on 2020 to -- from $0.30 to $0.40 to $0.35 to $0.40. With the extension of my contract and realignment by management, we've been able to get our corporate expenses to a level that we are comfortable with. And the transition at Kessler Group is now complete under the leadership of Scott with the cost savings realized and increased revenue really coming out of that strategic, enhanced bank partnership we referred to in the last quarter, which is going much better than we expected. And Service and Triad are having solid quarters with Triad tracking 10% ahead of internal plans. And finally, I think our active capital management program reflects our commitment to our shareholders whether it's through the SIB, that recent dividend increase or using our capital to acquire 20% interest, which is a low-risk proposition to provide immediate accretion for shareholders.With that, operator, we're happy to open the call to questions.
[Operator Instructions] Our first question comes from Geoffrey Kwan of RBC Capital Markets.
Just with the Kessler review. You mentioned there was some employee departures. What kind of, I guess, parts of the company were they from? And at what levels?
Yes. I think, Geoff, it was a function of looking at individual account or portfolio managers looking at their core profitability where we could assign additional responsibility. We did. That scrub -- Howard was a entrepreneurial-driven annuity business. We're pretty focused operations. So we think that there was increased efficiency. The only senior change was with respect to Howard becoming Chair Emeritus and Scott assuming the CEO's role. The rest were at mid-level to junior levels and people that were sort of historical in nature. No significant -- there were no senior management changes.
Okay. And then just the other question I had. With the extension of your employment contract, did that have any changes in terms of the compensation scheme?
No. It's consistent with what's published in the proxy circular, Geoff. It has the same bonus and salary structure that you see in the document. We'll be publishing the details. But there was a very, very modest base increase of, I think, approximately 4% to 5%. I don't have the number in front of me. But it's nothing that will raise an eyebrow anywhere.
Our next question comes from Tom MacKinnon of BMO Capital.
I guess with the updated guidance, I'm just trying to -- if you can quantify how much of the updated guidance was as a result of you increasing your ownership share in the Kessler Group? And how much of the increase guidance was a result of other better things? And where might they be?
Tom, it's Michael. So the impact of the increase in our NCI was -- compared to our original guidance, it's less than $0.01. The real increase was driven by the -- like the strong underlying performance at Kessler and the uptake in the guidance there. So that drove the majority of the increase.
Okay. You said the NCI -- sorry, what -- I'm not sure that...
Minority interest.
Okay. So the pickup in the minority interest was less than $0.01? Is that what it was then?
Less than $0.01 in the first quarter. Yes.
Okay. And it was less than $0.01 in the first quarter, but it's -- did your guidance imply -- what kind of ownership did your original guidance imply through the second, third and fourth quarter of 2019?
About 76%.
Okay. So if we got less than $0.01 in the first quarter, wouldn't your guidance have had less than $0.01 in the second, third and the fourth quarter as well? Like did -- you said you got it less than a quarter -- $0.01 pickup, but that was only for the first quarter. So for the full year 2019, what's the lift as a result of the Kessler buy up?
It's about $0.02.
About $0.02. Okay. So the increase in the guidance from $0.23 to $0.25 to $0.25 to $0.28 is about $0.02, and that's all then attributable to a lift-up in your ownership of Kessler Group? Is that...
Yes. We took the -- the upper end of the guidance is up actually $0.03. So we did take it up as a -- based on the Q1 performance as well.
So -- and then next year's, tightened up the range there. And would we have assumed then for the full course of the year the updated -- the buy-in of The Kessler Group would have been another $0.02 annually in 2020 as well? So is it -- do I have that math right?
Yes. $0.02 to $0.03. That's right because as earnings increase, it will be in the $0.02 to $0.03 range.
Okay. And then any comments with respect to Jim's departure? Was there -- was this sort of part of an overall plan? Or was there -- maybe just some color with respect to that, Steve.
Yes. I'm happy to, and you're also, Tom, happy to call Jim. But there was always a plan for what would I do at the end of transitioning the company. And Jim was the very capable CEO in waiting. But with the Board's request that I extend the contract, you don't need 2 co-CEOs. He is a very good friend, a very good partner. So it's -- there's no acrimony. There's no nothing. It's just -- it is what it is. And then Tom, can I just go back to your reconciliation of forecast? It's $0.02 for Kessler for the entire year. We bumped it up $0.01 for the first quarter. Obviously, if results continue to improve through Q2, Q3, Q4, we would revisit increasing the forecast further. However, we're at the end of the first quarter, and the first quarter doesn't make a year. But things are looking pretty good.
Our next question is from Jaeme Gloyn of National Bank Financial.
First question is related to the relocation expenses over the last couple of quarters of $27 million. I'm wondering if you could break that down a little bit in terms of what drove that number. And just a clarification. Is it done? Is there no more relocation expenses?
Yes. It's Michael. We're done in terms of the relocation expenses. I would say in terms of the breakdown, the large majority of it is related to the executive transition and severance along with the write-down of associated costs from our Toronto office. Those are the 2 big categories. So the people costs, the severance costs related to the executives and staff in Toronto that didn't make the transition and then the exiting of our facilities in Toronto.
Okay. So like Grier, Jim and any other senior staff members that aren't making the trip.
Correct.
The next question is related to delinquencies up threefold in the quarter or quarter-over-quarter. Can you walk us through what's going on there?
Yes. Are you talking about the discontinued stuff? What are you referencing?
I'm just talking about the delinquencies as reported on Page 19 in the MD&A for continuing operations, the finance receivables. Delinquencies have increased from, let's say, 50 basis points to 144 basis points.
Yes. We had a liquidation of a company called Discovery Air. You probably read about that in the paper. We have since liquidated it at a profit to the company. Those were -- went through a court-sanctioned liquidation. We have since sold the underlying assets for profit. So that's now been put behind us.
What business unit would that have been in? Whether Service, Kessler or Triad?
So we just -- the amounts -- these are amounts related to our -- the floor plan loans at Triad and as well as some of the on-balance-sheet loans that we had at Service Finance. So I think there is a slight increase in the rate, but overall, like the performance has still been very good. So -- and obviously, in terms of the Service Finance loans, we're continuing to sell through that portfolio and expect to receive full value for all those loans.
Sorry, Jaeme, I was referencing the discontinued book and quite really a [ 19 year ] on the go-forward business. I'll have -- we'll have to dig it in for you guys. It's a $700,000, $800,000 increase on $138 million book. We'll have to get details for you. It's not a material change when your current assets are 99%, down from 99.5%. But happy to get some detail for you.
Okay. Great. I want to just dive into the finance receivables component just for a minute, actually. a few questions here. Just first one, the weighted average interest rate earned increased from 6% to 7.5%. What's going on with the mix in that portfolio that's driving the bump?
The biggest increase is as we continue to originate our solar loans, which are now in the process of either being sold or being sold off, had have much higher yields. Earlier in the year, as Steve mentioned, we had a lot of PACE product, which is very high-quality and correspondingly carries a pretty low interest rate. So as that mix changes, the weighted average yield increases.
Okay. The -- related to the $207 million of assets that are held for trading, I see in the financial statements that there was a $2.2 million fair value gain. Where is that recorded in the consolidated operations as it's reported?
It's in the originations income. Effectively gain on sale.
Okay. And so that would be above-the-line revenue at Service Finance?
Correct.
Is that $2.2 million, is that -- what's driving that fair value gain that would run through that line item? Is it...
So when we have a firm sale agreement, we book the -- that's going to close in April, for example, we book the mark when we sign the contract. So that's the gain related to assets being sold through in April.
Okay. So that's related to the, let's call it $125 million assets sold subsequent to quarter end?
Correct.
Okay. Great. And just last one on this one for me, and then I'll requeue. Related to the dealer advances components of the finance receivables increasing from $18 million to about $24 million, just a little bit of color around what's driving that increase and what's the strategy behind that as I believe it's all related to Service Finance.
Yes. No. Dealer advances is a specific product at Service Finance, as we've talked about. When you see a 30% growth in originations, you're probably going to see close to a 30% growth in dealer originations -- sorry, dealer advances that kind of go hand-in-hand, right? The dealer advances are the 1 or 2 days where you're advancing a dealer against the contract that's complete. So it's 30% growth in the duration probably -- I'm not doing the math, but it's probably close to 30%, give or take something.
Okay. I see. Kind of related to the foundational products that we talked about at the Investor Day.
Correct. Correct. You can expect dealer advances to map that of the origination increases, as long as there isn't any big mix change.
Yes. And I guess I mean it'll fluctuate from quarter-to-quarter and shouldn't just continue to rise, should it?
Yes. You'll see an increase in Q2 because you're going to the home improvement season in the U.S. You'll see a drop in Q4 because you're out of the season. But it should track to the overall increase in the originations quarter-over-quarter.
Our next question comes from Paul Holden of CIBC.
So first question. Steve, you mentioned that 1 of the components contributing to the revised EPS guidance was an improved revenue outlook. Can you just expand on that a little bit more?
Yes. We have a significant bank partner. If you go back last quarter, Paul, we did a derisk and expanded program with that bank partner and we had expectations on incremental business that would come off of that relationship and the sale of credit card portfolios. That pipeline is now -- we now have 6 already in that pipeline, and it's better than we thought. That clarity is for 2019 revenue. And combined with the improvement in the expenses at the business is what's led us to increase the forecast -- and the minority interest, obviously, for Kessler.
Got it. And the second question, you mentioned that the origination mix at Service Finance would be more skewed to HVAC, I guess, really for the remainder of '19. Can you give us a sense of what that mix is expected to be and what it might be in -- might have been in 2018?
Yes. So I think the quick answer to that, Paul, is it's Lennox getting turned back on as that plant is now coming back online, and they've been recapturing. They had significant dealer losses at Lennox last year because they were unable to provide products. So those dealers moved to another manufacturer. We now, now have a "Win Back Program" with those dealers, with Lennox it's buy-down rate. That has principally driven the shift. The other shift has been a little less solar. We like solar, but we think solar as a balance of our book going forward is in that 25% to 30% range -- kind of been 35% last year.
Sorry. The track -- mix is how much did you say?
I didn't. I can get you the mix post the call, Paul. I just said that the big change in mix this year has been -- sorry, first quarter, has been increased HVAC, i.e. Lennox as they are our biggest HVAC customer. I'll get you that impact on total mix. And then secondly, doing a little less solar. That because we bumped the minimum band for solar and increased our pricing, we're not doing the 35% to 40% originations this year in solar. We're doing 25% to 30%. We'll send you a chart that's -- we'll get the chart to you, in the mix.
That would be helpful. And then just one final one for me. With the PACE loans. You've mentioned that you expect to be able to liquidate them at roughly book value. Given the lack of demand, wouldn't it be reasonable to assume some kind of, say, liquidity discount versus necessarily some kind of credit discount? Like but -- should we expect a little bit something less than book value?
No. Our first sale, we had a gain on it. People always try to bid you something when you say you're not going to do it any longer. We have bids at book right now. We're going to -- we hopefully do better than book, Paul.
Our next question comes from Brenna Phelan of Raymond James.
So starting on the purchase rates premium for Kessler. How much of that is the purchase rates premium? And how much is fees embedded in that amount?
Brenna, it's Michael. The fees are $1.6 million, so it's relatively modest. And the rest is the purchase premium.
Okay. And then switching over to Service Finance. The margin in the quarter, is that also in line with seasonal expectations? Or is that reflective of your shift to out of sort of the lower credit quality that you referenced? How should we think about that sequential revenue yield decline there?
Yes. I think it's seasonal. Generally, the costs and -- are going to be a bit higher as we start the selling season, and then the revenues are a bit lower. So the margins will improve as volumes improve in Q2 and Q3.
But specifically on the -- like on the revenue yields. Is that, that's just lower realized revenue on the volume of originations? Or is there -- I think one of your competitors in their quarterly guidance, they actually referenced some promotional discount given in the first quarter. Is there anything like that embedded in that number or that's just the way Q1 trends?
Brenna, it's John. A couple of things that are, first of all, the core margins in our underlying core business are right in line, unchanged. No question. As we've told you over the last couple of years, we've instituted a number of different products, including things like solar, including things like PACE, including things like progress pay. They have different margins. So in any given quarter especially in the low seasonal quarter of the year, the mix is going to be different, right? So for example, in the first quarter, it's the lowest quarter of the year in total originations, but we still have significant amount of solar, which has lower margins than core. And some of these other programs that we've talked about like progress pay and PACE would as well. So the margin get quarter-to-quarter will be affected by the mix and because of the seasonality, it typically will be affected more in the first quarter than it will be in, say, the second, third or fourth quarter. So what you should see over time is a normalized annual margin, and what you should see is recovery in that as we go forward.
Okay. And comparing it to Q1 of last year when it was 5% versus the 4.3%, that's just product mix...
Remember again, last year, in the first quarter when we had 0 solar to start the quarter. So we had some growth in solar in the quarter, but the vast majority of the originations in that quarter came from the core program, which have higher margins. So this year, we're grandfathering solar in the sense that -- we're in the first quarter in this year, we're doing it last year as well. So it's just a mix difference. We've had absolutely no margin pressure on our core product. It's just a question of the incremental products that we're doing. Sometimes they have less margin or more servicing or something else. But -- or longer duration, right, if we can get paid over a longer period of time. But that mix could change, and it could affect that revenue yield or that revenue margin when you're calculating just the revenues divided by your overall originations, any given quarter.
Okay. And then your commentary that you said you're moving to shorten the duration and move out of the FICO and price for the FICO, is that in response to anything that you're seeing or that's just how -- what...
Yes. There's been -- yes. Our credit portfolios that we manage, obviously not recourse to us, are -- have seen a 2 basis point change in arrears. So it's negligible. We just think that at some point, in the next 2 years, we think the presidential election, you could see pressure on various prime and super prime credit assets, which we have. We've taken a precautionary measure, Brenna, to on the longer-dated assets FICO to increase our lower bandwidth to 780 -- average 780, which is high, but they are longer-duration assets. We've also, with our bank partners, have taken the pricing up in that product because we think a longer duration dictates it. So that's behind the solar mix I think appropriately being 25% to 30%, not the 35% to 40% we had last year. But we've been able to digest it because we're up 30% quarter-over-quarter. So it's not an issue. We always have to be -- we tend to be forward-looking on that credit book to think what's going to be best through a cycle. With that said, we haven't seen any evidence of that cycle even starting to begin.
And then just going back. In previous quarters, you had -- you said in the rising rate environment, you had been able to kind of increase the rates on your grids, but then when rates came back down, you moved. Is that still -- is your -- is where you're pricing all these various products still consistent with the previous quarters?
Yes. Our pricing remains relatively unchanged.
Okay. And then any progress on some of the initiatives in Triad that you had addressed at the Investor Day? I thought in particular really interesting was the prefab hotels.
Yes. Yes.
Brenna, it's Matt. We're still working on lots of programs, including that. We're not prepared to speak to any details right now. But know that there are -- that's among many other things we're still working with Triad to help develop.
If Triad stays on its current course of action, it's going to have a great year.
[Operator Instructions] Our next question is a follow-up from Jaeme Gloyn from National Bank Financial.
Yes. I wanted to follow up on the Kessler guidance. In the MD&A, it's talking about I guess a new credit card partnership agreement or strategic partnership agreement and risk-based marketing growth. And I'm just wondering why that did not translate to a revenue forecast bump.
Because it's -- as you know, we talked in the past, that strategic bank partner -- we can't mention by name -- is a very, very large U.S. bank credit card business. We've been awarded mandates to sell credit card portfolios that are now in the pipeline. We will get paid for them. We just can't sit here and forecast those for you and tell you whether they're Q2 or Q3 or Q4. But we know revenue will be higher.
Okay. I see. And then on the risk-based marketing side?
[ Not in. ]
Yes. I think it's Q1. So like all the other programs, the -- when you think of the banks, they start building their campaigns more in Q2, Q3. So we've done well at the start of the year, but it's too early to take up guidance for these programs for the full year.
Okay. And similar type of question related to the $5 million in savings that was generated out of this -- the review in Kessler. Why did that only translate to a $1 million bump in the forecasted guidance range?
That's a -- the $5 million is an annualized number. So it'll take...
Jaeme, I mean if you look at the guidance if you look at it on a 100% basis, the actual -- the earnings for Kessler are being guided up between $2 million and $3 million on the low end and high end, right? The cost savings didn't take place for the full year, right? They're going to take place for only part of the year. So part of that is revenue. Part of it is cost savings. But it's not all going to flow through into 2019.
Okay. And I guess it's related to something that would be below the EBITDA line, so interest or depreciation. And what would be those savings that would've driven the interest or depreciation savings?
No. This will all be above-the-line expenses, like operating expenses, generally compensation.
Do you mind if I follow up with you after the call because I think we might be confusing some of these numbers. But we'll -- I'll be happy to follow-up with you.
Yes. That would be helpful. And then last one for me. Just wanted to go back on something that we discussed in our conference just around deploying capital into preferred share repurchases. I just wanted to get your views on the priority of that as a capital allocation priority.
Yes. So I think the change that we've had since then, that we've been able to plan for a recovery of our Part VI tax. So the costs for prefs have come down markedly. That's a good news story. Also a good news story for our common shareholders as we go through the rest of the year. So we just completed that review. You'll see the pref costs are down this quarter -- with hopefully that will get repeated in Q2, Q3 and 4 with the planning we've done. So with that change, we're going to wait and see. Without that refundable tax, they were very expensive. And now with this in place, it's looking a lot better. But no conclusion yet.
Our next question comes from Stephen Boland of INFOR Financial.
Just, sorry, one follow-up just on the balance sheet, Steve. With the increase in debt with the SIB and the purchase of the 20% noncontrolling interest, where do you expect your leverage to go to, say, for the year debt levels and what's your priority? Are you comfortable at this level? Or is that a priority to take down over time?
It will start to materially decrease as we run off the aviation book this year. So those aviation proceeds will go to reduce the level of indebtedness. And we've also been able to reduce the new loan programs like solar in April so that you'll see a reduction there in indebtedness as well. So it's coming down, Steve, significantly.
Our next question comes from Brenna Phelan of Raymond James.
Just wanted to follow up on that Part VI tax on the prefs. Was that related to -- in order to qualify for that benefit you needed to have some Canadian source income?
Brenna, yes, that's correct. We needed to generate enough Canadian source income to utilize the deduction. And so as we -- as Steve mentioned, we're always looking at our tax and optimizing our tax situation. We're able to recover that incremental tax in Q1, and we look to repeat that in Q2 through Q4.
But Brenna, in the guidance, from the guidance, we haven't taken it out of the guidance at this point because we are still going to be revisiting it throughout the year.
And does that imply you made an investment in Canada so you now have Canadian source earnings?
No. No. It's just prudent tax planning.
There are no more questions registered at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.