ECN Capital Corp
TSX:ECN
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ECN Capital Corp
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Thank you
for
standing
by.
This
is
the
conference
operator.
Welcome
to
the
ECN
Capital
Fourth
Quarter
2021
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.
[Operator Instructions]
I
would
now
like
to
turn
the
conference
over
to
Mr.
John
Wimsatt. Please
go
ahead,
sir.
Thank
you,
operator.
Good
afternoon,
everyone.
First,
I
want
to
thank
everyone
for
joining
this
call.
Joining
us
today
are
Steven
Hudson,
Chief
Executive
Officerr;
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
and
year
end
period
ended
December
31, 2021
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
in
the
webcast
as
well
in the
PDF
format
under
the
Presentation
section
of
the 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.
l
refer
you
to
the
cautionary
statement
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
in
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
US
dollars
unless
explicitly
noted.
And
with
these
introductory
remarks
complete,
I'll
now
turn
the
call
over
to
Steven
Hudson,
Chief
Executive
Officer.
Thanks,
John,
and
good
evening
and
welcome
to
ECN's
fourth
quarter
earnings
call.
Turning
to
slide
6,
we're
happy
to
add
Source
One
to
our
operating
banner,
and
our
operating
partner
banner,
welcome
aboard.
Turning
to
slide
7,
slide
from
our
recent
Investor
Day.
As I
mentioned
at
Investor
Day,
we
have
three
core
components
of
our
robust
business
model.
First
of
which
is
our
deep
origination
platforms.
We
have
5,000
nationwide
dealers
between
Triad
and
Source
One,
and
Kessler
Group
has
the
background
and
history
of
6,000 affinity
credit
cards
created
by
KG.
Beside
the
origination,
platforms
are
committed
loan
partnerships,
which
we
continue
to
expand
and
broaden
these
partnerships,
as
we'll
highlight
shortly
in
the
Triad
section,
we've
got
great
news
to
report
on
these
expanded
partnerships.
And
underpinning
the
first
and
second
component
is
our
robust
and
industry-leading
servicing
advisory
and
portfolio
management
platforms.
This
is
a
significant
source
of
recurring
revenue
for
ECN.
Turning
to
slide
8,
a
slide
you've
seen
before.
We've
completed
the
Service
Finance
sale
for
$2
billion
in
cash.
It
represents
a
6.5
return
on
investment
in
four
years.
Turning
to
Source
One,
the
new
addition
to
the
ECN
partnership
and
family.
Source is
prime
RV and
marine
loans
for
consumers.
It's
100% consistent
with
ECN's
proven model
of
prime
credit
assets,
asset
light,
no
recourse
obligations
on
behalf
of
banks
and
credit
union
partners.
And
finally,
and
probably
most
important
is accretive
to both
2021
and
2022,
[ph]
operating
earnings (00:04:07).
Turning
to
page
9,
our
tuck-in
strategy
-- acquisition strategy
led
by
John
Wimsatt
is
underway.
Source
One
marks
the
first
[indiscernible]
(00:04:18) strategy
which
we
will
continue
to
roll
out
in
2022 and
2023.
It's
really
important
to
us
as
we
look
at
these
opportunities
that
they
be
accretive
to
the
ECN,
that
they
be
asset-light
and
fee-orientated
business
within
our
core
scope
of
competency.
Third,
that
the
high
quality
credit
assets
are
in
demand
by
our
existing
institutional
partners,
our
funding
partners
and
that
be
non-recourse,
and
that
we
have
very
limited
integration
risk.
We
think
Source
One
scores
well
in
each
one
of
those
components.
Turning
to
page,
the
slide
10,
a
little
bit
on
the
fourth
quarter,
which
we'll
get
through
in
a
moment.
Happy
to
report
$0.06
of
EPS
this
quarter.
$0.01
is
from
the
sale
of
our
credit
card
portfolio
and
service
finances
reported
as
discontinued
operations
in
the
fourth
quarter.
We
are
reiterating
our
guidance
for
2022 and 2023
from
our
Investor
Day.
And
as
I
mentioned
at
that
Investor
Day,
I'm
guiding
you
to
the
high
end
of
that
range,
and I'll
speak
to
that in
a
moment.
January
and
February
have
been
strong
at
the
business,
tried
at
the
high
end
of
its
origination
for
those
months.
Those
two
months
don't
make
a
year,
but
they
certainly
underpin
the
first
quarter.
We're
quite
confident.
I
think
our
past
execution
and
strength
of
these
businesses
gives
us
a
high
degree
of
confidence
in
our
earnings
forecast.
Source
One
is
above
our
expectations,
so
it's
above
the
high
end
and
KG is
at
the
high
end.
So
I
think
the
first
quarter
will
put
us
in
great
shape.
Triad's
continued
results
are
strong.
The
fourth
quarter
had
a
51%
increase
in
originations.
We are
fully funded
through 2022
and
2023. We
are
pleased
to
announce
our
multiyear
partnership
with
Blackstone,
and
we'll
speak
to
that
in
a
moment.
KG
front, adjusted
earnings
came
in
at --
pre-tax
earnings
at
$17.2
million,
and
we
mentioned
earlier
our
specialty
lending
company,
which
is
an
affiliate
of
Blackstone,
which
we
launched
with
a
$450
million
portfolio
of
-- credit
card
portfolio
purchased
in
the
fourth
quarter.
We
feel
that
KG
has
delivered
on
its
promise
to
prove
to
the
financial
markets
that
we
could
successfully
introduce
institutional
investors
into
acquiring
and
managing
credit
card
portfolios.
Turning to
the
operating
highlights
on
slide
12
on
– with
respect
to
Triad,
happy
to
report
operating
adjusted
earnings
of
$13.9
million,
up
56%
year-over-year.
Originations
are
up
52%
and
our
floorplan
assets
stood
at
$182
million.
We're
also
happy
to
report
that
we
added 15
new
funding
partners,
institutional
investors
who
purchased
our
loans
in
2021
that
we've
– we're
about
to
announce
the
Blackstone
partnership.
We're
maintaining
our
guidance
of
$1.4
billion
to
$1.6
billion; and,
again,
I
would
guide
you
to
the
high
end
of
that
range.
Turning
to
slide
13,
it's
a
slide
we've
provided
at
Investor
Day.
I
wouldn't
comment
on
it
other
than
say
it's
a
good
slide.
But
the
very
bottom
part
of that
slide,
last
bullet
I think,
is
very
important
and
very
significant.
We're
pleased
to
announce
our
new
multiyear
funding
partnership
of
Blackstone
in
the first
quarter.
It's
a
two-year-plus
commitment
to
purchase
up
to
$1.25
billion
of
manufactured
home
loans
and –
sorry,
book
chattels,
and
land-home,
and
bronze
and
silver.
It
goes
across
the
entire
menu
of
products.
This
is
really
the
third
chapter
of
our
partnership
with
Blackstone.
It
started
with
a
very
successful
service
finance
program
for
$1.5
billion.
It's
followed
on
by
a
multibillion-dollar
commitment
with
respect
to
credit
cards.
And
this
is
the
third
chapter.
We're
very
happy
with
this
partnership.
We
see
lots
of
runway
going
forward.
Slide
14,
I
won't
speak
to.
Again,
this
was
a
slide
at
Investor
Day.
Originations
on
15
or
as
presented
the originations
at
50%
growth
continued
to
demonstrate
the
robust
nature
of
the
Triad
platform.
The
origination
bridge
on
slide
16.
I
just
take
a
moment
and
highlight
the
not
sure
the
color
blue
showing
up
on
your
screen,
but
the
light
blue,
the
aqua
blue,
which
is
land-home
for
2022.
And
if
you
think
about
land-home
in
the
industry,
land-homes
market
size
is
3
times
the
size
of
chattel.
Our
chattel
business
stands at
about
$1
billion
of
forecasted
originations
for
2022.
That
means
our
land-home
opportunity
is
approximately
$3
billion.
So,
forecast
of
$300
million
indicates
that
the
$2.7
billion
opportunity
over
the
next
several
years.
We
feel
confident
about
the
continued
origination
growth
and
profitability
of
Triad.
Turning
to
slide
17.
Again,
we
added
slide
from
Investor
Day.
I
would
guide
you
to
the
high-end
$70
million.
Turning to Source One, John.
Thanks,
Steve.
So,
on
page
18, we
are
reiterating
the
guidance
for
Source
One
that
we
introduced
at
Investor
Day
2022.
We're
thrilled
to
have
added
Source
One
as
an
operating
partner
and
our
first
acquisition
and
our
tuck-in
strategy,
and
really
think
there's
a
substantial
opportunity
for
platform
growth
over
time.
The
end
markets
in
Marine
&
RV
have
very
similar
demographics
to
Triad
and
the
model
is
on
target.
Asset-light
prime
credit
on
behalf of
bank
and
credit
union
partners.
We
intend
to
follow
the
proven
playbook
we
use
that
service
finance
and
Triad
to
drive
growth
and
have
identified
significant
growth
opportunities,
which
we
detailed
in
Investor
Day.
We're
currently
anticipating
26%
growth
in
originations
at
the
midpoint.
Importantly,
we
have
started
2022 strong
with
January
and
February
origination
growth
ahead
of
plan
at
31%
and
40%,
respectively,
without
the
benefit
of
any
of the
growth
initiatives
which
are
still
in
early
stages.
We'll
update
you
as
we
move
forward.
The
addition
of
Source
One
adds
around
$12
million
to
$14 million
adjusted
operating
income
before
tax,
which
is
47%
growth
at
the
midpoint
year-over-year.
Page 19,
we
review
Q4
results
for
KG,
which
produced
adjusted
operating
income
before
tax
of
around
$17.2
million,
an
increase
of
87%
year-over-year.
This
includes
a
realized
gain
of
around
$2.5
million
net
of
tax
from
the
earlier
announced
sale
of
ECN's
credit
card
investments
to
SLC, as
discussed
in
Q3.
As
discussed
at
Investor
Day, KG
added
a
significant
new
co-brand
partnership
in
Q4
with
a
major
Canadian
bank.
Also,
as
previously
discussed,
KG
launched
the
partnership
with
SLC for
the
CCIM
platform.
In
Q4,
as
part
of
this
launch,
we
closed
$450
million
CCIM
portfolio
transaction
and
sold
ECN's
on-balance
sheet
credit
card
investments
to
SLC.
These
transactions
and
the
long-term
partnership
with
SLC
validate
the
thesis
of
the
build-out
of
the
CCIM
platform.
Page
20, we
repeat
a
brief
recap
of
some of
the
highlights
from
2021.
As
discussed at
Investor
Day,
we
will
now
segment
KG
into
partnership
services,
CCIM,
and
performance
marketing,
primarily
as
a
result
of
the
growth
of
the
CCIM
platform.
We
touched
on
the
partnership
services
in CCIM
highlights,
but
I
wanted
to
highlight
the
performance
marketing.
In
performance
marketing,
the
KG added
10 new
marketing
clients
including
many
in
new
verticals
and
on-boarded
its
first
card-as-a-service
client.
Card-as-a-service
is
particularly
exciting;
and
as
noted at
Investor
Day,
KG
has
added
two
more
credit
union
customers
that
are
larger
than
our
launch
client
and
has
partnered
with
one
of
the
major
card
networks
to
launch
a
card
program
for
a
$60
billion
bank.
2022
should
be
an
exciting
year
for
card-as-a-service.
Finally,
on
page
21,
we
are
reiterating
our
2022
guidance
from
Investor
Day.
We
raised
adjusted
operating
income
before
tax
guidance
from
$52 million
to
$59
million
to
$55
million
to $60
million,
which
is
roughly
15%
growth
at
the
midpoint
after
adjusting
for
the
realized
gain
on
sale
of
the legacy
credit
card
portfolios
to
SLC.
With
that,
I'll
hand
it
over
to Michael
to
discuss
the consolidated
financial
summary.
Thanks,
John.
Turning
to
page
23
and
the
Q4
consolidated
operating
results.
Key
highlights
are
Triad
originations
of
$300
million,
which
is
a
new
record
for
the –
for
a
quarter.
We're
up
52%
compared
to
the
same
prior-year
quarter,
reflecting
continuing
strong
growth
in
their
business.
Q4
adjusted
net
income
applicable
to
common
shareholders
was
$13.8
million
or
$0.06
per
share,
compared
to
$1.5
million
or
$0.01
per
share
in
the
prior-year
quarter,
again,
reflecting
the
strong
growth
at
both
Triad
and
KG
in
Q4.
Discontinued
operations
in
Q4
reflect
the
$1
billion
gain
on
the
sale
of
service
finance
after
taxes
and
transaction
costs.
In
addition,
to
complete
the
wind
down
of
the
legacy
business
and
return
$35
million
in
capital
in
the
near-term,
we
have taken
the
following
charges
on
our
legacy
assets:
$11.4
million
in
aviation
assets;
$14.6
million
on
a
legacy
corporate
aviation
asset;
$2.4
million
in
C&V;
and
$11.1
million
on
our
railcar
assets.
Turning
to
page
24
and
the
balance
sheet,
key
highlights
are
that
total
assets
were
down
over
$600
million
compared
to
Q3,
as
a
result
of
the
sale
of
Service
Finance.
Total
debt
was
down
approximately
$240 million,
primarily
due
to
the
net
cash
flows
from
the
sale
of
Service
Finance,
and
debt
will
increase
again
at
the
end
of
Q1
when
we
mix
the
income
tax
payment
due
on
the
sale
of
Service
Finance.
We
completed
two
issuances
of
senior
unsecured
debentures
in
Q4,
of
CAD
86.25
million,
and
CAD
60
million,
respectively.
These
debentures
carry
interest
rates
of
6%
and
6.25%,
or
approximately
4.5%
after
tax,
and
can
be
settled
by
the
issuance
of
ECN
shares
at
the
company's
option.
For
this
reason,
they're
treated
as
equity
pursuant
to
our
senior
line
covenants,
and
therefore,
represent
attractively
priced
long-term
capital
for
the
company.
The
proceeds
from
the
senior
unsecured
debentures
funded
the
acquisition
of
Source
One
and
the
retirement
of
the
Series
A
preferred
shares
at
the
end
of
Q4.
Turning
to
page
25,
in
the
income
statement,
total
revenues
of
$69.5
million
were
up
94%
compared
to
Q4 2020.
And
total,
again
reflecting
the
strong
performance
of
both
our
Triad
and
KG
businesses.
The
increased
revenues
drove
increased
–
250%
increase
in
adjusted
EBITDA,
and
as
noted
previously,
Q4
2021
adjusted
EPS
was
$0.06
per
share,
slightly
above
analysts'
consensus
for
the
quarter,
compared to
only
$0.01
per
share
in
the
same
prior
year
quarter.
Turning
to
page
26,
in
operating
expenses,
key
highlights
are
higher
business
segment
operating
expenses,
primarily
driven
by
the
growth
in
originations
and
managed
assets
and
new
products
at
Triad
and
higher
revenues
at
KG.
Overall, operating
expenses
increased
by
67%
year-over-year
compared
to
total
revenue
growth
of
94%
year-over-year,
demonstrating
the
strong
leverage
in
our
business
model.
Corporate
operating
expenses
of
$4.6
million
compared
to
$5.4
million
in the
same
prior-year
quarter.
Finally,
legacy
business
expenses
of
approximately
$1.6
million
were
largely
offset
by
legacy
business
revenue
of
$1.6
million.
And
finally,
turning
to
page
27
and
a
consolidated
2022
forecast,
which
is
unchanged
from
our
Investor
Day
as
noted
earlier.
Key
highlights
include
business
segment
operating
income
range
of
$129
million
to
$144
million.
Adjusted
operating
income
before
tax
range
of
$92
million
to
$101
million.
And
adjusted
EPS
of
$0.29
to
$0.31
per
share.
And
an
effective
tax
rate
of
approximately
20%.
And
with
that,
I'll
turn
it
back
to
John.
Thanks,
Michael.
Page
29
is
a
slide
that
you've
seen
before.
But
I
thought
it
was
again
important to
highlight
that
ECN has
returned
in excess
of
$2.5
billion
shareholders
through
buybacks,
quarterly
dividends,
and
the
special
distribution
from
the
Service
Finance
transaction.
Being
an
excellent
steward
of
capital,
our
shareholders
has
been
a
prime
directive
and
will
continue
to
be
going
forward.
Management
are
substantial
shareholders
and
we'll
make
– we
make
all
our
decisions
with the
goal
of
maximizing
shareholder
value.
And
with
that,
I'll
turn
that
back
to
Steve
to
conclude.
Thanks,
John.
Just
by
way
of
summary
on
slide
30.
Service
Finance
was
closed
and
provided
a
$7.50
special
dividend
to
our
shareholders.
We're
quite
proud
of
that
track
record
and
quite
proud
of
our
partnership
with
Mark Berch
and
his
team.
On
the
Source
One
side,
happy
to
have
closed
that
transaction
as
part
of
John's
acquisition --
tuck-in
acquisition
strategy.
We
think
that
this
transaction
will
bear
a
lot
of
fruit
and
some
others
to
come.
And
the
successful
operating results
reflected
by
the
$0.06
in
the
quarter.
Those
results
combined
with
the
execution
by
the
team
and the
employees
and
partners,
gives
me
a
high
degree
of
confidence
in
our
ability
to
deliver
earnings
at
the
high
end
or
slightly
above
the
high
end
of
our
forecast
for
2022.
Happy
with
our
track
record
on
our
return
of
capital
to
shareholders.
I
think
it's
reflects
–
[ph]
I
don't (00:17:58)
think
it
does
reflect
our
commitment
as
good
stewards
of
capital.
We
continue
to
have
an
NCIB
active
in
the
marketplace.
And
as
my
final
comment
before
we
open
to questions,
as
I
mentioned
earlier,
at
the
risk
of repeating
myself,
I
would
guide
you
to
the
high
end
of
the 2022
guidance.
We
have
a
high
degree
of
confidence
that
we
will
meet
or exceed
those
targets.
With
that
operator,
we
are
happy
to
open
the
call
to
questions.
Thank
you.
We
will now
take
questions
from
the
telephone
lines.
[Operator Instructions]
Our
first
question
is
from
Tom
MacKinnon
with
BMO
Capital.
Please
go
ahead.
Yeah.
Thanks
very
much, and
good
afternoon.
The
Blackstone
Partnership,
you
mentioned
you've
got
third
chapter
of
it
now
with
them
helping
out
on
Triad
to
the
tune
of
$1.25
billion.
Is
the –
how
can we
see
that
relationship
evolving
further?
Is
there
a
potential
for
them
to
purchase
more
with
respect
to
Triad?
Is
– can
they
do
anything
with
Source
One?
Have
they
indicated
they
do
anything
more
with
Kessler?
Just
the
relationships
evolving
and
evolving
rapidly
here,
and
just
wondering
if
you
can
add
some
color
with
respect
to
that.
Thanks.
Thanks,
Tom.
It
is
an
important
relationship,
I
would
say.
We
treat
our
100
funding
partners
as
all
equally
important
because
we
pride
ourselves,
although
these
are
non-course
relationships,
we
want
our
assets
to
perform
and
I
think
that's
reflected
in
this
growing
Blackstone
partnership
and
the
first
two
legs
that
performed
at
or
above
their
expectations.
This
is
an
important
step
forward.
We
still
have
a
number
of
core
funding
partners
at
Triad.
To
answer
your
question,
I
think
it's
safe
to
assume,
Tom,
without getting
into
details
that
we
wouldn't
look
at
an
acquisition
that
probably
didn't
involve
some
input
from
Blackstone.
I
have
to
kind
of
stop
there.
But
we
don't
make
an
acquisition
that
our
bank
partners
don't
look
at.
We
don't
make
an
acquisition
that
our
funding
partners
don't
want
to buy
assets.
So,
I
think
it's
safe
to
assume,
Tom,
that
they
have
some
input
on
Source
One.
Clearly,
they're
not
buying
Source
One
paper
yet,
but
I
think
that
they've
–
we
certainly
cherish
their
views.
Okay.
That's
good.
And
with
respect
to
Triad,
I
think
we
talked
about
average
ticket
sizes
increasing
nicely
throughout
2021.
Can
you
tell
us
what's
been
driving
that?
I
mean,
what
are
you
seeing?
Is
it
really
just
for
the
industry
or
is it -- are
you
seeing
higher
ticket
specifically
with
respect
to
Triad?
And
where
might
you
see
some
of these
higher
tickets
coming
from?
Are
they
in
silver
or
bronze
or
land-home
or
chattel
or
where
are
you
seeing
them?
I
think
the
ticket
size – I don't
think
the ticket size
is uniform
across
all products,
Tom.
So,
it's
not
–
it's
all
above.
You're
seeing
price
increases
at
the
manufacturers
as
they
deal
with
inflationary
pressures.
That's
part
of
it,
Tom.
The
other
part –
and
they've
been
successful
in
passing
that
along,
which
benefits
us
because
we
get
higher
tickets
and
higher
origination
fees
and
higher
management
fees because
our
balances
are
higher.
I
would
say
that
the
– probably
the
bigger
component
other
than
– sell-side
inflation
is
just
demand.
The
unprecedented
demand
for
affordable
housing.
This
is
the
solution.
Maybe
John
wants
to
jump
in.
Yeah.
Tom,
I'm just
going
to
add.
So,
in
2021,
we
saw
obviously
substantial
demand
for
manufactured
housing
really
across
the
board.
What
you
saw
in
the
industry,
chattel
pricing
overall
was
up
around
20%.
Our
pricing
in –
at
Triad
was
actually
up
around
25%.
Now,
that's
skewed
a
bit
because
we
launched
the
land-home
business,
which
has
much
higher
ticket
sizes
than
you
would get
in
your
typical
chattel
because, remember,
you're
financing
not
just
the
home,
but
the
land
as
well.
And
so
we
did
a
little
bit
better.
Once
you
adjust
out
the
land-home
side,
we
were
a
little
bit
better
than
the
market.
If
the
market
was
up
20%,
we
were
up
21%
or
22%
in
terms
of
pricing.
That's
really
a
function
of
demand
and
it's
really
a
function
of
the
builders
are
passing
along
pricing
through
the
dealers
to
the
customers,
which
obviously
benefits
us
quite
a
bit
since
we
get
paid
a
percentage
of
the
interest
income
over
the
life
of the
loan.
Okay.
That's
great. And
my
last
one
is just
a
quick
numbers
question,
the
$2.5
million
after-tax
gain,
what
was
the
pre-tax
gain
on
that?
Tom,
it's
like –
it
was
$5
million.
Okay.
Yeah.
It
seems
to
be
a
healthy
tax
rate
applied
to
that.
That's
costs
applied
to
that
as
well.
So,
it's
not
all
tax.
It
factors
tax
and
factor
compensation.
Yeah.
If
you
think
about
the
revenue
line
would
have
been
around
$5
million.
Yeah.
That
is
again
like
you
would
think
of
that,
any
other
business
that
there
were
expenses
associated
with that,
so
people
are
in
comp,
et cetera,
as
a
result
of
that
gain,
strip
that
out
and
after
taxes
too.
Tom, as
you
know,
the
team
that
built
that
portfolio on
our
balance
sheet,
most,
I
think
almost
all
their
compensation
was
deferred
until
we
had
a
successful
exit.
So,
you've
had, you
had
the
comp
deferred.
So,
you're
right,
it
is
a
big
number,
but
the
deferred
comp
–
not
to
the
management
team
at
ECN,
to
the
people
that
originated
and
managed
that
portfolio
that
accounts
for.
Yeah.
Just
because
the
$5
million
is
really
a
revenue
number...
Yeah.
...there
are
expenses
associated
with
it.
And
then
after
tax,
it
was
$2.5
million.
So,
the
tax
rate
itself
isn't
materially
different.
So,
the CCIM
revenue
would
have
been
$5
million
less
excluding
that
one-timer.
Revenue.
Yes.
Yeah.
Okay.
Thanks.
And
then,
Tom,
you
know
that,
as
we
mentioned
before,
the
return
on
this
portfolio
was
exceptional
for
ECN
shareholders
return
was
over
35%
compounded
over
the
period of
time,
which
exceeded
our
expectations.
But
more
importantly,
it
proved
up
the
model
that
we
could
allow
the
Blackstone's of
this
world
and
others
to
--
in
the
past,
these
trades
were
bank
to
bank, and
now
they're
bank
to
institutional
investors.
So,
the
concept
made
us
a
lot
of
money,
and
the
team
that
did
the
deal,
we
got
– they
finally
got
paid
as
it was
sold.
Okay.
Thanks
for
that.
Thanks,
Tom.
Our
next
question
is
from
Nik
Priebe
with
CIBC
Capital
Markets.
Please
go
ahead.
Yeah.
Thanks.
Just
a
couple
of questions
for
me.
Going
back to
the
Blackstone
partnership
at
Triad,
should
we
– I
guess
we
should
just
be
thinking
of
that
as
a
large
funding
partner,
right?
And
should
we
think
of
the
commercial
terms
being
generally
comparable
to
other
funding
partners
with
Triad? Or is that a relationship because of the size, you may have made
concessions
there?
I don't
– we
don't
comment
Nik
on individual
economics,
but
I
would
assume
that
a
larger
deal
gives
us
better
economics.
Yeah.
Okay.
Fair
enough.
Yeah.
And
I
think
the
most
important
part,
and
I
wouldn't
say
that
that's
a
big
number.
The
most
important
part
here
is
that,
since
we've
owned
Triad
and
Source
One
is
new,
is
we've
really
focused
long
and
hard
on
counterparty
exposures
that
when
we
bought
these
businesses,
serious
small
credit
unions
who
are
important
to
our
business.
But
as
we've
rapidly
grown
this
origination
side,
we
pushed
for
more
substantive
counterparties.
The
– after
we
get
through
the
first
two
years
with
Blackstone
that
turns
into
a
perpetual
program.
And
that's,
if
you
can
assume,
that's
where
– it's
going
to –
that
is –
that
arrangement
is
going to
become
the
template
for
other
businesses.
So
a
little
more
money,
Nik, but
more
importantly,
longer
term
and
a
perpetual
program.
Understood.
Okay.
And
then
on
the
charges
on
the
legacy
assets, so
I
think
were
included
in discontinued
operations,
what
was
the
nature
of that?
Was
it
just
writedowns
or
impairment
charges
to
bring
the
carrying
value
closer
to
fair
value?
Is
that
how
we
should
interpret
that?
What?
No,
it's
a
really
good
question, Nik.
The
–
what
I
wanted
to
do
was
rapidly
exit
those
businesses
because
I
wanted
the
capital
back
to
deploy
it
in
John's
tuck-in
M&A
strategy.
We
had –
we
clear
them,
we
could have
held
on
for
another
two
or
three
years
and
worked
out,
but
that
was
the
last
bit
of
the
legacy
business
that
[ph]
Al
just did (00:27:14)
such
a
great
job
on
cleaning
up
but
I
wanted
the
capital.
So
those
are
marks
on
those
books
where
we
rather
sold
them
like
in
rail
or
we
will
sell
them
very
shortly
here
in
the
next
few
weeks.
I
see.
Okay.
Understood.
Okay.
That's
it
for
me.
Thank
you.
Thanks,
Nik.
Our
next
question
is
from
Jaeme
Gloyn
with
National
Bank
Financial.
Please
go
ahead.
Yeah.
Thank
you.
So
just
looking
at
the
MD&A
on
the
legacy
assets, just so
I'm clear
on
this.
So
the
$107
million
total
assets
held
for
sale,
that
would
be
much
lower
now?
I
suppose,
or
is
it
completely
at
zero?
Hi,
Jaeme.
It's
Michael.
It's
–
there's
about – there's going to be
about
$50
million
remaining
and
it's not
to
be
legacy
anymore.
We're
just going
to
bring
them
on
to --
we're going to get rid of assets
held
for
sale. I
mean,
no
discontinued
ops
next
year.
So,
there'll
be
about $50
million
remaining
of
– mostly
aviation
assets
that
are
under
various
leases
that
we'll
just
keep
on
our
--
going
forward
as
corporate
assets.
Jaeme,
just
to
be -- Michael's
question,
there's
nothing
left
that
we
can
sell,
that
the
remaining
aircraft
are
under
mid-
to
long-term
leases,
we'll
sell
them,
there's
no
more.
We
put
a
mark
on
them.
So,
there's
no
more
losses
coming.
Yeah.
Okay.
Got
it.
Going
back
to
the CCIM
revenue
in
Kessler.
So
I
guess
adjusting
for
the
gain,
the
revenue
would
have been
around
$14
million.
That
seems
a
bit
higher
than
the,
I
guess,
guided
run
rate
on
a
quarterly
basis.
So
what
else
might
be
driving
strong
revenues
in
the
quarter
or
is
that
the
run
rate?
Yeah.
I
mean, remember
when
we
sold
a
number
of
the
portfolios
that
we
sold
over
to
SLC, we
got
to
realize
the
number
of the
performance
fees
in
the
quarter
that
we
would
have
recognized
over
a
longer
period
of time.
Those
were
earned. So,
we
don't
view
those
as
sort
of
one
time.
Going
forward,
what
you
saw
and
we
tried
to
describe
in
Investor
Day,
the
biggest
difference
between
CCIM
in
2021 and –
versus
2022
is
we
no
longer
have
those
assets
that
are
sort
of
on
the
balance
sheet
which
is
not
– means
we're
not
earning
interest
income
or
we're
not
earning
equity
returns
anymore.
We're
just
turning
those
management
fees.
So,
if
you
look
at
the
year-over-year
guidance
for
CCIM,
it
will
truly
be
an
asset
manager
going
forward.
It's
not
going to
be
a
reflection
of
principal
returns.
Okay.
Got
it.
And
just
so
I'm
clear
the
guidance,
is
that
reflecting
base
management
fees
and
some
performance
fee
revenue
or
just –
or
is
it
just
on
the
base
management
fee?
Do
you want
to
go?
It's
basically
just
base
manager
fees
in
2022,
but
we
obviously
have
the
opportunity
to
continue
to
earn
further
upside...
In
performance.
...in
performance.
Okay.
That's
great.
Thank
you
very
much.
Thanks,
Jaeme.
Our
next
question
is
from
Geoff
Kwan
with
RBC
Capital
Markets.
Please
go
ahead.
Hi.
Just,
I
had
one
question. When
I
kind
of
think
about,
how
the
business
has
evolved
over
the
years,
whether
as
a
Service
Finance
and
Triad
and
Kessler,
probably
part
of
the
realization
of
the
yield
and
credit
quality
of
what
those
businesses
do
but,
from
a
funding
perspective
maybe
having
really
low
rates
and
the
lack
of
yield
opportunity
for
financial
institutions
and
institutional
investors
maybe
attracted
them
to
those
assets.
But
as
we
start
to
see
rates
increase,
do
you
see
some
of your
funding
partners
now
having
that
same
allocation
or
maybe
shift
a
bit
of their
allocation
to
other
investments?
And
as
a
result, do
you
kind
of
think
about
focusing
still
on
trying to
diversify
and
deepen
those
funding
relationships?
I
think
it's
a
good
question.
If
you
look
back
to
three
or
four
years
ago, when
we
saw
a
bump
in
treasuries.
You
were –
we're
able
to
see
both
Service
Finance
and
Triad
come
along
with
increased
pricing.
So
I
think
we're
in
good
shape,
Geoff.
Our
pricing
will
track
the
marketplace.
So,
we're
not
going
to offer
compress
yields
to
our
institutional
investors.
That
said,
the
demand
from
banks
and
credit
unions,
life
insurers,
sovereign
wealth
funds
is
unprecedented.
If
we
had
$4
billion
in
manufactured
home loans
in 2022,
it
all
be
sold.
And
it's
not
terribly
price
sensitive.
But
I
think
the
key
takeaway
here
in
this
comment
is
that
we
have
a
history
of
being
able
to
price
increase
rates
into
our
product.
Yeah,
Geoff. And
I
was just
going to
add
like
if
you
go
back
and look
at
Investor
Day,
there's
a
slide
in there
that
talks
a little
bit
about
interest rate
risk.
And
it
shows
that
Triad,
for
example,
is
–
had
a
very
consistent
premium
over
mortgages
for,
I don't
know,
I
can't remember
how
long
that
chart
goes
back,
but
at
least
a
decade.
And
frankly,
it
goes
back
way
longer
than that
if
we
wanted
to put
it
out
there.
So,
these
are
assets
that
have
similar
to
better
credit
quality
than your
traditional
mortgage
with
a
lack
of
complexities
because
prepayments
are
very
rare
because
of
ticket
sizes,
et
cetera.
So
this
is
a
really
high-quality
asset.
You're
getting
several
hundred
basis
points
of
excess
yield
for
it.
So
I'm
not
really
worried
that
we're
not
going to
have
demand
for
the
paper
any
time
in
the
near
future.
Similar
to
what
you
see
at
both
Source
One
and
KG,
these
are
different
asset
classes,
obviously.
But
these
are
asset
classes
that
where
you
can
get
excess
yield,
have
good
credit
quality.
They're
in-demand
assets
by
financial
institutions
really
across
the
board,
whether
it's
banks,
credit
unions,
institutional
investors,
insurance
company.
So,
we
feel
pretty
good
about
the
group
of
businesses
that
we
have.
We
think
there's
going to
be
demand.
And,
yeah,
we're
always
trying
to
continue
to
diversify
our
funding
partners.
Great.
Thank
you.
Our
next question
is
from
Vincent
Caintic
with
Stephens.
Please
go
ahead.
Hi.
Thanks.
Good
evening.
Just
I
guess
one
related
question.
But
the
–
so,
the
market
prices
have generally
been
volatile
and
you
sold
noncore
assets
and freed
up
some
capital
there.
Just
curious
how
the
pipeline
is
of
potential
tuck-in
acquisitions
and
what
you
might
be
looking
for.
And
then,
relatedly,
how
you're
thinking
about
deploying
capital
for
share
repurchases?
Thank
you.
I'll
let
John
jump
in
here.
Vincent but
the – I
think
the
impact
and
what's
happened
on
the
geopolitical
front
has
caused
some,
private
equity
firms
and
others
that
were
building
finance
platforms
to
now
realize
they
haven't got
an
exit
through
capital
markets.
And
then pricing
is
better.
But
maybe,
John,
you
want
to.
I
mean, look, Vincent
you
know,
and
we've
talked
about
this
quite
a
bit.
We
look
at
an
awful
lot
of
potential
transactions,
but
we're
very
picky
in
terms
of
the
type
of
things
that
meet
our
criteria.
At
a
very
high
level,
it's
all
the
things
that
we
always
talk
about,
asset-light,
no
recourse,
prime
credit
assets
on
behalf
of
banks,
credit
unions,
et
cetera.
Or
our
partners,
right,
we're
trying
to
add
to
that
partnership
base.
I
think
we
see
a
number
of
opportunities
here
over
the
next
several
quarters
that
are
potential
tuck-in
acquisitions.
But,
we're really happy
with Source
One. I
think
it's a
good example
of
the kind
of thing
that
we
can
do.
Not
only
do
we
get
a
great
financial
deal
on
the
way
in,
it's
accretive,
we
feel
really
good
about
the
transaction
that
we
did.
We've
identified
a
number
of
different
ways
that
ECN
can
do
what
it
does
and
really
work
with
the
company
to
grow
the
business
and
really
create
a
multiple
of
the
current
earnings.
To
the extent
that we
could
find
those
kinds
of
opportunities,
we'll
jump
on
them
and
continue
to
build
out
the
tuck-in
strategy.
Okay.
Great.
And
then
on
share
repurchases,
if
you
could
just
remind
us
how
much
you're
able
to
do
and
how
you're
thinking
about
share
buybacks.
Well,
we've
got
a
fair amount
of
dry
powder
coming
into
this,
and
since we
don't
have
a
lot
of
utilization
on
our
senior
line,
so,
I
– when
we
see
value,
we'll
– we
will
execute.
We
are
in
the
midst
of
this
tuck-in.
Tuck-in
strategy
is
important
to
us,
so
I
want to
keep
some
dry
powder
as
we
go
into
2022, particularly
as
the
capital
markets
get
-- well
remain
–
particularly
as
they remain
with
this
level
of
volatility. But
if
the
stock
is
presented
to
us
at
a
reasonable
value,
we
will
purchase
it.
Great.
Makes
sense.
Great.
Thanks
very
much.
Thanks,
Vincent.
Our
next
question
is
from
Mario
Mendonca
with
TD
Securities.
Please
go
ahead.
Good
evening. Michael,
can
we
go
through
just
a few
detailed
questions
first?
Your
corporate
interest
expense,
can
you
give
us
an
idea
of
the
quarterly
run
rate
for
2022, and
maybe
the
same
for
preferred
share
dividends?
Preferred
share
dividends
since
we
retired
the
One
series
is
going to
be
in
the
$1.3
million
to
$1.4
a
quarter
going
forward,
depending
on
exchange
rates.
And...
And
the
corporate interest
expense?
Corporate
interest
expense,
believe
that
should
run
about
$5
million
a
quarter.
But
let
me...
Okay.
I
can –
I'll
confirm
with
you
offline,
if
that's
okay.
Yeah.
Yes.
Doesn't have
to be too
precise.
I just
want to
make
sure
I'm
not
making
any
big
mistakes.
One
other
quick
thing,
Michael,
to
understand
where
things
got
recorded
this
quarter,
I
do
see
a
big
gain
associated
with
the
sale
of
Service
Finance
going
through
this
quarter,
the
$928
million
gain
on
discontinued
operations.
Is
the
charge
associated
with Legacy
business
netted
against
that
gain?
Yeah.
It's
all
recorded
in
the
discontinued
operations
and
the
MD&A,
well,
there's
a
breakdown
of
the
various
components.
Okay.
So,
that
helps
me
understand
where
everything's
recorded.
Now,
Steve,
we
could
go
back
and
just
revisit
the
big
decision
you
made
many
years
ago
when
you
decided
to
get
out
of
all
these
Legacy
businesses,
aviation,
rail,
everything
else.
It
was
a
big
decision
at
the
time,
and
I
think
one
could
argue
that
it
paid
off
really
big,
as
evidenced
by
the
sale
of
Service
Finance.
But
I
think
this
is
a
good
time
to
maybe
just
reflect
back
and
say,
clearly,
there
was
a
lot
of
value
added
by
the
Service
Finance
purchase
and
sale,
but
there
was
also
a
lot
– there were
also
a
lot
of
write
downs
on
all
the
Legacy
business.
My
suspicion
is
that
the
value
added
by
Service
Finance
dwarfs
any
write
offs
related
to
the
Legacy.
But
what would
be
helpful
for
me
to understand
is
how
great
were
these
write
offs
on
the
legacy
business
from
that
time
you
made
that
important
decision
to
exit
the
businesses
to
today
when
you're
essentially
done?
And
I'm
asking
the
question
that
way
because
I
really
want
to see
how
that
compares
to
the
value
created
by
Service
Finance
transaction.
Yeah. Fair
enough, Mario. I
think
if you
look
at
the breakdowns
on
legacy,
you'll
have
to
reflect
on
the
sale
of
our
US
vendor
business
to
PNC,
which
was at
a
substantial
gain.
1.6 times
book.
Yeah.
So,
that
one
also
go
through
and
see
where
the net
ended
up,
Mario.
But
probably
was
a
little
bit
of
money
lost
after
you
back
to
look
at
that
gain
against
the
other
ones.
I
think
the
important
part
I've
learnt
over
the
three
decades
now
is
that
I
never
believed --
I
now
believe,
but
I
never
believed
that
we could
actually
have
a
model
where
we
could
rent
out
balance
sheets
from
credit
unions,
banks,
lifeco,
sovereign
wealth
funds.
And
by
sticking
with
their
credit
adjudication,
we
created
this
model
which
is
a
far
better
model
than
we
have
in the
past.
A
lot
of
our
assets,
if
you
look
to
our
vendor
finance
business,
we
sold
to
PNC.
That
would
qualify
for
our
flow
arrangements
now,
but
I
didn't
know
that
at
the
time,
Mario.
And
in
terms
of
this
last
go,
I
think
there
will
be
some
interesting,
smallish
type
tuck-ins
and
I
wanted
the
capital
available
to
do
it. And
we
could
have worked
them
out
over
the
next
two
and
a
half
years.
The
railcars
we're
going
through
a
two-year
retrofit.
We
could
have
worked
our
way
through
the
entire
two
and
a
half
years,
but
I
think
this
is
a
better
call.
So,
would
I be
correct –
sort
of.
Let
me
see
if
I
can
summarize.
Would
it
be
fair
and
maybe,
John,
some
of
these
numbers
might
stick
in
your
head
a
little
bit
as
well.
Would
it
be
correct
to
say
that
the
value
created
by
the
PNC
sale,
the sale
to
PNC
mostly
offset
the
write-offs
in
the
legacy
business
such
that
we
can
kind
of
look
at
the
Service
Finance
gain
or
value
created
their
sort
of
unadulterated
and
say,
that
was
the
value
created
by
that
decision
way
back
to
exit
everything
and
go
into
this
model?
Yeah.
I
think
that's
fair.
Our –
I
think
that's
a
fair
assessment.
Let
us
do
the
math,
but
I
think
that's
a
fair
assessment.
The
assets
we
have
in
our
balance
sheet,
if
you
go
back
to
the
time
that
we
split,
were
credit-good
assets.
So,
we
should
have
been able
to
protect
book
value.
So,
we'll
go
back
and
improve
that
up.
And
I
just – and
then
I
can
talk
about
Service
Finance.
Service
Finance
was
a
great
business.
I
think
Triad
and
Source
One
are
better.
And
why
do
I
say
that
is
because
we
have
very
deep
pocketed
partners
who
need
these
origination
platforms
and
they
value
them
differently
than –
we
look
at
people,
how
they
value
ECN
from
the
perspective
of
a
public
or
shareholders.
They
value
these
assets
as
they
take
the
raw
yield
less
their
cost
to manage
it
off
their
deposit
base.
So,
it's
a
very
large
gain.
If
you
look
at
Truist,
they
had
forecasted $300
million
of
income
off
of
Service
Finance
within
three
years.
Same
sort
of
math
holds
true
for
Triad
and
for
Source
One,
although
it's
somewhat
smaller
for
the
time
being.
Can
I
just
add?
Mario,
the
other thing
to
remember
is
remember
when
ECN
spun
out
from
Element,
okay?
So,
if
you
go
back to
that
time,
we
came
out, we
were
about
$1
billion,
$1.1
billion
market
cap
at
the
time.
Do
you
remember
the
businesses?
We
were
in
rail.
We
were
in
commercial
equipment
or
equipment,
finance,
aviation,
and
a
bit
of
CMV.
And
we
were
in
direct
competition
with
Wells
Fargo,
with
Huntington
Bank,
with
guys
that
were
funding
these
things
on
balance
sheet
with
deposits.
You
had
a
business
that
was
rapidly
moving
towards
a
single-digit
ROE
and
potentially
to
a
mid-single-digit
ROE.
We
were
lucky
because
those
were
attractive
assets
to
the
banks
who
had
been
buying
these
things
using
their
deposits.
So, we
were
able
to
sell
the
equipment
business
for
sort
of
1.6
times
book.
Give
or
take
we're
able
to
sell
the
balance
of
the
portfolio
somewhere
close
to
book
give
or
take.
And
then
we
had
a
workout
portfolio
that
we
had
to
work
out,
which
no
doubt
we've
taken
some
losses
to
get
there.
But
to
put
that
in the
context,
we
took
that
capital.
We
turned
it around
and we
bought
Service
Finance,
we
bought
Triad,
we
bought
the
Kessler
Group.
And
as
a
result
of
that,
we've
returned
over
$2.5
billion
to
shareholders
through
buybacks,
through
dividends,
and
through
the
special
dividend.
And
we
remain
at
a
market
cap
that's
about
$1.4
billion,
or $1.5
billion today.
So,
in
my
opinion,
just
looking
at
this,
the
transition
over
the
last
several
years,
the
losses
that
we've
taken
in
the
legacy
portfolio.
And
clearly,
you
could
argue,
maybe
we
should
have
just
blown
them
out
two
years
ago
and whatnot.
But
we
thought
we
could
work
them
out
for
better
results.
At
this
point,
it's
clear
to us
that
taking
that
capital
back,
redeploying
it
into
our
core
strategy
will
yield
far
better
returns
than
we
will
work
these
things
out
for
the
next
two
and a
half
to
three
years.
And,
Mario,
the
risk
of
running
out,
I
just
want
to
– I
highlighted
the
sale
of
our
US
equipment
financing
business,
the
PNC.
If
look
at
rail,
we
completed
a
very
large
rail
sale
substantially
all
the portfolio,
in
essence,
at
book
value.
So,
if
you
look
at
this
$11
million
loss,
it
represents
I
think
three
quarters
or
one
half
of
1%.
So,
let
me
do
the
math
for
you,
but
I
think
you'll
find
that
it's
a
push
over the
entire
business
that
we've
been
able
to
deliver.
Those
are
all
great
points.
And
I
understand
them,
and
I
certainly
understand
the
market
value
argument.
I
just
think
that
in
times
like
this
when
you're
kind
of
at
the
end
of
a
particular
point
in
your
history,
it's
worthwhile
asking
what
did
you
– like
it's
worthwhile
looking
at
the
bad
stuff
as
well
not
just
all
the
great
stuff.
And
that's why
I
want
to really
satisfy
myself
that
it
was
worth
it, and
it's
certainly
seems
it,
certainly
to
shareholders,
but
that's
the
nature
of
the
question,
I
want
to
be
really
satisfied
with
this.
Yeah.
We
can
do
a
recap
for
you
of
the
pluses
and
minuses
on
the
legacy business.
But
there's
no
doubt
in
my
mind,
Mario,
that
the
businesses
we
have
because
of
the
strength
of
the
origination
platforms
and
the
moat
that
have been
built
around
them
have
significant
value
to
US
investors.
And
I,
we
want
to
continue to
grow
Triad
and
Source
One
and
Kessler,
but
I
have
no
– I
have
no
doubt
based
upon
conversations
I
have
what
those
assets
are
worth.
Thank
you.
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.