ECN Capital Corp. (OTCPK:ECNCF) Q3 2022 Results Conference Call November 9, 2022 5:30 PM ET
Company Participants
John Wimsatt – Chief Investment Officer
Steven Hudson – Chief Executive Officer
Michael Lepore – Chief Financial Officer
Conference Call Participants
Geoff Kwan – RBC Capital Markets
Tom MacKinnon – BMO Capital
Jeff Fenwick – Cormark Securities
Jaeme Gloyn – National Bank Financial
Stephen Boland – Raymond James
Operator
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 will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the call over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.
John Wimsatt
Thanks, Yulene. 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 and MD&A for the three-month period ended September 30, 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 Presentations section of the Company’s website.
Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. I’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 in U.S. dollars, unless explicitly noted.
And with these introductory remarks complete, I will now turn the call over to Steven Hudson.
Steven Hudson
Thanks, John. Turning to Slide 6. On Kessler’s sale, we maintained our 2023 guidance of $0.36 to $0.42 announced at Investor Day in 2022. This guidance was comprised of two components, first $0.30 to $0.35 cents of organic earnings, and second $0.06 to $0.12 cents in M&A related earnings. While our businesses remain very strong, we are clarifying our estimated ’23 organic guidance to $0.25 to $0.30 cents, reflecting a more conservative view while still remaining very optimistic about ’23.
John Wimsatt
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 7, we’ll give you a little bit of an update on our tuck-in strategy. And 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 to $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 all — 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 to $0.12 cents 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.
Steven Hudson
Thanks, John. Turning to Slide 9. We’re pleased to report strong third quarter results of $0.05 cents with also reflects moving Kessler into discontinued operations. Highlighting 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 flooding in several states pushed $20 million to $40 million in the committed originations from the third quarter to the fourth quarter.
As you know, these are docks 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 to $75 million for Triad. And we’re fully funded for ’22, ’23 and into ’24. Marine and RV, couple of highlights, Q3 combined originations were up 21%, indicating continued strong robust demand. Robust demand from prime and super-prime consumers continues.
We’re adding IFG to our ’22 guidance with a combined operating adjusted income before tax of $17 million to $19 million. Specifically turning to Triad, on slide 11. Adjusted operating income for the quarter at $21 million, up 30%. We’re anticipating this growth rate continues into 2023. Q3 originations are up 27%, not withstanding Hurricane Ian and multi-state flooding that occurred in Texas, Mississippi, and Kentucky in July and August. If those transactions had — those deferred transactions had closed in the Q3, originations would’ve been up 37%.
Triad is fully funded into ’23 — ’22, ’23 and ’24. The Blackstone partnership, as planning, has worked. We’re also in advanced discussion with two other similar institutions for similar type Blackstone programs. I do want to 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 reiterated guidance is $70 million to $75 million for ’22.
Turning to Page 12. Our Q3 approvals on a dollar basis are up 25%, origins up 27%. The COP program, which is our reprogram, is down marginally due to some of the lower FICO bores delaying purchase decisions. Not withstanding that, our core retail and community programs have more than compensated for the slowness in that segment. And you see that 700-plus communities year-to-date have signed up with Triad, expanded product groups. Our floorplan balances are up to $355 million.
As you know, floorplan balances allow us to drive both prime and super-prime loans. Turning to 13, my earlier comment on manufacturer 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 mortgage. We’ve highlighted in the box before a chart we’ve sold 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 decided to grant credit. In the traditional housing market, PTI has reached 39%, which at 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 were down 5% year-to-date and 13% tracked 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 to low-20.” People who have bought traditional homes in the past are now moving into — or 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.
And on Page 19, as I’ve mentioned a couple of times, we are raising our — we have reiterated our raised guidance, which were used last quarter to $70 million to $75 million, and adjusted EBITDA margins have improved to 54% from the previously forecasted 50%. John?
John Wimsatt
Thanks, Steve. We are on Page 20. We’re presenting Source One and IFG as our combined and RV and — I’m sorry; 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-to-quarter as IFG earned a bit less gain on sale than Source One, but we think the margin is now a reasonable proxy for the go-forward given the current program mix.
We have made significant progress on 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 in both Service Finance and Triad, that has resulted in substantial long-term growth profiles. We see the same opportunity in 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 expect to be fully licensed. And 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 floorplan and have added 13 dedicated professionals. As we’ve demonstrated in MH, floorplan drives meaningful retail volume. Already, we are introducing dealer rebate programs for floorplan dealers to incentivize retail participation.
We’ve built several new programs, including Complementary Flow, Canadian loans and expect progress paid 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 the processing personnel to facilitate growth going forward. As you can see, we have a lot of projects going on, which will cost some money upfront 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 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 of 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 Source One for the quarter.
And with that, I’ll turn it over to Michael.
Michael Lepore
Thanks, John. Turning to Page 27 and 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 the 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 for 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 $0.01 per share in the prior year quarter.
Turning to Page 28 on the balance sheet. Key highlights on the balance sheet are that 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 floorplan 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 floorplan 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 to $500 million in floorplan balances on our balance sheet and flow anything above those levels to our partners. Floorplan is a very high-demand product, and therefore, we can flow as much of the balance we want to in order to manage liquidity levels. Now 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 to buy all of Triad’s products, Core through Bronze. And the result, the HFT balance is expected to decrease to approximately $90 million to $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 the issuing common shares. Our senior line revolver’s floating rate debt 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 of nonbalance sheet Triad finance 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 at 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. And 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 and 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 the revenue — 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.
And with that, I’ll pass it back to Steve.
Steven Hudson
Thank you, Michael. And closing comments before taking questions. On Slide 32, we have clarified our ’23 EPS guidance. Although our business remains very strong, we are taking a conservative approach and getting organic EPS to — sorry, to $0.25 to $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’re very — we think there are a number of transactions at both — in pipeline that 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 be just — these will occur over the next few quarters. We’re happy to report a $0.05 of earnings for the third quarter EPS, with manufactured — with Triad originations up 27%, 37% for the two weather event, which is a temporary deferral, not a loss.
We’re reading guidance of $70 million to $75 million of adjusted operating income. MH remains 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 full funded into ’22, ’23 and into ’24. Marine and RV origination is 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.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Geoff Kwan with RBC Capital Markets.
Geoffrey Kwan
I’m just trying to reconcile your comments about demand seemingly robust in all of your segments, but the wording on your guidance for 2023, it seems that you’ve reduced the organic EPS guidance from $0.30 to $0.35 down to the $0.25 to $0.30%. I’m just wondering if you can clarify why the conservative view, unless maybe you’re seeing very early signs of some slowing?
John Wimsatt
Jeff, 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. But we’ll have to wait and see how we go into next year. We’re just trying to be a little bit more conservative with just 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 the 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 Source One and IFG. And we’re just trying to be a little bit more conservative going into next year.
Geoffrey Kwan
Okay. And then just with the hurricane and storm season and whatnot, I can appreciate a disrupted Triad’s ability to deliver manufactured homes to affected areas. But just wondering, are there other factors 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?
Steven Hudson
Yes. Jeff, it’s Steve. It’s — I think the — 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 to 10,000 homes to begin the rebuilding effort. And we’re active in those conversations.
That kind of — that dialogue is not in our forecast. We think we’ve absorbed the disruption. We think our forecast, as you know, FEMA has got a super priority right on the production line, they can take units that are ordered by consumer and retask those with FEMA. But 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.
Geoffrey Kwan
Sorry. So FEMA could take priority for getting manufactured homes that may have been originally earmarked for your customers?
Steven Hudson
Correct. But 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.
And the 6,000 units have already been identified by the manufacturer when 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.
Geoffrey Kwan
Okay. And if I could just add one last question. Just your previously signed letters of intent, did they stipulate the price that you would agree to pay if you agreed to transact? Or just given the economic environment has changed in recent months since you signed 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?
John Wimsatt
Yes. I mean a letter of intent, Geoff, it almost always includes price, and the price is always contingent on ongoing due diligence. So as you get through your due diligence process and you’re getting deeper into things, you can always negotiate price. It doesn’t mean we always do. Sometimes you settle at the exact same price.
Sometimes it changes somewhat. So 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. So 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.
Operator
The next question is from Tom MacKinnon with BMO Capital.
Tom MacKinnon
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 $0.06 to $0.12 million in M&A-related earnings. Clearly, you had some sightline there, and you had letters of intent and now you have three LOIs and it’s really only going to be $5 million to $7 million in adjusted operating income. So that’s like just a couple of pennies. So what was in that $0.06 to $0.12? And why are you backing away from that?
And then what do you — how many LOI — what was the extent that the LOIs were in that $0.06 to $0.12?
John Wimsatt
Yes. Tom, we’re not backing away from that $0.06 to $0.12. We still think we can get to that $0.06 to $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 going to reward you probably with some better values, especially because the pipeline has grown so much. So 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 that we announced previously. We’re now in discussions with three separate — we’re in advanced discussions with three separate smaller transactions that will add $5 million to $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 to $0.12.
We just — the timing will be depending on when we close those deals.
Tom MacKinnon
How many LOIs do you have right now? Do you have these 3? And how many more?
John Wimsatt
Yes, we have several. We have a number. We have the three that are in advanced discussions plus a couple of others. Plus we have multiple other transactions in earlier-stage discovery.
Tom MacKinnon
And 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.
Steven Hudson
Yes. But I think…
John Wimsatt
Well, they wouldn’t sign the LOI.
Steven Hudson
Yes, Tom, we, for the last 30 years, our structure has been to secure a transaction on an exclusive basis, i.e., it’s ours. And then we go through it and we have the walk away and the satisfactory due diligence. We’ve agreed upon price. It’s our exclusivity. And we have the ability, if we deem exclusivity not to be satisfactory to walk away.
We don’t enter options.
Tom MacKinnon
But the other party then has to take the price, how — can they walk away?
Steven Hudson
No, they have — yes, you’ve got terms and conditions, but you basically have price concluded, Tom. You have working capital adjustments and other stuff.
Tom MacKinnon
So the other party, they can’t walk away. They’ll just work to get the deal done. Is that…
Steven Hudson
Correct. Yes, if I shake your hand, Tom, I give you an LOI, you’ve agreed to exclusively deal with me as we conclude satisfactory due diligence.
Tom MacKinnon
Right. And so if Steve Hudson isn’t happy with the due diligence, Steve Hudson can walk away, but if Steve Hudson is happy with it, then the other party has to accept the deal?
Steven Hudson
Correct.
Tom MacKinnon
And why didn’t you include any of these $0.06 to $0.12 in like, do you think that — is there a likelihood that you’re going to get like a 1/4 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?
John Wimsatt
We’re just trying to clarify for people what we think about — 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’re coming from, both from the organic side of the business and what we think the potential is for M&A. So 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, but we wanted to be conservative about it. And then two, we’ve kind of laid out what we think M&A could look like for next year. The timing is going to matter in terms of what actually flows through in the calendar year.
Steven Hudson
And we’ve had a couple of larger ones come our way in the last couple of weeks, which we can fund off our balance sheet. So we’re now into those. But as you know, better than anyone else, no one can tell when the Fed is going to stop increasing interest rates and those increases impact the PE multiple. And I don’t want to overpay if the PE multiple ends up going from six to five or six to four. And we have these transactions engaged.
We want that — we want the PE multiples to settle down.
Tom MacKinnon
Okay. And then just a last one. When is the Investor Day for 2023? Are you looking at a February date tentatively?
John Wimsatt
Yes. I mean the timing will be about the same, end of January, beginning of February. We’ll be out with the date shortly.
Operator
The next question is from Jeff Fenwick with Cormark Securities.
Jeff Fenwick
I just want 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. 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?
Steven Hudson
Yes, 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 for institutional investors. And 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.
And we — and I mentioned on the call, absolutely no securitization. Securitization market is disrupted. We’re on the opposite side with more demand for our loans that we can fulfill. And I think that’s based upon the fact of the credit performance of these portfolios that they perform better than expected and our focus on prime and super prime credit. As I mentioned, we’ve been approached by two other institutions like Blackstone that we’ve entered in conversations with to have them join what I’ll call the club, if you will.
So fully funded excess demand for our loan product and credit performance that is very good.
Jeff Fenwick
So those terms are effectively locked in and over that commitment period, now they’re not going to come back and try to cut a new deal with…
Steven Hudson
Correct. Yes. 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% to 80% fill for them.
Jeff Fenwick
And then maybe just moving on to the Marine and RV segment there. I mean it obviously seems like a portion of the market that’s going to 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? And how much are you concerned about the cycle there versus just being able to drive through it from expanded offerings in that space?
John Wimsatt
Well, thanks, Jeff. So 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. And 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 a lot of things have changed out there, we have continued to see very, very robust demand across that segment of buyer, borrower, whatever you want to 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. But 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 its incremental, geographies are going to 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. So I think barring a sort of really, really awful economic environment, I think we will be able to grow it pretty nicely.
Steven Hudson
I would just one — just a little more color to John’s comment. These decisions are lifestyle, not hobby. These are old people like myself in the ’50s and early ’60s who are purchasing assets, and I would draw your attention to both MasterCraft and Brunswick that have released recent guidance where they’ve increased their guidance in the sector. So 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 to 60 range by the manufacturers we’ve selected. So we feel — well, the manufacturing results that were released over the last week speak for themselves.
Operator
The next question is from Jaeme Gloyn with National Bank Financial.
Jaeme Gloyn
Yes, thanks. Just first off, a quick clarification question. Is the $5 million to $7 million of potential M&A, is that pretax AOI or after-tax AOI?
John Wimsatt
No. Yes, it’s just normal adjusted operating income. It will be pretax.
Jaeme Gloyn
Pretax. Okay.
John Wimsatt
They’re three relatively smaller transactions that we’ve continued to pursue because they’ve got some very interesting components to them. Like Steve said, we run across a number of much larger transactions, and we’re working through those as we speak.
Jaeme Gloyn
Yes. So just a follow-up on that. The three that are in advanced discussions now that are produced in this $5 million to $7 million, I presume these are three different businesses that you — then the four that you had in LOI, and we’re targeting as of the last quarter, that could have generated up to the $0.06 to $0.12 of EPS. And so I guess the question is, what was the change? Was it ECM walking away from those deals based on price?
Or what were the factors?
Steven Hudson
Well, I don’t think it’s 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 can get us to that $0.06 to $0.12. Those weren’t all necessarily represented just in those four LOIs.
So we — 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 to $7 million. But we’ve got many others that we’re also working on. Our issue is just timing on some of those transactions.
Steven Hudson
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. We — I don’t want to overpay.
Jaeme Gloyn
Right. So at this stage, it’s really just a matter of the targets accepting a lower bid price?
Steven Hudson
Right. Well, without getting into the LOIs, they are indexed to effectively interest rates. There is a P multiple embedded in the price.
Jaeme Gloyn
And the index to interest rates you said. So obviously higher gains to lower prices.
Steven Hudson
I mean the PE. This is the PE. Yes, the PE gets driven by interest rates.
Jaeme Gloyn
Yes. 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 and in fact turning power is primarily the Marine and RV finance. Is that a fair statement or correct…
Steven Hudson
I think a fairer statement is the market has taken us down to $0.25 to $0.30. The analyst took us to $0.25, $0.30, I think that we’re going to outperform over that, and we’re going to beat the estimates that we’ve given you.
John Wimsatt
But to be clear, and we will give you detailed guidance on Analyst 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, very robust years next year, especially on any sort of relative basis. But 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 want to be more conservative going into next year.
Operator
[Operator Instructions] We have a follow-up question from Tom MacKinnon with BMO Capital Markets.
Tom MacKinnon
I was wondering if you might be able to split the Marine and RV $298 million origination between Source One and IFG, just so we can — for comparability between those two. I realize they’re amalgamated into one, but if you can give us an idea.
Steven Hudson
Going forward, we are going to report them on a consolidated basis because over time they will become, we think, more consolidated. So it will just make sense to do that. But just for information sake, for this quarter I believe Source One was around $176 million and IFG would have be the difference, it’s like $122 million.
Operator
The next question is from Stephen Boland with Raymond James.
Stephen Boland
So I don’t want to beat the guidance 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?
John Wimsatt
I don’t — we — Mike, we can say we haven’t made any changes to what we think are in our model anyway. We think corporate OpEx or something like that could look like. It’s really just assuming that the macro economy, whatever, is a bit slower, which leads us to a little more conservatism from a growth rate perspective going into next year.
Michael Lepore
Yes. And we’ll kick off our detailed budgeting process right after this quarter. That’s when we start to really scrubbing the numbers. And as John said, we’ll give you updated guidance at Investor Day.
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