TSE:GSY goeasy Q3 2023 Earnings Report C$155.80 -1.09 (-0.69%) As of 04/25/2025 04:00 PM Eastern Earnings HistoryForecast goeasy EPS ResultsActual EPSC$3.81Consensus EPS C$3.43Beat/MissBeat by +C$0.38One Year Ago EPSN/Agoeasy Revenue ResultsActual Revenue$321.73 millionExpected Revenue$320.67 millionBeat/MissBeat by +$1.06 millionYoY Revenue GrowthN/Agoeasy Announcement DetailsQuarterQ3 2023Date11/7/2023TimeN/AConference Call DateWednesday, November 8, 2023Conference Call Time11:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by goeasy Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 8, 2023 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good day and thank you for standing by. Welcome to the GoEC's Third Quarter 2023 Financial Results Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Farhan Ali Khan. Operator00:00:37Please go ahead. Speaker 100:00:40Thank you, operator, and good morning, everyone. My name is Farhan Ali Khan, the company's Senior Vice President and Chief Corporate Development Officer. And thank you for joining us to discuss GoEasy Limited's results for the Q3 ended September 30, 2023. The news release, which was issued yesterday after the close Speaker 200:00:58of market, is available on GlobeNewswire and Speaker 100:01:00on the GoEasy website. Today, Jason Mullins, GoEasy's President and Chief Executive Officer, will review the results for the Q3 and provide an outlook for the business. Hal Khoury, the Company's Chief Financial Officer, will also provide an overview of our capital and liquidity position and Jason Appel, the Company's Chief Risk Officer is also on the call. After the prepared remarks, we will then open the lines for questions from investors. Before we begin, I remind you that this conference call is open to all investors and being webcast to the company's investor website and supplemented by a quarterly earnings presentation. Speaker 100:01:35For those dialing in directly by phone, the presentation can also be found directly on our Investors site. All shareholders, analysts and portfolio managers are welcome to ask questions Over the phone after management has finished their prepared remarks, the operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to the call and to use management's comments and responses to questions and any coverage. However, we would ask That they do not quote callers unless an individual has granted their consent. Today's discussion may contain forward looking statements. Speaker 100:02:07I'm not going to read the full statement, but will direct you to I will now turn the call over to Jason Mullins. Speaker 200:02:16Thanks, Farhan. Good morning, everyone, and thank you joining the call today. The Q3 was the strongest in the history of our company. We produced record originations, record loan growth and reduced credit losses to generate record earnings and a very healthy return on equity. As we discussed over the last several quarters, A challenging macro environment puts immense pressure on smaller scale companies, driving more demand toward those with scale such as GoEZ. Speaker 200:02:46Similar to last quarter, the number of companies bidding directly against us within Google paid search was down nearly 40% year over year. Furthermore, we continue to see evidence that the banks and other prime lenders have tightened credit, resulting in high quality borrowers turning to lenders like Goeasy when they are seeking credit. For example, in our automotive financing program, the portion of our originations in our top two risk tiers has increased from 50% to 80% over the last 24 months. As a lender, increased demand enables us to be more selective about where we allocate capital and which loans we underwrite. As such, the proportion of applications we funded during the quarter was less than 15%, down from 17% last year and 22% the year prior due to our highly disciplined approach to managing credit in times of economic uncertainty. Speaker 200:03:41As a result, the credit quality of the loans we are writing continues to strengthen. The 3rd quarter was the 8th consecutive quarter of an increase and the weighted average credit score of our loan originations with this quarter being the single highest ever at 6.17. This is a very clear way to measure the combined impact of our proactive credit tightening, shifting product mix and the higher credit score of the consumers who are using our products. We also continue to benefit from our highly diversified distribution and acquisition platform with approximately 300 EZ Financial branches, 100 Easy Home Lending Kiosks and over 9,100 merchants across our automotive and point of sale financing programs, We are highly accessible to the 8,500,000 non prime consumers that use our wide range of lending products. During the quarter, we also officially launched the first version of our new GoEZ Connect mobile app and web platform after several months of in market testing. Speaker 200:04:40At the end of October, we had almost 66,000 app downloads across both Android and iOS devices with an 85% sign up rate. Since launch, the mobile app has also generated over 6,500 applications per credit across our entire product suite. The combination of healthy demand, less competitive tension and the performance of our strategic business initiatives produced another record level of applications for credit at $528,000 up 30% year over year. This also led to another consecutive quarter of record new customers at over 42,700, an increase of 16% over last year. Originations in the quarter were a record $722,000,000 up 13% over the Q3 of 2022. Speaker 200:05:29Organic loan growth was a record $230,000,000 at the high end of our quarterly forecast. At quarter end, our loan portfolio finished at $3,430,000,000 up 33 percent from the prior year. As we continue to optimize pricing amidst the higher cost borrowing environment, The average interest rate we charge our borrowers has now stabilized. During the quarter, the overall weighted average interest rate charged to our customers was flat at 30.1%, but still down from 31% at the end of the Q3 last year. Combined with ancillary revenue sources, The total portfolio yield finished within our forecasted range at 35.3%. Speaker 200:06:11Total revenue in the quarter was a record $322,000,000 up 23% over the same period in 2022. As expected, our disciplined approach to risk management and favorable product mix shift have continued to produce stable credit performance despite the challenging macroeconomic backdrop. During the quarter, the annualized net charge off rate decreased to 8.8%, down 50 basis points from 9.3% in the Q2 of last year. Our loan loss provision rate also reduced to 7.37% compared to 7.42% in the previous quarter. I will also remind everyone that both our long term net charge off rate guidance and our existing loan loss provision are based on a base assumption of a mild to moderate recession, which incorporates unemployment rising close to 7% in 2024. Speaker 200:07:04As such, we are confident we can continue to sustain stable credit performance even in a more stressed environment. With a keen focus on managing expenses and the corresponding economies of scale, the business is also benefiting from significant operating leverage. During the quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue, reduced to 28.6%, an improvement of 400 basis points from 32.6 percent in the Q3 of last year. After adjusting for unusual items and non recurring expenses, We reported record adjusted operating income of $130,000,000 an increase of 37% compared to $95,000,000 in the Q3 of 2022. Adjusted operating margin for the 3rd quarter was a record 40.4%, up from 36.2% in the same period in 2022. Speaker 200:07:57Adjusted net income was a record $65,200,000 up 34 percent from $48,600,000 in the Q3 of 2022, While adjusted diluted earnings per share was a record $3.81 up 29% from $2.95 in the Q3 of 2022. Adjusted return on equity was 26.6 percent in the quarter, an increase of 170 basis points from 24.9% last year. With that, I'll now pass it over to Hal to discuss our balance sheet and capital position. Thanks, Jason. Speaker 300:08:32The 3rd quarter highlighted both the Significant cash generating capability of the business and the continued confidence in our lenders and our business model. Looking first at the cash flows, Cash flow from operations before net growth in the loan portfolio was $134,000,000 in the quarter, up 40% $96,000,000 in the Q3 of 2022. After deducting cash outflows such as dividends and capital expenditures, We funded over 40% of our net loan book growth or approximately $100,000,000 from internal cash flow. Based on the portfolio today, we estimate we could grow the consumer loan portfolio by approximately $250,000,000 annually solely from internal cash flows without utilizing any external Speaker 200:09:16debt. Furthermore, Speaker 300:09:18once our existing and available sources of debt are fully utilized, We continue to grow the loan portfolio by approximately $400,000,000 per year solely from internal cash flows. Lastly, if we were to run off the consumer loan and leasing portfolios, the value of the total cash repayments paid to the company Over the remaining life of its contracts, it will be approximately $4,200,000,000 If during such a runoff scenario with reasonable cost reductions, All excess cash flows were applied directly to debt. We estimate we could extinguish all external debt within 16 months. Turning to our balance sheet, during the quarter we increased the size of our revolving automotive financing securitization warehouse From $200,000,000 to $375,000,000 with the addition of Wells Fargo Bank as a new lender to the syndicate, which is led by Bank of Montreal. Obtaining the commitment of another major bank to put their balance sheet behind our automotive financing program amidst the current macro conditions is a significant testament to the underwriting and credit quality of this product category. Speaker 300:10:22The facility continues to bear interest on Advances table at the rate of 1 month Canadian dollar offered rate plus 185 basis points. Based on the current 1 month SEDAR rate of 5.43 percent, As of November 1, 2023, the interest rate would be 7.28%. We also continue to utilize interest rate Swap agreements generate fixed rate payments and mitigate the impact of increases in interest rates on each of our draws. While the company is experiencing the impact of higher rates on incremental debt financing, thanks to these swap agreements and the fact that over 93% of our drawn debt is currently now fixed. The marginal impact of higher borrowing costs has had a slow and gradual effect on our business, one that has been more than offset by a relative reduction in operating expenses. Speaker 300:11:13At quarter end, our weighted average cost of borrowing was 5.9% And the fully drawn weighted average cost of borrowing was 6.2%. Based on the cash on hand and borrowing capacity on our existing revolving credit facilities, had approximately $930,000,000 in total funding capacity at the end of the 3rd quarter. In the 4th quarter, we also intend to The refinancing of our 2019 unsecured debentures as these notes mature late next year. While the replacement notes Higher rate of interest once refinanced, we are highly confident that we can execute the refinancing and have already embedded the impact of Speaker 400:11:50this refinancing and to the Speaker 300:11:523 year forecast we published earlier this year. As such, we are confident that the capacity of our existing funding facilities and our ability to raise additional debt financing will enable us to achieve our growth plans. I'll now pass it back over to Jason to talk about our outlook. Speaker 200:12:09Thanks, Al. We are very proud of the recent performance as our strategy, business model and highly talented team are working to produce industry leading results and making a significant impact in the lives of our customers. We now expect to See the high end of our loan book growth forecast for this year, while achieving all the targets we set out through 2025. In the upcoming quarter, we expect the loan portfolio to grow between $195,000,000 $215,000,000 As we continue to optimize our pricing, we also expect to maintain the current total annualized portfolio yield, which should finish The quarter between 34.75% 35.75 percent again. We also continue to expect resilient and stable credit performance with the annualized net charge off rate expected to remain between 8.5% 9.5% during the Q4. Speaker 200:13:04In closing, it is clear that millions of Canadians continue to rely on trustworthy, transparent and responsible lenders such as Goeasy. Our customers are everyday hardworking Canadian families that rely on our financial products for a wide range of reasons, Including paying bills, consolidating debt and buying or fixing a vehicle to get to work, it is clear from the continued increase in demand for our products The non prime lenders fill a much needed and important role in the consumer credit market. Beyond the financial products we offer, it is also our team members that play a critical role in building relationships with our customers to ensure they have access to the right credit products that can meet their needs today We're helping them rebuild their credit score over time, so they can graduate to prime lending rates. We are proud of the work we do and we believe we are truly just getting started. With those comments complete, we will now open the call for questions. Operator00:14:21And our first question comes from the line of Nick Preevi with CIBC Capital Markets. Your line is now open. Speaker 500:14:30Okay. Thanks for the question. Jason, as you pointed out, you're tracking to exceed the high end of the guidance range for year end loan growth. If I extrapolate the recent growth trajectory into 24, the target there is starting to look pretty conservative as well. So I guess the question is, why not look to revise that guidance Higher this quarter. Speaker 500:14:51Is that forecasting exercise just something you'd be more inclined to revisit around year end? Speaker 200:14:58Yes. So I mean we have followed a fairly consistent process for quite some time, Which has been to put out fresh 3 year guidance every February at year end where we roll off the current prior year and roll on the New Year. And then generally mid year, we will do either a minor revision or at least guide people to where we expect to finish within those ranges. But other than in unusual circumstances like COVID, etcetera, where they require immediate more meaningful revision, we're trying to stay fairly So as you've noted, given the robust loan growth and the fact that we'll be beyond the high end of the range for this year, It is safe to assume that as we go into publishing those new forecasts next year, you should expect some upward revisions to those ranges. But we would likely stay the course and put out full 3 year forecast in February and be consistent with our process. Speaker 500:15:56Yes, fair enough. Okay, that makes sense. And then if I compare the quarterly growth rate of the secured and unsecured lending portfolios, The trend line appears to be converging a little bit to some degree. I was wondering if you could just help us understand the dynamics there? Speaker 200:16:12Yes. So the secured book stepped up marginally, as you've noted, from 40% to 41% roughly. I think as we've talked about in the past when we've guided to the longer term portfolio mix, we've said that we thought it would gradually rise to around I think as we're now over 40, you're going to see that that increase is a little bit more gradual. So I wouldn't you shouldn't expect to see Material spikes in the proportion of secured, I think you can expect that it will continue to slowly rise. But if you look at the mix of our business, the Traditional just pure unsecured personal loan is still a very meaningful and important product in our suite. Speaker 200:16:53If you were to bifurcate the $230,000,000 of loan growth In the quarter, the largest contribution of that loan growth is still our core and largest product, the unsecured personal loan. So That's why you're going to see all products now grow in somewhat lockstep in a meaningful way and probably see that secured mix just Slowly continue to inch up gradually towards what I think in a few years that will be around fifty-fifty give or take. Speaker 500:17:22Yes. Okay. That's good. That's helpful. I will pass the line for now. Speaker 500:17:25Thank you. Speaker 200:17:27Thanks. Operator00:17:30One moment for the next question. Your next question comes from the line of Etienne Ricard with BMO Capital Markets. Your line is now open. Speaker 600:17:44Thank you and good morning. A highlight for me this quarter is the magnitude of the operating margin expansion. I mean the 400 basis points increase year over year is well in excess of the 100 basis points plus That you're guiding for in the forecast. So how should we think about incremental margins at this point given the investments you've made in the retail branches and the online channels. Speaker 200:18:18Yes, thanks. So two things I would say. We're clearly at the point in our businesses life cycle And growth cycle where we're experiencing the peak benefits of operating leverage, I. A good portion of our infrastructure is built and developed. Our branch network is now fully developed. Speaker 200:18:45And so we're really now and for the next little while getting the benefit of a much higher rate of growth in revenue than we are in costs, Particularly things like back office corporate costs. 2, we've also pushed harder on expense management given The macroeconomic conditions and uncertainty and been more purposeful and diligent about managing costs. So I would say Part of the reason you're seeing more operating leverage than we originally guided to is because of the additional steps we're taking to try to make sure that we really Better prepare the business for any of the uncertainties that could be in the future. So if you think about our operating margin today at around 40%, I think we feel good that that will continue to expand. There will of course be some quarter to quarter volatility, but over the next several years that number will still grow Over time by I think at least several 100 more basis points of margin expansion. Speaker 200:19:46If you think about our OpEx as a function of receivables, We're running with our OpEx kind of between 10% to 12% as a function of receivables. If you take a look at a business Like a OneMain in the U. S. That would be obviously much more further along the curve of scale, their OpEx as a function of receivables would be like 7%. So that just gives you a sense of how much more room there is in operating leverage from expense reductions as the business grows and scales. Speaker 200:20:16So we're very happy with where we're at. It's obviously a key strategy we've employed to offset the impact of yield reductions and higher funding costs. And at the moment and for the foreseeable future, we think our operating leverage can continue to outstrip the margin compression from those other factors And protect margins overall. Speaker 600:20:39Okay. And as part of the press release last week, You announced the potential for a partnership with Nova as it relates to providing credit to new Canadians. So a 2 part question. What percentage of your book is currently Standard to new Canadians, which I interpret as individuals with a credit history of 2 to 3 years in Canada. And number 2, what potential benefits would you anticipate from this partnership? Speaker 200:21:15Yes. So I'll make a couple of comments and then Jason can jump in here if he wants to add anything. So Look, obviously, the Canadian population has and will continue to experience meaningful Immigration and the number of new Canadians every year will continue to grow. So like all financial institutions, we're looking for ways to better improve the We're looking for ways to better improve the services and products we offer those folks. Nova Credit is a business That we've started collaborating with, hopeful we'll end up doing a formal agreement with at some point that is essentially offering Access to the credit data from other foreign countries, particularly those where we are experiencing the highest levels of immigration from And converting that data into one standard format that a lender like GoEZ can use, and then one of the major banks is already using their services as well to help better assess a new Canadian. Speaker 200:22:17To date, because we haven't necessarily had a dedicated strategy for that population, I think that our proportion is probably not all that dissimilar to the population. Maybe we over index a little bit because we're generally taking More credit risk than the banks would, but it would still be in terms of the true definition of new Canadian I. E. In the country less than 24 months probably under 10%. As the size of the opportunity is reflective of the size of the pool of new Canadians, which as you know, this past 12 months was a record at A 1000000 people, I think the outlook for the Canadian government is to continue to sustain 500,000 plus new Canadians every year, Which means that over the next 5 to 10 years, if you think about it in the long game, that could be a really important part of the way we build our business. Speaker 200:23:05So Not overly significant portion today, still early days in terms of how we develop the right skills to serve that population, but certainly A new growth avenue for the future. Speaker 600:23:21Great. Thank you very much. Operator00:23:26One moment for the next question. And your next question comes from the line of Gary Ho with Desjardins. Your line is now open. Speaker 400:23:38Thanks. Good morning. You've yet to update your 3 year commercial outlook, but it feels like the rate cap could be pushed out versus your Jan Can you just remind us, now obviously you have a slightly different mix than when it first came out, Kind of what the step down could look like once that is implemented, maybe just on a quarterly basis? Speaker 200:24:02Yes. So, yes, just to reiterate and clarify on that point, We are expecting to get more visibility to when the rate cap takes effect, hopefully by year end. I think your point is correct. It's safe to assume now that a Gen 1 implementation is would seem unlikely and it's More likely to be in the back half of next year. An additional, say, 6 months of originations At the previous allowable rate, probably doesn't move the yield on the whole what will be close to $3,500,000,000 to $4,000,000,000 loan book by the end of the year in a meaningful way. Speaker 200:24:45So we may make some small revisions to the yield guidance, but I would not anything material just purely and only from a partial year delay On the implementation date, so I think the yield range that we published for next year, which is 33% to 35%, It's still a very comfortable range to use. Perhaps that will push us into the upper end of the range, if everything goes according to plan. But I don't think you should assume much change in the range from a guidance perspective at this point. Speaker 400:25:20And then is it true that You're thinking around the ancillary products not being captured in the rate cap, that still stands? Speaker 200:25:31Correct. Yes. I mean the government already published back when they announced the 35%, a pretty clear definition of What APR is and what's included and what isn't and much like the definition in almost all developed Countries that have maximum allowable interest rate rules, optional ancillary products and services, the customer uses their discretion Purchased are outside of that calculation. It's really meant to just capture anything that's a true mandatory charge to the borrower. Speaker 400:26:02Okay. And then Jason, just on those comments on ancillary products, are there ways for you to grow That line outside of the creditor insurance product, can that it is not capped by the government over time? Speaker 200:26:20Yes, for sure. I mean, we every year we spend time thinking about our product roadmap and We have a very robust list of additional products and services that we think our customers would be interested in. And For us, it starts with what can we offer that brings value to the customer. We're not looking to build and launch Products, just to chase revenue, that's a too short thinking type approach. We're thinking about what are the additional Products and services our customers would benefit from and we've got a really comprehensive list. Speaker 200:26:57Our customers of course use a wide range of different Benefits a wide range of different insurances, a wide range of other financial services. So I think as we build this business, the platform, Scale, a big customer base, that's just going to mean more and more opportunity to offer them other products and services. Our forecast today doesn't contemplate that. It's based purely on our core lending business. But as you think about the possibilities for GoEasy, What might be other drivers of growth or other ways for us to capture and build new revenue streams in the wake of the lower APR threshold? Speaker 200:27:35Certainly, we've got other types of products on our roadmap and how we're thinking about. Speaker 400:27:42Okay, perfect. And then just maybe just last question just on the revenue seat yield. At the onset of the rate cap news, you raised your rates on portion of your book. Just wondering if there were any other rate increases in Q3 or ones that you might be contemplating over the near term? Speaker 200:28:02Yes, we've done some pricing optimization pretty much every couple of months all year long. We continue to do that. You'll see that our credit quality is improving, which typically means lower Average yield or APRs and you'll see our product mix continues to shift, which typically means lower interest rates and APRs, But yet our actual weighted average interest rate has stayed very stable. So think of that as underneath we've made various pricing changes To compensate for the other pressures on the business, I don't think we're Intending to do material increases beyond this level, I think our positioning in the market today is a very good one. We're able to use the benefits of our scale to capture a disproportionate share of the market And in part of that is because we still are attractively priced to the borrower and able to under price relative to some of our competitors that have less scale. Speaker 200:29:08So It is very much still a journey of bringing down the weighted average interest rate for our customers over time. But I think at this point in our journey Where we've got other macro headwinds that have to be considered, the plan is to kind of hold the average rate steady. And then, of course, It will then drift down as the rate cap takes effect at some point next year. Speaker 400:29:29Okay, perfect. Those are my questions. Operator00:29:35One moment for the next question. And your next question comes from the line of Marcel MacLean with TD Securities. Your line is now open. Speaker 700:29:49Okay. Thanks for taking my question. First question is on the auto side. It's a 2 part question. Have you ever sized what the auto book is of the secured overall secured loans or of overall portfolio, I know it's one of the faster growing areas, just wondering where that sort of gotten to today. Speaker 700:30:12And secondly, If you're seeing any signs of weakness in the Canadian subprime auto market, I know there's been reports of the U. S. Market Seeing multi decade highs in terms of delinquencies. If this is a small portion of your overall book, it might be sort of hidden In there, so just curious on the loss side and if you could size sort of the relevance of the book overall. Speaker 200:30:39So with regards to your first question, so as you noted, we don't break out The detail related to every product, obviously, with the secured portion being 40% of our total book, Then you know that's around $1,400,000,000 or thereabouts of total secured volume. Today, the proportion between Our 3 largest secured products, home equity lending, powersports financing and automotive financing is reasonably proportionate like they're all several 100,000,000 each. So it's not a perfect 3rd split each way, but it's not wildly off that. Like they're all very meaningful products in our suites. Clearly, as we talked about, auto is the largest single product category. Speaker 200:31:28So inherently over time, you would expect that that will Overtake some of the other products, but we're also managing credit risk in a very conservative manner now. So we are probably the ones Moderating the rate of growth for that product most so versus the amount of demand that's available. I think if we were to find ourselves At some point in a better economic environment with less uncertainty, that product could probably grow even more quickly. As I said in the prepared remarks, it's one of the products that we're experiencing some of the strongest performance in, with the best overall average credit quality and the Most improvements in the average credit quality. So, it's performing very well. Speaker 200:32:11This past quarter was actually our lowest repossession rate that we've had since the launch of that product over 2 years ago. So it's just a good signal that the health of our business and the loans we've written Rob remains in good stead. As it relates to the second question regarding just the general consumer, There's definitely stress on the general consumer. I think inflation over time has compounded to create pressures. We've seen unemployment tick up. Speaker 200:32:40It was as low as 5 at one point and then 5, 2, 3, 5 and now it's 5.7. So It's under some pressure. GDP growth has obviously slowed down pretty meaningfully. Likely we're in a technical recession now or very soon, and that's what we've modeled into our forecast. So there's definitely some pressure on the consumer in general. Speaker 200:33:01I think the consumer has held up better than people There was an anticipation they'd be under much more pressure by now. So they've held up better than expected. Our customer segment, As we've talked about in the past, generally is more resilient than people perceive. Again, with only 1 out of 5 owning a home, They're not feeling in general the kind of stress and pressure that the average prime borrower is. If you think about where This particular cycle is hitting people and where they're expecting to be hit the hardest, it's really the homeowner that's got a mortgage renewal. Speaker 200:33:36And so for more than 80% of our customers, that's not a major pain point or a major stressor. So think the consumer overall is starting to feel some pressure, but less than people think. I think our segment of borrowers feeling even less just because of the circumstances they're And then our business as a whole, given all the work we've done on credit risk, is obviously in very good shape and we sort of modeled out What level of credit tolerance do we need to make sure as the environment worsens, we can continue to produce stable credit results. So we're trying to Outmanage the overall environment. Speaker 800:34:12The only other comment, Marcel, I'd add to that, it's Chase Nippo here, is just when comparing to the U. S. Comps when it comes to auto, you have to keep in mind that you have a significant proportion of that market that is subject to regular refi risk. Virtually all the loans that we do at GoEZ and in fact most Speaker 100:34:30of the loans that are done Speaker 800:34:30in the community market are straight purchase, whether that's new or used. Whereas in the United States, you have quite a large number of lenders that are engaged in 1st and second liens on autos, whereas we are only in first position on our entire book As is most of the auto lending that goes on in Canada. So it's not a surprise that you're going to see some more degradation in the United States when economic weakness comes about, But it is likely that you won't see an exact replica of that in the Canadian market because the structure of that market and how credit is underwritten is somewhat different. Speaker 700:35:02Okay. Thanks for that. Yes, that's very helpful. That's a good point. My second question is on the In terms of your visibility for your outlook, like demand for loans that looks like it's been as strong as it ever has this quarter. Speaker 700:35:20If you're only funding about 15% of applications, even if we do see maybe some drop off in demand at some point, How do you expect that to impact the business? Speaker 200:35:34So I think Generally speaking, if you look at past periods of economic stress and cycles, The data does show that at some point during a cycle demand for credit does soften somewhat. There's usually a point in a cycle when the consumer Comes a bit more conservative and cautious with the use of credit, but it's not a material softening. Most of the data points in terms of the public companies that I've done consumer lending through many cycles. The TransUnion credit data will show you might experience a softening of up to but no more than 10% Of softening in demand, we don't foresee that likely being the case for us given that We're operating in a market today where because of all the other macroeconomic challenges, we're experiencing much less competitive tension. I think as the rate cap comes in, we've often talked about how there will be a select few companies with scale that will become net beneficiaries of that, Whereas smaller companies struggle or fall away, we experience less new entrants that will push more demand to the select few companies that do have scale. Speaker 200:36:43So Yes, I think it's safe to assume that at some point credit demand may soften somewhat. But in our particular case where we've got So many products and channels that are in their earlier stage of development where we're still a small company in a very large market and where we're feeling less competitive tension, We're feeling very optimistic about the growth outlook. And as you say, you can see that in our numbers and in the trends today. So As I said earlier, more likely that we would revise guidance from a growth perspective up versus down, that's for sure. Speaker 700:37:19Okay. Thanks a lot. And if I could just sneak one point of clarification on your prepared remarks. I hear that the credit Guidance incorporates 7% plus unemployment rate at the high end. Did I get that right? Speaker 200:37:36Yes. So just to clarify, when we develop a forecast and We have to set our credit tolerance levels that we're comfortable with across our range of products. And when we calculate our loan loss provision under IFRS 9, We have to factor in the macroeconomic outlook. And the way that that mechanically works is we figure out the correlation various macroeconomic variables, which for us are inflation, unemployment, oil and GDP, and then we purchase A set of economic forecasts, in our case from Moody's and you can buy these forecasts from many of the big firms. We then work to weight the different economic scenarios so that they're probability weighted and then that computes theoretical economic outlook. Speaker 200:38:30We then use the correlations to determine what that would mean for the level of performance and stress on the book And then reverse engineer what credit tolerance adjustments we need to make to ensure that we can maintain stable credit through that period of economic stress. Our base case and of course we've got downside cases, we've got upside cases and we stress tested a variety of circumstances, but the base case we're using That we're assuming is the sort of down the fairway scenario is a mild to moderate recession as that's the most common economic outlook. What that Statistically means is unemployment rising close to 7%, meaning that our base case, the midpoint of all of our ranges is contemplating unemployment going close to 7. If it stays in the low 6s, there will be upside to our plan. If it goes into the 7s or 8s, then we'll probably be in the higher end of our Loss forecast range. Speaker 200:39:24So our range kind of contemplates for more stress and less stress, but the base case at the very bare minimum, We're expecting a mild to moderate recession with unemployment rising to about 7%. Yes. Speaker 800:39:37Okay. I appreciate that. Speaker 700:39:38Thank you very much for taking my questions. Operator00:39:44One moment for the next question. And your next question comes from the line of Stephen Volund with R. J. Your line is now open. Speaker 900:39:56Thanks guys. Just one question for me. Obviously, the organic growth has been pretty robust now for several quarters, maybe for several years. Can you just talk about With the possible rate change here in Canada, the cap, have you seen M and A opportunities that have presented itself? And what if you have seen that, is it valuation? Speaker 900:40:19Is it the type of book? Maybe just talk about the M and A pipeline Speaker 200:40:26Yes. So there was a period there where it was a little bit Soft and it felt like everybody was taking a wait and see approach. I'd say in the recent months, we've seen A little bit more activity, more opportunities come across our desks. We're engaging in more conversations. So And I don't think it's so much about regulation so much as it is just the environment. Speaker 200:40:52As the environment gets tougher, Speaker 100:40:55That tends to sometimes be Speaker 200:40:56a catalyst for businesses to do strategic things. And so we're seeing some of that activity. As we've talked about for many years now, we are always open and willing to explore acquisition and strategic investments. We look at them regularly. We just have a very high standard and a very high hurdle rate that the number of Opportunities we pursue end up being quite few, given our robust organic growth. Speaker 200:41:27So We're hopeful that we will find another great opportunity at some point. There's nothing imminently in the pipeline that It's going to happen in the next few weeks, but we do have iron in the fire and we are looking at opportunities and We continue to assess them and find one and try to find one that makes strategic sense for us. Speaker 900:41:50And is it is your focus on more Is it about the book, like if an unsecured loan book came available, do you look at the book or the distribution? Is it both or is your focus really on secured products going forward? Speaker 200:42:05We're open to both. I think that In Canada, where we have the platform already, we would be more looking for Opportunities to buy maybe a loan portfolio and maybe take another company out of the competitive market. Unlikely, we're trying to buy Going concern business with a new platform when we already kind of have the platform we need. Maybe there is a scenario where we would buy a business or invest in a That's because it gives us some new capability or some new products, but those are going to be far and few between given how evolved our platform is here. We were to consider another market, which we've talked about in the past, we're always open minded to. Speaker 200:42:47There we would probably be more focused on like a traditional branch based loan business. As we're building experience in point of sale and auto, we might be more open minded to those categories because we've got much more experience now in them. But the core branch model is probably still our more favored and desirable expansion methods. So those are the kinds of things we're looking at. Those are the kinds of lines of business that we're evaluating. Speaker 200:43:15Again, nothing at this exact moment, but Very hopeful that we'll find something that will really progress the company and launch it forward strategically at some point. Speaker 900:43:26Okay. Appreciate that. That's all for me. Thanks. Operator00:43:40And your next question comes from the line of Doug Cooper with Beacon Securities. Your line is now open. Speaker 1000:43:47Hi, good morning everybody and Congratulations on an excellent quarter. Just one quick one for me on the debt refinancing. You said you're highly confident of doing that before the end of the year. I think it's US550 $1,000,000 currently at US565 dollars Just in terms of this quarter, so this quarter, I'm assuming your underwriters would want to see that out of Speaker 300:44:10the way and want to Speaker 1000:44:10be able to review that. So it was a great time obviously to have a quarter like this. So what are your thoughts in terms of what kind of yield do you have to issue debit? And when can you We've got both 5 more weeks before year end. So maybe just comment again. Speaker 300:44:32Yes. So, great question. It would be our expectation to execute on a refinancing transaction Prior to it becoming current, so I'd say imminent is what I would say. And naturally, you referenced The current rate on that debt facility running in the mid single digit range, we would expect that Based on where rates are at today, to be in the high single digit range, but certainly looking Operator00:45:16And we have no further questions at this time. I will now turn the call back over to Jason Mullins. Speaker 200:45:23Great. Well, thank you everyone for taking the time to join our call today. We appreciate it and we look forward to updating you next when we close-up 4th quarter results Early next year. So thank you very much and have a fantastic day. Bye now. Operator00:45:36This concludes today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference Callgoeasy Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report goeasy Earnings Headlinesgoeasy (TSE:GSY) Price Target Lowered to C$210.00 at CormarkApril 26 at 1:13 AM | americanbankingnews.comDesjardins Issues Negative Estimate for goeasy EarningsApril 25 at 1:21 AM | americanbankingnews.comFrom Social Security to Social Prosperity?In less than a decade, Social Security could be out of money. But a surprising plan from Trump’s inner circle may not just save the system — it could unlock a major opportunity for savvy investors. Financial insider Jim Rickards calls it “Social Prosperity,” and says those who act now could see the biggest gains.April 26, 2025 | Paradigm Press (Ad)Jefferies Financial Group Lowers goeasy (TSE:GSY) Price Target to C$182.00April 22, 2025 | americanbankingnews.comgoeasy Announces Tender Offer ExpirationOctober 31, 2024 | markets.businessinsider.comgoeasy Ltd. to Announce Q3 2024 ResultsOctober 24, 2024 | markets.businessinsider.comSee More goeasy Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like goeasy? Sign up for Earnings360's daily newsletter to receive timely earnings updates on goeasy and other key companies, straight to your email. Email Address About goeasygoeasy (TSE:GSY) provides non-prime leasing and lending services under the easyhome, easyfinancial, and LendCare brands to consumers in Canada. The company operates through two segments, Easyfinancial and Easyhome. It offers unsecured and secured installment loans; home equity secured instalment loans and automotive vehicle financing; and loans to finance the purchase of retail goods, powersports and recreational vehicles, home improvement projects, and healthcare related products and services. The companyleases household furniture, appliances, electronics, and unsecured lending products to retail consumers. The company was formerly known as easyhome Ltd. and changed its name to goeasy Ltd. in September 2015. goeasy Ltd. was incorporated in 1990 and is headquartered in Mississauga, Canada.View goeasy ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 11 speakers on the call. Operator00:00:00Good day and thank you for standing by. Welcome to the GoEC's Third Quarter 2023 Financial Results Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Farhan Ali Khan. Operator00:00:37Please go ahead. Speaker 100:00:40Thank you, operator, and good morning, everyone. My name is Farhan Ali Khan, the company's Senior Vice President and Chief Corporate Development Officer. And thank you for joining us to discuss GoEasy Limited's results for the Q3 ended September 30, 2023. The news release, which was issued yesterday after the close Speaker 200:00:58of market, is available on GlobeNewswire and Speaker 100:01:00on the GoEasy website. Today, Jason Mullins, GoEasy's President and Chief Executive Officer, will review the results for the Q3 and provide an outlook for the business. Hal Khoury, the Company's Chief Financial Officer, will also provide an overview of our capital and liquidity position and Jason Appel, the Company's Chief Risk Officer is also on the call. After the prepared remarks, we will then open the lines for questions from investors. Before we begin, I remind you that this conference call is open to all investors and being webcast to the company's investor website and supplemented by a quarterly earnings presentation. Speaker 100:01:35For those dialing in directly by phone, the presentation can also be found directly on our Investors site. All shareholders, analysts and portfolio managers are welcome to ask questions Over the phone after management has finished their prepared remarks, the operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to the call and to use management's comments and responses to questions and any coverage. However, we would ask That they do not quote callers unless an individual has granted their consent. Today's discussion may contain forward looking statements. Speaker 100:02:07I'm not going to read the full statement, but will direct you to I will now turn the call over to Jason Mullins. Speaker 200:02:16Thanks, Farhan. Good morning, everyone, and thank you joining the call today. The Q3 was the strongest in the history of our company. We produced record originations, record loan growth and reduced credit losses to generate record earnings and a very healthy return on equity. As we discussed over the last several quarters, A challenging macro environment puts immense pressure on smaller scale companies, driving more demand toward those with scale such as GoEZ. Speaker 200:02:46Similar to last quarter, the number of companies bidding directly against us within Google paid search was down nearly 40% year over year. Furthermore, we continue to see evidence that the banks and other prime lenders have tightened credit, resulting in high quality borrowers turning to lenders like Goeasy when they are seeking credit. For example, in our automotive financing program, the portion of our originations in our top two risk tiers has increased from 50% to 80% over the last 24 months. As a lender, increased demand enables us to be more selective about where we allocate capital and which loans we underwrite. As such, the proportion of applications we funded during the quarter was less than 15%, down from 17% last year and 22% the year prior due to our highly disciplined approach to managing credit in times of economic uncertainty. Speaker 200:03:41As a result, the credit quality of the loans we are writing continues to strengthen. The 3rd quarter was the 8th consecutive quarter of an increase and the weighted average credit score of our loan originations with this quarter being the single highest ever at 6.17. This is a very clear way to measure the combined impact of our proactive credit tightening, shifting product mix and the higher credit score of the consumers who are using our products. We also continue to benefit from our highly diversified distribution and acquisition platform with approximately 300 EZ Financial branches, 100 Easy Home Lending Kiosks and over 9,100 merchants across our automotive and point of sale financing programs, We are highly accessible to the 8,500,000 non prime consumers that use our wide range of lending products. During the quarter, we also officially launched the first version of our new GoEZ Connect mobile app and web platform after several months of in market testing. Speaker 200:04:40At the end of October, we had almost 66,000 app downloads across both Android and iOS devices with an 85% sign up rate. Since launch, the mobile app has also generated over 6,500 applications per credit across our entire product suite. The combination of healthy demand, less competitive tension and the performance of our strategic business initiatives produced another record level of applications for credit at $528,000 up 30% year over year. This also led to another consecutive quarter of record new customers at over 42,700, an increase of 16% over last year. Originations in the quarter were a record $722,000,000 up 13% over the Q3 of 2022. Speaker 200:05:29Organic loan growth was a record $230,000,000 at the high end of our quarterly forecast. At quarter end, our loan portfolio finished at $3,430,000,000 up 33 percent from the prior year. As we continue to optimize pricing amidst the higher cost borrowing environment, The average interest rate we charge our borrowers has now stabilized. During the quarter, the overall weighted average interest rate charged to our customers was flat at 30.1%, but still down from 31% at the end of the Q3 last year. Combined with ancillary revenue sources, The total portfolio yield finished within our forecasted range at 35.3%. Speaker 200:06:11Total revenue in the quarter was a record $322,000,000 up 23% over the same period in 2022. As expected, our disciplined approach to risk management and favorable product mix shift have continued to produce stable credit performance despite the challenging macroeconomic backdrop. During the quarter, the annualized net charge off rate decreased to 8.8%, down 50 basis points from 9.3% in the Q2 of last year. Our loan loss provision rate also reduced to 7.37% compared to 7.42% in the previous quarter. I will also remind everyone that both our long term net charge off rate guidance and our existing loan loss provision are based on a base assumption of a mild to moderate recession, which incorporates unemployment rising close to 7% in 2024. Speaker 200:07:04As such, we are confident we can continue to sustain stable credit performance even in a more stressed environment. With a keen focus on managing expenses and the corresponding economies of scale, the business is also benefiting from significant operating leverage. During the quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue, reduced to 28.6%, an improvement of 400 basis points from 32.6 percent in the Q3 of last year. After adjusting for unusual items and non recurring expenses, We reported record adjusted operating income of $130,000,000 an increase of 37% compared to $95,000,000 in the Q3 of 2022. Adjusted operating margin for the 3rd quarter was a record 40.4%, up from 36.2% in the same period in 2022. Speaker 200:07:57Adjusted net income was a record $65,200,000 up 34 percent from $48,600,000 in the Q3 of 2022, While adjusted diluted earnings per share was a record $3.81 up 29% from $2.95 in the Q3 of 2022. Adjusted return on equity was 26.6 percent in the quarter, an increase of 170 basis points from 24.9% last year. With that, I'll now pass it over to Hal to discuss our balance sheet and capital position. Thanks, Jason. Speaker 300:08:32The 3rd quarter highlighted both the Significant cash generating capability of the business and the continued confidence in our lenders and our business model. Looking first at the cash flows, Cash flow from operations before net growth in the loan portfolio was $134,000,000 in the quarter, up 40% $96,000,000 in the Q3 of 2022. After deducting cash outflows such as dividends and capital expenditures, We funded over 40% of our net loan book growth or approximately $100,000,000 from internal cash flow. Based on the portfolio today, we estimate we could grow the consumer loan portfolio by approximately $250,000,000 annually solely from internal cash flows without utilizing any external Speaker 200:09:16debt. Furthermore, Speaker 300:09:18once our existing and available sources of debt are fully utilized, We continue to grow the loan portfolio by approximately $400,000,000 per year solely from internal cash flows. Lastly, if we were to run off the consumer loan and leasing portfolios, the value of the total cash repayments paid to the company Over the remaining life of its contracts, it will be approximately $4,200,000,000 If during such a runoff scenario with reasonable cost reductions, All excess cash flows were applied directly to debt. We estimate we could extinguish all external debt within 16 months. Turning to our balance sheet, during the quarter we increased the size of our revolving automotive financing securitization warehouse From $200,000,000 to $375,000,000 with the addition of Wells Fargo Bank as a new lender to the syndicate, which is led by Bank of Montreal. Obtaining the commitment of another major bank to put their balance sheet behind our automotive financing program amidst the current macro conditions is a significant testament to the underwriting and credit quality of this product category. Speaker 300:10:22The facility continues to bear interest on Advances table at the rate of 1 month Canadian dollar offered rate plus 185 basis points. Based on the current 1 month SEDAR rate of 5.43 percent, As of November 1, 2023, the interest rate would be 7.28%. We also continue to utilize interest rate Swap agreements generate fixed rate payments and mitigate the impact of increases in interest rates on each of our draws. While the company is experiencing the impact of higher rates on incremental debt financing, thanks to these swap agreements and the fact that over 93% of our drawn debt is currently now fixed. The marginal impact of higher borrowing costs has had a slow and gradual effect on our business, one that has been more than offset by a relative reduction in operating expenses. Speaker 300:11:13At quarter end, our weighted average cost of borrowing was 5.9% And the fully drawn weighted average cost of borrowing was 6.2%. Based on the cash on hand and borrowing capacity on our existing revolving credit facilities, had approximately $930,000,000 in total funding capacity at the end of the 3rd quarter. In the 4th quarter, we also intend to The refinancing of our 2019 unsecured debentures as these notes mature late next year. While the replacement notes Higher rate of interest once refinanced, we are highly confident that we can execute the refinancing and have already embedded the impact of Speaker 400:11:50this refinancing and to the Speaker 300:11:523 year forecast we published earlier this year. As such, we are confident that the capacity of our existing funding facilities and our ability to raise additional debt financing will enable us to achieve our growth plans. I'll now pass it back over to Jason to talk about our outlook. Speaker 200:12:09Thanks, Al. We are very proud of the recent performance as our strategy, business model and highly talented team are working to produce industry leading results and making a significant impact in the lives of our customers. We now expect to See the high end of our loan book growth forecast for this year, while achieving all the targets we set out through 2025. In the upcoming quarter, we expect the loan portfolio to grow between $195,000,000 $215,000,000 As we continue to optimize our pricing, we also expect to maintain the current total annualized portfolio yield, which should finish The quarter between 34.75% 35.75 percent again. We also continue to expect resilient and stable credit performance with the annualized net charge off rate expected to remain between 8.5% 9.5% during the Q4. Speaker 200:13:04In closing, it is clear that millions of Canadians continue to rely on trustworthy, transparent and responsible lenders such as Goeasy. Our customers are everyday hardworking Canadian families that rely on our financial products for a wide range of reasons, Including paying bills, consolidating debt and buying or fixing a vehicle to get to work, it is clear from the continued increase in demand for our products The non prime lenders fill a much needed and important role in the consumer credit market. Beyond the financial products we offer, it is also our team members that play a critical role in building relationships with our customers to ensure they have access to the right credit products that can meet their needs today We're helping them rebuild their credit score over time, so they can graduate to prime lending rates. We are proud of the work we do and we believe we are truly just getting started. With those comments complete, we will now open the call for questions. Operator00:14:21And our first question comes from the line of Nick Preevi with CIBC Capital Markets. Your line is now open. Speaker 500:14:30Okay. Thanks for the question. Jason, as you pointed out, you're tracking to exceed the high end of the guidance range for year end loan growth. If I extrapolate the recent growth trajectory into 24, the target there is starting to look pretty conservative as well. So I guess the question is, why not look to revise that guidance Higher this quarter. Speaker 500:14:51Is that forecasting exercise just something you'd be more inclined to revisit around year end? Speaker 200:14:58Yes. So I mean we have followed a fairly consistent process for quite some time, Which has been to put out fresh 3 year guidance every February at year end where we roll off the current prior year and roll on the New Year. And then generally mid year, we will do either a minor revision or at least guide people to where we expect to finish within those ranges. But other than in unusual circumstances like COVID, etcetera, where they require immediate more meaningful revision, we're trying to stay fairly So as you've noted, given the robust loan growth and the fact that we'll be beyond the high end of the range for this year, It is safe to assume that as we go into publishing those new forecasts next year, you should expect some upward revisions to those ranges. But we would likely stay the course and put out full 3 year forecast in February and be consistent with our process. Speaker 500:15:56Yes, fair enough. Okay, that makes sense. And then if I compare the quarterly growth rate of the secured and unsecured lending portfolios, The trend line appears to be converging a little bit to some degree. I was wondering if you could just help us understand the dynamics there? Speaker 200:16:12Yes. So the secured book stepped up marginally, as you've noted, from 40% to 41% roughly. I think as we've talked about in the past when we've guided to the longer term portfolio mix, we've said that we thought it would gradually rise to around I think as we're now over 40, you're going to see that that increase is a little bit more gradual. So I wouldn't you shouldn't expect to see Material spikes in the proportion of secured, I think you can expect that it will continue to slowly rise. But if you look at the mix of our business, the Traditional just pure unsecured personal loan is still a very meaningful and important product in our suite. Speaker 200:16:53If you were to bifurcate the $230,000,000 of loan growth In the quarter, the largest contribution of that loan growth is still our core and largest product, the unsecured personal loan. So That's why you're going to see all products now grow in somewhat lockstep in a meaningful way and probably see that secured mix just Slowly continue to inch up gradually towards what I think in a few years that will be around fifty-fifty give or take. Speaker 500:17:22Yes. Okay. That's good. That's helpful. I will pass the line for now. Speaker 500:17:25Thank you. Speaker 200:17:27Thanks. Operator00:17:30One moment for the next question. Your next question comes from the line of Etienne Ricard with BMO Capital Markets. Your line is now open. Speaker 600:17:44Thank you and good morning. A highlight for me this quarter is the magnitude of the operating margin expansion. I mean the 400 basis points increase year over year is well in excess of the 100 basis points plus That you're guiding for in the forecast. So how should we think about incremental margins at this point given the investments you've made in the retail branches and the online channels. Speaker 200:18:18Yes, thanks. So two things I would say. We're clearly at the point in our businesses life cycle And growth cycle where we're experiencing the peak benefits of operating leverage, I. A good portion of our infrastructure is built and developed. Our branch network is now fully developed. Speaker 200:18:45And so we're really now and for the next little while getting the benefit of a much higher rate of growth in revenue than we are in costs, Particularly things like back office corporate costs. 2, we've also pushed harder on expense management given The macroeconomic conditions and uncertainty and been more purposeful and diligent about managing costs. So I would say Part of the reason you're seeing more operating leverage than we originally guided to is because of the additional steps we're taking to try to make sure that we really Better prepare the business for any of the uncertainties that could be in the future. So if you think about our operating margin today at around 40%, I think we feel good that that will continue to expand. There will of course be some quarter to quarter volatility, but over the next several years that number will still grow Over time by I think at least several 100 more basis points of margin expansion. Speaker 200:19:46If you think about our OpEx as a function of receivables, We're running with our OpEx kind of between 10% to 12% as a function of receivables. If you take a look at a business Like a OneMain in the U. S. That would be obviously much more further along the curve of scale, their OpEx as a function of receivables would be like 7%. So that just gives you a sense of how much more room there is in operating leverage from expense reductions as the business grows and scales. Speaker 200:20:16So we're very happy with where we're at. It's obviously a key strategy we've employed to offset the impact of yield reductions and higher funding costs. And at the moment and for the foreseeable future, we think our operating leverage can continue to outstrip the margin compression from those other factors And protect margins overall. Speaker 600:20:39Okay. And as part of the press release last week, You announced the potential for a partnership with Nova as it relates to providing credit to new Canadians. So a 2 part question. What percentage of your book is currently Standard to new Canadians, which I interpret as individuals with a credit history of 2 to 3 years in Canada. And number 2, what potential benefits would you anticipate from this partnership? Speaker 200:21:15Yes. So I'll make a couple of comments and then Jason can jump in here if he wants to add anything. So Look, obviously, the Canadian population has and will continue to experience meaningful Immigration and the number of new Canadians every year will continue to grow. So like all financial institutions, we're looking for ways to better improve the We're looking for ways to better improve the services and products we offer those folks. Nova Credit is a business That we've started collaborating with, hopeful we'll end up doing a formal agreement with at some point that is essentially offering Access to the credit data from other foreign countries, particularly those where we are experiencing the highest levels of immigration from And converting that data into one standard format that a lender like GoEZ can use, and then one of the major banks is already using their services as well to help better assess a new Canadian. Speaker 200:22:17To date, because we haven't necessarily had a dedicated strategy for that population, I think that our proportion is probably not all that dissimilar to the population. Maybe we over index a little bit because we're generally taking More credit risk than the banks would, but it would still be in terms of the true definition of new Canadian I. E. In the country less than 24 months probably under 10%. As the size of the opportunity is reflective of the size of the pool of new Canadians, which as you know, this past 12 months was a record at A 1000000 people, I think the outlook for the Canadian government is to continue to sustain 500,000 plus new Canadians every year, Which means that over the next 5 to 10 years, if you think about it in the long game, that could be a really important part of the way we build our business. Speaker 200:23:05So Not overly significant portion today, still early days in terms of how we develop the right skills to serve that population, but certainly A new growth avenue for the future. Speaker 600:23:21Great. Thank you very much. Operator00:23:26One moment for the next question. And your next question comes from the line of Gary Ho with Desjardins. Your line is now open. Speaker 400:23:38Thanks. Good morning. You've yet to update your 3 year commercial outlook, but it feels like the rate cap could be pushed out versus your Jan Can you just remind us, now obviously you have a slightly different mix than when it first came out, Kind of what the step down could look like once that is implemented, maybe just on a quarterly basis? Speaker 200:24:02Yes. So, yes, just to reiterate and clarify on that point, We are expecting to get more visibility to when the rate cap takes effect, hopefully by year end. I think your point is correct. It's safe to assume now that a Gen 1 implementation is would seem unlikely and it's More likely to be in the back half of next year. An additional, say, 6 months of originations At the previous allowable rate, probably doesn't move the yield on the whole what will be close to $3,500,000,000 to $4,000,000,000 loan book by the end of the year in a meaningful way. Speaker 200:24:45So we may make some small revisions to the yield guidance, but I would not anything material just purely and only from a partial year delay On the implementation date, so I think the yield range that we published for next year, which is 33% to 35%, It's still a very comfortable range to use. Perhaps that will push us into the upper end of the range, if everything goes according to plan. But I don't think you should assume much change in the range from a guidance perspective at this point. Speaker 400:25:20And then is it true that You're thinking around the ancillary products not being captured in the rate cap, that still stands? Speaker 200:25:31Correct. Yes. I mean the government already published back when they announced the 35%, a pretty clear definition of What APR is and what's included and what isn't and much like the definition in almost all developed Countries that have maximum allowable interest rate rules, optional ancillary products and services, the customer uses their discretion Purchased are outside of that calculation. It's really meant to just capture anything that's a true mandatory charge to the borrower. Speaker 400:26:02Okay. And then Jason, just on those comments on ancillary products, are there ways for you to grow That line outside of the creditor insurance product, can that it is not capped by the government over time? Speaker 200:26:20Yes, for sure. I mean, we every year we spend time thinking about our product roadmap and We have a very robust list of additional products and services that we think our customers would be interested in. And For us, it starts with what can we offer that brings value to the customer. We're not looking to build and launch Products, just to chase revenue, that's a too short thinking type approach. We're thinking about what are the additional Products and services our customers would benefit from and we've got a really comprehensive list. Speaker 200:26:57Our customers of course use a wide range of different Benefits a wide range of different insurances, a wide range of other financial services. So I think as we build this business, the platform, Scale, a big customer base, that's just going to mean more and more opportunity to offer them other products and services. Our forecast today doesn't contemplate that. It's based purely on our core lending business. But as you think about the possibilities for GoEasy, What might be other drivers of growth or other ways for us to capture and build new revenue streams in the wake of the lower APR threshold? Speaker 200:27:35Certainly, we've got other types of products on our roadmap and how we're thinking about. Speaker 400:27:42Okay, perfect. And then just maybe just last question just on the revenue seat yield. At the onset of the rate cap news, you raised your rates on portion of your book. Just wondering if there were any other rate increases in Q3 or ones that you might be contemplating over the near term? Speaker 200:28:02Yes, we've done some pricing optimization pretty much every couple of months all year long. We continue to do that. You'll see that our credit quality is improving, which typically means lower Average yield or APRs and you'll see our product mix continues to shift, which typically means lower interest rates and APRs, But yet our actual weighted average interest rate has stayed very stable. So think of that as underneath we've made various pricing changes To compensate for the other pressures on the business, I don't think we're Intending to do material increases beyond this level, I think our positioning in the market today is a very good one. We're able to use the benefits of our scale to capture a disproportionate share of the market And in part of that is because we still are attractively priced to the borrower and able to under price relative to some of our competitors that have less scale. Speaker 200:29:08So It is very much still a journey of bringing down the weighted average interest rate for our customers over time. But I think at this point in our journey Where we've got other macro headwinds that have to be considered, the plan is to kind of hold the average rate steady. And then, of course, It will then drift down as the rate cap takes effect at some point next year. Speaker 400:29:29Okay, perfect. Those are my questions. Operator00:29:35One moment for the next question. And your next question comes from the line of Marcel MacLean with TD Securities. Your line is now open. Speaker 700:29:49Okay. Thanks for taking my question. First question is on the auto side. It's a 2 part question. Have you ever sized what the auto book is of the secured overall secured loans or of overall portfolio, I know it's one of the faster growing areas, just wondering where that sort of gotten to today. Speaker 700:30:12And secondly, If you're seeing any signs of weakness in the Canadian subprime auto market, I know there's been reports of the U. S. Market Seeing multi decade highs in terms of delinquencies. If this is a small portion of your overall book, it might be sort of hidden In there, so just curious on the loss side and if you could size sort of the relevance of the book overall. Speaker 200:30:39So with regards to your first question, so as you noted, we don't break out The detail related to every product, obviously, with the secured portion being 40% of our total book, Then you know that's around $1,400,000,000 or thereabouts of total secured volume. Today, the proportion between Our 3 largest secured products, home equity lending, powersports financing and automotive financing is reasonably proportionate like they're all several 100,000,000 each. So it's not a perfect 3rd split each way, but it's not wildly off that. Like they're all very meaningful products in our suites. Clearly, as we talked about, auto is the largest single product category. Speaker 200:31:28So inherently over time, you would expect that that will Overtake some of the other products, but we're also managing credit risk in a very conservative manner now. So we are probably the ones Moderating the rate of growth for that product most so versus the amount of demand that's available. I think if we were to find ourselves At some point in a better economic environment with less uncertainty, that product could probably grow even more quickly. As I said in the prepared remarks, it's one of the products that we're experiencing some of the strongest performance in, with the best overall average credit quality and the Most improvements in the average credit quality. So, it's performing very well. Speaker 200:32:11This past quarter was actually our lowest repossession rate that we've had since the launch of that product over 2 years ago. So it's just a good signal that the health of our business and the loans we've written Rob remains in good stead. As it relates to the second question regarding just the general consumer, There's definitely stress on the general consumer. I think inflation over time has compounded to create pressures. We've seen unemployment tick up. Speaker 200:32:40It was as low as 5 at one point and then 5, 2, 3, 5 and now it's 5.7. So It's under some pressure. GDP growth has obviously slowed down pretty meaningfully. Likely we're in a technical recession now or very soon, and that's what we've modeled into our forecast. So there's definitely some pressure on the consumer in general. Speaker 200:33:01I think the consumer has held up better than people There was an anticipation they'd be under much more pressure by now. So they've held up better than expected. Our customer segment, As we've talked about in the past, generally is more resilient than people perceive. Again, with only 1 out of 5 owning a home, They're not feeling in general the kind of stress and pressure that the average prime borrower is. If you think about where This particular cycle is hitting people and where they're expecting to be hit the hardest, it's really the homeowner that's got a mortgage renewal. Speaker 200:33:36And so for more than 80% of our customers, that's not a major pain point or a major stressor. So think the consumer overall is starting to feel some pressure, but less than people think. I think our segment of borrowers feeling even less just because of the circumstances they're And then our business as a whole, given all the work we've done on credit risk, is obviously in very good shape and we sort of modeled out What level of credit tolerance do we need to make sure as the environment worsens, we can continue to produce stable credit results. So we're trying to Outmanage the overall environment. Speaker 800:34:12The only other comment, Marcel, I'd add to that, it's Chase Nippo here, is just when comparing to the U. S. Comps when it comes to auto, you have to keep in mind that you have a significant proportion of that market that is subject to regular refi risk. Virtually all the loans that we do at GoEZ and in fact most Speaker 100:34:30of the loans that are done Speaker 800:34:30in the community market are straight purchase, whether that's new or used. Whereas in the United States, you have quite a large number of lenders that are engaged in 1st and second liens on autos, whereas we are only in first position on our entire book As is most of the auto lending that goes on in Canada. So it's not a surprise that you're going to see some more degradation in the United States when economic weakness comes about, But it is likely that you won't see an exact replica of that in the Canadian market because the structure of that market and how credit is underwritten is somewhat different. Speaker 700:35:02Okay. Thanks for that. Yes, that's very helpful. That's a good point. My second question is on the In terms of your visibility for your outlook, like demand for loans that looks like it's been as strong as it ever has this quarter. Speaker 700:35:20If you're only funding about 15% of applications, even if we do see maybe some drop off in demand at some point, How do you expect that to impact the business? Speaker 200:35:34So I think Generally speaking, if you look at past periods of economic stress and cycles, The data does show that at some point during a cycle demand for credit does soften somewhat. There's usually a point in a cycle when the consumer Comes a bit more conservative and cautious with the use of credit, but it's not a material softening. Most of the data points in terms of the public companies that I've done consumer lending through many cycles. The TransUnion credit data will show you might experience a softening of up to but no more than 10% Of softening in demand, we don't foresee that likely being the case for us given that We're operating in a market today where because of all the other macroeconomic challenges, we're experiencing much less competitive tension. I think as the rate cap comes in, we've often talked about how there will be a select few companies with scale that will become net beneficiaries of that, Whereas smaller companies struggle or fall away, we experience less new entrants that will push more demand to the select few companies that do have scale. Speaker 200:36:43So Yes, I think it's safe to assume that at some point credit demand may soften somewhat. But in our particular case where we've got So many products and channels that are in their earlier stage of development where we're still a small company in a very large market and where we're feeling less competitive tension, We're feeling very optimistic about the growth outlook. And as you say, you can see that in our numbers and in the trends today. So As I said earlier, more likely that we would revise guidance from a growth perspective up versus down, that's for sure. Speaker 700:37:19Okay. Thanks a lot. And if I could just sneak one point of clarification on your prepared remarks. I hear that the credit Guidance incorporates 7% plus unemployment rate at the high end. Did I get that right? Speaker 200:37:36Yes. So just to clarify, when we develop a forecast and We have to set our credit tolerance levels that we're comfortable with across our range of products. And when we calculate our loan loss provision under IFRS 9, We have to factor in the macroeconomic outlook. And the way that that mechanically works is we figure out the correlation various macroeconomic variables, which for us are inflation, unemployment, oil and GDP, and then we purchase A set of economic forecasts, in our case from Moody's and you can buy these forecasts from many of the big firms. We then work to weight the different economic scenarios so that they're probability weighted and then that computes theoretical economic outlook. Speaker 200:38:30We then use the correlations to determine what that would mean for the level of performance and stress on the book And then reverse engineer what credit tolerance adjustments we need to make to ensure that we can maintain stable credit through that period of economic stress. Our base case and of course we've got downside cases, we've got upside cases and we stress tested a variety of circumstances, but the base case we're using That we're assuming is the sort of down the fairway scenario is a mild to moderate recession as that's the most common economic outlook. What that Statistically means is unemployment rising close to 7%, meaning that our base case, the midpoint of all of our ranges is contemplating unemployment going close to 7. If it stays in the low 6s, there will be upside to our plan. If it goes into the 7s or 8s, then we'll probably be in the higher end of our Loss forecast range. Speaker 200:39:24So our range kind of contemplates for more stress and less stress, but the base case at the very bare minimum, We're expecting a mild to moderate recession with unemployment rising to about 7%. Yes. Speaker 800:39:37Okay. I appreciate that. Speaker 700:39:38Thank you very much for taking my questions. Operator00:39:44One moment for the next question. And your next question comes from the line of Stephen Volund with R. J. Your line is now open. Speaker 900:39:56Thanks guys. Just one question for me. Obviously, the organic growth has been pretty robust now for several quarters, maybe for several years. Can you just talk about With the possible rate change here in Canada, the cap, have you seen M and A opportunities that have presented itself? And what if you have seen that, is it valuation? Speaker 900:40:19Is it the type of book? Maybe just talk about the M and A pipeline Speaker 200:40:26Yes. So there was a period there where it was a little bit Soft and it felt like everybody was taking a wait and see approach. I'd say in the recent months, we've seen A little bit more activity, more opportunities come across our desks. We're engaging in more conversations. So And I don't think it's so much about regulation so much as it is just the environment. Speaker 200:40:52As the environment gets tougher, Speaker 100:40:55That tends to sometimes be Speaker 200:40:56a catalyst for businesses to do strategic things. And so we're seeing some of that activity. As we've talked about for many years now, we are always open and willing to explore acquisition and strategic investments. We look at them regularly. We just have a very high standard and a very high hurdle rate that the number of Opportunities we pursue end up being quite few, given our robust organic growth. Speaker 200:41:27So We're hopeful that we will find another great opportunity at some point. There's nothing imminently in the pipeline that It's going to happen in the next few weeks, but we do have iron in the fire and we are looking at opportunities and We continue to assess them and find one and try to find one that makes strategic sense for us. Speaker 900:41:50And is it is your focus on more Is it about the book, like if an unsecured loan book came available, do you look at the book or the distribution? Is it both or is your focus really on secured products going forward? Speaker 200:42:05We're open to both. I think that In Canada, where we have the platform already, we would be more looking for Opportunities to buy maybe a loan portfolio and maybe take another company out of the competitive market. Unlikely, we're trying to buy Going concern business with a new platform when we already kind of have the platform we need. Maybe there is a scenario where we would buy a business or invest in a That's because it gives us some new capability or some new products, but those are going to be far and few between given how evolved our platform is here. We were to consider another market, which we've talked about in the past, we're always open minded to. Speaker 200:42:47There we would probably be more focused on like a traditional branch based loan business. As we're building experience in point of sale and auto, we might be more open minded to those categories because we've got much more experience now in them. But the core branch model is probably still our more favored and desirable expansion methods. So those are the kinds of things we're looking at. Those are the kinds of lines of business that we're evaluating. Speaker 200:43:15Again, nothing at this exact moment, but Very hopeful that we'll find something that will really progress the company and launch it forward strategically at some point. Speaker 900:43:26Okay. Appreciate that. That's all for me. Thanks. Operator00:43:40And your next question comes from the line of Doug Cooper with Beacon Securities. Your line is now open. Speaker 1000:43:47Hi, good morning everybody and Congratulations on an excellent quarter. Just one quick one for me on the debt refinancing. You said you're highly confident of doing that before the end of the year. I think it's US550 $1,000,000 currently at US565 dollars Just in terms of this quarter, so this quarter, I'm assuming your underwriters would want to see that out of Speaker 300:44:10the way and want to Speaker 1000:44:10be able to review that. So it was a great time obviously to have a quarter like this. So what are your thoughts in terms of what kind of yield do you have to issue debit? And when can you We've got both 5 more weeks before year end. So maybe just comment again. Speaker 300:44:32Yes. So, great question. It would be our expectation to execute on a refinancing transaction Prior to it becoming current, so I'd say imminent is what I would say. And naturally, you referenced The current rate on that debt facility running in the mid single digit range, we would expect that Based on where rates are at today, to be in the high single digit range, but certainly looking Operator00:45:16And we have no further questions at this time. I will now turn the call back over to Jason Mullins. Speaker 200:45:23Great. Well, thank you everyone for taking the time to join our call today. We appreciate it and we look forward to updating you next when we close-up 4th quarter results Early next year. So thank you very much and have a fantastic day. Bye now. Operator00:45:36This concludes today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by