Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Third Quarter 2022 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll 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 our operator by pressing star then zero. I would now like to turn the call over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.
Thanks, Kayleen. Good afternoon, everyone. First, I want to thank everyone for joining this call. From ECN, joining us today are Steven Hudson, Chief Executive Officer, and Michael Lepore, Chief Financial Officer. A news release summarizing these results was issued this afternoon, and the financial statements in MD&A for the three-month period ended September 30th, 2022 have been filed with SEDAR. These documents are available on our website at www.ecncapitalcorp.com. Presentation slides to be referenced during this call are accessible in the webcast as well as in the 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'll refer you to 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 statement will prove to be correct. You should note that the company's earnings release, financial statements, MD&A, and today's call include references to a number of non-IFRS measures, which we believe helps 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. As always, all figures are presented in U.S. dollars unless explicitly noted. With these introductory remarks complete, I will now turn the call over to Steven Hudson.
Thanks, John. Turning to slide six. On Kessler's sale, we maintained our 2023 guidance of $0.36-$0.42, announced at Investor Day in 2022. This guidance was comprised of two components. First, $0.30-$0.35 Of organic earnings, and second, $0.06-$0.12 In M&A-related earnings. While our businesses remain very strong, we are clarifying our estimated 2023 organic guidance to $0.25-$0.30 , reflecting a more conservative view while still remaining very optimistic about 2023.
We continue to expect meaningful accretion from our tuck-in M&A strategy in 2023, but in the current environment, it pays to be patient and selective. Already, we have found some more interesting opportunities and improved valuations, and we believe even better value may be had as we move forward into 2023. As you move on to page seven, we'll give you a little bit of an update on our tuck-in strategy. While we've discussed at length previously the strategy, we wanted to give an update since we last spoke. We have a large current pipeline of opportunities that we have sourced, and since the IFG investment, we were routinely having businesses reaching out to us directly to discuss possibilities, so the list of potential opportunities continues to grow.
We are currently in advanced discussions with three Marine and RV platforms that would add roughly $5 million-$7 million in adjusted operating income in 2023. These investments will both add volume opportunities to push through our broader platform, but also add some adjacent products, which will be additive across the entire platform. We have several other opportunities under LOI and many others under review. We think the opportunity is enormous to accretively consolidate the Marine and RV finance segment and create the premier platform in the space. Even so, the environment lends itself to patience, and we'll execute the right deals at the right time. We see attractive platforms at good valuations, but we anticipate even better value as we move into 2023.
As a result, we continue to believe that the $0.06-$0.12 is a reasonable outlook for M&A, but the timing of that accretion may push later into the year. With that, I'll hand it back to Steve.
Thanks, John. Turning to slide nine, we're pleased to report strong third quarter results of $0.05, which also reflects moving Kessler into discontinued operations. Highlighting on manufactured housing, Triad's results continue to be robust and strong in the third quarter. Specifically, Triad's Q3 originations were up 27%, indicating continued healthy, robust customer demand. Hurricane Ian and the flooding in several states pushed $20 million-$40 million in the committed originations from the third quarter to the fourth quarter. As you know, these are docs out where the customer has signed contracts. 99.9% of all these originations do close. If these originations had closed in Q3, we would've been up 37%. They will close in the following quarter. Third, MH still is the most affordable housing option. I'll speak to that in a second.
In fact, it's better than rent. Fourth, we're reiterating our 2022 guidance of $70 million-$75 million for Triad, and we're fully funded for 2022, 2023 and into 2024. Marine and RV, a couple highlights. Q3 combined originations were up 21%, indicating continued strong, robust demand. Robust demand from prime and super prime consumers continue. We're adding IFG to our 2022 guidance with a combined operating adjusted income before tax of $17 million-$19 million. Specifically turning to Triad on slide 11. Adjusted operating income for the quarter at $21 million, up 30%. We anticipate this growth rate continues into 2023. Q3 originations are up 27%, notwithstanding Hurricane Ian and multi-state flooding that occurred in Texas, Mississippi, and Kentucky in July and August. If those deferred transactions had closed in Q3, originations would have been up 37%.
Triad is fully funded into 2022, 2023, and 2024. The Blackstone partnership has worked as planned. We're also in advanced discussions with two other similar institutions for similar-type Blackstone programs. I do wanna make it clear on this call that there is no wholesale funding whatsoever, including securitization, which has never been a funding structure for ECN in either Triad or our Marine RV groups. Our related guidance is $70 million-$75 million for 2022. Turning to page 12, our Q3 approvals on a dollar basis are up 25%, origins up 27%. The COP program, which is our core program, is down marginally due to some of the lower FICO borrowers delaying purchase decisions. Notwithstanding that, our core retail and community programs have more than compensated for the slowness in that segment.
You see that 700+ communities year to date have signed up with Triad expanded product groups. Our floor plan balances are up to $355 million. As you know, floor plan balances allow us to drive both prime and super prime loans. Turning to 13, my earlier comment on manufactured being the affordable housing solution. Triad's current payments monthly payments are $829, which is just about a third of a traditional mortgage payment. It's also important that you put the $829 in the lens of that the average national rent in the U.S. is $1,900. Manufactured homes are more palatable to consumer when it comes to lower monthly rent, in this case, a loan or a mortgage.
We've highlighted in the box before, a chart we've shown before, but current Triad mortgage or chattel are $829 a month, up $218. Whereas traditional mortgages are up $2,235, a change of $1,141. This is driving the robust demand for our product. Turning to page 14. If you look to PTI, which is an important factor in consumers deciding to borrow and lenders deciding to grant credit. In the traditional housing market, PTI has reached 39%, which is a rate they have not seen since 1984. Important that in our business, our average PTI is just 15%.
Triad's affordable manufactured housing has remained resilient, with originations growing more than 41% year to date through September. Turning to slide 15. Affordability drives demand. Shipments remain elevated and retail demand remains robust. Year to date, industry shipments are up 13% and up 10% in Q3. In comparison, total existing traditional home sales are down 5% year to date and 13% if we track by units. Page 16, some commentary from publicly traded manufacturers. We've highlighted a series of comments. I would draw your attention to Skyline's comment about continued strength in consumer demand and the quote activity being very strong. Also in Cavco, I would draw your attention to the notably manufactured housing shipments of new homes have been around 10, 15% in recent years.
In the last six months, that share has now increased to the high teens% and low 20%. People who have bought traditional homes in the past are now replacing that decision with that of a manufactured home purchase. Turning to 17. Our focus on prime and super prime credit rewards as well, with continued strong credit performance in both delinquencies and net charge-offs. 18 is a chart that we provide each quarter for you, showing the strong origination, both on a year-over-year basis. On page 19, as I've mentioned a couple of times, we have reiterated our raised guidance, which we raised last quarter to $70 million-$75 million, and adjusted EBITDA margins have improved to 54% from the previously forecasted 50%. John.
Thanks, Steve. We are on page 20. We're presenting SourceOne and IFG as our combined Marine and RV segment going forward. Adjusted operating income for the quarter was $5 million in Q3 on originations of $298 million combined. Origination revenue as a percentage of originations is down slightly quarter-over-quarter as IFG earned a bit less gain on sale than SourceOne, but we think the margin is now a reasonable proxy for the go forward given the current program mix. We have made significant progress in our growth initiatives, which we'll detail more in a moment. These investments has resulted in some upfront expense that is necessary to build out the platform. This process is identical to what we did at both Service Finance and Triad that has resulted in substantial long-term growth profiles.
We see the same opportunity at Marine and RV. Page 21 details some of those investments. A number of them we have spoken about before. We have completed our national rollout with the addition of a Northeast sales rep at Source One in Q3. That concludes. We've added reps now in Florida, the Southwest, the West, the Northwest, and the Northeast. We are far along in our licensing project, with licensing completed in 29 states, and we now fully expect to be fully licensed where over 90% of our originations are by year-end 2022, with the balance coming over the next couple of quarters. Licensing will allow us to originate in our name and sell through on a program basis, improving turn times and customer service.
Servicing was launched in August, and we have successfully piloted balances which will allow us to offer servicing to our funding partners going forward. In addition to creating a new revenue stream, servicing will allow us to expand our funding partner network and provide us with better long-term data. We launched Marine and RV floor plan and have added 13 dedicated professionals. As we've demonstrated in MH, floor plan drives meaningful retail volume. Already, we are introducing dealer rebate programs for floor plan dealers to incentivize retail participation. We've built several new programs, including complementary flow, Canadian loans, and expect progress pay to be launched before year-end. Each of these programs will offer the industry new products, expand our reach, and drive profitable incremental volume for 2023. We are active in recruiting additional sales teams as well as underwriting and processing personnel to facilitate growth going forward.
As you can see, we have a lot of projects going on which will cost some money up front, but will enable us to grow substantially in the future. On page 22, Q3 Marine and RV volumes have remained robust, with approvals up 62% and originations up around 21% combined. We continue to see a resilient consumer demand for our prime and super prime customers. While we have put a number of quotes on the following pages, I would just like to highlight that the Fort Lauderdale Boat Show was just a couple weeks ago, and the results were really fantastic, with both record sales and turnout. Separately, we've seen some results from some companies like MasterCraft, where they continue to raise guidance and see excellent growth. On page 23, we go through some of that industry commentary.
I won't run through these other than to note trends are similar. Robust consumer demand continues. Inventory is still tight in the marine, but has improved in RV as we've seen throughout the year. Still, backlogs remain high. Page 24 is our typical origination chart that we provide every quarter, and page 25 is the updated guidance, which is really just combining IFG and SourceOne for the quarter. With that, I'll turn it over to Michael.
Thanks, John. Turning to page 27 on the Q3 consolidated operating results. First, I'd like to point out that KG is presented as a discontinued operation in Q3 as a result of a sale that closed in early October. Total originations were $680 million in the quarter, including $381 million in manufactured housing and $298 million in originations from our Marine and RV segment. Strong operating performance from both our business segments resulted in adjusted net income applicable to common shareholders of $11.8 million or $0.05 per share, compared to $3.5 million or 1% per share in the prior year quarter. Turning to page 28 in the balance sheet.
Key highlights on the balance sheet are the total assets were up over $160 million, primarily driven by the increase in on-balance sheet finance assets at Triad. The $700 million in on-balance sheet finance assets at Triad are composed of three components. First, accounts receivable of approximately $170 million, which are loans that have been sold to partners and are awaiting funding. This balance is correlated to total originations and will grow in line with total originations growth. Secondly, as Steve mentioned, our floor plan product is currently at $355 million, and this is a core asset that drives prime retail loans that we sell through to our partners. These loans are very profitable in their own right, with a 9% yield in Q3.
However, we received a proposal from a large partner in Q3 to buy floor plan loans under a flow agreement and are currently in negotiations and expect to have the agreement in place by Q1 2023. Our current target is to hold approximately $400 million-$500 million in floor plan balances on our balance sheet and flow anything above those levels to our partners. Floor plan is a very high demand product and therefore we can flow as much of the balance as we want to in order to manage liquidity levels. Finally, held-for-trading assets were $160 million as of the end of Q3, and these balances are comprised of qualifying loans that are originated on behalf of financial partners that buy bulk portfolios on a monthly basis.
Agreements are in place to buy all of Triad's products core through bronze. As a result, the HFT balance is expected to decrease to approximately $90 million-$100 million by the end of the year and on a go-forward basis. Total debt was up approximately $175 million compared to Q2, which was primarily driven by the increase in finance assets. Total debt of approximately $990 million at quarter end included $150 million in senior unsecured debentures that are fixed rate and are used as long-term capital to finance acquisitions and for which the company can settle by issuing common shares. Our senior line revolver is floating rate debt and is generally used to finance our on-balance sheet Triad finance assets.
Pro forma debt after completing the sale of KG in early October was approximately $800 million, and pro forma net debt after deducting the $680 million on-balance sheet Triad financial assets was approximately $120 million, which is very manageable. Turning to page 29 on the income statement. Total revenues of $58 million were up over 73% compared to Q3 2021, reflecting the strong growth of Triad and the addition of our Marine and RV finance business segment in 2022. The strong operating performance of the manufactured housing and Marine and RV businesses drove an increase in adjusted EBITDA of 225% to $31.4 million and a 231% increase in adjusted operating income to $16.5 million.
As noted, Q3 adjusted EPS was $0.05 per share compared to $0.01 per share in the same prior year quarter. Turning to page 30 in operating expenses. Key highlights are business segment operating expenses, primarily driven by the growth in originations in managed assets, and new products at Triad, and the inclusion of our Marine and RV finance business in 2022. Overall business segment operating expenses increased by approximately 64% year-over-year, compared to total revenue growth of over 73%. Corporate operating expenses of $4.2 million compared to $4.6 million in the same prior year quarter, and $4.4 million in Q2 this year. With that, I'll pass it back to Steve.
Thank you, Michael. Closing comments before taking questions on slide 32, we have clarified our 2023 EPS guidance. Although our business remains very strong, we are taking a conservative approach and updating organic EPS to $0.25-$0.30. Consumer demand in both manufactured housing and Marine and RV remains robust and will continue into 2023. As John mentioned, we've had success in our tuck-in strategy. We think there are a number of transactions in the pipeline have a high probability, and we believe in this environment with elevated interest rates, we'll get better value. It's a time to be patient, and these will occur over the next few quarters.
We're happy to report $0.05 of earnings for the third quarter EPS with Triad originations up 27%, 37% for the tough weather environment, which is a temporary deferral, not a loss. We're reaffirming guidance of $70-$75 million of adjusted operating income. MH. Marine is the most affordable choice available to any U.S. consumer, with payments, monthly payments at $863 versus $1,900 for traditional housing rent. We are fully funded into 2022, 2023, and into 2024. Marine RV originations up 21%, adjusted guidance to include IFG. We're in the midst of building the premier platform in Marine and RV, just like we did in home improvement, just like we did in manufactured housing and in the progress in Marine and RV.
Capital management, we declared a dividend, Michael said of $0.01, and we repurchased 2 million shares in the quarter. With that, operator, I'd open the call for questions.
Thank you. We'll now take questions from the telephone lines. If you have a question, please press star, then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Geoff Kwan with RBC Capital Markets. Please go ahead.
Hi, good afternoon. I'm just trying to reconcile your comments about demand seemingly robust in all of your segments, but, you know, the wording on your guidance for 2023, it seems that you've reduced the organic EPS guidance from $0.30-$0.35 down to the $0.25-$0.30. It's just. I'm just wondering if you can clarify why the conservative view, unless maybe you're seeing, you know, very early signs of some slowing.
Hey, Geoff. Well, I mean, we're certainly seeing it in other segments that would be adjacent to where we are. I mean, clearly, rates have moved up faster than they've ever moved up in history. We've seen really poor numbers out of the mortgage segment, with purchase mortgages down over 40% year-over-year. We continue to see pretty robust demand across MH. We expect that to continue. The affordability is fantastic. You know, we'll have to wait and see how we go into next year. We're just trying to be a little bit more conservative, given the environment.
As far as boats and RVs go, we've seen, as long as we're talking about the prime and super prime segment, we've continued to see pretty robust demand going into this selling season with the boat shows doing well, and we continue to see both applications, approvals and originations trending along pretty well. That said, it's been a pretty robust year for both SourceOne and IFG, and we're just trying to be a little bit more conservative going into next year.
Okay. Just with the hurricane and storm season and whatnot, I can appreciate it disrupted Triad's ability to deliver manufactured homes to affected areas. Just wondering, are there other factors, you know, related to hurricanes or other natural disasters or whatnot, that could further delay the delivery of manufactured homes to people that have placed orders with Triad?
Yeah. Geoff, it's Steve. I think maybe the opposite is true, though. The horrific hurricane on the west coast of Florida was terrible. Now there's a need for 6,000-10,000 homes to begin the rebuilding effort. You know, we're active in those conversations. That kind of dialogue is not in our forecast. We think we've absorbed the disruption. We think our forecast, you know, as you know, FEMA's got a super priority right on the production lines. They can take units that are ordered by a consumer and retask those as FEMA. I think that's. We're through that and we're now looking at an opportunity how we could participate in the recovery of those units.
Okay, sorry. FEMA could take priority for getting manufactured homes that may have been originally earmarked for your customers?
Correct. You know, we don't think that's it. We've looked at it, we've scrubbed it, Geoff. We don't see any of our units being impacted. The 6,000 units have already been identified by the manufacturer. We're not impacting our flow. We think there's an opportunity. We're in discussions with both FEMA and the state of Florida about how we might provide financing on that, but nothing to announce yet.
Okay. If I can just ask one last question. Just, your previously signed letters of intent, do they stipulate the price that you would agree to pay if you agree to transact? Just given the economic environment has changed, you know, in recent months, since you've signed the letters of intent, are you able to negotiate a lower price than maybe what you would have been willing to pay a few months ago?
Yeah. I mean, a letter of intent, Geoff, it almost always includes price, and the price is always contingent on ongoing due diligence. As you get through your due diligence process and you're getting deeper into things, you can always negotiate price. Doesn't mean you do. Sometimes you settle at the exact same price. Sometimes it changes somewhat. The LOIs are what they are. They're letters of intent. We usually are pretty far through our due diligence by the time we get to an LOI process. We have an idea of what we think of the business. We typically will set a price as part of that LOI process, but it could change.
Okay. Great. Thank you.
Thanks, Geoff.
The next question is from Tom MacKinnon with BMO Capital Markets. Please go ahead.
Yeah, thanks. I'm just wondering what may have changed with respect to late August when you were looking for. I mean, Geoff asked the first part. The second part was six to 12 in M&A-related earnings. Clearly, you had some line of sight there and you had letters of intent and now you have three LOIs, and it's really only gonna be $5 million-$7 million in adjusted operating income. So that's like, you know, just a couple pennies. So what was in that $0.06-$0.12?
Yeah.
Why are you backing away from that? How many LOIs? What was the extent that the LOIs were in that $0.06-$0.12?
Yeah. Yeah, Tom, we're not backing away from that $0.06-$0.12. We still think we can get to that $0.06-$0.12. The question is the timing. Like, initially, we thought we would move much faster, but given the environment that's out there, patience is gonna reward you probably with some better values, especially because the pipeline has grown so much. We think that there could be some better opportunities to close some things in sort of 2023 versus earlier than that. What we're saying is we had several LOIs, what we announced previously. We're in advanced discussions with three separate smaller transactions that will add $5-$7 million. Those ones, but we have other ones in addition to that.
The only difference is we still think we'll get to $0.06-$0.12. The timing will be depending on when we close those deals.
How many LOIs do you have right now? You have these three, and how many more?
Yeah, we have several. We have a number. We have the three that are in advanced discussions plus a couple others.
And can the-
Multiple other transactions in early stage discovery.
Can the other party walk away with an LOI if they're not happy with the price as well? I assume that's the case.
Yeah, I think.
Well, they wouldn't sign the LOI.
Yeah, Tom, for the last 30 years, our structure has been to secure a transaction on exclusive basis, i.e., it's ours, and then we go through it and we have the walk away on the satisfactory due diligence. We've agreed a prompt price. It's our exclusivity, and we have the ability, if we don't deem exclusivity not to be satisfactory, to walk away. We don't enter auctions.
The other party then has to take the price. How can they walk away?
No, they have. Yeah, you've got terms and conditions, but you basically have price concluded, Tom. You have working capital-
And-
Adjustments and other stuff.
So, uh-
I mean.
-the other party, they can't walk away. They'll just work to get the deal done. Is that-
Correct.
Right.
Yeah. If I shake your hand, Tom, and I give you an LOI, you've agreed to exclusively deal with me as we conclude satisfactory due diligence.
Right. If Steven Hudson isn't happy with the due diligence, Steven Hudson can walk away. If Steven Hudson is happy-
Correct.
with it, then the other party has to accept the deal.
Correct.
Why didn't you include any of these six to 12 in? Like, do you think? Is there a likelihood that you're gonna get like a quarter of these in by the? I mean, why just go for a? There's conservatism I can see on the organic, but why actually take all of the M&A away?
We're just trying to clarify for people what we think the components of earnings were. I mean, we obviously got some pushback. The stock reacted however it did. We wanted to make sure people understood where we were coming from, both from the organic side of the business and what we think the potential is for M&A.
Okay.
Trying to take a more conservative approach on the organic side of the business going into next year, given the environment. We'll see. If things continue as they are, maybe we're a little better. We wanted to be conservative about it. Then two, we've kinda laid out what we think M&A could look like for next year. The timing's gonna matter in terms of what actually flows through in the calendar year.
Tom, we've had a couple of larger ones come our way in the last couple of weeks, which we can fund off our balance sheets, so we're now onto those. As you know better than anyone else, no one can tell when the Fed is gonna stop increasing interest rates, and those increases impact the P/E multiple. I don't wanna overpay if the P/E multiple ends up going from six to five or six to four. You know, we have these transactions engaged. We want the P/E multiples to settle down.
Okay. Just the last one, when is the Investor Day for 2023? Or is it, are you looking at a February date tentatively?
Yeah. I mean, the timing will be about the same, end of January, beginning of February. We'll be out with the date shortly.
Okay. Thanks.
Sure. Thanks, Tom.
The next question is from Jeff Fenwick with Cormark Securities. Please go ahead.
Hi, good afternoon, everyone.
Hi, Jeff.
I just wanted to see just maybe to get some color from you in terms of what you're hearing from your funding partners. I mean, we've seen a lot of volatility, obviously, in debt markets. You know, do you have any concerns there that you might end up seeing some requests for any sort of fee concessions or any changes in the economics there, just given what's going on right now?
Yeah, that's a great question, Jeff. As you know, we don't have any wholesale funding in our business. Our funding is our senior line that's committed for the next four years and our forward commitments from institutional investors. We've added new investors this quarter that we can't satisfy the demand for our loan product. We have a specific flow program with a forward commitment. I mentioned on the call, absolutely no securitization. Securitization market is disrupted. We're at the opposite side with more demand for our loans than we can fulfill. I think that that's based upon the fact of the credit performance of these portfolios, that they perform better than expected and are focused on prime and super prime credit.
As I mentioned, we've been approached by two other institutions like Blackstone that we've entered into conversations with, to have them join, quote-unquote, the club, if you will. Fully funded excess demand for our loan product and credit performance that is very good.
Those terms are effectively locked in then over that commitment period now. They can't come back.
Right.
try to cut a new deal with you.
Right. Yeah. As you know, they are committed to purchase the loans. We are not committed to sell to them, but we do manage to get about 70%-80% fill from them.
Maybe just moving on to the Marine and RV segment there. I mean, it obviously seems like a portion of the market that's gonna be pretty cyclically sensitive if you do run into a recessionary period. Could you maybe just speak to the capacity to grow there in terms of your relative size? Just meaning if the market slows, can you still make gains there through market share and new product? You know, how much are you concerned about the cycle there versus just being able to drive through it from expanded offerings in that space?
Well, thanks, Jeff. You know, we're very excited about the Marine and RV space. I've talked to a lot of people that want to characterize it as far more cyclical. Clearly, there's some element of discretionary spend when you talk about those areas. However, we are really just dealing in that prime and super-prime space. And while, you know, a lot of things have changed out there, we have continued to see very robust demand across that segment of buyer or borrower, whatever you wanna call it. I think from our perspective, you'll have, maybe you do see some slowdown, broadly speaking, in the $24 billion-$25 billion market for Marine and RV. We have a lot of incremental things going on.
I think we've listed a whole bunch of them for you. There's a number of different revenue sources, other products, all of it's incremental. Geographies are gonna change for next year. We're all over the country now, where we weren't before. We've got an awful lot of places where we can show incremental growth. I think barring, you know, a sort of really, really awful economic environment, I think we will be able to grow it pretty nicely.
I would just want to add just a little more color to John's comment. These decisions are lifestyle, not hobby. These are old people like myself in the fifties and early sixties who are purchasing assets. I would, you know, draw your attention to both MasterCraft and Brunswick that have released recent guidance, where they've increased their guidance in the sector. Don't think of us financing the 21-year-old buying recreational vehicle or a small boat. Think of us financing the individual in the 40-60 range by the manufacturers we selected. We feel the manufacturing results that were released almost last week speak for themselves.
Okay. That's great color. Thanks. I'll requeue.
The next question is from Jaeme Gloyn with National Bank Financial. Please go ahead.
Yeah. Thanks. Just first off, a quick clarification question. Is the $5 million-$7 million of potential M&A pre-tax AOI or after-tax AOI?
No, it's just normal adjusted operating income.
It'd be pre-tax.
pre-tax. Okay.
Those are.
Um-
Those are three relatively smaller transactions that we've continued to pursue because they've got some very interesting components to them. Like Steve said, we've run across a number of much larger transactions, and we're working through those as we speak.
Just to follow up on that, the three that are in advanced discussions now that are producing this $5 million-$7 million, I presume these are three different businesses other than the four that you had in LOI and were targeting as of the last quarter that could have generated up to the $0.06-$0.12 of EPS. I guess the question is, you know, what was the change? Was it ECN walking away from those deals based on price? Or, you know, what were the factors?
Well, I don't think it necessarily characterized exactly correctly. Like we had a number of LOIs. Some of these might have been part of that. We had a number of other situations that we were discussing. We've identified opportunities that we think are high probability opportunities that could get us to that $0.06-$0.12. Those weren't all necessarily represented just in those four LOIs. You know, now we've got a couple here that we're in advanced discussions that we think are very likely to move forward, which should add, like we said, the $5 million-$7 million. But we've got many others that we're also working on. Our issue is just timing on some of those transactions.
Yeah. Again, as I mentioned to Tom, we're waiting for price earnings multiples to settle down. We've got these transactions. We can close them. I don't wanna overpay.
Right. At this stage, it's really just a matter of the targets accepting a lower bid price.
Right. Well, without getting into the LOIs, they are indexed to effectively interest rates.
Got it.
There is a P/E multiple embedded in the price.
Yeah. Indexed to interest rates you said. Obviously higher means lower pricing.
The P/E gets driven by interest rates.
Yeah. Got it. Going back to the organic earnings guidance, if I think about like the commentary and then the outlook for the two business lines, manufactured housing versus Marine and RV, my takeaway or my conclusion from your comments is that the manufactured housing business remains fairly solid, and the bulk of that downgrade in organic earnings power is primarily the Marine and RV finance. Is that a fair statement or
I think a fair statement is the market has taken us down to $0.25-$0.30. That the analyst took us to $0.25, $0.30. I think they're gonna outperform over that, and we're gonna beat the estimates that we've given you.
To be clear, we will give you detailed guidance on Investor Day. I would say we took a more conservative approach across the board to get the numbers down. I mean, look, we've got two great businesses that we think will have very robust years next year, especially on any sort of relative basis. You know, the environment is fluid, and we've seen an awful lot of change here over the last couple of months. We're still seeing some very good numbers across the board, but we wanna be more conservative going into next year.
Okay. I think that's it. Thank you.
Oh, yeah, we've muted. Once again, if you have a question, please press star then one. We have a follow-up question from Tom MacKinnon with BMO Capital Markets. Please go ahead.
Yeah, thanks. I was wondering if you might be able to split the Marine and RV 298 origination between Source One and IFG, just so we can, for comparability between those two.
Yeah.
I realize they're amalgamated into one, but if you can give us an idea.
Going forward, we are gonna report them on a consolidated basis because over time, they will become, we think more consolidated. It will just make sense to do that. Just for information sake, for this quarter, I believe Source One was around $176 million, and IFG would have been the difference. It's like $122 million.
Okay. All right, thanks.
Sure.
The next question is from Stephen Boland with Raymond James. Please go ahead.
I don't want to beat to death Titus' question, but is there anything in that guidance number related to corporate or is it just some changes in conservatism at the operating company level?
Well, we like we can say we haven't made any changes to what we think in our model anyway, what we think corporate OpEx or something like that could look like. It's really just assuming that the macroeconomy, whatever is a bit slower, which leaves us a little more conservatism from a growth rate perspective going into next year.
Yeah. We'll kick off our detailed budgeting process right after this quarter. That's when we start really scrubbing the numbers. As John said, we'll give you updated guidance at Investor Day.
As you know, Steve, we took corporate expenses down when we announced the sale of Service Finance. We reduced executive compensation and other matters to bring the run rate down. You know, we always look, as part of the budgeting process. We will again review corporate expenses.
Okay. This second question may be a little bit strange, but when I looked at the discontinued op of Kessler, you know, I think in Note four, like it was break even in the quarter. I'm just wondering, like, there's no, I don't know, one-time expenses in there that could come back to ECN. Like, it just seemed weird that it was a break even to the $10,000 mark on the
Yeah. All that happened was the entire team got focused on closing the deal. We had gone firm in the transaction. They spent their time closing the deal. They then deferred the transactions to the following quarter. It was all hands on deck to get it done.
Okay. Is it just a coincidence that the revenue equaled the expenses in the quarter? Like there's nothing that could come back to ECN.
No, it's just a coincidence, guy.
Okay. All right. Appreciate it. Thanks, guys.
The next question is from Tom MacKinnon with BMO Capital Markets. Please go ahead.
Yeah, thanks. Just as this deal flow and this investigation into these potential deals and the pipeline grows, could we conceivably see higher corporate OpEx next year?
No. No, Tom.
Why wouldn't there be additional expenses related to all the due diligence?
The corporate team is here. We do our job on flow programs. The rest of that team is not getting larger, and you'll pick up your businesses on an operating basis. We have the team here to manage additional investments.
Okay, thanks.
There are no further questions. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Thanks.