ECN Capital Corp. (ECN) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Fourth Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. John Wimsatt. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone. First, I want to thank everyone for joining this call. Joining us today are Steven Hudson, Chief Executive Officer; and Michael Lepore, Chief Financial Officer. The news release summarizing these results was issued this afternoon and the financial statements and MD&A for the 3-month and year-end period ended December 31, 2021, have been filed with SEDAR. These documents are available on our website at www.ecncapitalcorp.com. Presentation slides to be referenced during the call are accessible on the website as well in PDF format under the Presentations section of the website. Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. I refer you to the cautionary statement section of the MD&A for a description of such risks, uncertainties and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectation of any forward-looking statements will prove to be correct. You should note that the company's earnings release, financial statements, MD&A and today's call include references to a number of non-IFRS measures, which we believe help to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A. All figures are presented in U.S. dollars, unless explicitly noted. And with these introductory remarks complete, I'll now turn the call over to Steven Hudson, Chief Executive Officer.

Thanks, John, and good evening, and welcome to ECN's fourth quarter earnings call. Turning to Slide 6, we're happy to add Source One to our operating banner -- operating partner banner. Welcome aboard. Turn to Slide 7, slide from our recent Investor Day. As I mentioned at Investor Day, we have 3 core components of our robust business model, first of which is our deep origination platforms. We have 5,000 nationwide dealers between Triad and Source One, and Kessler Group has the background and history of 6,000 affinity credit cards created by KG. Besides the origination platforms are our committed loan partnerships, which we continue to expand and broaden these partnerships. As we'll highlight shortly in the Triad section, we've got great news to report on these expanded partnerships. And underpinning the first and second component is our robust and industry-leading servicing advisory and portfolio management platforms. This is a significant source of recurring revenue for ECN. Turning to Slide 8, a slide you've seen before. We've completed the Service Finance sale for $2 billion in cash. It represents a 6.5% return on investment in 4 years. Turning to Source One, a new addition to the ECN partnership and family, Source's prime RV and marine loans for consumers. It's 100% consistent with ECN's proven model of prime credit assets, asset-light, no-recourse obligations on behalf of banks and credit union partners. And finally and probably most important, it's accretive to both '21 and '22 operating revenues. Turning to Page 9. Our tuck-in strategy, acquisition strategy led by John Wimsatt is underway. Source One marks the first [ element ] of the strategy, which we will continue to roll out in '22 and '23. It's really important to us as we look at these opportunities that they be accretive to the -- to ECN, that they'd be asset-light and fee-orientated business within our core scope of competency; third, that the high-quality credit assets are in-demand by our existing institutional partners, our funding partners and that be non-recourse and that we have very limited integration risk. We think Source One scores well in each one of those components. Turning to page -- to Slide 10, a little bit on the fourth quarter, which we'll get through in a moment. Happy to report $0.06 of EPS this quarter. $0.01 is from the sale of our credit card portfolio, and Service Finance is reported as discontinued operations in the fourth quarter. We are reiterating our guidance for '22 and '23 from our Investor Day. And as I mentioned at that Investor Day, I'm guiding you to the high end of that range, and I'll speak to that in a moment. January and February have been strong in the business. Triad is at the high end of its origination for those months. Those 2 months don't make a year, but they certainly underpin the first quarter. We're quite confident. I think our past execution and strength of these businesses give us a high degree of confidence in our earnings forecast. Source One is above our expectations. So it's above the high end and KG is at the high end. So I think the first quarter will put us in great shape. Triad's continued results are strong. The fourth quarter had a 51% increase in originations. We are fully funded through '22 and '23. We're pleased to announce our multiyear partnership with Blackstone, and we'll speak to that in a moment. KG fund adjusted earnings came in at pretax earnings of $17.2 million, and we mentioned earlier our specialty lending company, which is an affiliate of Blackstone, which we launched with a $450 million portfolio -- credit card portfolio purchase in the fourth quarter. We feel that KG has delivered on its promise to prove to the financial markets that we could successfully introduce institutional investors into acquiring and managing credit card portfolios. Turning to the operating highlights on Slide 12, with respect to Triad. Happy to report operated adjusted earnings of $13.9 million, up 56% year-over-year. Originations were up 52%, and our floor plan assets stood at $182 million. Also happy to report that we added 15 new funding partners, institutional investors who purchased our loans in '21, and we are about to announce the Blackstone partnership. We're maintaining our guidance of $1.4 billion to $1.6 billion. And again, I would guide you to the high end of that range. Turning to Slide 13, that's a slide we provided at Investor Day. I wouldn't comment on it other than to say it's a good slide. But the very bottom part of that slide, the last bullet I think is very important and very significant. We're pleased to announce our new multiyear funding partnership with Blackstone in the first quarter. It's a 2-year-plus commitment to purchase up to $1.25 billion of manufactured home loans and -- sorry, both chattels and land home and Bronze and Silver. It goes across the entire menu of products. This is really the third chapter of our partnership with Blackstone. It started with a very successful Service Finance program for $1.5 billion. It's followed on by a multibillion-dollar commitment with respect to credit cards, and this is the third chapter. We're very happy with this partnership. We see lots of runway going forward. Slide 14, I won't speak to it again. This was a slide at Investor Day. Originations on 15 are as presented, originations of 50% growth continue to demonstrate the robust nature of the Triad platform. The origination bridge on Slide 16, I'll just take a moment and highlight the -- I'm not sure the color blue is showing up on your screen, but the light blue, the aqua blue, which is land home for 2022. And if you think about land home in the industry, land homes market size is 3x the size of chattel. Our chattel business stands at about $1 billion of forecasted originations for '22. That means our land home opportunity is approximately $3 billion. So a forecast of $300 million indicates there's a $2.7 billion opportunity over the next several years. We feel confident about the continued origination growth and profitability of Triad. Turning to Slide 17. Again, a [ re-added ] slide from Investor Day. I would guide you to the high end of $70 million. Turning to Source One. John?

Thanks, Steve. So on Page 18, we are reiterating the guidance for Source One that we introduced at Investor Day '22. We're thrilled to have added Source One as an operating partner and our first acquisition in our tuck-in strategy, and really think there is a substantial opportunity for platform growth over time. The end markets in marine and RV have very similar demographics to Triad and the model is on target. Asset-light, prime credit on behalf of bank and credit union partners. We intend to follow the proven playbook we use at Service Finance and Triad to drive growth and have identified significant growth opportunities which we detailed at Investor Day. We're currently anticipating 26% growth in originations at the midpoint. Importantly, we have started '22 strong with January and February origination growth ahead of plan at 31% and 40%, respectively, without the benefit of any of the growth initiatives, which are still in early stages. We'll update you as we move forward. The addition of Source One adds around $12 million to $14 million adjusted operating income before tax, which is 47% growth at the midpoint year-over-year. Page 19, we review Q4 results for KG, which produced adjusted operating income before tax of around $17.2 million, an increase of 87% year-over-year. This includes a realized gain of around $2.5 million net of tax from the earlier announced sale of ECN's credit card investments to SLC, as discussed in Q3. As discussed at Investor Day, KG added a significant new co-brand partnership with Q4 -- in Q4 with a major Canadian bank. Also, as previously discussed, KG launched the partnership with SLC for the CCIM platform. In Q4, as part of this launch, we closed a $450 million CCIM portfolio transaction and sold ECN's on-balance sheet credit card investments to SLC. These transactions and the long-term partnership with SLC validate the thesis of the build-out of the CCIM platform. On Page 20, we repeat a brief recap of some of the highlights from 2021. As discussed at Investor Day, we will now segment KG into Partnership Services, CCIM and Performance Marketing, primarily as a result of the growth of the CCIM platform. We touched on the partnership services and CCIM highlights, but I wanted to highlight the Performance Marketing. In Performance Marketing that KG added 10 new marketing clients, including many in new verticals and onboarded its first Card as a Service client. Card as a Service is particularly exciting. And as noted at Investor Day, KG has added 2 more credit union customers that are larger than our launch client and has partnered with one of the major card networks to launch a card program for a $60 billion bank. 2022 should be an exciting year for Card as a Service. Finally, on Page 21, we are reiterating our 2022 guidance from Investor Day. We raised adjusted operating income before tax guidance from $52 million to $59 million to $55 million to $60 million, which is roughly 15% growth at the midpoint after adjusting for the realized gain on sale of the legacy credit card portfolios to SLC. With that, I'll hand it over to Michael to discuss the consolidated financial summary.

Thanks, John. Turning to Page 23 and the Q4 consolidated operating results. Key highlights are: Triad originations of $300 million, which is a new record for a quarter. We're up 52% compared to the same prior year quarter, reflecting continuing strong growth in their business; Q4 adjusted net income applicable to common shareholders was $13.8 million or $0.06 per share, compared to $1.5 million or $0.01 per share in the prior year quarter, again reflecting the strong growth at both Triad and KG in Q4; discontinued operations in Q4 reflect the $1 billion gain on the sale of Service Finance after taxes and transaction costs. In addition, to complete the wind-down of the legacy business and return $35 million in capital in the near term, we have taken the following charges on our legacy assets: $11.4 million in aviation assets; $14.6 million on a legacy corporate aviation assets; $2.4 million in C&V; and $11.1 million on our railcar assets. Turning to Page 24 on the balance sheet. Key highlights are that total assets were down over $600 million compared to Q3 as a result of the sale of Service Finance. Total debt was down approximately $240 million, primarily due to the net cash flow from the sale of Service Finance, and debt will increase again at the end of Q1 when we made the income tax payment due on the sale of Service Finance. We completed 2 issuances of senior unsecured debentures in Q4 of CAD 86.25 million and CAD 60 million, respectively. These debentures carry interest rates of 6% and 6.25% or approximately 4.5% after tax and can be settled by the issuance of ECN shares at the company's option. For this reason, they are treated as equity pursuant to our senior line covenants and therefore will represent attractively priced long-term capital for the company. The proceeds from the senior unsecured debentures funded the acquisition of Source One and the retirement of the Series A preferred shares at the end of Q4. Turning to Page 25 on the income statement. Total revenues of $69.5 million were up 94% compared to Q4 2020 and total -- again, reflecting the strong performance of both our Triad and KG businesses. The increased revenues drove increased -- a 250% increase in adjusted EBITDA. And as noted previously, Q4 2021 adjusted EPS was $0.06 per share, slightly above analyst consensus for the quarter, compared to only $0.01 per share in the same prior year quarter. Turning to Page 26 on operating expenses. Key highlights are higher business segment operating expenses, primarily driven by the growth in originations and managed assets and new products at Triad and higher revenues at KG. Overall, operating expenses increased by 67% year-over-year compared to total revenue growth of 94% year-over-year, demonstrating the strong leverage in our business model. Corporate operating expenses of $4.6 million compared to $5.4 million in the same prior year quarter. Finally, legacy business expenses of approximately $1.6 million were largely offset by legacy business revenues of $1.6 million. And finally, turning to Page 27 and a consolidated 2022 forecast, which is unchanged from our Investor Day, as noted earlier. Key highlights include business segment operating income range of $129 million to $144 million. Adjusted operating income before tax range of $92 million to $101 million and adjusted EPS of $0.29 to $0.31 per share and an effective tax rate of approximately 20%. And with that, I'll turn it back to John.

Thanks, Michael. Page 29 is a slide that you've seen before, but I thought it was again important to highlight that ECN has returned in excess of $2.5 billion to shareholders through buybacks, quarterly dividends and the special distribution from the Service Finance transaction. Being an excellent steward of capital for our shareholders has been a prime directive and will continue to be going forward. Management are substantial shareholders and we'll make -- we make all our decisions with the goal of maximizing shareholder value. And with that, I'll turn that back to Steve to conclude.

Thanks, John. Just by way of summary on Slide 30. Service Finance was closed and provided a $7.50 special dividend to our shareholders. We're quite proud of that track record and quite proud of our partnership with Mark Berch and his team. On the Source One side, happy to have closed that transaction as part of John's acquisition tuck-in acquisition strategy. We think that this transaction will bear a lot of fruit and some others to come. And the successful operating results reflected by the $0.06 in the quarter, those results, combined with the execution by the team and the employees and partners, gives me a high degree of confidence in our ability to deliver earnings at the high end or slightly above the high end of our forecast for '22. Happy with our track record on return of capital to shareholders. I think it reflects -- I don't think it does reflect our commitment as good stewards of capital. We continue to have an NCIB active in the marketplace. And as my final comment before we open for questions, as I mentioned earlier, at the risk of repeating myself, I would guide you to the high end of the '22 guidance. We have a high degree of confidence that we will meet or exceed those targets. With that, operator, we are happy to open the call to questions.

[Operator Instructions] Our first question is from Tom MacKinnon with BMO Capital.

The Blackstone partnership, you mentioned you've got third chapter of it now with them helping out on Triad to the tune of $1.25 billion. Is -- how can we see that relationship evolving further? Is there a potential for them to purchase more with respect to Triad? Can they do anything with Source One? Have they indicated they'd do anything more with Kessler? Just the relationship is evolving and evolving rapidly here. And just wondering if you can add some color as to -- with respect to that.

Thanks, Tom. It is an important relationship. I would say we treat our 100 funding partners as all equally important because we pride ourselves, although these are noncourse relationships, we want our assets to perform. And I think that's reflected in this growing Blackstone partnership, and the first 2 legs have performed at or above their expectations. This is an important step forward. We still have a number of core funding partners at Triad. To answer your question, I think it's safe to assume, Tom, without getting into details, that we wouldn't look at an acquisition that probably didn't involve some input from Blackstone. I have to kind of stop there, but we don't make an acquisition that our bank partners don't look at. We don't make an acquisition that our funding partners don't want to buy assets. So I think it's safe to assume, Tom, that they had some input on Source One. Clearly, they're not buying Source One paper yet, yet, but I think that they've -- we certainly cherish their views.

Okay. That's good. And with respect to Triad, I think we talked about average ticket size is increasing nicely throughout 2021. Do you know -- can you tell us what's been driving that? I mean, what are you seeing? Is it really just for the industry? Or is it -- are you seeing higher ticket specifically with respect to Triad? And where might you see some of these higher tickets coming from? Are they in Silver or Bronze or land home or chattel? Or where are you seeing them?

I think the ticket size -- I don't think the ticket size is uniform across all products, Tom. So it's not -- it's all above. You're seeing price increases at the manufacturers as they deal with inflationary pressures. That's part of it, Tom. The other part, and they've been successful in passing that along, which benefits us because we get higher tickets and higher origination fees and higher management fees because our balances are higher. I would say that the -- probably the bigger component other than -- since that inflation is just demand. The unprecedented demand for affordable housing. This is the solution. Maybe John wants to jump in.

Yes. Tom, I was just going to add. So in 2021, we saw obviously substantial demand for manufactured housing really across the board. What you saw in the industry, chattel pricing overall was up around 20%. Our pricing in -- at Triad was actually up around 25%. Now that's skewed a bit because we launched the land home business, which has much higher ticket sizes than you would get in your typical chattel. Because remember, you're financing not just the home but the land as well. And so we did a little bit better. Once you adjust out the land home side, we were a little bit better than the market. If the market was up 20%, we were up 21% or 22% in terms of pricing. That's really a function of demand, and it's really a function of the builders are passing along pricing through the dealers to the customers, which obviously benefits us quite a bit since we get paid a percentage of the interest income over the life of the loan.

Okay. That's great. And my last one, just a quick numbers question. The $2.5 million after-tax gain, what was the pretax gain on that?

Tom, it's Michael. It was $5 million.

Okay. Yes, it seems to be a healthy tax rate applied to that.

There's cost applied to that as well. So it's not all tax. It's after tax and after compensation.

If you think about the revenue line, it would have been around $5 million. That is a gain like you would think of at any other business, there were expenses associated with that, so people earn comp, et cetera, as a result of that gain. You're going to strip that out and after taxes.

As you know, the team that built that portfolio on our balance sheet, most -- I think almost all their compensation was deferred until we had a successful exit. So you've had comp deferred. So you're right, it is a big number, but the deferred comp not to the management team at ECN, to the people that originated and managed that portfolio that accounts for.

Yes, just to be clear, the $5 million is really a revenue number. There are expenses associated with it. And then after tax, it was $2.5 million. So the tax rate itself isn't materially different.

So the CCIM revenue would have been $5 million less excluding that one-timer.

Revenue, yes.

And then, Tom, you know that, as we mentioned before, the return on this portfolio was exceptional for ECN shareholders' return was over 35% compounded over the period of time, which exceeded our expectations. But more importantly, it proved up the model that we could allow the Blackstones of this world and others -- in the past, these trades were bank to bank. Now they're bank to institutional investors. So the concept made us a lot of money. And the team that did the deal, we got -- they finally got paid as it was sold.

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

Just a couple of questions for me. Going back to the Blackstone partnership at Triad, should we -- I guess we should just be thinking of that as a large funding partner, right? And should we think of the commercial terms being generally comparable to other funding partners with Triad? Or is that a relationship because of the size you may have made concessions there?

I don't -- we don't comment, Nik, on individual economics, but I would assume that a larger deal gives us better economics. Yes, and I think the most important part, and I wouldn't say that that's a big number. The most important part here is that since we've owned Triad and Source One is new, is we've really focused long and hard on counterparty exposures that when we bought these businesses at a series of small credit unions, who are important to our business. But as we've rapidly grown these origination side, we push for more substantive counterparties. After we get through the first 2 years with Blackstone, that turns into a perpetual program. And that's -- you can assume that's where it's going to -- that is -- that arrangement is going to become the template for other businesses. So a little more money, Nik, but more importantly, longer term and a perpetual program.

Understood. Okay. And then on the charges on the legacy assets that I think were included in discontinued operations, what was the nature of that? Were those just write-downs or impairment charges to bring the carrying value closer to fair value? Is that how we should interpret that?

What -- no, it's a really good question. The -- what I wanted to do was rapidly exit those businesses because I wanted the capital back to deploy it in John's tuck-in M&A strategy. We had -- we could clear them, we could have held on for another 2 or 3 years and worked out. But that was the last bit of the legacy business that does such a great job on cleaning up, but I wanted the capital. So those are marks on those books where we rather sold them, like in rail, or we will sell them very shortly here in the next few weeks.

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

Yes. So just looking at the MD&A on the legacy assets, just so I'm clear on this, so the $107 million total assets held for sale, that would be much lower now, I suppose? Or is it completely at 0?

Jaeme, it's Michael. It's -- there's going to be about $50 million remaining. It's not going to be legacy anymore. We're just going to bring them on to -- we're going to get rid of assets held for sale and no discontinued ops next year. So there'll be about $50 million remaining of mostly aviation assets that are under various leases that we'll just keep on our -- going forward as corporate assets.

Jaeme, just to Michael's question, there's nothing left that we can sell that the remaining aircraft are under mid- to long-term leases, we'll sell them. There's no more. We put a mark on them, so there's no more losses coming.

Okay. Got it. Going back to the CCIM revenue in Kessler. So I guess adjusting for the gain, the revenue would have been around $14 million. That seems a bit higher than the, I guess, guided run rate on a quarterly basis. So what else might be driving strong revenues in the quarter? Or is that the run rate?

Yes. I mean, remember, when we sold a number of the portfolios that we sold over to SLC, we got to realize a number of the performance fees in the quarter that we would have recognized over a longer period of time. Those were earned. So we don't view those as sort of onetime. Going forward, what you saw and what we tried to describe at Investor Day, the biggest difference between CCIM in 2021 versus 2022 is we no longer have those assets that are sort of on the balance sheet, which is not -- means we're not earning interest income or we're not earning equity returns anymore. We're just earning those management fees. So if you look at the year-over-year guidance for CCIM, it will truly be an asset manager going forward. It's not going to be a reflection of principal returns.

Got it. And just so I'm clear, the guidance, is that reflecting base management fees and some performance fee revenue? Or just -- or is it just on the base management fee?

It's basically just base management fees in 2022, but we obviously have the opportunity to continue to earn further upside outperformance.

Our next question is from Geoff Kwan with RBC Capital Markets.

Just I had one question. When I kind of think about how the business has evolved over the years, whether it was Service Finance and Triad and Kessler, probably part of the realization of the yield and credit quality of what those businesses do. But from a funding perspective, maybe having really low rates and the lack of yield opportunity for financial institutions and institutional investors maybe attracted them to those assets. But as we start to see rates increase, do you see some of your funding partners having that same allocation or maybe shift a bit of their allocation to other investments? And as a result, do you kind of think about focusing still on trying to diversify and deepen those funding relationships?

I think it's a good question. If you look back to 3 or 4 years ago, when we saw a bump in treasuries, we were able to see both Service Finance and Triad come along with increased pricing. So I think we're in good shape, Geoff. Our pricing will track the marketplace. So we're not going to offer compressed yields to our institutional investors. That said, the demand from banks and credit unions, life insurers, sovereign wealth funds is unprecedented. If we had $4 billion in manufactured home loans in '22 it would be sold and it's not terribly price-sensitive. But I think the key takeaway here in this comment is that we have a history of being able to price increase rates into our product.

Yes. Geoff, I was just going to add, like if you go back and look at Investor Day, there's a slide in there that talks a little bit about interest rate risk, and it shows that Triad, for example, is -- had a very consistent premium over mortgages for, I don't know, I can't remember how long that chart goes back, but at least a decade. And frankly, it goes back way longer than that if we wanted to put it out there. So these are assets that have similar to better credit quality than your traditional mortgage with a lack of convexities because prepayments are very rare because of ticket sizes, et cetera. So this is a really high-quality asset. You're getting several hundred basis points of excess yield for it. So I'm not real worried that we're not going to have demand for the paper anytime in the near future. Similar to what you see at both Source One and KG, these are different asset classes, obviously, but these are asset classes that -- where you can get excess yield, have good credit quality. They're in-demand assets by financial institutions really across the board, whether it's banks, credit unions, institutional investors, insurance companies. So we feel pretty good about the group of businesses that we have. We think there's going to be demand. And yes, we're always trying to continue to diversify our funding partners.

Our next question is from Vincent Caintic with Stephens.

Just, I guess, one related question. But the -- so the market prices have generally been volatile, and you sold noncore assets, freed up some capital there. Just curious how the pipeline is of potential tuck-in acquisitions and what you might be looking for. And then relatedly, how you're thinking about deploying capital for share repurchases.

I'll let John jump in here, Vincent, but the -- I think that the impact and what's happened on the geopolitical front has caused some private equity firms and others that were building finance platforms to now realize they haven't got an exit through capital markets and then pricing is better. But maybe, John, do you want to?

I mean look, Vincent, you know and we've talked about this quite a bit, we look at an awful lot of potential transactions, but we're very picky in terms of the type of things that meet our criteria. At a very high level, it's all the things that we always talk about, asset-light, no recourse, prime credit assets on behalf of banks, credit unions, et cetera, or our partners, right? We're trying to add to that partnership base. I think we see a number of opportunities here over the next several quarters that are potential tuck-in acquisitions. But we're really happy with Source One. I think it's a good example of the kind of thing that we can do. Not only do we get a great financial deal on the way in, it's accretive. We feel really good about the transaction that we did. We've identified a number of different ways that ECN can do what it does and really work with the company to grow the business and really create a multiple of the current earnings. To the extent that we can find those kinds of opportunities, we'll jump on them and continue to build out the tuck-in strategy.

Okay. Great. And then on share repurchases, just if you could just remind us how much you're able to do and how you're thinking about the share buybacks.

Well, we've got a fair amount of dry powder coming into this since we don't have a lot of utilization on our senior line. So when we see value, we will execute. We are in the midst of this tuck-in. Tuck-in strategy is important to us. So I want to keep some dry powder as we go into '22, particularly as the capital markets get -- while we may -- particularly as they remain with this level of volatility. But if the stock is presented to us at a reasonable value, we will purchase it.

Our next question is from Mario Mendonca with TD Securities.

Michael, can we go just through a few detailed questions first? Your corporate interest expense, can you give us an idea of the quarterly run rate for 2022? And maybe the same for preferred share dividends.

Preferred share dividends since we retired the one series is going to be around [ $1.3 million ] to $1.4 million a quarter going forward, depending on exchange rates.

And the corporate interest expense?

Corporate interest expense, I believe that should run about $5 million a quarter. And for the year, I'll confirm with you off-line, if that's okay.

Yes, it doesn't have to be too precise. I just want to make sure I'm not making any big mistakes. One other quick thing, Michael. To understand where things got recorded this quarter, I do see a big gain associated with the sale of Service Finance going through this quarter, the $928 million gain on discontinued operations. Is the charge associated with the legacy business netted against that gain?

Yes. It's all recorded in the discontinued operations. And the MD&A will -- there's a breakdown of the various components.

Okay. So that helps me understand where everything is recorded. Now Steve, if we could go back and just revisit the big decision you made many years ago when you decided to get out of all these legacy businesses: aviation, rail, everything else, it was a big decision at the time. And I think one could argue that it paid off really big as evidenced by the sale of Service Finance. But I think this is a good time to maybe just reflect back and say, clearly, there was a lot of value added by the Service Finance purchase and sale, but there was also a lot of -- there were also a lot of write-downs on this -- on all the legacy business. My suspicion is that the value added by Service Finance dwarfs any write-offs related to the legacy. What would be helpful for me to understand is how great were these write-offs on the legacy business from that time you made that important decision to exit the businesses to today when you're essentially done? And I'm asking the question that way because I really want to see how that compares to the value created by the Service Finance transaction.

Yes. Fair enough, Mario. I think if you look at the breakdowns in legacy, [ you'll ] have to reflect on the sale of our U.S. vendor business to PNC, which was at a substantial gain.

1.6x book.

Yes. So that one, I'll have to go through and see what the net ended up, Mario. But there probably was a little bit of money lost after you go back and look at that gain against the other ones. I think the important part I've learned over the 3 decades now is that I never believed -- I now believe, but I never believed that we could actually have a model where we could rent out balance sheets from credit unions, banks, life cos, sovereign wealth funds. And by sticking with their credit adjudication, we've created this model, which is a far better model than we had in the past. A lot of our assets, if you look to our vendor finance business we sold to PNC, that would qualify for our flow arrangements now. But I didn't know that at the time, Mario. And in terms of this last, last goal, I think there'll be some interesting smallish-type tuck-ins. And I wanted the capital available to do it. We could have worked them out over the next 2.5 years. The railcars were going through a 2-year retrofit. We could have worked our way through the entire 2, 2.5 years, but I think this was a better call.

Let me see if I can summarize. Would it be fair -- and maybe, John, some of these numbers might stick in your head a little bit as well. Would it be correct to say that the value created by the PNC sale, the sale to PNC, mostly offset the write-offs in the legacy business such that we can kind of look at the Service Finance gain or value created there sort of unadulterated and say that was the value created by that decision way back to exit everything and go into this model?

Yes, I think that's fair. I think that's a fair assessment. Let us do the math, but I think that's a fair assessment. The assets we have in our balance sheet, if you go back to the time that we split, were credit good assets. So we should have been able to protect book value, so we'll go back and prove that up. And I guess -- and I can talk about Service Finance. Service Finance was a great business. I think Triad and Source One are better. And why do I say that? It's because we have very deep-pocketed partners who need these origination platforms. And they value them differently than we look at people how they value ECN from a perspective of a public or shareholders. They value these assets as they take the raw yield less their cost to manage it off their deposit base. So it's a very large -- very large. And if you look at Truist, they had forecasted $300 million of income off of Service Finance within 3 years. Same sort of math holds true for Triad and for Source One, although it's somewhat smaller for the time being.

Can I just add? Mario, the other thing to remember is, remember when ECN spun out from Element, okay? So if you go back to that time, we came out, we were about $1 billion, $1.1 billion market cap at the time. If you remember the businesses we were in rail, we were in commercial equipment or equipment finance, aviation and a bit of C&V. And we were in direct competition with Wells Fargo, with Huntington Bank, with guys that were funding these things on balance sheet with deposits. You had a business that was rapidly moving towards a single-digit ROE and potentially to a mid-single-digit ROE. We were lucky because those were attractive assets to the banks who had been buying these things using their deposits. So we were able to sell the equipment business for sort of 1.6x book, give or take. We were able to sell the balance of the portfolio somewhere close to book, give or take, and then we had a workout portfolio that we had to work out, which no doubt we've taken some losses to get there. But to put that into context, we took that capital, we turned around, we bought Service Finance, we bought Triad, we bought The Kessler Group. And as a result of that, we've returned over $2.5 billion to shareholders through buybacks, through dividends and through the special dividend. And we remain at a market cap that's about $1.4 billion, $1.5 billion today. So in my opinion, just looking at this, the transition over the last several years, the losses that we've taken in the legacy portfolio. And clearly, you could argue maybe we should have just blown them out 2 years ago and whatnot, but we thought we could work them out for better results. At this point, it's clear to us that taking that capital back, redeploying it into our core strategy will yield far better returns than we will working these things out for the next 2.5 to 3 years.

And Mario, at the risk of running on, I just want to -- I highlighted the sale of our U.S. equipment financing business to PNC. If you look at rail, we completed a very large rail sale, substantially all the portfolio, in essence, at book value. So if you look at this $11 million loss, it represents, I think, 3/4 or 1/2 of 1%. So let me do the math for you, but I think you'll find that it's a push over the entire business that we've been able to [indiscernible].

Those are all great points, and I understand them, and I certainly understand the market value argument. I just think that in times like this, when you're kind of at the end of a particular point in your history, it's worthwhile asking what do you -- like it's worthwhile looking at the bad stuff as well, not just all the great stuff. And that's why I want to really satisfy myself that it was worth it. And it certainly seems it, certainly to shareholders. But that's the nature of the question. I want to be satisfied with this.

Yes. We can do a recap for you of the pluses and minuses on the legacy business. But there's no doubt in my mind, Mario, that the businesses we have, because of the strength of the origination platforms and the moats that have been built around them, have significant value to U.S. investors. And we want to continue to grow Triad and Source One and Kessler, but I have no doubt based upon conversations I have, what those assets are worth.

As there are no further questions registered, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.