Thank you for standing by. This is the conference operator. Welcome to the ECN Capital's Second Quarter 2025 Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the meeting over to Katherine Moradiellos, Vice President of Finance and Investor Relations. Please go ahead, Katherine.
Thank you, Jen. Good afternoon, everyone, and thank you all for joining this call. Joining us today on the call are Steven Hudson, Chief Executive Officer of ECN Capital ; Jackie Weber, Chief Financial Officer of ECN Capital ; Lance Hull, Co-CEO and Vice Chairman of Triad Financial ; Cody Pearce, Co-CEO of Triad Financial ; and James Barry, Chief Financial Officer of Triad . A news release summarizing these results was issued this afternoon, and the financial statements and MD&A for the three-month period ended June 30, 2025, 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 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 risk and uncertainties. I will refer you to the cautionary statements section of the MD&A for a description of such risk, uncertainties, and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations of any forward-looking statements will prove to be correct. You should note that the company's earnings release, financial statements, MD&A, and today's call include references to non-IFRS measures, which we believe will help to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A.
All figures are presented in U.S. dollars unless explicitly noted. With these introductory remarks, I will now turn the call over to Steven Hudson, Chief Executive Officer.
Thank you, Kathy, and good evening. Welcome to our second quarter call. Turning to slide 5, I'd like to reference four highlights for you. The first is to report $0.04 of adjusted per share income, which is in line with consensus. The second highlight is in the second quarter, originations of $436 million reflect the best quarter ever in Triad history and a 40% year-over-year increase. The third highlight is managed assets. Our service business grew to over $6 billion, a 15% increase in Q2. Just by background, our servicing business was at $1.9 billion when we acquired Triad. Today, it's at $6 billion, which represents a 16% CAGR over the past seven years. Servicing revenue, as you know, is a source of strong recurring revenue and now represents 20% of the company's total revenue.
Finally, the fourth highlight is in mid-second quarter, we commenced with Source One, an upgrade strategy mirroring the similar successful Triad upgrade strategy. The early results of that Source One strategy are encouraging, with $60 million of originations in July for Source One. Turning to page 6, since mid-2023, we've implemented a four-phased upgrade strategy at Triad. The first was Lance Hull being hired as President. Lance, as you know, has 25 years of industry experience. He is a proven leader, including experience with 21st Mortgage. During the past two years, and actually this afternoon, the scene represents Lance's second anniversary. Congratulations, Lance.
Thank you.
He has implemented successfully improved systems and processes with several successes. One I like to call out is the application to funding ratio, which is impressive, with an 18% growth rate. Well done. The second phase was Lance Hull was promoted to Triad Co-CEO and Vice Chairman. His scope includes operations, servicing, technology, human resources, and corporate development. Two additional successes under Lance's leadership include the $6 billion servicing business I just referenced and $2 billion of incremental funding capacity. Third phase is Cody Pearce has been hired as Triad's Co-CEO. He has 25 years of industry experience like Lance. He is the founder of Cascade and most recently the Senior Officer of YES Communities, the second largest U.S. manufactured housing REIT. His scope includes sales culture, loan origination, product menu, and corporate development.
The final phase, now that we have a battle-ready backend business, is to complete building the fortress on our frontend business under Cody's watch and leadership, which is a review of sales culture, strategy, and go-to-market team. Turning to page seven, Source One has commenced a similar upgrade strategy based upon Triad's successful program. It's comprised of four phases. The first is improved sales team structure and culture. We've recruited a very recognized and successful Chief Growth Officer. We've enhanced reporting to track and manage sales representatives, as well as providing better sales tools and sentence structures and a warrior attitude. Second phase is product and underwriting enhancements. I'd call out two major product additions: our 240-month amortizing product, as well as our seasonal incentives. We also have dramatically improved our decisioning time. Our turnaround time used to be two to three days.
It's now two to three hours while the customer is still in the dealer. The third phase has been an aggressive marketing push to land new dealers, which we've successfully done, as well as tailoring loan campaigns and extended promos for these dealer groups, as well as increased visibility at RV shows. The final phase is improving flow programs, which are optimizing origination margins in the second half of 2025. With that, I'll pass to you, Lance.
Thank you, Steve. If I could have you turn to slide 10 for the Manufactured Housing highlights. There's a lot of information on this slide, but I want to focus on three successes in the quarter and then provide some clarity regarding origination revenue margins and adjusted operating income. First, as Steve highlighted, our origination growth in the quarter resulted in an all-time record at $436 million. Second, we've grown our managed assets to more than $6 billion. As a result, our diversified business model continues to strengthen with recurring revenue from servicing alone representing 28% of our total revenue in the quarter. Based on our progress at $17.2 million in adjusted operating income, Triad now represents more than 80% of the total revenue of ECN .
Now pointing to revenue margins and operating incomes, origination revenue margin was slightly below target for the quarter, and the lighter growth relative to the top-line originations is primarily attributed to just two factors. First, in the quarter, we had a lower mix of sales to our higher margin bank and credit union partners in line with our plan. Second, performance through the Champion financing JV continues to outperform relative to plan. As a reminder, while Triad's reported originations include both Triad and JV loan production, our pro-rata share in the JV is recorded in other revenue and not origination revenue. While Q2 margin came in slightly below target, we are tracking to 6.3% on a year-to-date basis, and we are maintaining the 6.5% guidance for the second half of the year based on the outlook for mixed sales channels and JV performance.
Lastly, the lower adjusted operating income in Q2 2025 versus last year is partly due to the allocation of public company overhead costs in connection with the previously announced corporate simplification plan. Turning over to slide 11, chattel originations continue to exceed plan. We first broke through the $100 million in a single month in March of this year, and since then have broken monthly origination records for chattel in each of the last four months, with July setting the high mark at $133 million. Chattel comprised 85% of originations in Q2 versus 70% in Q2 of last year. In line with our plan, and as a result of our expanded flow arrangements with our institutional partners, bank and credit union sales accounted for just 17% of our total sales in Q2, down from 30% in the prior quarter.
With the prior two years dedicated to upgrading our platform and building a solid foundation to support growth, we are now actively pursuing more aggressive go-to-market initiatives and key resources for H2 in the years ahead. To lead that effort, as Steve mentioned in his opening remarks, we've had the opportunity to have Cody Pierce join us as our Co-CEO. I've known Cody for more than 15 years, and his 26 years of experience in the industry and success in building strong sales teams and effective results is unparalleled. We are certainly glad to have him in the company. I've known him as a competitor and as a friend and now as a partner. With that, I'll introduce Cody. Cody?
Thank you, Lance. I'm truly excited to join the Triad team. As mentioned, Lance and I have known each other for many years, and I have tremendous respect for his leadership, values, and integrity that he brings to the organization. I'm looking forward to working collaboratively to continue growing both the business and the team. Turning to slide 12, our Chattel loan originations. Chattel originations continue to show strong momentum, increasing 71.5% in Q2 and 72% in July. Applications, approvals, and fundings are all trending ahead of plan. This performance reflects the strong foundation that Lance and his team have built. Since Lance joined Triad, application volume has grown by 38%, signaling significant market share expansion. Additionally, our applications to funding ratio has improved by 18%, reinforcing our confidence in future growth and supporting our guidance.
These are all strong leading indicators for continued performance and a testament to Triad's ability to capture market share. Turning to slide 13 for a commercial update, I was brought in to complement this retail growth with a dedicated focus on commercial expansion. In Q2, commercial balances totaled $446 million, which is relatively flat compared to the $452 million in the prior year. However, we are still gaining floor plan market share despite overall inventory levels declining across the industry. As part of our commercial upgrade strategy, we are implementing targeted initiatives to reignite growth and to expand our footprint in the space. Now turning to slide 14, our joint venture with Champion Homes continues to perform ahead of plan. We're seeing increasing penetration at captive stores, which reflects the strength of the partnership and the alignment of incentives between Triad and Champion.
With that, I will turn it back over to Lance.
Thank you, Cody. If you turn with me to slide 15, please. Taking a look at our portfolio credit trends, our credit performance remains within plan, with core delinquency falling and net charge offs holding steady. As mentioned previously, our managed assets grew to just over $6 billion in the quarter. I want to take this time to thank Eric Lammons and the entire servicing team at Triad for the hard work leading to this strong performance. On slide 16, we are confirming our guidance for the year. If you would flip with me to slide 17, this is a slide that we've included most every quarter, and it's a picture of historic originations. Normally we just pass through it, but today I do want to just take again a moment to thank the origination team at Triad for all their hard work and congratulate them on a record quarter.
With that, I'll turn it back to Steve.
Thanks, Lance. Turning to slide 19, the second quarter adjusted operating income for RV and Marine was approximately $3.1 million. Industry headwinds reduced volumes, and there was a delayed sale of assets for Source One in the first half of 2025, which impacted income. IFG, however, was not impacted and is in budget and has successfully completed its upgrade strategy under the strong leadership of Hans Kraaz. Turning to Source One on page 20, three highlights I'd like to make. First is that June originations and July originations have rebounded and are evidencing the early results of Source One's upgrade strategy. Second highlight is year-to-date has been impacted by lower volumes of budget, a slight compression to margins, and the delayed sale of an asset, the late asset sale I referred to just a moment ago.
There are four specific components of Source One's upgrade strategy I'd like to call out. The first is a sales team structure. The second is product and underwriting enhancements. The third is an aggressive marketing push to dealers. The fourth has been improved flow programs. All four of those components will drive increased profitability in the second half of 2025 and into 2026. Turning to IFG's business, four highlights I'd like to reference. First, our June originations are up 24%, and July up 26%. IFG continues to take market share through strong relationships and regional expansion. This is all in the light of new U.S. boat registrations, which are down 12%. Yet the business originations are up 12%. That 24% gap is due to the leadership and execution of Hans Kraaz and his team. Congratulations.
The fourth item is the growing industrial headwinds that the upgrade strategy has been completed by IFG. Turning to slide 22, let me recap RV and Marine 2025 guidance. As I mentioned a moment ago, H1 was impacted by industrial headwinds and a delayed sale of assets at Source One. 2025 adjusted operating income before tax, ECN share of $14 million - $18 million was from the original $16 million - $26 million. The $5 million, the average $5 million of earnings reduction was due to the lower volume and the related reduced asset sales. Jackie?
Thanks, Steve. Turning to page 25 for quality of results. All originations were $804 million for the second quarter, adjusted EBITDA of $31.5 million, and adjusted operating income of $17 million. Adjusted net income to common shareholders was $10 million or $0.04 per share. Turning to page 26, our total asset and debt levels remain consistent with the first quarter of 2025 and down from the prior year quarter. As we've continued to maintain total finance asset balances below $450 million for the first half of 2025. Turning to page 27, total adjusted revenue increased to $62.2 million, up from $58 million in the prior year quarter, which is driven by higher originations revenue and higher servicing revenue at both business segments. Interest income and interest expense each decreased as a result of lower on-balance sheet finance assets in 2025.
Operating expenses increased year over year to $30.7 million, which we'll visit on the next slide, and adjusted operating income increased to $17 million, up from $14.5 million in the prior year quarter. On page 28, manufactured housing operating expenses of $22.7 million were up modestly from Q1 with the growth in the business. RV and Marine operating expenses increased to $7.9 million from $7 million in the first quarter of 2025, which was due to the growth in origination as well as investments in the upgrade strategy that Steve previously spoke to. Turning to page 29, we continue to maintain helper trading assets below $250 million, with the second quarter ending at $240 million.
Lastly, turning to page 30, as Steve previously mentioned, we're updating our RV and Marine guidance, and we expect adjusted operating income for RV and Marine to be in the range of $14 million - $18 million. As a result, our consolidated adjusted EPS range is now $52 million - $64 million or $0.18 - $0.23 per share. Back to Steve.
Thanks, Jackie. Turning to slide 32, I would like to comment on three items in closing. The first is 80% of the company-wide upgrade strategies have been successfully completed, and the remaining 20% will be completed in the second half of 2025. The company has been materially improved. The second on guidance, we're reaffirming the manufactured housing finance guidance of 78 -98. We are narrowing the RV marine guidance to 14 - 18, and we are tightening consolidated EPS guidance to $0.18 - $0.23. Finally, notwithstanding Q2 specific RV slowdown, Triad has met or exceeded my expectations, and the RV business is accelerating as we start the third quarter. With that, we will take questions.
Thank you. We will now take analyst questions from the telephone lines. If you have a question, please press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please lift your handset before pressing any keys. To withdraw your question, please press pound, then one. There will be a brief pause while the participants register for questions. Thank you for your patience. Our first question will come from Stephen Boland with Raymond James.
Thanks. Steve, could you just provide any update on the discussions with Champion Homes and the standstill, and any possible corporate development there?
Our joint venture is meeting or actually exceeding both parties' expectations on the operating side, Steve. I can't comment on the investor rights agreement. As you know, its end date is the end of September. I have to leave it at that, Steve.
Okay. I understand the RV Marine, you know, the changes, this upgrade you're talking about, Steve. Is this the management changing sales? I think you added Crimker as the head of sales there. Is that part of the, like, I'm just wondering what the operating leverage or expense growth there, like, what's the impact of doing all these changes?
Yeah, I think, you know, Mike Opdahl, it's a good question, Steve. Thanks for it. Mike Opdahl has done a great job seeing this business in these, there, beside, you mentioned Joe Krimker. Joe Krimker's got a very established and proven record of turning around sales finance businesses in the specialty finance sector. We're happy to have him as the Chief Revenue Officer. I would say his impact, Steve, in the last two months has been dramatic. We've landed two new large dealer groups that we didn't have before. He's spent a lot of time rejigging the sales team. The turnaround time I refer to of two to three days to two to three hours is Joe and the people around him that we've brought in.
I've been very impressed, and they know the proof will be Q3, but the July start of $60 million was a number that almost met our budget. My budget was aggressive for this business. I'm happy with his enhancement to the sales team, his product development, his execution of process, i.e., decreasing the spot time and the book ratios up. Things are moving in the right direction. As you know, Steve, in downturns, I think there's some really great competitive teams you could hire, like we have at IFG and we have done at Triad, and we're doing the same thing here.
Okay. Let's go. One more, sorry. Maybe it's probably for Jackie. I asked this last question, but on the cash flow statement, this change in retained servicing rights. I thought it had something to do with discount rates and maybe interest rates, something to that. I can't remember, apologize. It looks like the number went up again. Can you just remind me what impacts that number? It does go into income, right?
It does go into income, and there are two components. You have your cash, the servicing revenue in total, you have cash, and then you have your intangibles for your servicing rights. If you're looking specifically at the cash flow statement, Steve, the increase in the current quarter is really just the higher volume at Triad. As they have higher asset sales and servicing rights related to those, it'll tend to tick up. There have been no changes to any assumptions underpinning how those are recognized in the current quarter.
Okay. We should expect this to be, like, it's recurring, basically, at this point. Is that what we should expect? I'm just thinking about modeling this out a little bit more.
Yeah, you will have a non-cash revenue item in there each quarter.
Okay. All right. That's it for me. Thanks, guys.
If you'd like to ask a question, please signal by pressing star one. We'll move next to Jaeme Gloyn with National Bank Financial.
Yeah, thanks. Good evening. Question on Triad and, you know, looking forward to seeing some of the results of the Co-CEOs. Just curious on the sales side, the origination side. The results have looked pretty good over the past few quarters here. Just wondering now, where are the gaps? Where do you see inefficiencies, I guess, and what are you looking to implement here in the near term? I guess it's questions for Cody. Sorry.
I have been in the seat for 30 days. What Lance and team have built is impressive. We're seeing tremendous growth on the retail side. I see great opportunity on the commercial side, and that's what I'm going to be heavily focused on.
I think Jaeme and Steve, I don't think there's a single person who's happy with the flat growth in the commercial business. Cody has a deep expertise in that both at Cascade and at Guest Communities. I think there are a series of initiatives coming on that specific business to turn back on the growth.
Okay. With respect to the Blackstone relationship, it looks like it was renewed this quarter. Can you give us a little more color on that deal in terms of size, the maturity of the deal, maybe a little bit more color to your discussions with your other key funding partners here for the Triad business?
Sure. All our funding agreements are substantially similar, and we don't go into details on the specifics, but effectively, we're offering kind of these bespoke investment portfolios that meet their targeted returns. They vary slightly in terms of the product mix and also on the program side, but they're materially similar, especially from a margin standpoint, and they typically have terms of 12 months - 24 months.
I would add one thing to James' comment was that we are, having started these flow programs, we've been approximately now in BX4, so four years ago. We're now in a position of being overfunded approximately $1.5 billion. It's a nice position to be in. Now we're faced with decisions on how to allocate our product flow. I think it's fair to assume that we will get better pricing going forward given the excess demand for home improvements. There is only one platform to buy home improvement loans, sorry, manufactured homes and MH loans in the U.S., and that's in the Triad platform. All the Clayton stuff from 21st and Vanderbilt flows into the Berkshire Hathaway family. It's nice four years later to see this strong excess demand and having established a new asset category for U.S. light goats.
Right. Staying in Triad for one more, just looking at the origination revenue margin below 6%, I get the full year is close to the 6.5% guidance. It seems to have been mix-driven, which on a separate slide seems to indicate that the mix in Q2 was more in line with forecasted mix. I guess the question is, what shift or what change should we see in the second half to bring that 5.8% back closer to the 6.5%?
I think the bigger driver was more the sales channel on a year-over-year basis. There was slightly more sales to institutional partners in Q2 2025. As Lance was explaining, the outperformance of the JV also has an impact on margin. When we look at the second half of the year and we're looking at product mix, sales channel, and also where we see the JV going, I think we're comfortable with the 6.5%. The other data point that I would share is we're just wrapping up our July reporting cycle, and the margin for that month was 6.4%. It's recalibrating back to the 6.5% on a full-year basis.
Okay. That's helpful. Just last one, going to the RV Marine upgrade strategy. I'm not sure if you disclosed it in the MD&A or somewhere else, but the costs associated to launching that strategy and implementing that strategy, that seems to be the biggest driver of the operating income before tax miss in the business line in Q1 and Q2. Can you quantify those costs or are those costs disappearing in H2, or should they continue? Maybe just a little bit more to help us on that side.
Yeah. I would put the cost of the program at between $750,000 and $1 million. A chunk of that has been incurred in H1, approximately 6% of it. The rest will be incurred in H2. The H2 stuff will be offset with the increased originations and margins. It'll have less of an impact in H2 than it did in the first half of the year.
Okay. Not actually as much as I would have expected if we're going to go from about, you know, just over $4 million of AOI in the first half of 2025 to about $14 million or more of AOI in the second half.
You do have a bit of seasonality in this business. The third quarter is always the strongest. The first quarter, there's very little that happens in the winter. We had a volume miss that was significant in the first half, Jamie. The other part, when you have a volume miss, is it also impacts the, you have less assets to sell through, which impacts that as well as there's less servicing rights. It's a multiple impact on when you miss this volume. The good news is the start of H2 is strong.
Great. The last one, I'll turn it over. Thanks for being patient here. The asset sales from Source One that have been delayed, are they just deferred or are they gone? Like you're not able to sell them or you're not able to sell them for, you know, pennies on the dollar, let's say, in terms of like an origination fee?
Yeah. When I say delayed, Jaeme, maybe that's the wrong term, is that we had less originations in the first half, so we had less assets to sell. That impacted the asset sales. We have about $40 million on our balance sheet that will move in H2 at better margins. We have a new funding partner coming on, which will help. Less originations beget you with less sales.
Okay. Understood. Thank you very much.
Our next question will come from Tom MacKinnon with BMO Capital.
Yeah, my question was asked and answered as part of Jaeme's laundry list of questions. Thanks.
Thank you. As a reminder, if you have a question, you can signal by pressing star one at this time. We'll pause for just a moment to allow everyone an opportunity to signal.