goeasy Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2024

There are 7 speakers on the call.

Operator

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Goeasy Limited Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. Mr. Farhan Ali Khan, you may begin your conference.

Speaker 1

Thank you, operator, and good morning, everyone. My name is Farhan Ali Khan, the company's Chief Strategy and Corporate Development Officer, and thank you for joining us to discuss Goeasy Limited's results for the Q3 ended September 30, 2024. The news release, which was issued yesterday after the close of market, is available on Cision and on the Goeasy website. Today, Jason Mullins, Goeasy's President and CEO, will review the results for the Q3 and provide an outlook for the business. Al Khoury, the company's Chief Financial Officer, will provide an overview of our capital and liquidity position.

Speaker 1

Jason Appel, the company's Chief Risk Officer, is also on the call for questions. After the prepared remarks, we will then open the line for questions. Before we begin, I'll remind you this conference call is open to all investors and is being webcast through the company's investor website and supplemented by quarterly earnings presentation. For those dialing in directly by phone, the presentation can also be found directly on our investor site. Analysts are welcome to ask questions over the phone after management has finished their prepared remarks.

Speaker 1

The operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to this call and to use management's comments and responses to questions of any coverage. However, we ask that they do not quote callers unless an individual has granted their consent. Today's discussion may contain forward looking statements. I am not going to read the full statement, but will direct you to the caution regarding forward looking statements included in the MD and A.

Speaker 1

I will now turn the call over to Jason Mollins.

Speaker 2

Thanks, Varhan. Good morning, everyone, and thank you for joining the call today. The Q3 was the strongest in our history, characterized by record originations, strong loan book growth, stable credit and record earnings and a very healthy return on equity. Additionally, subsequent to the quarter, we issued approximately CAD 700,000,000 Canadian equivalent of senior unsecured notes to bolster our debt funding capacity for our ambitious growth plans. A continued increase in market share and favorable competitive dynamics led to a robust volume of applications for credit at 645,000 up 22% from Q3 last year, generating 48,600 new customers, an increase of 14%.

Speaker 2

Loan originations during the quarter were a record $839,000,000 up 16% compared to $722,000,000 produced in the Q3 of 2023. Organic loan growth was a record Q3 of $255,000,000 while our loan portfolio finished the quarter at $4,390,000,000 up 28%. Unsecured lending continues to be the largest product category at 55 percent of loan originations. And within our direct to consumer channel, the average loan portfolio across our branch network rose to a new high of $6,600,000 up 18%. We also continue to make progress in scaling our automotive financing product with volume exceeding $150,000,000 of quarterly originations for the first time in company history.

Speaker 2

This quarter, we grew our dealer network to over 3,700 dealers and continued to experience an increase in funding volume from multi dealer location groups. During the quarter, home equity lending volumes were also up 57% year over year with consistent and conservative LTV ratios at approximately 65% inclusive of our loan. This 2nd mortgage product secured by residential real estate is primarily used for debt consolidation and major home repairs as one of our best performing products with the lowest credit risk. During the quarter, the overall weighted average interest rate charged to our customers was 29.3%, down from 30.1% at the end of the Q3 last year. Combined with ancillary revenue sources, the total portfolio yield ended the quarter at 33.2%.

Speaker 2

The portfolio yield finished slightly lower than our original forecasted range as a result of increased growth in lower APR secured loan products, less interest collected on past due accounts and an accounting adjustment that moves in sales and marketing labor expenses into the deferred customer acquisition expense line. With these items now embedded in the business, we expect to maintain the yield going forward in the coming quarter. With that, total revenue in the quarter was a record $383,000,000 up 19% over the same period of 2023. We also continue to be pleased with the quality of our loan originations and credit performance of the overall portfolio. The dollar weighted average credit score of our 3rd quarter loan originations was 624, the highest in company history for the 2nd consecutive quarter, highlighting the benefits of our credit adjustments and improving product mix.

Speaker 2

Secured loans now also represent a record 45% of our loan portfolio. Despite the weakening economic environment and a modest elevation in delinquency relative to last year, our credit losses have remained stable as a result of proactive credit tightening and the higher proportion of our secured portfolio secured by hard collateral. The annualized net charge off rate during the Q3 was 9.2%, in line with our forecasted range of between 8.75% 9.75% for the quarter and a slight quarter over quarter improvement from 9.3%. While total portfolio delinquency continues to be higher than the prior year related to both macro conditions and the recent tightening of our certain collection practices, we experienced a sequential quarterly reduction at 7.4%, down from 7.7% in the 2nd quarter. Our loan loss provision rate rose slightly to 7.38% from 7.31% in the prior quarter.

Speaker 2

We are continuing to experience the benefits of scale through operating leverage and productivity improvements. During the Q3, our efficiency ratio, specifically operating expenses as a percentage of revenue, improved to a record 23.1%, a reduction of 550 basis points from 28.6% in the Q3 of the prior year. After adjusting for unusual items and non recurring expenses, we reported record adjusted operating income of $163,000,000 an increase of 25% compared to $130,000,000 in the Q3 of 2023. Adjusted operating margin for the Q3 was a record 42.6 percent, up from 40.4% in the same period of 2023. Adjusted net income was a record 75,100,000 up 15% in the Q3 of 2023, while adjusted diluted earnings per share was a record $4.32 up 13% from $3.81 in the Q3 of 2023.

Speaker 2

Adjusted return on equity was also above our target level of return at 25.7% in the quarter. With that, I'll now pass it over to Hal to discuss our balance sheet and capital position before providing some comments on our outlook.

Speaker 1

Thanks, Jason. We continue to build our long track record of obtaining capital to support our growth. Subsequent to the quarter, we took advantage of the gradual improvements to the interest rate environment and issued US400 $1,000,000 and we also issued CAD150 1,000,000 of 6% senior unsecured notes due to 2,030. This transaction marked OEZ's inaugural unsecured notes issuance in the Canadian capital markets, presents a new avenue of raising debt capital in the future to fund our growth plan. In connection with the offering, we currently entered into a cross currency swap agreement, which serves to reduce the Canadian dollar equivalent cost of borrowing on the notes to 5.98% per annum, a full forty basis points better than the notes we issued in July.

Speaker 1

Based on the cash on hand at the end of the quarter and the growing capacity under our existing revolving credit facilities, as well as the aforementioned balance sheet enhancements implemented following the quarter, we have approximately $1,800,000,000 in total funding capacity. At quarter end, our weighted average cost of borrowing was 6.7% and the fully drawn weighted average cost of borrowing was 6.6%. We also continue to remain confident that the capacity available under our existing funding facilities and our ability to raise additional debt financing is sufficient to fund our organic growth forecast. Business also continued to produce a growing level of free cash flow. Free cash flow from operations before the net growth in the consumer loan portfolio was $126,000,000 in the quarter, while the trailing 12 months of free cash flow exceeded 381,000,000 dollars As a result, we estimate we can currently grow the consumer loan book by approximately 300,000,000 per year solely from internal cash flows without utilizing external debt, while also maintaining a healthy level of annual investment in the business and maintaining the current dividend.

Speaker 1

Once our existing and available sources of debt are fully utilized, we can also continue to grow the loan portfolio by approximately $500,000,000 per year solely from internal cash flows. Subsequent to the quarter, we also leveraged our current liquidity position to take advantage of opportunistic share repurchases and purchase for cancellation approximately $9,000,000 worth of shares. Based on the current earnings and cash flows and the confidence in our continued growth access to capital going forward, the Board of Directors has approved a quarterly dividend of $1.17 per share, payable on January 10, 2025 to the holders of common shares of record as at the close of business on December 27, 2024. I'll now pass it back over to Jason.

Speaker 2

Thanks, Hal. As communicated in July, I will be transitioning out of the role as President and Chief Executive Officer at year end, while remaining as a Director on the Board. We continue to make progress with our global search for a seasoned experienced executive and are currently assessing candidates. In the interim, the Board announced today the appointment of David Ingram as Interim Chief Executive Officer effective January 1, 2025. David assumed the role of Executive Chairman of the Board on January 1, 2019, prior to which she was Goeasy's Chief Executive Officer from the year 2000 to 2018.

Speaker 2

Between David and myself, there is 38 years of combined Goeasy management experience on the Board. The company is in an excellent position with a very strong executive team to continue its 23 year plus track record of delivering industry leading performance. As we head into the last quarter of the year, we expect to grow the loan portfolio between $205,000,000 $230,000,000 We also expect to maintain the current total annualized yield on the loan portfolio, which should finish between 33% 34%. Based on current payment and collection trends, we expect the annualized net charge off rate to remain within the same range as previously guided at 8.75% and 9.75%

Speaker 1

in the quarter. I want

Speaker 2

to once again thank the entire Goeasy team as we owe the outstanding results and performance year to date entirely to them. I am more convinced than ever that we have a winning team who are deeply passionate about our vision. They truly play an essential role in the financial system by serving the millions of hardworking Canadians that rely on us for access to credit to fuel their everyday lives and help them graduate back to prime. Lastly, as this will be my final quarterly earnings call as the CEO for Goeasy, I'd like to publicly thank all the many research analysts that have spent considerable time getting to know our business and providing coverage over the years and the countless shareholders that have thoughtfully invested in our company and shown the management team and I incredible support and confidence. After nearly 15 years with the company and 6 years as CEO, I will now transition out of a management role while remaining as a Director on the Board, where I hope to provide value to the company for many years into the future.

Speaker 2

From the small $15,000,000 loan portfolio when I joined in 2010 to the nearly $4,400,000,000 consumer loan portfolio we have today, it's been a truly rewarding journey working with the most incredible people and I could not be more proud of the business we've built together. And as I have always said, I still feel like we are truly just getting started. With those comments complete, we'll now open the call for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question is from John Aiken from Jefferies. Your line is now open.

Speaker 3

Good morning. I don't want

Speaker 1

to take anything away from the

Speaker 3

impressive performance you guys had on your efficiency, but I was hoping to dive into details a little bit more on expenses. Can you speak to the decline that we saw in the salaries expense in the quarter and what we may anticipate going forward in that line item? And then secondarily, I'm assuming that given the higher focus that you're having on collections, we may start to see a higher pace of growth in that line item moving forward. Any commentary would be greatly appreciated. Thank you.

Speaker 2

Yes, sure. Happy to. Thanks for the question. So yes, you did see in the quarter a decline in the salary and benefits line. I believe the 2nd quarter was around $54,000,000 that declined to around $44,000,000 this most recent quarter.

Speaker 2

You should think of the run rate of that being around $50,000,000 and that's what you should expect going forward. That step down in the 3rd quarter was really related to 2 items, split roughly between a reduction in variable compensation, notwithstanding the strong performance as you've noted, we're a bit behind what our internal plan was and some of our internal goals. So that means as we adjust our year to date accruals for variable comp, both stock based and annual bonuses, we had to make an adjustment there. And then the other item, which was mentioned in the prepared remarks, was that there was a one time adjustment where we moved certain labor and sales costs to the deferred acquisition expense line. So no net impact effectively over the long term, really just moving what was some costs that would normally show up in the labor line related to sales and marketing.

Speaker 2

That's now going to be a deferred acquisition expense. And that was, as noted earlier, what also put a little bit of downward pressure on the yield. So those are the 2 kind of things that you can use to bridge the gap. But you should expect that around that $50,000,000 level is the right kind of run rate of expenses coming out of Q4 and beyond.

Speaker 3

And then, I guess the pace of growth on collections, is that going to impact the line moving forward?

Speaker 2

No, we don't think so. I mean, our collections infrastructure today, both internally and third parties that we use is capable of managing, frankly, a meaningfully larger network of accounts. So you should not expect to see any real change in the collections expense line. We're in more than good enough shape to manage it.

Speaker 3

Great. Thank you. I appreciate the color.

Speaker 2

No problem.

Operator

Thank you. Your next question is from Nick Schraebe from CIBC Capital Markets. Your line is now open.

Speaker 4

Thanks. Just wanted to touch on credit in the quarter. It looks pretty stable sequentially. Because the primary driver of higher delinquencies in Q2 was deliberate action to tighten collection practices with an emphasis on secured loans, Is the expectation that as those delinquent loans age, they will roll through the delinquency buckets and eventually roll off in such a way that you should start to see a declining delinquency ratio over the next few quarters without a corresponding uptick in the loss rate? Like absent any sort of shock scenario, is that kind of the baseline expectation?

Speaker 2

Yes, that's directionally correct. I think that given if you think about the increase in the delinquency gradually from kind of 5 and change to around 7 and change over the last year, that's been a gradual increase over time, driven in combination by obviously the more challenging macroeconomic environment. And then as you noted, in the Q2 in particular, we started to tighten collection practices and that pushed up the delinquency a little further as well. I suspect that it's going to take a few quarters before that delinquency begins to gradually decline and part of that of course will also be dependent on macroeconomic conditions as well. But yes, to your point, because the bulk of the increase comes from our secured loan portfolio, which is now half our business, where those accounts don't roll through the delinquency cycle at the same rate as unsecured loans.

Speaker 2

And when they do roll, you've also then got a hard asset to be able to recover, which generally gives you back about 40% of the balance at the time you recover and season liquidate the assets. That's why even though you'll see the delinquency is up 2 30 basis points year on year, The losses are only 40 basis points year on year from 8.8 to 9.2. That's simply because again you get less secured loans rolling through the buckets and when they do you get the benefit of a large recovery from the asset. So we suspect that the delinquency levels that we're experiencing right now kind of in the low to mid-7s, losses that are in the low to mid-9s, that's probably where it will be for another couple of quarters. And then we suspect that the credit adjustments we've made and hopefully the rate reductions affecting the macroeconomic conditions favorably will start to allow for that delinquency rate and that loss rate to trend down in 2025.

Speaker 4

Okay. That's great. And then are you able to elaborate on the search process for your successor and just your experience so far? And I guess what sort of qualities, attributes, experience the Board is looking for?

Speaker 2

Yes, sure. So as mentioned the previous quarter, the Board has put together a search committee that exists of several members of the Board, our Head of Talent here internally within the management team, myself, our Board Chair and then the search partner. We've combed the globe for talent and have spoken to and screened a pretty large number of candidates. We're at the stage now where we have a smaller handful of people that we're progressing through sequential series of more deeper interviews and discussions and assessing fit. So don't, of course, have someone that's gone all the way through the process and we're ready to commit to and announce yet, but we are making good progress.

Speaker 2

Nonetheless, as we kind of said previously, this is an important role. We need to get it right. We need to take our time. And given we've got such a strong management team, a strong Board, as noted, David Ingram, our Board Chair and former CEO, is in a position to be able to step back in on an interim basis to be able to bridge the gap. That gives us a lot of confidence that even if we don't have someone fully selected and appointed by the end of the year and it does spill into next year, we're in excellent shape to manage that.

Speaker 2

So we'll keep everybody posted and of course as soon as we have a candidate make that announcement, but we're making good progress in the search and as I say, we've got a good team, so we don't want to rush this either.

Speaker 4

Okay. Thanks. I'll turn it over.

Operator

Thank you. Your next question is from Etienne Ricard from BMO Capital Markets. Your line is now open.

Speaker 1

Thank you and good morning. Two questions from me on the competitive landscape. First, have you seen changes in behavior as we approach the implementation date of the 35% rate cap? And second, rising financing costs were a headwind for many of your competitors over the past couple of years. How do you expect competition to evolve in a declining rate cycle?

Speaker 2

So in terms of competition right now, nothing has really changed. It continues to be similar to what it has for the last year or 2, which is somewhat softer than we would have previously experienced. As we've said over the last couple of years, there were a number of smaller companies that we've seen exit the market and there's really been no new entrants. So the market and competitive dynamics are pretty similar today as they have been for the last year, which is quite constructive. We haven't really seen anyone materially change as has been the case with ourselves, their behavior leading up to the rate cap date.

Speaker 2

There is no reason to proactively start declining customers in advance of that date that we can give credit to today. So we continue to still offer loans between 35% and 47% for those customers that are in that credit bracket. I suspect a lot of companies like ourselves that have done credit tightening over the last few years, have that has largely affected many of the customers, that would otherwise lose access to credit at 35%. So, some of those people are already now being rejected unfortunately. So no real change in behavior.

Speaker 2

I think that like ourselves, the industry is getting prepared to adapt and implement accordingly in January. And as we said before, unfortunately, there'll be some customers on the outskirts that will lose that access. So otherwise, it's steady as she goes and it's a pretty good competitive environment for us. As it relates to rates, yes, generally speaking, as rates come down and the economy improves, that is always going to stimulate some increased level of competition. Rates are the raw material for this balance sheet heavy lending business.

Speaker 2

So as those costs come down, that makes it easier for companies to obtain capital to lend. However, we still maintain the view that with that rate cap in place, it makes for a meaningfully higher barrier to entry. As we've educated investors many times, when you first enter nonprime lending and do not have the data to develop sophisticated credit models, losses can easily be in the high teens or even 20%. And at the beginning, it's often that you're paying double digit cost of capital in the low to mid teens, again, just as we did when we first began. So if you've got 20% losses and say 12% cost of capital and you're at 32 points, that rate cap makes it very difficult for businesses to enter non prime lending and give it a real go.

Speaker 2

So while rates declining will stimulate more competition, I think the combined effect of the rate cap will still make the barrier to entry pretty high and we wouldn't expect to see a ton of new competition in the years ahead.

Speaker 1

Okay, interesting. And switching topics, Q4 sequential loan growth appears to be moderating a little bit from recent quarters. Is this on the back of tightening credit standards? And if so, for wet loan products or borrower segments, are you a bit more cautious on?

Speaker 2

Yes. So it's a little bit of credit tightening and a little bit of also just seasonality. I think if you look at Q4 last year, loan growth was not far off where we're projecting to be. So that kind of range of between 200 on the low end and 260 on the high end, we've pretty much been consistently within that range every quarter now for about 2 years. But of course, it does ebb and flow somewhat due to various seasonal factors of demand.

Speaker 2

Generally speaking, yes, the ongoing tightening we've done to credit does reduce the amount of lending that we're doing and we continue to do that just to be extra cautious and conservative. Most of the time when we tighten credit, it has the most pronounced effect on the higher APR unsecured loan customers because that's generally where the we have the highest marginal credit risk. That's also why over the last several quarters, we've talked about that mix shift being more pronounced towards secured. Not only is that driven by growth in secured, it's driven by as you tighten credit, you're often tightening the unsecured product with the highest losses first and foremost, because that's where you get the biggest bang for your buck when trying to reduce risk in the portfolio. So that is part of what is driving the current loan growth trends.

Speaker 2

But even at the range we've provided, we feel very good that it's a very healthy level of growth and that we're being responsible and selective in the loans that we're writing.

Speaker 1

Great. Thank you and best wishes for your next step, Jason.

Speaker 2

Thank you.

Operator

Thank you. And your next question is from Steven Bolland from Raymond James. Your line is now open.

Speaker 3

Yes. If you don't mind revisiting the delinquency, when we look at the schedule from 90 days to 180 days, I mean, I guess the language there says that that might be primarily secured lending or secured loans, meaning I'm just trying to get an idea like the collections, It's definitely harder to collect or recover. Nobody wants to use the word repossess, but certainly these are movable assets, if they're power sports, if they're autos, if they're things of that sort. I'm just wondering like that bucket of 0.7, 0.7, 0.7 from the 90 to 1.80 that represents the 2% higher rate. I'm just wondering after 180 days is there's a good portion here that might be I guess written off that you're just not going to be able to recover the asset.

Speaker 3

I'm just trying to get an idea of what enhancement you've done for collections and how recoverable some of these assets are?

Speaker 2

Yes. So first of all, all of the loans between $90,000,000 $180,000,000 are secured. We write off all the unsecured stuff at $90,000,000 So anything within that stage or range of delinquency, all of it would have a secured asset as hard collateral attached to it. If it's secured by residential real estate, we have a very high success and a very high recovery rate, essentially almost 100%, which is why on that product the losses are very low. So even though account could move through the delinquency cycle, there's a very good chance that if we go to recover the piece of real estate, we get back the majority if not all of our proceeds either before it charges off or immediately after as a recovery.

Speaker 2

If it's a vehicle or a piece of power sports or recreational vehicle equipment, generally speaking, we find that we're able to recover about 80% of those assets. And when we liquidate those assets, we generally get $0.40 to $0.50 on the dollar in the value of those assets relative to the amount of principal balance that's owed. So the reason you don't see the same roll through to charge offs from the delinquency of those secured products is, 1st of all, a lesser proportion rolls from 1 bucket to the next than, say, the unsecured. And of course, we have a very high success rate. And if we need to recover the asset, a lot of customers, frankly, voluntarily provide it back, getting the asset and being able to liquidate it, sometimes before charges off, sometimes after a charge is off, in which case we get a recovery.

Speaker 5

Okay.

Speaker 3

So you're pretty confident that delinquency, although it's going to stay elevated, that it's not going to turn into that into more charge offs on a higher level?

Speaker 2

That's right. We expect these levels to be roughly. Yes, that's right. We expect this at the level if you think about the when the delinquency was, say, a year ago in the 5, losses were in the high 8s, 8.8, I believe it was, same quarter last year. Now it's 7 and change, losses are at like 9.2, 9.3 the last few quarters.

Speaker 2

The 40 to 50 basis points of increase in the loss rate corresponds to the 2 20 basis points of increase in delinquency. So think about it as it's about a quarter or so of the delinquency that will roll through. And that's why you've got the losses today in the low 9s. The other proportion of that increase in delinquency, the other 2 thirds, that is either customers that successfully repay or they might just stay delinquent. Keep in mind, a lot of customers might go 2 or 3 or 4 months past due and then they start paying again on time.

Speaker 2

But if they do that, we will often keep them in the delinquency bucket and they may sit there for a while. And then you of course also have the customers where we recover the asset and post the recovery as well.

Speaker 3

The second question is just I presume this

Speaker 1

is more for LendCare.

Speaker 3

I know in the past you did HVAC upgrades, installations, things of that. I'm just wondering with the Ontario ban on the NOCE, was that has that had an impact on Lend Care? Has it had any impact on the types of business you're doing? And was NOCE, was that something that was frequently used by your company at all?

Speaker 2

Very minor. We have a very small I mean, very small home improvement portfolio, but that's a product category that we've never really meaningfully put a ton of effort behind. Two reasons. 1, we have the secured home equity product, which is a second mortgage that is a full security lien, which is different than the NOZY and that product has been phenomenal for us. So that kind of serves a lot of those major home repairs.

Speaker 2

And then secondly, home improvement is a category where we found there are some competitors that have very different sort of economic hurdle rates than we do in that particular product category. And so it's not one that we put a ton of emphasis behind because we can't we don't believe today generate the kind of returns in that category that we would expect. And so the business there is very small. So the NOI impact has been basically negligible for us.

Speaker 3

Okay, that's great. Anyway, I just want to say, Jason, congratulations on the new role down south and hope you keep in touch with us up here in the north.

Speaker 2

Appreciate it. Thanks.

Operator

Thank you. Your next question is from Jaeme Gloyn from National Bank Financial. Your line is now open.

Speaker 6

Yes, thanks. Just want to dig into delinquencies as well, but this time in the 1 to 90 day bucket, which was down almost 100 basis points quarter over quarter, Maybe some of the timing of the quarter end might have had an impact there, but can you talk about what you might attribute that improvement to?

Speaker 2

Yes. So if you think about the tightening collection practices that we referenced a quarter ago, those practices when you tighten are going to affect a very specific subset of customers that are more reliant on us being more helpful and more flexible. And so once that pool of customers, we tighten collection practices, starts to come through the delinquency cycle, we still, as we saw in the 1 to 90 bucket, expect delinquency to run at historical levels and over time improve based on the previous credit tightening adjustments and product mix that we've done. So we're quite happy that we've seen that even though we've got a bit more accounts, particularly secured accounts in the later stage, to your point, we've got a reduction in the delinquency in the earlier stage buckets, which bodes well for how we think about losses in 2025. Hence, why we said, as noted earlier, that we're still feeling very comfortable about stable losses and or improving losses in 2025.

Speaker 6

Okay, great. And in terms of the tightening cycle that you've been on, some tightening of underwriting standards in Q2 and Q3, Is the view right now that you're in a comfortable position and tightening cycle in Q4, there likely won't be any other sort of minor tweaks? Or are you still in a tweaking phase at this point and perhaps as we look into 2025, stable unemployment today, but let's see what the outlook has in store for maybe loosening of those underwriting standards? Where are you in sort of that timeline?

Speaker 5

Hey, Jamie, it's Chase Menteng here. I'll take that one. I would say we continue to maintain an overall conservative credit posture just given that the economic performance continues to be a tad uneven in light of just today's unemployment rate just holding its own. We continue to be, I'd say, opportunistic when it comes to both loosening and tightening credit. We do anticipate tweaking around the edges to use your comment in the Q4, just to make sure that the 2025 runway looks clear.

Speaker 5

Most of the tightening we anticipate doing is probably more to address the continued growth and insolvency that we see across Canada as opposed

Speaker 3

to the underlying performance of

Speaker 5

the credit that we already have booked. But as we look into 2025, I would say, depending on how far the bank goes through its rate release cycle, we would tend to probably maintain ourselves within a neutral to slightly conservative posture. But like anything else, be opportunistic as macroeconomic conditions change. So right now, I just look at it as being slightly conservative with

Speaker 3

the goal to moving toward more neutral and possibly even opening up as we look to the back half of twenty twenty five.

Speaker 2

I think, Jaeme, one of the longer term sort of upside tailwinds that's not factored into our outlook is the potential that when economic conditions do improve, and they would have to improve by a healthy level, so not just unemployment ticking down slightly, but if we saw like a nice healthy consistent marked improvement in unemployment, say down into the 5s again as an example, we would have the opportunity to slightly loosen credit criteria again. All lenders go through a sort of cycle of tightening and loosening depending on macroeconomic conditions. And again, just as a reminder and perspective as to sort of how much tighter credit criteria is today, we mentioned earlier that applications for credit were up 22% same quarter year on year. The number of loans funded year on year is only up about 5%. So that difference is effectively almost all related to credit and underwriting, which means that if and when that opportunity to arise, that's going to be a nice tailwind of incremental growth in the future that's currently not in our kind of 2025%, 20 26%, 20 27% forecast.

Speaker 6

Okay, great. And lastly, just around the revenue yield and it sounds like the change in geography of some of those marketing expenses moving up into the revenue yield line. Is this was this something that just refresh memory, was it all was all this baked into the 25%, 26% guidance on both the revenue yields and the operating margin?

Speaker 2

Yes. Yes, that's right. If you think about what the yield is as we go forward and we've got a pretty decent step down in the yield guidance already embedded into next year due to the rate cap, the kind of like 20 basis points of impact that this change had rolling forward doesn't alter our view on our guidance. So it's a relevant, but otherwise fairly insignificant geography change. So no real change on the outlook from a yield perspective.

Speaker 2

Obviously, we'll update our guidance in February as we always do. But as we sit here today, we've kept and maintained a forecast for the next 3 years up to date and nothing at this point is giving us any pause for concern on the need to change those ranges.

Speaker 6

Yes, perfect. Thank you.

Operator

Thank you. There are no further questions at this time. Please proceed.

Speaker 2

Great. Well, again, thank you everyone for taking the time to join and participate in today's call and we look forward to updating everyone on our next quarterly call in February. Thanks very much. Have a great day.

Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

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goeasy Q3 2024
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