Q1 2025 goeasy Ltd Earnings Call
Speaker Change: [music].
Good morning, My name is Dion and I will be your conference operator today.
This time I would like to welcome everyone to the go easy limited first quarter 2025 earnings 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.
I would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.
Speaker Change: Now I will be turning over at a time to Farhan Ali Kahn you may begin your conference.
Speaker Change: Thank you operator, and good morning, everyone. My name is Farhan Ali Kahn, the company's chief strategy and corporate development officer, and thank you for joining us to discuss what we see limited results for the first quarter ended March 31st 2025.
Speaker Change: The news release, which was issued yesterday after the close of market. It is available on decision and on the go with your website.
Speaker Change: Today, David Ingram Executive Chairman, who will review the results for the first quarter and provide an outlook for the business Hello, Corey The company's Chief Financial Officer, who will provide an overview of our capital and liquidity position can reach the company's chief Executive Officer, and Jason Appel, The company's Chief risk Officer are also on the call.
Speaker Change: After our prepared remarks, we will then open the line for questions.
Speaker Change: Before we begin I remind you that this conference call is helping to all investors and is being webcast at the company's investor website and supplemented by our quarterly earnings presentation for.
Speaker Change: For those dialing in by phone presentation can also be found directly on our investor's side analysts.
Speaker Change: Analysts are welcome to ask questions over the phone. After management has finished their prepared remarks, the operator will pull for questions and we will provide instructions at the appropriate time.
Speaker Change: It's just media are welcome to listen to this call and use management's comments and responses to questions at any coverage. However, we would ask that they do not quote callers unless that individual has granted their consent.
Speaker Change: Today's discussion may contain forward looking statements I'm not going to read the full statement I will direct you to the caution regarding forward looking statements included in the MD&A.
David Ingram: I will now turn the call over to David Ingram.
David Ingram: And good morning, everyone and thank you for joining the call today.
David Ingram: We produced strong loan growth stable credit performance and improved operating leverage while also raising over $550 million of additional capital and adding a spot once again in the top 50, what places to work in Canada. All of this is a testament to our team and their passion for helping Canadians, but no prime credit get access.
David Ingram: As to the financial products that support that lives.
David Ingram: A continued increase in market share and favorable competitive dynamics led to a record first quarter with applications for credit at 672000 up 10% from Casa what last year generating 43500, new customers, an increase of 8%, which is a record for a Q1 period.
David Ingram: The robust volume of applications led to originations and the culture of $677 million.
David Ingram: Loan growth for the first quarter was 119 billion above the company's forecast in a range of between 160 million 185 million.
David Ingram: Culture, and our loan portfolio finished at $4 79 billion up 24% from the prior year.
Unsecured lending continues to be the largest part of category at 62% of loan originations and within that direct to consumer channel. The average loan portfolio across our branch network rose to a new high 7.2 million pop Raj Twitch set.
David Ingram: Yeah.
David Ingram: We continue to make progress in scaling our automotive financing products with record first quarter originations of $150 million up 30% year over year.
David Ingram: This call to a garage dealer networks with a 4000 dealers and continue to experience an increase in funding volume for multi location dealer groups.
David Ingram: During the quarter home equity lending volumes are also up 29% year over year with consistently conservative LTV ratios at approximately 65% inclusive inclusive about load.
David Ingram: The second mortgage product secured by residential real estate is primarily used for debt consolidation major home repairs and is one of our best before with products with the lowest credit risk.
David Ingram: The overall weighted average interest rate charged to customers. During the first quarter was 28, 4% down from 30% at the end of the first quarter last year combined with ancillary revenue sources. The total portfolio yield finished at 31, 3%.
David Ingram: The portfolio yield decline year over year was due to growth of secured loan products, which carry lower rates of interest toxic credit underwriting at huntsman to reduce risk and implementation of the new interest rate cap.
David Ingram: While the total yield and the coach was at the low rated about full cost at range. We are addressing this through the opportunity and product pricing and collections optimization efforts.
David Ingram: We estimate the total yield and the interest in new interest rate cap at bar, but it was based on a combination of pricing on originations how much we can increase pricing below the rate cap.
David Ingram: The run off of that legacy portfolio about 35%.
David Ingram: We are fine tuning those assumptions do not expect any long term structural difference, what we had guided but rather some movement during the quarters.
David Ingram: Total revenue in the courts was 392 billion up 10% over the same periods in 'twenty 'twenty four.
David Ingram: We continue to be pleased with the quality of our loan originations and credit performance of the overall portfolio.
David Ingram: The dollar weighted average credit score of that first quarter loan originations was 632, the highest in the company's history, highlighting the benefits of that credit adjustments and improving product mix.
David Ingram: First quarter was also the 13th consecutive quarter with a dollar weighted average credit score of our originations was great. So there's 600.
David Ingram: Secured loans now also represent a record 46% of our loan portfolio.
David Ingram: Despite the weakening economic environment by a delinquency in the portfolio relative to last year, our credit losses have remained broadly stable as a result of proactive credit tightening and the high proportion about portfolio secured by hard collateral.
David Ingram: Is that customers adapt to managing their finances within this new reality of the economic uncertainty and stress we remain focused on supporting them, while balancing the need to manage risk in the short time, he repayment of our loan principal.
David Ingram: The annualized net charge off rate in the first quarter was eight 9% within our forecasted range of between $8 75, 9.75% for the quarter.
David Ingram: To account for weaker it cannot economic performance high year on year delinquency and unfavorable movements in the bottling of forward looking macroeconomic data obtained from Moody's analytics.
David Ingram: Loan loss provision rate increased from 761% in the prior quarter to 78, 6%, which had the impact to produce an earnings by approximately 52 cents per share in the quarter.
David Ingram: We continue to remain vigilant and are monitoring the level of credit risk of the portfolio against the backdrop of a weakened weakening of the economy and its impact till collection and recovery efforts.
David Ingram: We continued to experience the benefits of scale through operating leverage and productivity improvements.
David Ingram: During the first quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue improved to 26, 1% a reduction of 130 basis points from 27, 4% in the first quarter of the prior year.
David Ingram: As a function of receivables operating expenses were eight 7% versus 10, 4% during the prior year, but juicy margin to absorb reduced a P. S.
David Ingram: We believe that we can concurrently continue to invest in critical components of our business platform and culture, while also driving operating efficiencies to the future.
David Ingram: After adjusting for unusual items and nonrecurring expenses, we reported the adjusted operating income of 148 billion, an increase of 3% compared to a 144 minutes in the first quarter of 'twenty 'twenty four.
David Ingram: Adjusted operating margin for the first quarter was 37.9% down from 42% in the same people get towards 20 pool.
David Ingram: Adjusted net income for the quarter was $60 million down 9% from $66 3 billion in the same period up towards 24, primarily due to the declining total yield on the consumer loans as well as the increase in the allowance for future credit losses, as a result of weaker macroeconomic performance and favorable changes in forward.
David Ingram: Looking at macroeconomic indicators.
David Ingram: Adjusted diluted earnings per share was $3 53 down 8% for $3.83 in the first quarter of 'twenty 'twenty four while adjusted with total equity in the quarter was 24, 4%.
David Ingram: With that I'll now pass over to Howard to discuss our balance sheet and capital position before providing some comments on our outlook.
Howard: Thanks, David during the first quarter, we continued to build on our long track record of obtaining capital to support our growth plans.
Howard: Quite to the quarter, we took advantage of favorable capital market conditions and issued 400 million U S. Dollar senior unsecured notes due in 2030.
Howard: In connection with the offering we concurrently entered into a cross currency swap agreement, which served to reduce the Canadian dollar equivalent cost of borrowing on the nodes to 6.0% to 3% per annum.
Howard: Based on the cash on hand at the end of the quarter and the borrowing capacity under our existing revolving credit facilities, we have approximately $2 billion in total funding capacity at.
Howard: At quarter end, our weighted average cost of borrowing of six 8% and fully drawn weighted average cost of borrowing was six 3%.
Howard: We also continue to remain confident but the capacity available under our existing funding facilities and our ability to raise additional debt financing is sufficient to fund our organic growth forecast.
Howard: The business also continued to produce like rolling level of free cash flow pre.
Howard: Free cash flow from operations before the net growth in the consumer loan portfolio for the trailing 12 months was $436 million.
Howard: As a result, we estimate we can currently grow the consumer loan book by approximately $300 million career solely from internal cash flows without utilizing external debt.
Howard: While also maintaining a healthy level of annual investment in the business and maintaining the dividend.
Howard: Once our existing and available sources of debt our fully utilized we can also continue to grow the loan portfolio by approximately $500 million per year solely from internal cash flows.
Howard: During the quarter, we also leveraged our current liquidity position to take advantage of opportunistic share repurchases at purchase for cancellation approximately $71 million worth of our shares subsequent to the quarter. We have continued to be opportunistic in repurchasing an additional $25 million worth of our shares.
Howard: Based on the current earnings in cash flows and the confidence in our continued growth and access to capital going forward. The board of directors has approved a quarterly dividend of $1 46 per share payable on July 11, 2025 to holders of common shares of record as of the close of business on June 27 2025.
David Ingram: I'll now pass it back over to David.
David Ingram: Thank you Hal are turning to the upcoming quarter, we continue to take a conservative and prudent approach to manage credit yet.
David Ingram: We also continued to experience healthy demand.
David Ingram: Witted competitive tension allowed us to grow at attractive rates, while being selective about the loans we underwrite.
David Ingram: Despite the macroeconomic conditions, we remain confident in our ability to thrive during this period.
David Ingram: We have proven during cycles before our business model and that coupled with a highly resilient and we have a team that's very experienced navigating through adversity.
David Ingram: In the second quarter, we expect the loan portfolio to grow between 275 or $300 million.
David Ingram: While the total yield generate so the consumer loan portfolio to be between 31% 32%.
David Ingram: We expect credit losses to travel within the range of $8 seven 5%, 975% in the quarter and acknowledged that the speed with which the tariff of broader economic situation is evolving could lead to a higher degree of oscillation within the range as compared to the previous quarter.
David Ingram: During the quarter, we announced the appointment of Dan Rees as the company's new Chief Executive Officer that is the best external CEO to lead our organization and switch by ideas and his appointment is an exciting milestone as signal will go easy ambition.
David Ingram: He brings a depth of experience in financial services that was unmatched by any other candidate and he is exceptionally positioned to lead our business through its next stage of growth.
David Ingram: His entrepreneurial approach aligns well with our culture and it's the dishes strengthens the executive table their journey to expand our existing products and channels of distribution to become the largest and best performing no private late day in Canada.
Dan Rees: I'll now pass over to Dan to provide some remarks.
Dan Rees: Thank you David and good morning, everyone I'm very excited and honored to join and lead the go easy team.
Dan Rees: It has been excellent to see the business model up close and I'm very pleased with what I've seen and learned.
Dan Rees: The board and David have crafted a comprehensive onboarding program and the CEO transition is very much on track.
Dan Rees: We have an impressive senior leadership team and culture more broadly what I would describe as welcoming and positive growth oriented and yet balanced and above all else.
Speaker Change: <unk> experienced and successful.
Dan Rees: Turning to the business the organic growth plan is well on track.
Speaker Change: And in my opinion continues to offer attractive yield to shareholders.
Speaker Change: We are expanding the product range engaging the broader set of distribution channels, and moving well and advancing the digital assets alongside the stores and branches.
Speaker Change: Plan to launch a credit card later this year is progressing very well and broadly the ongoing investments in collections will as you can imagine continued to be critical in this business model.
Speaker Change: Strategically I see the direction, where we are heading is very well placed as David and me transition the role I will now start the process of engaging the teams over the coming months.
Speaker Change: View opportunities do.
Speaker Change: We do not expect any major pronouncements, what has been working well.
Speaker Change: It's been working well for a reason.
Speaker Change: That said I do look forward to elevating the conversation about the customer our target market priority segments full lifetime value and so forth.
Speaker Change: As well as the competition.
Speaker Change: Exactly are we competing against why might they be winning and why might they be losing.
Speaker Change: As you would expect we are constantly evaluating our risk posture and allocation of capital.
Speaker Change: Overall, I'm excited about working with David and the team more broadly and the very supportive board, we will be unified in our focus on fueling the robust growth and attractive returns that has rewarded shareholders over the long term.
David Ingram: With that I will now pass it back to David Great. Thank you Dan.
David Ingram: You know, what's the type of the entire team for their unwavering commitment to our vision.
David Ingram: April we were thrilled to hold our company National conference, providing us the opportunity to celebrate recognize all of the incredible talent across our organization.
David Ingram: More than 2600 team members across go easy off small hungry and humble they care deeply about providing an exceptional experience for our customers. They play an essential role in the financial system by the millions of pod working Canadians rely on us with a credit appeals that lives I'm very.
David Ingram: Proud of his entire team.
David Ingram: Now with those comments complete we'll now open the call for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone you will hear a problem that your hand hasn't been raised should you wish to decline from the polling process. Please press star.
David Ingram: Number two.
David Ingram: Using a speaker phone please lift the handset before pressing any keys.
Speaker Change: Your first question comes from eating in regard of BMO capital markets. Please go ahead.
Speaker Change: Thank you and good morning team so to start on the impaired loans, it's good to see the improvements sequentially.
Speaker Change: Down to 269%.
Speaker Change: What what explains this improvement in your view is that the result of tighter collection policies that you've implemented over the past year.
Speaker Change: Or is it also the result of your borrower base holding up quite well in this environment.
Speaker Change: Somebody who tried it stays in the family here I'll take that it's really both factors, we've highlighted and David highlighted in the script.
Speaker Change: If you look at our early stage delinquency, we continued to see a moderating improvement and that's largely a function of the fact that we are writing a better quality customer point, principally the fact that the product mix of secured lending has that reached an all time high.
Speaker Change: You'll recall that sitting at about 46% of the book and I represent a fairly significant portion of new originations that were writing.
Speaker Change: And on top of that I think the organization continues to optimize its ability to collect from the accounts that do sit in the delinquency ranges. So you can do you can chalk that up to a better experience and understanding the nuances of this customer base, particularly those that hold secured collateral where we're mindful of the opportunity to work with them before we have to have the need to secure overseas that collateral.
Speaker Change: But it's a combination of both efforts it is better overall underwriting performance at the front end of our business and continued optimization of collections at the backend.
Speaker Change: Okay.
Speaker Change: Okay. It's.
Speaker Change: It's interesting to see that 73%.
Speaker Change: Net loan advances this quarter.
Speaker Change: Can you customers despite to your point, Jason that you've been tightening.
Speaker Change: Underwriting policies.
Speaker Change: So how how would you describe the competitive environment relative to.
Speaker Change: Maybe six or 12 months ago and have you seen any evidence that prime lenders have been tightening.
Speaker Change: Let me answer that in two ways I would say certainly based on the incoming volume of applications, we're seeing and we've seen this before in prior events as an example in Alberta and 2015, when the oil cross shopping we generally see a tightening that does take place in the major financial institutions, including the banks.
Speaker Change: As you would expect we would be a net beneficiary of that.
Speaker Change: That impact, but if you looked at the quality of the the originations that were written in the quarter that you've commented upon and keep in mind that as we I think we had indicated on the prior quarter in anticipation of the introduction of the APR rate cap, we had made adjustments to focus on the I believe through which we can approve the qualified loan amounts that we give to our.
Speaker Change: Better quality customers.
Speaker Change: And what we saw in the quarter and in Q1 was that our conversion of those customers actually increased.
Speaker Change: That by offering those customers slightly more funds at a lower interest rate without being a 35% interest rate cap that was introduced we saw a tick up in the number of new customers that we're not interested in taking advantage of the product offer in particular on the unsecured side of our business. So those those factors are contributing to the the numbers that you see but I would I would point out.
Speaker Change: Again that the influx of individuals' from better credit quality segments is something that is pretty typical of these types of events.
Speaker Change: That is not the only reason it's also because of the adjustments. We've made to the offers we have out in the market, which simply translated into more better quality customers converting on the offers we had him well.
Speaker Change: One more one more piece I would add in the quarter as we should all keep in mind that this new rate cap environment is still new to us as well as it is to everyone else. So one of the highlights of the quota that will lead to some moderation during the next few quarters as we only fund at 12, 3% of applications versus a run.
Speaker Change: Right Alright normalized rate from last year, a 54%. So when you see the credit quality go up it really speaks to Jason's point that there may be a prime that's coming down and b. It rejected by the banks, we've seen a high credit type of customer coming through but we're also being much more discrete.
Speaker Change: Who comes into the system because of this new brake cap environment. So as it's taken us many many years to get the portfolio of close to 5 billion is likely going to take us a few more quarters to just really optimize what a new rate captain Bartlett looks like a 35% of the loan. So these are good indicators.
Speaker Change: It just means that we may be missing some opportunities he put more originations because we have been more discreet as we try to carefully navigate this change.
Speaker Change: Great. Thank you very much.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Jeff Fan week of Horn Lark Securities. Please go ahead.
Jeff Fan: Hi, Good morning, everyone I wanted to start my questions off with respect to the securitization facilities and as you articulated you have a lot of capacity now after your last notes issue, but on on those facilities in particular could you maybe just speak to.
Jeff Fan: Some of the terms around around them with respect to lenders and is there the potential for some variability in terms of what would be acceptable to put into those facilities are if there's a shift in the credit profile or the mix somehow does that.
Jeff Fan: Change what you can put into them or is there anything there. That's that's variable that we should be keeping in mind.
Jeff Fan: Yeah, Hey, Jeff It's Hal here. So as you know we are we currently have two securitization warehouse facilities.
Jeff Fan: One that houses, our auto portfolio and and another one for our general.
Jeff Fan: General loans that are under management.
Jeff Fan: As you can imagine.
Jeff Fan: There are.
Jeff Fan: Covenants and requirements associated with the securitization portfolios is as per the normal course.
Jeff Fan: That would include our eligibility reinvestment criteria.
Jeff Fan: And advance rates.
Jeff Fan: And certain requirements in terms of.
Jeff Fan: Portfolio portfolio base requirements, whether or not the average term.
Jeff Fan: Concentration et cetera.
Jeff Fan: We certainly examine.
Jeff Fan: Bob.
Jeff Fan: Our securitization facilities are regularly to determine if there are opportunities or constraints. These avi.
Speaker Change: Uh huh.
Speaker Change: Subset of credit performance and quality.
Speaker Change: Excess spread.
Speaker Change: And the like we feel that we've we've actually had quite a successful run and continue to improve our conditions surrounding those facilities and would expect that to continue going forward as well.
Speaker Change: In addition, I'd also say, we counterbalance that as you know.
Speaker Change: With the with the ability to enter into the unsecured notes market as we have now.
Speaker Change: We took advantage of that subsequent to quarter end and were opportunistic around raising roughly another 550 million Canadian.
Speaker Change: At about 6% and we feel that we have ample access capacity liquidity runway, great syndicate of bank lenders.
Speaker Change: And we think we're in fantastic shape as it relates to the balance sheet overall.
Speaker Change: And what's effective facility one I think it matures in October of this year. So just any any thoughts about it can you do that it's a bit early obviously you'd probably want to get that settled ahead of that time, but any expectations there.
Speaker Change: Yeah, absolutely and we're already in the throes of negotiating with our bank partners don't see any issues in getting that renewed.
Speaker Change: And we will be looking to do our best at enhancing some of the terms associated with that as well as as always.
Speaker Change: Okay, and then on facility to I know, it's targeted more at the auto loans are the balance there didn't didn't move quarter over quarter are still obviously, a very active source of originations for you is this is this just a timing issue that you were carrying them on the revolver before you put them into that facility.
Speaker Change: That's correct yeah. So as we naturally do we pool that set of receivables and loans.
Speaker Change: And move them into the warehouse.
Speaker Change: We are we naturally it would have it as part of our overall growth.
Speaker Change: We are continuing to grow our auto vertical quite quite aggressively.
Speaker Change: And because of the raising of the high yield notes subsequent to quarter end.
Speaker Change: Would likely be paying down some of our facilities as well so you'll see that a little bit of a timing blip in terms of paying down some of our securitization facilities as we raised.
Speaker Change: High yield the high yield funds.
Speaker Change: Okay, great. Thanks for that color I'll requeue.
Speaker Change: Your next question comes from John I can of Jefferies. Please go ahead.
Speaker Change: Good morning wanted to.
Speaker Change: Focus on the yield to me in the quarter David in your prepared comments you talked about obviously some movement that might come back and forth in terms of the quarters and I know that you're still guiding for yield or at least a 31% in the quarter.
Speaker Change: I guess my first question is what is the risk with the changing of movements that we've seen within the portfolio that we could actually dipped below 31% and then can you give us. Some specific instances are examples in terms of what may actually caused the yield to increase through the rest of the year.
Speaker Change: Sorry, I'm going to I'm going to give a J. So the pedal on this one because I think he'll give you a more tangible response in terms of the breakdown. So in terms of some I'll give you. Some quick color and then Jason can be more specific but I can.
Speaker Change: From our perspective, the the risk I think you asked what the risk could be that it could dip below 31 I think.
Speaker Change: The risk is less likely and if we break that into two parts, which is the coupons the price of which we write the yield and then the actual yield which is what we actually collect from the yields on the coupon side I think the let the risk is very.
Speaker Change: Very much less than that because we obviously control what that would be and from our first kind of course of view of life. We can see some opportunity to actually lift in certain categories are small amounts in the yields in the coupons. So.
Speaker Change: That from Atlanta based on the competitive set that we're in based on the application demand, which has been very strong as it has continued to lift into a into April and may. So we don't see any resistance or reasons why we cant put some of the coupon up in some of the different third schools and so we'll be doing that over.
Speaker Change: The next few months in a measured way well natural collected side. Obviously the collector side is it's got all kinds of different pieces that could give headwind so somebody could be the economic environment, where customers are finding it more challenging to to make time as payments on a timely basis and that's probably more pro.
Speaker Change: Nounced in sudden third schools than others. So we are susceptible to that.
Speaker Change: At this point, we don't see that being a huge risk, but it does carry some risk and obviously the terrorist student placement part and how that works its way through so that's the general picture and I'd say would come towards the 31% range long term. We we are looking for ways to try to hedge that up.
Speaker Change: But I'll pass it over to Jason who will give you a bit more descriptive in the actuals, yeah, maybe just to bolt that into sort of three broad categories or ways in which we would approach it.
Speaker Change: Moving the yield gradually over time.
Jason Appel: David already spoke to the first one which is just selectively taking pricing on new originations, where we believe the competitive environment would support it if we do see some opportunities to do that and as I think I pointed out on previous calls that as part of our part and parcel of how we optimize the yield on the portfolio.
Jason Appel: Second area would be a continued evolution in how we use both our toolset and offer set to optimize the collection of cash from both secured and unsecured accounts.
Jason Appel: We've been evolving our capability in that area over the last several quarters by building a much more robust models to target and identify the right customer who has a higher likelihood of repayment under the right circumstances, we continue to refine that capability and testing and learning against that.
Jason Appel: And then the third broader area would be just continued work around modifying how we go to market our products and in particularly the mix of the types of types of products we write.
If you take just the simple example of our unsecured loan we continue to test and move up our coupon rates on that program by focusing as we have pointed out the outside of the call. The proportion of new customers with whom we are originating the substantial majority of them are priced at 35 at the cap.
Jason Appel: So as a result of just those types of product mix modifications, we can influence the yield to move upward. It obviously as you can appreciate it just takes a few quarters to work through it its way through the portfolio given the size of the installed book now approaching $5 billion. So those would probably be the three tool sets pricing on originations improved collectibility of cash through collection tools.
Jason Appel: Our segmentation and modification of our product mix.
Speaker Change: Great color guys. Thank you.
Speaker Change: Your next question comes from Gary Ho of knee jerk teams Capstone markets. Please go ahead.
Speaker Change: Okay, Great Jason maybe a couple of questions on the credit and the provision side. So I asked this last quarter I was just on the F. L. I wait on each of the scenarios.
Speaker Change: And I think last quarter. There was no material change made last quarter. So with the five scenario worsening again from the Moody's analytics.
Speaker Change: You'll see here whether that be on the 25 basis points increase in the provision came from P. F. L I forecast deteriorating or where there are shifts in the probability of such as well.
Speaker Change: Yeah, well as you would appreciate the ACL strengthening was primarily model driven.
Speaker Change: And it basically reflects the deterioration in the third party forward looking indicators are that we incorporate into the allowance.
Speaker Change: Alongside what I would call it a slight weakening in the underlying credit of the portfolio largely due to the persistency of late stage delinquent accounts, which are mostly being impacted by a longer timeframe for us to cover recover our collect our asset.
Speaker Change: But as you would also know against that backdrop, we continue to maintain a very conservative posture with a substantial majority of our modeled scenario weightings allocated into what we call the neutral and pessimistic scenarios, which are updated every month by Moodys analytics.
Speaker Change: Within those scenarios themselves quarter on quarter and you can see this in the MD&A and financial statements disclosures this quarter.
Speaker Change: Really every single <unk> that we track to worsen quarter over quarter.
Speaker Change: In response as you would appreciate the impact and uncertainty that we see with U S imposed tariffs on select Canadian goods plus.
Speaker Change: Plus you'll also note that in the corner, we saw evidence of further weakening in the Canadian economy with GDP, having turned negative in February and core inflation, having ticked up with the elimination of the GST holiday around the middle of the month.
Speaker Change: Yeah, we would continue to expect the volatility in the high degree of negativity associated with those forecast.
Speaker Change: To continue but we do see them moderating over time.
Speaker Change: What will ultimately drive that moderation is the degree to which we get clarity on the types of impacts of tariffs situational would meter out and whether or not we can enter into and what I would call. It enhanced bilateral trade agreement with the United States. So as you would appreciate the timing of this does remain a little fluid, but we would also expect our provision to gradually moderate.
Speaker Change: In response to a reduction in the volume of late stage delinquent accounts and as well on the strong quality of the new originations have you've already spoken about what we are writing which is leading to an overall reduction in our early stage delinquent accounts.
Speaker Change: In the interim as you would expect we continue to remain focused on our secured mix.
Speaker Change: Being selective with the credit that we're underwriting and continuing to optimize our collection efforts so quarter on quarter I would say, we did not see a material adjustment on our side and the weightings. They are still very much favor toward neutral and pessimistic.
Speaker Change: We will likely continue to remain in that posture until until we see evidence of a situation.
Speaker Change: Okay, Great and maybe just the bolt ons.
Speaker Change: It's all here, maybe just to bolt on of course.
Speaker Change: As those macroeconomic indicators, if they were to shift in a positive direction.
Speaker Change: Relative relative to the <unk> that are currently in place.
Speaker Change: We would.
Speaker Change: Look to reduce our overall pretty right yeah.
Speaker Change: Yeah, Okay copy that and then as it related question just on the provision rate to 7.86% are you able to segregate that between your secured versus unsecured loan provisions, yes. It is.
Speaker Change: On our side to kind of gauge the appropriateness of that so when I look back I think when you're loan book with more unsecured tilted.
Speaker Change: Right the onset of Covid provisions kind of touched 90% to 10% range, but that's mostly unsecured like any color. If you can kind of help us think about if you were to kind of break that into the too big of a buckets what would that look like.
Speaker Change: And then maybe it's all here, maybe I'll start off and then Jason can certainly add on but as you know Gary we don't specifically disclose the breakdown.
Speaker Change: <unk> of our provision rates between secured and unsecured what I will say, though is as our portfolio.
Speaker Change: Begins to triangulate around 50%.
Speaker Change: The book being secured and relative to the unsecured book.
Speaker Change: Naturally you can kind of gravitate yourself towards.
Speaker Change: You know that pro rata.
Speaker Change: Distribution in a certain sense of of the receivables and the associated provision around that.
Speaker Change: Secured book will.
Speaker Change: The gravitating towards a a a better risk profile as well.
Speaker Change: That would create some nuance in that overall.
Our provision and unsecured.
Speaker Change: Two secured ratio.
Speaker Change: And as we've disclosed previously.
Speaker Change: Just under 30% of our book currently.
Speaker Change: It is our legacy book.
Speaker Change: That would've been above the rate cap as well.
Speaker Change: So you can factor that through in terms of your.
Speaker Change: Your modeling exercise.
Speaker Change: As you look at that from a not only from a provision standpoint, but from a net charge off perspective as well.
Speaker Change: And further on that.
Speaker Change: Only thing I would say Gary is obviously, if you just look at where the provision is travelling in the quarter at 786.
Speaker Change: As you can appreciate we're students of history here and go easy. So we have a pretty good view as to how that's awesome. They did over the last several years under which we've been following my first nine.
Speaker Change: That provision rate has traveled in and around that.
Speaker Change: Mid to high Sevens for about the last three to three and a half years and that's despite the fact that we have significantly continued to improve the product mix.
Speaker Change: That said you know the obviously the underlying reason why the provision rate continues to move up is because of the economic situation over that period has meaningfully deteriorated. Even if you go back to 22 and 'twenty three.
Speaker Change: As you can appreciate that dry first nine we ought to and should be incorporating that in terms of the expectation of future loss.
Speaker Change: But as with most things the expectation of future loss doesn't necessarily translate into actual losses as you've seen with the fact that credit losses this quarter were pretty stable.
Speaker Change: So while we have to reserve and an entre reserve against our allowance for future.
Speaker Change: Credit losses were.
Speaker Change: Very much mindful of how we practically mitigate that risk on a regular basis.
Speaker Change: So and one of the ways in which we do that obviously is to focus on growing our mix of secured loans. So I wouldn't look at it is how it would impact our provision because while it makes it kind of launch has been going the provision rate again, if I go back two to three years, it's basically been flat, we'd spend that preventing that provision rate for being higher is that mix of secured loans because the underlying.
Speaker Change: Buying macroeconomic indicators have worsened materially over that period. So I wouldn't think about it so much in terms of security as I would benefit that we get from a secured progress product, giving us a nice buffer to mitigate the risk of broader economic weakness in our portfolio.
Speaker Change: Okay.
Speaker Change: That's helpful. If I can just sneak one more in maybe a numbers question.
Speaker Change: When I look at the sequential change in your loan book from Q4 to Q1, the principal payment and adjust and adjustment was quite a bit lower than the last couple of quarters.
Speaker Change: I'm just wondering if there's a reason why or what would cause that to be lower this quarter.
Speaker Change: Are you talking specifically, Gary about the loan originations change quarter on quarter.
Speaker Change: Just the just on the loan book reconciliation, there's a couple of pieces such as loan originations. There's a principal payment adjustments and then there's the gross charge offs. So specifically for the principal payment adjustment segment, it's much lower than the last couple of quarters as a percentage of the beginning balance just wondering what what's what's causing that.
Speaker Change: So I can what I can certainly speak to is the.
Speaker Change: The amount of pay down that you would see in the MD&A quarter on quarter.
Speaker Change: So let me, let me try and unpack that originations to new customers.
Speaker Change: We're up 76 million quarter on quarter and as we've pointed out before that was largely due to higher conversion rates as a result of the introduction of a rate cap of 35%.
Speaker Change: On top of which we obviously made very positive adjustments to our qualified what about strategy going into more credit worthy customers.
Speaker Change: Originations to existing customers, however were down 86 million quarter on quarter and this was due to the change that we introduced with the introduction of the can rate cap to gradually moderate the decline of portfolio of loans held about 35%.
Speaker Change: Where are these customers approached us the customers, who had existing wells with rates of about 35%, where they approached us for an increase in lending we.
Speaker Change: We did not require that they were existing loan balance to be paid down instead. These customers were adjudicated based on their existing loan balance remaining and the repayment of that vulgar, meaning continuing which meant that the total amount of additional borrowing we could get to that customer inclusive about their existing long smaller again, because we were not paying down their existing loan so.
Speaker Change: Despite the drop in originations year over year. This didn't translate into a reduction in the amount of net credit our net principal attached to these existing customers and you can see that on page 14 of the MTA, which shows that the amount of that credit advance to existing customers was actually flat year on year. Despite the fact that we had a meaningful drop in origination volumes and when.
Speaker Change: You combine that with the fact that we actually wrote more business to new customers that that's how we actually wound up writing new a new or an additional amount of net principal during the quarter as compared to the prior quarter.
Speaker Change: Okay, that's great and thanks for thanks for the color there that's it for me.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Graham Ryding of TD Securities. Please go ahead.
Graham Ryding: Hi, Good morning, you called out in your presentation.
Graham Ryding: You approved and funded to 10% of loans is that new loans are both new and renewals and then how would that compare to maybe a year ago and perhaps your sort of longer term approval rate.
Graham Ryding: Yeah. So that number that we're quoting are Graham as new loans are only because obviously they represent the vast majority of our loan originations as I referenced on the prior comment.
Graham Ryding: And that obviously would be down from the prior year.
Graham Ryding: We would have or more around the 15 ish percent range and again the number one reason why that that conversion is down is really twofold. One we obviously saw a significant uptick in the number of applications for credit given the macroeconomic environment the high level of demand and as we pointed out on repeated calls we have tightened our underwriting in particular as it really.
Graham Ryding: Thanks to the unsecured customers. We are waiting so that just gives us an ability to be a little bit more mindful and thoughtful about how we cherry pick out of that basket of customers. The net impact of which is that our conversion rate as a percentage of the total applications that we see coming through the door is down.
Graham Ryding: We would expect that ratio to travel in and around that range, but as in most cases, we are continually optimizing our loan offerings and our credit risk tolerance. So we could see that number quite frankly continue to travel down depending on the amount of inbound applications that we see cause I wish you have a denominator or we could see that number potentially tick up.
Graham Ryding: As we begin to get more comfortable and see the results of the changes we've made post the rate cap, which as you can appreciate there are only three or four months old. So it's still it's still a little bit of learning to be done, but I would say at the moment that that 10% ish level around new loans is likely what we're gonna travel for the next little while.
Graham Ryding: Okay.
Speaker Change: That's helpful and then.
Speaker Change: You flagged that your average blended coupon rate was six 8% in the quarter, that's flat year over year, what's your what's your outlook.
Speaker Change: For this sort of rate through the rest of 2025 should we expect it to be fairly stable.
Speaker Change: Yeah. So.
Graham Ryding: So the the overall coupon on our cost of borrowing is what you're referring to I think Graham there.
Graham Ryding: Look I think as we continue to go out to market as you might be familiar.
Graham Ryding: We have a proactive hedging strategy that we employ.
Graham Ryding: To ensure that our our debt facilities are at fixed rates and any any subsequent draw on our facilities would be at the prevailing rate at the time. So there's not much of a movement on the existing portfolio in terms of variable rate movement, but it would be.
Graham Ryding: Subsequent draws were based on the rate curve and the outlook, we should we should see some nominal.
Graham Ryding: Reductions in the overall cost of borrowing.
Graham Ryding: Okay.
Graham Ryding: That's it for me thank you.
Speaker Change: Your next question comes from Nick <unk> of CIBC capital markets. Please go ahead.
Nick: Okay. Thanks, I just wanted to drill a little further into the portfolio yield.
Speaker Change: There was a comment in the MD&A, just suggesting that commissions earned on the sale of ancillary products was partly impacted by reduced pricing.
Nick: Can you just elaborate on what that relates to and when those pricing changes would have been implemented.
Nick: Yeah I can it's all here so I think I think the comments around that.
Nick: Our ancillary products.
Speaker Change: As Jason had alluded to in terms of the tightening up of overall Craig.
Nick: Yeah.
Nick: That would typically have perhaps a higher penetration rate of ancillary products. So you think about insurance or warranties.
Nick: Those types of products that would be complementary to the loan.
Nick: So that that would be an initial impact on on those numbers I'd say as well the increasing shift to secured and the secured mix overall.
Nick: Typically the secured products, whether youre looking at home equity auto.
Nick: With traditionally garner a slightly lower penetration rate relative to our unsecured product. So there's a little bit of a dynamics.
Nick: Going on in terms of of those rates.
Nick: Silver lining around that we continue to invest in our infrastructure.
To try to continue to move the needle in the dial on our pen rates on a prospective basis.
Nick: Got it okay just to follow up on that just one I'm curious what prompted the.
Speaker Change: The change in pricing on those ancillary products like I would think that demand for the wound protection product as an example would be relatively price inelastic and I guess, what I'm trying to say is I wouldn't have thought of the attachment rate being enormously sensitive to the commission. So what was the I guess, the kind of incentive to adjust pricing there.
Speaker Change: So I would say in terms of pricing more broadly and if I were to look at our.
Speaker Change: Loan protection program, specifically that would have tiered pricing based on our loan amount.
Speaker Change: And so as as the loan amount rabbits AIDS upwards.
Speaker Change: The rates are for.
Speaker Change: For that won't protection product would actually come down, even though you're still garnering more overall.
Speaker Change: Revenue contribution.
Speaker Change: If that's helpful.
Speaker Change: Okay, Yes that makes sense and then I guess the way the accounting works when you originate an unsecured loan and there is taken up with a third party loan protection product. The commission around the sale of that product would be recognized.
Speaker Change: Quarter that the loan is originated rates I think what you're trying to suggest is that.
Speaker Change: In a period, where the mix of loans sold skews more towards secured lending, which has a lower attachment rates to those products.
Speaker Change: Economic so those loans are much front end loaded all things equal so that could put some pressure on the yield in that period right and then over the full course or duration of the loan the overall ROE might actually look comparable between secured and unsecured.
Speaker Change: I guess one question I would have is if you were to order rank the product suite by Roy how would the various products compare.
Speaker Change: Yeah, I mean, I think to get back to your.
Speaker Change: Earlier narrative around that I think I think you're correct right like depending on depending on the product that's being sold either there is an upfront recognition in totality as we.
Speaker Change: We're a distributor of those products for example, a warranty.
Speaker Change: On auto where we would be able to recognize our net commission upfront in period, whereas if you take a loan protection product, where there may be a monthly monthly fee.
Speaker Change: Where we've taken upfront service charge or service fee.
Speaker Change: And then we have back end return economics that would be a bit trailing.
Speaker Change: That regard so you know, there's there's a little bit of a dynamic in that respect if.
Speaker Change: If we think about the contribution of the overall products. All all are significant contributors to the overall bottom line I don't think we've specifically rank order them.
Speaker Change: In terms of contribution overall.
Speaker Change: To the to the economics.
Speaker Change: But certainly all of them would be significantly causes <unk> to our yield and overall economics as we look at underwriting the products.
Speaker Change: Okay. That's very helpful. That's it for me thank you.
Speaker Change: Your next question comes from Jaime <unk> of National Bank Financial. Please go ahead.
Jaime <unk>: Oh I love it.
Jaime <unk>: Yeah, just wanted to.
Speaker Change: Ask the question on the Opex, So maybe first off on a on the underwriting and collections why a little bit higher this quarter, obviously, you're trying to beef up your collections teams, maybe just a little bit more.
Speaker Change: Color on where those costs are going and then is this something that you expect that will kind of run a little bit higher here over the next several quarters as we continue to work through the the what you've called the optimization of collections.
Speaker Change: Yeah, Hey, Jim Yeah, Great question. So as we look at Opex overall, yes, we did see a quarter on quarter year over year movement in the overall Opex line, partially that would be volume related as our overall loan book has grown by almost 25% year over year.
Speaker Change: Collections and the focus in on collections certainly.
Speaker Change: It would be an area, where we've had increased opex are that would be based on what Jason was describing earlier.
Speaker Change: In our drive to invest in infrastructure around those collections and collections activities.
Speaker Change: Lots of people resources, whether that's third parties.
Speaker Change: We also as we continue to engage and repossession of secured assets.
Speaker Change: Vehicles power sports.
Speaker Change: Power sports laws as well.
Speaker Change: That would contribute to a heightened level of overall cost that are being born into the P&L. Yeah, maybe just to bolt on to that it's also that you have to look at it from a timing and sequencing perspective, we're going to incur those costs before we see the benefit of those changes whether it's.
Speaker Change: The base, we have to contract with or other types of third party Servicers are beefing up our own internal service capability. Those costs are going to hit his first before the benefit of better collections and better recovery. So we would expect obviously to see those numbers start to improve as we look to the overall backend of our business, but certainly on the front end when it comes to Opex.
Speaker Change: We will feel it before we get the benefit but we would have obviously taken out any consideration as we model. These types of investments as we do any time, we upgrade our quality and capability.
Speaker Change: And and just tying that theme into the delinquency rate.
Speaker Change: Oh sure so the greater than 150 days it sounds like Theres theres, some loans that are greater than 180.
Speaker Change: That you have some visibility on collections can you can you maybe just dig into that figure. That's the I think it's 104 hundred 10 million I can't remember off the top my head.
Speaker Change: That's in that 150, plus like how much of that would be greater than 180, and and you know your your confidence in recovering those assets and then.
Speaker Change: And then eliminating those delinquencies.
Speaker Change: Yeah. So what I would say is we don't typically disclose or find a breakdown of the one what I'll call. It 151, plus day bucket, but as you can appreciate as a result of the backlog that we've been challenged by over the last this will be now the second quarter. It's obviously, taking us about another on average 90 days to get recovery of.
Speaker Change: These types of assets, where normally they would be pursued for a 90 day period and by the time they get to the 180 marker. We generally received principle or a decent portion of our principle.
Speaker Change: As a result, we're not seeing that simply because of the challenges not just faced by us as a as a lender, but by many lenders in the space given the rising delinquency against the macroeconomic backdrop, but I would say we would anticipate over time that this number would gradually begin to move down.
Speaker Change: As we become more adept and expert at reducing the timeframe within which we can recover and collect on these secured assets.
Speaker Change: The challenge will be and we've already heard about the challenge the benefit won't be as we've already started to see a moderation in the number of accounts that are taking the amount of time that beyond this typical 90 day window in order to get recovery.
Speaker Change: Obviously, it's just going to take US a couple of more quarters to work through that population of loans.
Not because we see the credit of the portfolio to be at risk just simply because we're facing a limited number of processors balas and third parties that can help us work through the volume of these accounts, knowing full well that we intend to recover and applied roughly the same degree of recoveries that we've seen in keeping with previous periods. So it's a decent number of them.
Speaker Change: That 100 plus million number, but again, it's a number that we feel pretty good about being able to move down over time and like I said, even if you look quarter on quarter that number is beginning to gradually move down you would expect that number to continue to improve as we move through the next few quarters.
Speaker Change: Okay, Great and then.
Speaker Change: Coming back to the Opex and <unk> and how you're thinking through it.
Speaker Change: Investments it looks like technology, a little bump just this quarter, but is there what's like what's the strategy or your or your near term view on <unk>.
Speaker Change: Managing the expense line.
Speaker Change: You know just given that there's obviously a little bit higher a.
Speaker Change: Sensitivity to macro conditions feeding through to protect your two particular margins here over the next few quarters.
Speaker Change: Yeah, James I mean, what I would say is our first philosophy is always being prudent and mindful around around costs and expenses.
Speaker Change: And certainly that's that's for us at the forefront of our thoughts regardless of the environment that we're in.
Speaker Change: You pointed out the tech piece, yes, we are we absolutely continue to invest.
Speaker Change: In our business and our platform specifically projects that are underway right now with the credit card launch auto title refi that we've already spoken to the market quite actively around ensuring that our customer facing.
Speaker Change: Platforms that we use to service our customers, we continue to upgrade and make sure. Those are our top of line. So I think those are critical components, regardless of the environment that we're in but having said that as we think about areas of opportunity. We've already if you might've noticed within the salary.
Speaker Change: Lines that that has tightened up relative to the volume and the growth of the overall book will be continue to be mindful around our hiring practices third party servicing costs as we think about sourcing and procurement.
Speaker Change: And continue to sharpen our pencils so to speak as we think about cost outlays.
Speaker Change: So let's see.
Speaker Change: As we think about the next few quarters, notwithstanding the Q1 components around the tech and the collections components, you should see that slightly moderate and theres some timing in there based on our investments but.
Speaker Change: Continue to be well within line of our overall operating operating margin and continued improvement in our operating leverage.
Speaker Change: Okay. Thank you guys.
Speaker Change: Your last question comes from Stephen Boland of Raymond James. Please go ahead.
Stephen Boland: Oh, thanks, so it won't be a I'll be quick here just in terms of you know the numbers this quarter in your 2025 times I think you said you can still.
Speaker Change: Hit those numbers, but if you annualize your revenue your below the low end your are we.
Speaker Change: We use the 27 is below what you had guided to.
Speaker Change: And then for Q2, you know your revenue yield is going to be in this range.
Speaker Change: What gives you confidence that you can hit.
Speaker Change: The guidance like is this going to be more.
Speaker Change: Towards the second half, where you catch up on some of these metrics.
Speaker Change: Yeah.
Speaker Change: Yeah. So so in terms of our confidence level with our overall annualized position I would say that at this time, we would reaffirm.
Speaker Change: The guidance that we've put out across all of our key metrics.
As you've noted in terms of the yield contribution we would see that.
Speaker Change: Through the course of the year, while still maintaining a to be within range likely at the lower end of our overall guidance in that respect.
Speaker Change: And as we traditionally do we'll come back in the August timeframe as we've got another quarter under our belts, we will reexamine the outlook not only for 2025.
Speaker Change: But get a sense on the read with the macroeconomic backdrop and environment in that respect, but at this point, we won't be we won't be shifting on to the guidance at this time.
Speaker Change: And just the last question for me is when you talk about tightening you know obviously Gen. One was it was a new era for you, but like during the quarter. After you know terror some economic uncertainty.
Speaker Change: What's been tightening continually like did that continue throughout the quarter. So by March metrics were much different than January or February I'm, just trying to gauge how much.
Speaker Change: You looked at the environment and said you know this is getting worse, we've really got to be careful here.
Jason: So Jason I think it's fair to say, we're always tightening or oscillating underwriting platform I mean, we've talked about this prior to COVID-19.
Speaker Change: Where the situational I was it was far more dire and very much uncertain.
Speaker Change: We were tightening our releasing or adjusting almost on a weekly basis in response to at that time, but we're a fairly sizable shifts in the macroeconomic environment amongst other things I'd say over the course of the quarter and we continue to monitor the overall health of the portfolio and there isn't a week that goes by that some element of the credit risk posturing of the book isn't.
Speaker Change: Either being tweaked or modified and I would have you think about that in a couple of different ways one might be certainly the most office would you be on the front end of the book, whereas I pointed out in previous calls we can modify cutoff scores.
Speaker Change: Debt to income criteria underwriting protocols pretty much within 24 hours timeframe notice. The other area that we can also have a fairly significant impact is in the back end or the back book.
Speaker Change: It's already out the door and basically in the process.
Speaker Change: Process of repayment.
Speaker Change: And again, we cannot be can work that book much more effectively by choosing it again the types of offers and construct we get to those customers when they encounter a period of difficult repayment and as you can appreciate that's often in response to changes in the macroeconomic environment as well. So those types of activities are reviewed and updated generally every week within both business.
Speaker Change: The only difference is we may not necessarily make those changes every week. He will review the need for those changes every week because that's just how we go to market on managing our non prime portfolio. So that's just part of our go to market via your business as usual activity and we were doing that throughout the first quarter and I'll point out we will continue to do that throughout every quarter.
Speaker Change: Just the scale with which we choose to make changes will only very in response to the substantial because of the degree of change in the broader environment.
Speaker Change: Okay. Thanks, very much guys.
Speaker Change: Thank you.
Speaker Change: And at the moment.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Nothing notable Shoeless Joe session.
Speaker Change: Now I'll turn the conference over to go easy limited.
Speaker Change: Okay. Thank you operator.
Speaker Change: Since there are no more questions, we want to thank everyone that.
Speaker Change: Participating on the call and we appreciate your interest in the company and we'll continue to update you and.
Speaker Change: I look forward to giving you the next quarterly call.
Speaker Change: So have a great day everyone.
Speaker Change: Thank you.
Speaker Change: This concludes today's conference. Thank you for attending you may now disconnect your lines.
Speaker Change: [noise].