ECN Capital Corp

TSX:ECN

Earnings Call Analysis

Triad's Positive Outlook Despite Challenges

Triad navigated a tough 2023, but finished strong with Q4 originations rising 16% and managed portfolio growing by 13% to almost $5 billion. The company improved its funding capacity to over $2 billion and increased the market share of its high margin core chattel product by 41%. Despite a 21% drop in industry shipments, Triad outperformed, and with the National Association of Home Builders forecasting a 15% increase in shipments for 2024, expectations are high. Triad plans record originations of $1.7 billion in 2024, a 27% increase. The company is well-capitalized and optimistic, projecting originations of $1.65 billion to $1.85 billion, a managed portfolio of $5.9 billion to $6.2 billion, and a pretax income of $68 million to $80 million.

Crucial Investor Highlights from Recent Earnings Call

The earnings call reflected a company in a robust growth phase with significant process improvements and strategic partnerships poised to fuel future expansions. Key highlights include a nearly 16% rise in Q4 originations, a 13% increase in the managed portfolio to nearly $5 billion, and a forecast for record-breaking originations of $1.7 billion in the coming year, marking a 27% growth. Reorganization efforts have halved loan decision times, bolstering business efficiency and customer service which, augmented by a new joint venture with Skyline Champion and ECN, is projected to significantly reduce customer borrowing costs. The funding landscape is also notably robust, with capacity surpassing $2 billion, setting a solid foundation for 2024 and beyond.

Financial Structuring and Revenue Streams

On the financial front, Triad has diversified beyond bank funding, enhancing capacity with insurance companies and investment manager partnerships. The managed portfolio's forecast projects a range between $5.9 billion and $6.2 billion by year-end with expectations of $68 million to $80 million in pretax income. The core chattel product remains the largest revenue contributor, though newer products such as rental and CLP, despite lower yields, are compensated for with higher servicing fees, contributing to normalized yields expected for 2024.

Delinquency and Portfolio Performance

The management underscored the company's asset performance, emphasizing consistent outcomes across the credit spectrum, with a 30-plus day delinquency rate well within expectations, and net charge-offs in expected ranges. Attention was also drawn to the rapid response to market rate changes, which has begun returning to historical average spreads, thereby enhancing revenue potential.

Debt Management and Revenue Adjustments

Corporate strategy is shifting towards reducing leverage and bolstering liquidity, with total debt projected to be approximately $650 million at Q1's end, following the divestiture of Red Oak and other portfolio sales. The commitment to improved operational processes remains firm. Despite a drop in adjusted revenues by nearly 25% from Q4 2022, largely due to lower origination revenues at Triad, cost control measures have seen corporate expenses decrease. Projections refine 2024 EPS estimates to a range of $0.10 to $0.16 per share. Manufactured housing and RV and Marine segments are expected to contribute significantly to operating income, with corporate expenses estimated to stay between $9 million to $10 million for the year.

Projections and Strategic Tax Planning

The gain on sale initial forecast of 5.8% has been adjusted upward to 6.5%, thanks to new funding arrangements. Furthermore, through diligent tax planning, the executive team intends to aim for the lower end of the projected 20% to 26% tax rate, underscoring their focus on maximizing shareholder value.

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Fourth Quarter 2023 Results 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.

[John Wimsatt, executive]

Thank you, Elaine. Good afternoon, everyone. First, I want to thank everyone for joining this call. Joining us today from the company are Steve Hudson, Chief Executive Officer; Michael Lepore, Chief Financial Officer; Jackie Weber, VP and Controller; Lance Hull, President of Triad Financial; Matt Heidelberg, Chief Operating Officer of Triad Financial; Hans Kraaz, Founder and CEO of IFG; and Mike Opdahl, President of Source One.A news release summarizing these results was issued this afternoon, and the financial statements, and MD&A for the 3-month period ended December 31, 2023, have been filed with CEDAR. 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 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 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.With these introductory remarks complete, I'll now turn the call over to Steven Hudson, Chief Executive Officer.

[Steven Hudson, executive]

Thanks, John. Turning to Slide 6. A few comments before we begin the formal slide review. 2023 was a difficult year for ECN. On a personal note, it was even a more painful year for me. Tough decisions have been made to place ECN in a strong foundation for 2024 growth and beyond.Turning to the content on Slide 26, the strategic review, concluding in our strategic partnership with Skyline was successful, the costs implemented were higher than anticipated, but I know we've ended up with a phenomenal partnership with Skyline Champion. Land Home, challenges were worse than we anticipated as late as Q3 '23. I'll speak to those specifically in a minute and the solution. Funding, although ECN took moves to measure to diversify its funding prior to '23, bank and credit unions pulled back even more than anticipated, resulting in an elevated balance sheet and the use of lower-margin institutional investor money. While bank and credit unions have returned in 2024, we are pursuing a diversified fund strategy to renew our growth. And finally, on the origination front, economic uncertainty resulted in slower originations in '23, but we've seen a meaningful rebound late in '24 and early '25.Turning to Slide 7. As I mentioned, we completed our strategic review and our partnership with Skyline. It's gotten better than I expected. Champion Financing was launched its first component. The floor plan initiative was successfully launched at the Louisville Show and early '24 to great results. We've just launched in the last 3 days, the Champion Financing retail component at the Biloxi show. We've also completed our RV Marine strategic review and determined the best path to maximize shareholder value is to continue to execute on the significant growth in front of both Source One and IFG. We have significant funding in place for both of those businesses. We have improving originations, strong industry uptick. And we're building out a servicing platform, which I'll speak to in a second, very much like we did at Service Finance and Triad to maximize value.Turning to Slide 8, last component of our strategic review was to successfully complete the sale of Red Oak that was accomplished by Michael Lepore by Keith Lam and by our Chief Credit Officer, Algis Vaitonis, resulted in proceeds of $153 million, and we sold it at book, all of that capital was applied to reducing the senior credit facility. Expense reduction in corporate simplification has preceded assets -- corporate assets were sold, real estate footprint was rightsized and significant reductions in senior management personnel, realizing expense savings of $6 million. The corporate simplification plan is a component of our expanded Skyline partnership, which is under continued discussion.Turning to Slide 9. We spent $40 million of shareholder capital, which is a very material amount to accomplish 3 things: one, to streamline the company; second, to sell assets and make the company far leaner; and third, to complete the sale of Red Oak and be able to deploy that capital in the growth of our 2 businesses. We believe that we're well positioned to grow in 2024. We see 2023 as a significant reset year.Turning to Slide 10. Let me first start by recapping some of the challenges that we've experienced in Land Home, but more importantly, to outline the actions, the significant actions have been taken to address these challenges. I won't recap the challenges, but on the left-hand side of the slide, the challenges, the spectrum range from having the right team in place, the correct process, robust systems and appropriate pricing. If I flip to the other side of this page on the right-hand side, what have been the 7-point action plan that ECN has assisted, but Lance Hull has shown leadership on. Obviously, the new management team with Lance Hull and James Barry joining Matt Heidelberg, we replaced the entire Land Home team with a stronger, more professional and experienced platform and team.Process changes have been implemented to reduce turnaround times, not to dwell in the past, but in the past, it took a month to clear conditions on the Land Home financing, today, that is 2 to 3 days, I know that Lance objective is, in fact, short of that. On the pricing front, we've had significant rate increases, which have been implicated across the LH business, and we've established -- Lance has established an internal rate committee that meets bimonthly and to ensure that we're priced appropriately in the marketplace.We have a significant and robust dealer platform being finalized, which will digitate documents and streamline underwriting and monitoring. We've improved the funding pipeline with incremental funding capacity for '24. It's amazing in the space of 12 months, we've gone from a significant change in funding to potentially being overfunded by a material margin in '24. And finally, and not last, Chris Johnson, a very experienced executive in Wall Street has joined us to head up capital markets, is including the funding, his responsibilities include hedging.Turning to Page 11, on the Land Home update. I won't spend a lot of time here just to say both charts are important. The left-hand side shows that we're now at market rates, why we got but where we did is part of our past. We've addressed that decisively. And the portfolio has now been reduced to amount that is in material with respect to exposure. I would note as a somewhat related point at today's Board meeting, the Compensation Committee confirmed that the CEO and CFO are receiving no bonuses this year. In addition, salaries were for the 2 of us who were significantly reduced to my case, almost 50%. As well, the incentive compensation payments through PSUs were placed at 0.Turning to Page 12, the leadership team at Triad is, I think, industry-leading. We've previously announced Lance Hull joining as the President of Triad. We're very happy with Lance's progress. In fact, from my personal perspective, ecstatic on what he's done in his first 200 days. We have James Barry joining as CFO. James is not a known name to people in this call, but James has worked beside me for 10 years at ECN Corporate. I consider him a very accomplished finance and treasury executive, and we love the fact that he has joined the team along with Matt Heidelberg who drives the funding side.Turning to 13, a guy younger than me, like Opdahl, that's not saying a lot. Mike Opdahl has joined as Head of Source One, 20-year executive in specialty finance. He's done a lot in a very short period of time. You'll see Mike speak to originations and funding. We're happy to have Mike on team as one of our senior leaders. His hands and face isn't here, but Hans Kraaz, who's been with us over 200 days. Hans was the Founder and CEO of IFG, very accomplished and similarly, what was the tough '23 is turning into a great 24. Under Hans leadership, he's also responsible for significant cost takeouts in this business. I want to thank all of you.On the corporate side, Michael Lepore, my partner of over a decade is transitioning to strategic advisory role post Q1. Jackie Weber, who's been with us for 5 years as Vice President and Controller, has been appointed to CFO. Happy for both of you. John Wimsatt, who's been a partner for 2 decades, is transitioning to strategic advisory to myself. We'll be focused on future M&A and funding. He'll assist me in an orderly transition of the IR function. And as I mentioned earlier, Chris Johnson has been hired as Senior Vice President, Capital Markets in charge of our funding as well as our hedging across our businesses.Turning to Page 16. I don't want to dwell on this. In fact, Lance and Mike and Hans will do a better job speaking to all of this other than, say, fourth quarter was not a financial result that we're pleased, not anywhere near pleased about, but it did mark the turnaround operationally for the businesses with respect to increased originations, increased liquidity. And I know we're about to turn the page.With that, Lance, I'm going to pass it to you.

[Lance Hull, executive]

Thank you, Steve, and good evening, everybody. As you heard from Steve, 2023 was certainly a challenging year and it was a challenging year for Triad as well, but there were some very positive turns throughout the year also. Q4 originations were up nearly 16% and our managed portfolio grew by 13% to nearly $5 billion on the year. But perhaps most importantly is our loan funding options are in better shape than ever. We have more than $2 billion in capacity going into the year, and it's a healthy mix of banks and credit unions, insurance and credit funds, as well as our community and rental partners. So I'm really excited about where we're positioned going into 2024.Next slide is a picture of our retail originations, and positive trends continue here as well. Our higher margin core chattel is up 41% and that continues to grow into 2024 as January and February are already up 22% year over year. It's also worth pointing out on those 2 pie charts that are changing our origination mix year over year. You'll see that in Q4 of 2022, our core chattel was just less than 48% of our total originations, and now it's at 59% of our total originations. And again, as that's our highest margin product, this mix bodes well for our increased origination revenues.Next Slide 21, in addition to the origination growth for the quarter, there's some improvement in other areas as well. As I pointed out on the last slide, originations are up 15%. But I'm also encouraged by the continued growth in loan approvals because today's growth and loan approvals will translate in tomorrow's growth and originations. For the quarter, we're up 6.4% and again, our higher margin chattel business is up more than 8% year over year, and we're expecting this growth to accelerate as we move in through 2024.On Slide 22, taking a look at related industry activity, and this is our first look at home shipments. And 2023 was a very challenging year for others as well. Many of the manufacturers struggled throughout the year as shipments declined. In fact, throughout the year they were down 21% year over year. But that's not always the best indicator of the state of the business. What happens somewhat often in manufactured housing is the buildup of inventory from speculation or things that are driving near-term sales, or even when backlogs -- we get more backlogs. And you see a real buildup in inventory, as you saw through most of 2021 and into the first half of 2022.But as with all things that grow that fast, there becomes a reckoning where those -- that excess inventory was starting to get very expensive, especially as interest rates rose and the cost of carrying that inventory went up dramatically. So retailers worked very, very hard during most of 2023 to work those inventories down to a more reasonable level, and they were successful in doing that. In fact, inventory levels are now much more close to normal. And in fact, in January we saw the first month-over-month increase in shipments where January of 2024 was 7% above the year prior. And that's the first time we've seen an increase in shipments since the fall of 2022.On Slide 23, we see another look which is a forward look at shipments. The National association of Home Builders is forecasting growth throughout the year. In fact, they're estimating a 15% growth in shipments to a total of 110,000 units, which is going to be a welcomed increase for the whole industry. This activity in new purchases and restocking will help drive growth for 2024. And I want to add though, that regardless of shipment trends, Triad has a long history of outpacing shipments that stretches back many, many years and we expect this trend to continue as we expand our business and grow our market share.On Slide 24, we're taking a look at our originations outlook and as I mentioned, that growth in our business and expanded market share we believe will lead to originations of up 27% this year, which will translate to a record breaking year for Triad at $1.7 billion on the year.On Slide 25, I'd want to take just a minute to flashback to the first time that I was able to speak to this group as a team member of Triad and here with ECN. And at that time I announced a series of initiatives that I wanted to put in place at Triad to help improve the way that Triad did business and increase our opportunities in the marketplace. And many of those incentives centered around better processing speed, improve communication and enhance the customer experience. And this slide highlights just a few of those.And while I won't mention all of them, I do want to spend a [ 1 minute or 2 ] on just a couple of our recent wins. But first, I want to say that these wins and those that we're going to recognize throughout this year and beyond are only possible because of the quality of the team at Triad and the efforts by so many. During my first 200 days at Triad, I've been very impressed and encouraged by the abilities of the team and their dedication to the company and how they've been able to adapt to these changes and elevate our company.For example, by reorganizing our origination teams and providing more effective tools for them to work with, we have reduced our loan decision times by 50% as we work towards an industry leading KPI of 4 hours. This speed to decision will increase our capture rate and win more business for Triad in the months and years to come. Secondly, accessibility for our borrowers and accessibilities for our retailers to our team is an absolute must. We just simply have to be available when those people that rely on us need us. So we put new systems in place that have allowed us to reduce unanswered calls by more than 90% and reduce hold times by more than 75%. Simply put, when people call Triad, we expect the phone to be answered and we expect them to get routed to the appropriate person as soon as possible to get them the service that they expect and need.On Slide 27, I'll take just a minute and talk about the joint venture. Steve mentioned it in his opening remarks, and this is the first time that we've had a chance to come back to this group since we launched. We were very fortunate that in 2023 that Skyline Champion and ECN came together with this opportunity because they're a great partner and it's going to be an outstanding complement to our mutual businesses. From that, we have 2 new board members, Tawn Kelley, a Skyline Director, joined us as a board member and Mark Yost Skyline CEO, is a board observer.The JV we decided to brand it in a joint effort with Skyline Champion, we branded it as Champion Financing and it's drawing a lot of attention in the industry. As Steve mentioned, our first launch was at the Louisville show in January of this year, and that was for our floor plan and rental offerings. And I'll share a little more detail on that on the next slide. But just this week, in fact, 2 days ago, Champion Financing retail incentives were unveiled at the Biloxi Manufactured Home show in Biloxi, Mississippi.Flipping over to Slide 28, we'll talk about some of those incentives. First, on the retail incentives, they're directed at our mutual customer, and that is the homebuyer. Skyline Champion got together and had 2 new series of homes that are packed with features and values that are appealing to today's homebuyers. And we've coupled that with financing incentives for those that choose to finance through the JV. These will represent the lowest rates available from Triad and will significantly reduce the customer's borrowing cost. These combined incentives between Skyline Champion and us will drive sales for Champion and loan activity for Triad and the JV.The JV also offers incentives to retailers that choose to finance their home inventory with us. In fact, this was part of our initial launch in January, and towards the bottom of this slide, you'll see an indication that we've got $127 million worth of existing credit applications from retailers who have expressed an interest in floor planning their inventory through this joint venture.And that's exciting for a couple of reasons. First of all, we're going to draw income from the floor plan financing through the JV. But more importantly, we know from history that those retailers that choose to use our floor plan avenues tend to do significantly more retail volume with us. So we're looking forward to the progress that we're able to develop with the Champion team throughout the year.And with that, I'll turn it over to Matt.

[Matthew Heidelberg, executive]

Thank you, Lance. I'm going to pick up on Slide 28. Starting with Triad's funding evolution, I thought I'd take you back to the beginning when ECN acquired Triad. Triad was a 100% bank and credit union funded with about $400 million of capacity. As we grew originations, we also expanded partnerships to include insurance companies and investment managers, bringing the total to well over $1 billion of funding. You'll see in 2023, the ratio of bank capacity shrunk to only 20%. This was partly due to our expanded partnerships with those investment managers, but also due to the slowing demand from the bank and credit unions throughout the year that Steve had mentioned earlier.However, starting 2024, we've not only continued to grow our insurance capacity, but we also see our banks coming back. So we've already doubled their desired volume for the new year. Combined, we stand at over $1.8 billion of capacity for our consumer products, in excess of $2 billion when you add in our community programs, which positions us quite well for the growth in 2024 and beyond.Moving to Slide 29, I wanted to remind everybody of the differences between these 2 types of partners. Our banks and credit unions on the left have been with us for decades. In most cases, they focus more on our core product, tend to have shorter terms, but a fixed high yield. On the right side, our institutional investors provide us scale, multi-year commitments and purchase a much wider spectrum of our product offerings, including silver, bronze, as well as additional offerings that we've spoken about, like the floor plan flowing through to our Blackstone partnership. With these benefits, there is a trade-off with a lower yield on these -- with these loans, as you see on the slide.Moving to Page 30, Triad Menu Update. Now let me update you on what this looks like across all of our different products. We have 1 column showing you the distribution by our products from chattel, COP, down to CLP. You'll notice that the core chattel product is our largest, weighting at 59%, and also comes with a healthy total revenue yield in the 7% to 9% range. And with some of our other product offerings, especially the newer ones like rental and CLP, may have lower revenue yield, but we make up for that with a higher servicing fee. So while we might not have as much revenue upfront, we are seeing continued and additional revenue over time blended together across all these products. And looking into 2024, we're quite happy to see that we're returning back to normalized revenue yields.To give you an update on where our spreads are, on Slide 31, I wanted to focus you on the left chart. You'll see Triad's loan rates historically as compared to market rates, specifically the 30-year mortgage rate and the 10-year treasury rate. What's evident throughout 2023 is the compression you see relative to those market rates increasing to where we are. However, early into 2024, we've quickly widened back out towards our historical average. Our partners are going to benefit from this widening through the returns they earn on our loans.And with regards to delinquency, we have a closer look at that on the next slide on Page 32. When it comes to credit trends, no news is good news. The 30-plus day delinquency rate is well within expectations. Net charge-offs on the bottom you'll see have ticked up slightly from historic lows, but are well within expected ranges as well.Moving you to Slide 33 for a commercial update, the one change, obvious change that Steve had alluded to earlier, mentioned earlier to the sale of our Red Oak division, which was sold in February. What stayed the same? We're maintaining high yields, 11% plus, and performance continues to be exceptional also the same from a trend recently. Now that we're flowing through floor plan loans to partners with the likes of Blackstone, you see our retained balances remaining quite low relative to where they were a year earlier.With that, I'm going to pass it back to Lance.

[Lance Hull, executive]

Yeah, thank you, Matt. Taking a look at Slide number 34 on guidance for the year. In preparing our guidance, we segmented our business into 3 primary lines of business, retail origination, commercial origination and loan servicing, and I'm really excited that each of these is in a great position for us to grow in 2024. Our forecast for originations is between $1.65 billion and $1.85 billion, and we're forecasting our managed portfolio to be between $5.9 billion and $6.2 billion by year end. These will translate into a pretax income of $68 million to $80 million on the year.And moving on to Slide 35. While I'm encouraged about our opportunities in 2024, I'm very excited about our future beyond 2024. We now have funding relationships in place that are both stable and scalable. And we're making operational improvements that will allow us to scale origination and servicing activities in a more efficient and predictable manner. The changes that we're making at Triad today are not just to make us better for what we can do in 2024, they are to build our future and put us on a path to significant and sustainable long-term growth.And lastly on Slide 36, this is the monthly and quarterly data that you've seen before. So I'll leave this in your hands in the context that I've already shared.And I thank you and I'll turn it back to Steve.

[Steven Hudson, executive]

Thanks Lance. Just to introduce RV and Marine before Mike and Han speak just on 38, the consolidated forecast for those 2 businesses, you look at the fourth quarter, the originations continued to struggle as they did for all of '23 and for most of the industry. However, as I mentioned earlier, I believe the operational improvements began in the fourth quarter under the leadership of Hans Kraaz and Mike Opdahl. And in addition to that, we've seen significant return of funding and liquidity, I think we're well positioned.Turning to 39, the program update. Again, focusing on what's happened, it was great to see, Mike, that in February, Source One had its biggest February ever, which is due to your leadership, a little bit of help from us, but due to your leadership and continues in IFG, up 18% year over year. It's nice to have the wind at our back for a change. And the increased funding discussions that have been from both existing players coming back and through Chris Johnson's new relationships and John Wimsatt and Keith Lam, it's great to have more liquidity. We're in a position in 2024 to have more funding than we need, which is, never thought I'd say that.Hans, I'm going to pass it to you on Slide 40.

[Hans Kraaz, executive]

Thanks, Steve. I'll start on Slide 40. Hello everybody, I'm Hans Kraaz. I'm Founder and CEO of Intercoastal Financial Group. I'm very excited to have this first experience to join you on this call and to talk about the company that I'm very proud of. I started the company 30 years ago and I'm proud to say that we are the best in class in the high end [ boating ] market. Our bank survey ranks Intercoastal Financial Group as consistently #1 with our largest funding partners. We have a best-in-class team of sales professionals and a turnkey process from origination to closing, all done in-house. We're the only ones in the industry with expertise to do this. Our funding relationships cover a broad spectrum of AAA loans down to subprime loans. I'd say these relationships that after 30 years are nearly impossible to replicate.Turning to the next slide on growth, Slide 41. Going forward, we are focused on continued growth of our sales team and looking at opportunistic tuck-in acquisitions, technology investments and specialized programs that will fuel our growth through manufacturers, dealers and yacht brokers. If I've learned anything over the past 30 years that we need to create a framework to support growth, continuing to be the best at what we do and by supporting our people, we at the end of the day are a #1 asset.Thanks and I'll give it to Michael.

[Mike Opdahl, executive]

Thank you, Hans. Good afternoon, everyone. I'm Michael Opdahl, President of Source One Financial Services, and I look forward to bringing you up to speed on the progress we are making.If you could please turn to Slide 42. Over the last 20 years, Source One has presented a distinctive value proposition to our funding partners and to our nationwide network of RV and Marine dealers. Source One is very unique in what we do and we are well positioned to scale. Conversely, for potential competitors, the barriers to entry are high as our relationships with both dealer and lending partners have been developed over decades. This is particularly true when it comes to human capital, as the expertise of our team is not replicable and their industry knowledge, irreplaceable.We offer our funding partners access to a nationwide dealer network that offers them consistent, high-quality originations with a demonstrated track record of performance and the ability to scale to each partner's needs. This value proposition is symbiotic, as only Source One offers dealerships the ability to finance across the full credit spectrum to a lender network that without Source One they wouldn't have access to. To put it simply, we deliver to our lending and dealer partners what no other company in our space can.Moving on to the next slide, we'll review marine and asset performance. The good news is that our lending partners report back that both RV and Marine verticals continue to outperform similar asset-backed consumer segments, both on yield and on a risk adjusted return basis. With our largest lenders, we have a track record dating back over a decade and their asset performance has remained remarkably consistent across the near prime to super prime credit spectrum. As the graphs show, RV and Marine portfolios continue to outperform automotive loans, achieving higher yields combined with substantially lower losses.As a result of this steady performance, and with return to liquidity into the market, most of our lenders' funding capacity is back up to or even above 2022 levels and we continue to attract interest from additional lending partners. This performance is not confined to our external partners, as Source One's help for trade portfolio is enjoying similar results.Moving on to Slide 44, we are following the proven ECN growth playbook and have several initiatives that are beginning to bear fruit. We've invested heavily in technology with a focus on continual improvement of system processes and efficiencies. We are spearheading dealer adoption of e-contracting within the Marine and RV industries through our proprietary origination platform. Furthermore, by leveraging some of IFG's state-of-the-art internal procedures, we are continuing to reduce friction during the loan origination and titling process.We will have increased our sales team by 50% by the end of the second quarter and are aggressively growing our dealer footprint, allowing us to make share in previously [ unrented ] presented markets. Our take share strategy is also working as well. Capture ratios are up substantially and originations are up 11% year over year. One initiative that no other company in our space has access to and will allow us to make share is integrating IFG's direct lending model into the Source One playbook. Only IFG and Source One are uniquely positioned to take advantage of our decades of experience across multiple verticals and take them to scale and we are very excited about the opportunities these integrations will present.Steve, over to you, sir.

[Steven Hudson, executive]

Thank you, Mike. Turning to Slide 45, comment on the servicing platform is specific to that of Source One. In order to maximize shareholders' value of Source One, we need an internal servicing platform. And let me take you back a little bit in history of ECN, we built with the team at Service Finance a very significant and robust internal servicing system which increased the -- provided more annuity type income which got a very attractive valuation on the sale of that business.With respect to Triad, when we were fortunate enough to invest in that business 7 years ago, it was all servicing released over the last 7 years, management team at Triad has built a $5 billion servicing arm that is investment grade rated by Fitch. That servicing -- internal servicing is the key to maximizing value of any business. We're also on the verge of adding incremental and more profitable funding relationships for Source One that require in-house servicing. All that leads to you that in 2024, we will either build or modestly buy a servicing business. We think it's very important to the value creation of Source One.Turning to Page 46 for the guidance with respect to Source One and RV Marine, we're tracking towards $10 million to $15 million. I would focus you more to the $15 million than $10 million. And as Mike mentioned, I'll mention in a second. Because of the investment in infrastructure and peoples and systems and processes and funding, I think we have a significant opportunity to grow over and above what we're laying out this evening for you in our forecast.Turning to 47, a similar [indiscernible] 36-month objective that Lance laid out for Triad, we believe that these two businesses combined are capable of originating $2 billion to $2.5 billion. That's certainly not today or 2025, but we believe it's achievable as we move into '26 and '27. We have made the necessary infrastructure investments and funding arrangements are in place or are shortly coming, which will underpin those funding volumes.And finally, on originations, I won't speak to that, just a summary of the historical originations, as I mentioned earlier, this is a significant turn in early '24. Michael?

[Mike Opdahl, executive]

Thank you, Steve. Turning to Page 50 and the Q4 consolidated operating highlights, total originations were $503 million in Q4, down $571.5 million in Q4 2022, which reflected a small year-over-year increase in Triad to approximately $374 million and a decrease in our RVM business to $129.3 million. Q4 operating results reflect a $14.6 million provision to our Land Home portfolio. As noted earlier, due to the decision made to accelerate the sale of this portfolio and improve process management to reduce backlog times, the combined Land Home pipeline and held-for-trading balance is expected to be approximately $160 million at the end of Q1 compared to almost $300 million at its peak and we'll have -- and with significantly improved rates. As a result, we do not anticipate any further below the line provisions in 2024.Adjusting for this provision, EBITDA was $5.5 million compared to $24.6 million in the same prior year quarter, primarily due to the lower origination revenues at Triad. Q4 adjusted net loss applicable to common shareholders was $0.05 per share compared to adjusted EPS of $0.02 per share in the prior year quarter.Turning to Page 51 in the balance sheet. Key highlights are that total assets of $1.3 billion were up by approximately $100 million over Q3, primarily due to an increase in finance assets due to the timing of portfolio sales. Total debt was also up approximately $100 million. In 2024, the company's focus will be on reducing leverage and increasing liquidity. And in line with that focus, we expect total debt to be approximately [ $650 million ] at the end of Q1 following the sale of Red Oak and additional held-for-trading portfolio sales.Turning to Page 52, the Q4 income statement, which provides a breakdown of income statement by line item. A key item to note is adjusted revenues were $40.2 million, down almost 25% compared to Q4 2022, again, primarily due to the lower origination revenues at Triad. This, combined with our lower corporate revenue and higher operating expenses resulted in the adjusted loss of $0.05 per share compared to adjusted EPS of $0.02 in Q4 2022.And finally, turning to Page 53 and operating expenses, highlights our higher business operating expenses, primly driven by higher expenses at Triad and higher corporate expenses. Higher Q4 corporate expenses were impacted by one-time state tax assessments of approximately $700,000. Corporate expenses of $4.1 million compared to $6.2 million in the same prior year reflect the cost reduction.We'll flip to the next slide. And finally, this slide just illustrates the movement in the held-for-trading financial assets balance in a post Q3 that goes up and then what we're seeing in the substantial reduction by the end of Q1 with the additional portfolio sales that were completed and will be completed in March.And with that, I'll turn it to Jackie for the forecast.

[Jackie Weber, executive]

Thanks, Michael. Turning to Slide 56 for the consolidated financial forecast. We have revised our 2024 EPS range to $0.10 to $0.16 per share based on our detailed bottoms-up approach. The chart below presents the breakdown of our guidance by quarter, which reflects the seasonality of our businesses.Next slide. The consolidated financial forecast assumes growth at each of our business segments with manufactured housing contributing $68 million to $80 million of adjusted operating income and RV and Marine contributing $10 million to $15 million of adjusted operating income. Corporate operating expenses are expected to be approximately $9 million to $10 million for the year, as a result of our corporate expense reduction program and our tax rate is expected to be in the range of 20% to 26%, which drives our EPS guidance range of $0.10 to $0.16 per share.Turning to Slide 58 for an update on our balance sheet. We are committed to decreasing our on-balance sheet finance assets and increasing our liquidity in 2024. As Michael mentioned previously, following the sale of Red Oak in the first quarter and with new and expanded funding commitments and process, we expect total on-balance sheet finance assets and debt to be materially lower at the end of the first quarter of 2024 and for the remainder of 2024 as compared to 2023.With that, I'll turn it back to Steve for closing remarks.

[Steven Hudson, executive]

Thanks Jackie. Maybe just returning to Slide 57, 58, John, yes 57 and 58, just want to make a comment on the forecast range since preparing the forecast. In fact, we just updated this, this morning, our gain on sale at 5.8%, looks like it's going to be closer to 6.5% based upon existing and new funding arrangements at Triad. And although the range for tax is 20% to 26%, I would hope through tax planning that we can reduce that. So I would guide you to the higher end of that range for '24.Turning to my final comments on Page 61, I believe with all the change that's gone on of it, some of it very painful, both rationally and corporately and personally, we now have the team, the processes, the systems, the pricing and the funding, of those 5 components, this business now is Nebraska top. I know that they will both succeed and they will exceed our expectations in '24. The liquidity is back, and I'm along with an exceptional team and improved systems, albeit painful, looking forward to turning the book and returning to profitability and growth in 2025 -- 2024, sorry.With that said, operator, we're ready to take calls -- questions.

[Operator]

[Operator Instructions] The first question is from Mario Mendonca with TD Securities.

[Mario Mendonca, analyst]

Just a quick question on the $14.6 million this quarter, the revenue, I guess, the right way to call it, is the revenue shortfall as I'm coming to understand it. I remember last quarter, the number was something, I believe it was $10.3 million. Perhaps, Michael, could you give us a summary of what it was for all of 2023? If you help me piece it together what that total amount was? And maybe help me understand why you think there won't be similar charges like this going forward. What has changed in your estimation that would cause these charges to go away?

[Mike Opdahl, executive]

Yeah, I think that the total charges for the year were $31.2 million that we took if you total them all up --

[Mario Mendonca, analyst]

So $31.2 million is the total, let's call it revenue shortfall because of these unusual circumstances.

[Mike Opdahl, executive]

Yeah, these are the actual provisions that we booked.

[Mario Mendonca, analyst]

Okay. Michael, just when you say the word provisions, it kind of throws me off a little bit. These are amounts that you -- essentially you add it back to your revenue to arrive at your adjusted revenue. I want to make sure we are talking about a revenue item here.

[Mike Opdahl, executive]

Because the way that we account for our portfolio, it's on a fair value measurement basis. So if that loan, to take a provision against the loan, the debit goes against revenue. That's just the way the accounting works. And the way we adjust for that one and not opportunity thing is that is related to the portfolio that's on balance sheet and not -- doesn't impact -- wouldn't otherwise have an impact on sales in the quarter. So [ to aid ] comparability, like, if you're looking at what was actually originated and sold in the quarter versus provision on a portfolio, that's the difference.

[Mario Mendonca, analyst]

And then maybe just remind me, help me understand why you don't believe we'll see further charges going forward?

[Mike Opdahl, executive]

Well, I think we saw in the slide earlier, we've worked through the vast majority of the problem, Land Home loans that were originated starting in 2022 through the first part of 2023, we had $70 million more come in through the pipeline in Q4. Like I said, we've been aggressively selling the portfolio down and accelerating it. This provision and the follow-on sales in Q1 of this year, that balance is down to a manageable level. And all the new loan production is that we sell at full margins and of excess spreads compared to the benchmark. So that's why we feel confident that in 2024, we'll achieve our targeted margin range, as Steve said, of 5.5% to 6.5%.

[Mario Mendonca, analyst]

Okay. There were a lot of numbers there. I want to make sure I remember what reference there was to $160 million. You said it was down from $300 million to $160 million. Is that the Land Home you're referring to?

[Mike Opdahl, executive]

Yes.

[Mario Mendonca, analyst]

It is. Okay. And maybe just 1 final thing before we move on. Do you anticipate, or if anyone on the call, do you anticipate any other meaningful charges outside of this issue? It sounds like this issue, hopefully, is addressed. Are there any other sort of meaningful asset write-downs or other sort of below the line items that could play a role in 2024? Anything you can think of off the top of your head?

[Mike Opdahl, executive]

No. As you saw from the announcement today and what's happened throughout 2023, we've significantly -- we've turned over the entire management team of the operating companies and significantly downsized the corporate office. So we've taken care of all those matters. And as Steve said, we believe that we have the right team and the right structure in place to succeed in 2024.

[Steven Hudson, executive]

Mario, it's Steve. We've taken the necessary marks and the write-downs, there won't be a repeat of this in '24.

[Operator]

The next question is from Jaeme Gloyn with National Bank Financial.

[Jaeme Gloyn, analyst]

Question just around, I mean, this is a few quarters now of guidance, revisions to the downside. Do you feel like you've set expectations low enough or at a low bar here? And I'm just trying to get around like a confidence interval and you sounded confident in the last quarter, even to Mario's question about that issue with the Land Home portfolio being largely resolved. And it pops up again in Q4. So just sort of want to get your color and confidence level around these forecasts for both businesses.

[Steven Hudson, executive]

Hi, Jaeme, it's Steve. It's safe to assume that everyone around Land Home that result in this is no longer with us and that Lance has rebuilt that business from ground up, he -- Lance, as you know, is the creator of Land Home product. So it's been, "rebuilt" retooled. And the rates for the last 2 quarters, 1.5 have been at or above industry rates. So we feel good about that business and its yields. There's a range in here at $0.10 to $0.15 I think, $0.10 is very conservative, I think that will track towards the upper end for the reasons I just raised. And we're going to work hard to earn back the credibility.

[Jaeme Gloyn, analyst]

Okay. Couple of questions then. First, in the manufactured housing finance business, guidance is for EBITDA margins of 59%, 60%. That's something that hasn't been achieved, at least in the timeline that ECN [ is owned ] Triad. So again, what were the changes, I guess, on the OpEx side, given that the revenue outlook is a little lower than what we would have previously thought, that are allowing you to achieve a higher EBITDA margin.

[Matthew Heidelberg, executive]

This is Matt. I can let Lance add on to this if he likes, but it's really coming from that slide with Lance summarizing all of the initiatives that he joined Triad to focus on. If you go through those, at the end of the day, they're all leading to efficiencies. We're trying to not have different sets of underwriting teams focused on different products, we're bringing that to one. We're trying to speeding up the turn times on approval so we're getting through them quicker. All of it's leading to efficiencies and an increase in that margin. That's what's driving that.

[Lance Hull, executive]

I think that's well said, Matt. And that's going to be our push for all of 2024, is to streamline both the structure of our team, streamline the way that we do business, and we know that speed will increase our ability to capture more business as well. So it's going to be all about improving from where we've come from.

[Jaeme Gloyn, analyst]

Last one for me then. Just on the corporate operating expenses, guidance is $9 million to $10 million for 2024. I believe the last time guidance was provided, maybe in Q2, it was $5 million. Correct me if I'm wrong, if there's anything there, but what explains that step-up, that corporate expenses would be higher?

[Mike Opdahl, executive]

That's correct, Jaeme. So if you remember in Q2 and Q3, that $5 million was predicated on spinning the RV Marine business and integrating ECN Corporate into Triad. We've made the decision that that's not the right thing to do right now. And so the $9 million reflects our regular corporate expense, which again will be $6 million lower than the 2023 run rate. So it's a reduced corporate expense, but at the right level, that's required to continue to focus on the growth initiatives that for each -- and supporting each of the 2 businesses that ECN owns.

[Operator]

Next question is from Stephen Boland with Raymond James.

[Stephen Boland, analyst]

Yeah, just a couple of questions. Steve, one thing I noticed through the slide deck is, improving funding capacity, diverse funding capacity. I don't think I've heard you mention funding issues for many, many years, even your previous company, there was always demand. You had transitioned this company from the original to insurance and more credit unions and diverse. But there's a couple of slides where you're mentioning Slide 10, major credit union funding partner unexpectedly reduced capacity. Has there been a change in the industry in terms of [ forward ] commitments? And if one funding partner reduced capacity, that you couldn't put it to another. I mean, I thought it was all kind of a black box for underwriting. So maybe you can just talk about, something changed in the ability to funding and then I have a follow up, please.

[Steven Hudson, executive]

Yeah. So, as you know, as we recall, both these businesses, Triad and Source One, were 100% credit union funded when we acquired them. The credit union funding is by far our most profitable at 7% and 9% gain on sale. But it comes without a term commitment. As we've grown that business and as you know, in the fourth quarter '22, the entire credit union industry in the U.S. basically shut down when we had some small bank collapses in the U.S. Nothing to do with us, it was industry wide.We were fortunate enough to have in place relationships with Blackstone and Carlisle allowed us to take up that excess and have not an at-demand or at-will funding, but having a 2-year commitment. Those commitments come with reduced margin because they're committing capital with no commitment fees, but the cost of it is reduced margin. So we've been balancing up between liquidity and counterparty, increasing counterparty exposure and credit unions.The comment I would make to you is that, all the credit unions are back now. We're not going to pursue a strategy that's 100% credit union based. We don't think it's appropriate nor prudent to run the business in that measure. So we'll have a mix of insurance, capital, alternative asset managers, credit unions, as well as capital markets and we think that's the appropriate way to run the business. So we're not -- there was never a case we were unfunded. The case was always the mix. And we paid up to get that term liquidity, not dissimilar to what we did in the pandemic with Service Finance. When we executed that transaction with CPPIB, we paid up to get the long dated commitment or longer dated commitment.

[Stephen Boland, analyst]

Yeah, I mean, I think generally it's the first time, I think many of us have heard about funding challenges. I know it's a unique maybe market 2023. And maybe just a second m, you mentioned Blackstone and Carlisle, I know it's on Slide 28. It's a 2-year, like you said, it's a couple of year commitment, as you just said. Has there been any changes? Are those relationships active now or they active in the quarter? Has there been any changes for 2024 from those 2 credit union or credit funds?

[Steven Hudson, executive]

Yeah, 1 has been upsized and 1 is in the midst of being upsized. So they've been successful. The asset performance, not speaking for them, has been exceptional. So they're looking to commit a lot more capital space. Again, they're valued partners, important partners. But diversification of funding sources is critical. And I just want to go back, Steve, I think I was clear. We were never unfunded in '23. It was a source of the funding. So, because the untold story in the U.S. financial services market is the credit unions went away as an industry participant, the good news is we had an alternative source at lower margins.

[Operator]

The next question is from Nik Priebe with CIBC Capital Markets.

[Nikolaus Priebe, analyst]

Just on the RV and Marine strategic review, can you just expand a bit on what fell out of that and what led to the decision to take no action at current time? Like you were contemplating a spin. Is that option still on the table?

[Steven Hudson, executive]

Yeah, the option on the table is to maximize value for our shareholders. And we think there's some work to do in the short term that's going to do that. So whether that's -- it's a combination of increasing originations, incremental funding and a servicing component, that will -- maybe it doubles value, maybe 50% increase in value, that stuff has to get done. Our Skyline relationship remains in place, that dialogue is active. I don't want to comment on that in this call, it would be inappropriate, but I don't think we're pursuing both paths.

[Nikolaus Priebe, analyst]

Okay. And not to belabor the point, but can you just help elaborate on the nature of that $14.6 million fair value adjustment on the Land Home portfolio? My understanding was there's some sensitivity to rising rates, but market yields were actually down between September 30th and December 31st. So can you just help elaborate on the nature of that fair value adjustment?

[Mike Opdahl, executive]

Sure. Well, one, there was more loans coming through the pipeline in Q4 that weren't reflected in the Q3 provision, so that had an impact. We say we're largely through that pipeline now and as we market to where we think we're going to exit -- the exit price is going to be. And that's an evolving measure too, not necessarily fully dependent on interest rates. I think I mentioned on the last call, the faster you want to sell and the larger the portfolio, there's always going to be a trade-off between selling price and liquidity. And we've made the decision to accelerate the sale of those portfolios as quickly as possible. So that provision reflects us, gives us the ability to do so.

[Nikolaus Priebe, analyst]

But isn't that the $12.1 million that you're referring to, the accelerated pool sales, as opposed to the fair value adjustment? Or am I confusing those?

[Mike Opdahl, executive]

It's similar, the $12.1 million is like the notional -- what revenues would be, if we had sold fully at our -- fully normalized margins in the quarter, which is just there to point out the impact. We don't adjust for that. That's not adjusted for, whereas the provision, it's on the remaining balance. But going forward, this provision should cover so in Q1 there -- and we're in 2024, we expect margins to be in that 5.5% to 6.5% range.

[Nikolaus Priebe, analyst]

Okay. Maybe last question just in the press release and the prepared remarks, I'm hearing some optimism about the build of volumes in the early few months of this year and I'm just trying to square that with the EPS guidance revision for the year ahead. So what's the major delta that has changed in your outlook between last quarter, in this quarter? Is it volumes? Is it gain on sale margin? Is it the anticipation of some more charges in the year ahead? Can you just help walk us through that?

[Lance Hull, executive]

Yeah, I think it's a sole function of conservatism. I think the [indiscernible] the range was 16% to 20% would be -- wouldn't be seen as credible. I happen to believe there's lots of upside if we add $500 million of incremental funding, which I think we'll do. It would add $0.02 to $0.03 earnings per share that's currently not on the forecast. But I think that we're in the environment where we need to show you that. So as opposed to saying, as opposed to Hudson saying, it's going to 15% to 20%, let me guide you to the upper end as your forecast, and let me see if we'll exceed that based upon the funding discussions we're having now, which are very material. The main verb here, I think liquidity is back and our assets are amongst the best credit assets you can own. So conservative forecast, and we look forward to exceeding it.

[Operator]

[Operator Instructions] The next question is a follow up from Jaeme Gloyn with National bank Financial.

[Jaeme Gloyn, analyst]

Just wanted to go back into the MH Finance guidance, and it includes a portion from Champion Financing, but I was wondering if you'd be able to break out what your expectations were for Champion Financing in '24 and then for the 36-month objective?

[Steven Hudson, executive]

I think, Jimmy, we put out guidance when we announced the joint venture. We're happy with that guidance. The retail part took longer to launch because of systems and compliance. So the Biloxi launch is quarter to quarter, half late, but based upon run rate, I guide you to the lower end of the guidance we provided at $9 million to $10 million. But I think the upside is easily in the $20 million to $30 million range or more over that period. We have to launch it. We have to get acceptance by the dealers and movement. But if you look to the floor plan as an example, the launch of floor plan was $100 million over a weekend at the Louisville show. So we're very excited about it. A little bit slower to get launched right now, we guide you to previous announced guidance to lower end, but I believe we'll quickly recoup that.

[Operator]

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.