EHMEF Q1 2025 Earnings Call

Operator: Good morning. My name is Leon [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the goeasy Ltd. 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. [Operator Instructions] Now I will be turning over the time to Farhan Ali Khan. You may begin your conference.

Farhan Khan: Thank you, operator and good morning, everyone. My name is Farhan Ali Khan, the company's Chief Strategy & Corporate Development Officer and thanks for joining us to discuss goeasy Ltd. results for the first quarter ended March 31, 2025. The news release which was issued yesterday after the close of market is available on Cision and on the goeasy website. Today, David Ingram, goeasy Ltd. Executive Chairman will review the results for the first quarter and provide an outlook for the business. Hal Khouri, the company's Chief Financial Officer, will provide an overview of our capital and liquidity position. Dan Rees, the company's Chief Executive Officer, Jason Appel, the company's Chief Risk Officer, are also on the call. After our prepared remarks, we will then open the line for questions. Before we begin, I remind you that this conference call is open to all investors and is being webcast at the company's investor website and supplemented by our quarterly earnings presentation. For those dialing in 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. The operator will poll for questions and will provide instruction at the appropriate time. Business media are welcomed to listen to this call and to use management's comments and responses to questions and any coverage. However, we would ask that they do not quote the callers unless that individual has granted their consent. So this discussion may contain forward-looking statements. I'm not going to read the full statement but will direct you to the caution regarding forward-looking statements included in the MD&A. I will now turn the call over to David Ingram.

David Ingram: Thanks, Farhan. Good morning everyone and thank you for joining the call today. We produced strong loan growth, stable credit performance and improved operating leverage, while also raising over $550 million of additional capital and earning a spot once again in the top 50 workplaces to work in Canada. All of this is a testament to our team and their passion for helping Canadians but not prime credit get access to the financial products that support their lives. A continued increase in market share and favorable competitive dynamics, led to a record first quarter of applications for credit at $672,000 up 10% from quarter 1 last year, generating 43,500 new customers, an increase of 8% which is a record for a Q1 period. The robust volume of applications led to originations in the quarter of $677 million. Organic loan growth for the first quarter was $119 million above the company's forecasted range of between $160 million and $185 million. At quarter end, our loan portfolio finished at $4.79 billion, up 24% from the prior year. Unsecured lending continues to be the largest product category at 62% of loan originations and within our direct-to-consumer channel. The average loan and portfolio across our branch network was to a new high of $7.2 million per branch up 20%. We continue to make progress in scaling our automotive financing products with record first quarter originations of $150 million, up 30% year-over-year. This quarter, we grew our dealer network to over 4,000 dealers and continue to experience an increase in funding volume for multi-location dealer groups. During the quarter, home equity lending volumes were also up 29% year-over-year, with consistent and conservative LTV ratios at approximately 65% inclusive of our loan. The second mortgage product secured by residential real estate is primarily used for debt consolidation of major home repairs and is one of our best-performing products with the lowest credit risk. The overall weighted average interest rate charged to our customer during the first quarter was 28.4%, down from 30% at the end of the first quarter last year. Combined with axillary revenue sources, the total portfolio yield finished at 31.3%. The portfolio yield decline year-over-year was due to growth of secured loan products which carried lower rates of interest, targeted credit and underwriting enhancements to reduce risk and implementation of the new interest rate cap. While the total yield in the quarter was at the lower end of our forecasted range, we're addressing this through the opportunity in products, pricing and collection optimization efforts. When we estimated total yield in the interest -- new interest rate capital borrowing, it was based on a combination of pricing originations how much we can increase pricing below the rate cap and the runoff of our legacy portfolio about 35%. We are fine-tuning those assumptions and do not expect any long-term structural difference in what we have guided but rather some movement during the quarters. Total revenue in the quarter was $392 million, up 10% over the same period in 2024. We continue to be pleased with the quantity of our loan originations and credit performance of the overall portfolio. The dollar weighted average credit score of our first quarter loan originations was $632 million, the highest in the company's history, highlighting the benefits of our credit adjustments and improving product mix. First quarter was also the 13th consecutive quarter with a dollar weighted average credit score of our originations was greater than $600 million. Secured loans now also represent a record 46% of our loan portfolio. Despite the weakening economic environment, a higher delinquency in the portfolio relative to last year, our credit losses have remained broadly stable as a result of proactive credit tightening and a higher proportion of our portfolio secured by hard collateral. As our customers adapt to managing the finances withing this new reality of the economic uncertainty and stress, we remain focused on supporting of what balancing the need to manage risk and ensure a timing repayment of our loan principle. The annualized net charge-off rate during the first quarter was 8.9% within our forecasted range of between 8.75% and 9.75% for the quarter. To account for weaker economic performance, higher year-on-year delinquency and unfavorable movements in the modeling of forward-looking macroeconomic data obtained from Moody's Analytics, our loan loss provision rate increased from 7.61% in the prior quarter to 7.86% which had the impact of reducing earnings by approximately $0.52 per share in the quarter. We continue to remain vigilant in our monitoring of the level of credit risk in the portfolio against the backdrop of a weakening economy and its impact on collection recovery efforts. We continue to experience the benefits of scale through operating leverage and productivity improvements. During the first quarter, our efficiency ratio specifically operation expenses as a percentage of revenue improved to 26.1% in a reduction of 130 basis points from 27.4% in the first quarter of the prior year. As a function of receivables, operating expenses were 8.7% versus 10.4% during the prior year, reducing margin to absorb reduced APRs. 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. After adjusting for unusual items and nonrecurring expenses, we reported the adjusted operating income of $148 million, an increase of 3% compared to $144 million in the first quarter of 2024. Adjusted operating margin for the first quarter was 37.9%, down from 40.2% in the same period in 2024. Adjusted net income for the quarter was $60 million, down 9% from $66.3 million in the same period of 2024, primarily due to the decline in total yield on the consumer loans as well as the increase in allowance for future credit losses as a result of weaker macroeconomic performance and unfavorable changes in forward-looking macroeconomic indicators. Adjusted diluted earnings per share was $3.53, down 8% from $3.83 in the first quarter of 2024, while adjusted return on equity in the quarter was 20.4%. With that, I'll now pass over to Hal to discuss our balance sheet and capital position before providing some comments on our outlook.

Hal Khouri: During the first quarter, we continued to build on our long track record of obtaining capital to support our growth plans. Subsequent to the quarter, we took advantage of favorable capital market conditions and issued US$400 million senior unsecured notes due in 2030. In connection with the offering, we can currently entered into a cross-currency swap agreement which served to reduce the Canadian dollar equivalent cost of borrowing on the notes to 6.03% per annum. Based on the cash on hand at the end of the quarter and the borrowing capacity under our existing revolving credit facility, we had approximately $2 billion in total funding capacity. At quarter end, our weighted average cost of borrowing was 6.8% and the fully drawn weighted average cost of borrowing was 6.3%. 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. The 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 for the trailing 12 months was $436 million. As a result, we estimate we concurrently grow the consumer loan book by approximately $300 million 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 dividend. Once our existing and available sources of debt are fully utilized, we can also continue to grow the loan portfolio by approximately $500 million per year solely from internal cash flows. During the quarter, we also leveraged our current liquidity position to take advantage of opportunistic share repurchases and purchased for cancellation approximately $71 million worth of our shares. Subsequent to the quarter, we have continued to be opportunistic and repurchase an additional $25 million worth of our shares. Based on the current earnings and 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, for the holders of common shares of record as of the close of business on June 27, 2025. I'll now pass it back over to David.

David Ingram: Thank you, Hal. Turning to the upcoming quarter, we continue to take a conservative and prudent approach to manage credit. Yet, we also continue to experience healthy demand and limited competitive tension, allowing us to grow at an attractive rate, while being selective about the loans we underwrite. Despite the macroeconomic conditions, we remain confident in our ability to thrive during this period as we have proven during cycles before, our business model and our customers are highly resilient and we have a team that's very experienced of navigating through adversity. In the second quarter, we expect the loan portfolio to grow between $275 million and $300 million, while the total yield generated on the consumer loan portfolio speaks to 31% and 32%. We expect credit losses to travel within the range of 8.75% and 9.75% in the quarter and acknowledge that the speed with which the tariff and border economic situation is evolving could lead to a higher degree of oscillation within the range as compared to the previous quarter. But during the quarter, we announced the appointment of Dan Rees as the company's new Chief Executive Officer. Dan is the first external CEO to lead our organization in 25 years and his appointment is an exciting milestone of signal of goeasy's ambition. 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 to its next stage of growth. This entrepreneurial approach aligns well with our culture and his addition strengthens the executive team with their journey to expand our existing products and channels of distribution to become the largest and best-performing non-prime lender in Canada and beyond. I'll now pass it to Dan to provide some remarks.

Daniel Rees: Thank you, David and good morning, everyone. I'm very excited and honored to join and lead a goeasy team. It has been excellent to see the business model up close and I'm very pleased with what I have seen and learned. The Board and David have crafted a comprehensive onboarding program and the CEO transition is very much on track. We have an impressive senior leadership team and culture more broadly. 1, I would describe as welcoming and positive growth-oriented and yet balanced and above all else, very experienced and successful. Turning to the business. The organic growth plan is well on track. And, in my opinion, continues to offer attractive yields to shareholders. We are expanding the product range, engaging the broader set of distribution channels and moving well at advancing the digital assets alongside the stores and branches. The plan to launch a credit card later this year is progressing very well. And broadly, the ongoing investments inflections will, as you can imagine, continue to be critical in this business model. Strategically, I see the direction where we are heading as very well placed. As David and me transition the role, I will now start the process of engaging the teams over the coming months to review opportunities. Do not expect any major pronouncement. What has been working well has been working well for a reason. That said, I do look forward to elevating the conversation about the customer, our target market, priority segments, full lifetime value and so forth, as well as the competition. Who exactly are we competing against why might they be winning and why might they be losing. As you would expect, we are constantly evaluating our risk posture and allocation of capital. Overall, I'm excited about working with David, 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. With that, I will now pass it back to David.

David Ingram: Thank you, Dan. So in closing, I want to thank the entire team for their unwavering commitment to our vision. In 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. The more than 2,600 team members of across goeasy are smart, they're hungry and they're humble. They care deeply about providing an exceptional experience for our customers. They play an essential role in the financial system by serving the millions of hard-working Canadians that rely on us with the credit and fuels their lives I'm very proud of this entire team. Now 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 session. [Operator Instructions] Your first question comes from Etienne Ricard of BMO Capital Markets.

Etienne Ricard: Thank you and good morning team. So to start on impaired loans, it's good to see the improvement sequentially down to 6.9%. What explains this improvement in your view? Is it the result of tighter collection policies that you've implemented over the past year? Or is it also the result of your borrower base holding up quite well in this environment?

Jason Appel: Etienne. It's Jason Appel here. I'll take that. It's really both factors. We've highlighted and David highlighted in the script, if you look at our early-stage delinquency, we continue to see 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 now reached an all-time high. You recall that sitting at about 46% of the book and represents a fairly significant portion of new originations that we're writing. 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 could track that up to better experience and understanding the nuances of this customer base, particularly those that hold secured collateral, we're mindful of the opportunity to work with them before we have to have the need to secure or seize that collateral. 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 collection at the back end.

Etienne Ricard: Okay. It's interesting to see that 73% of the net loan advances this quarter or to new customers despite to your point, Jason, that you've been tightening the underwriting policies. So how would you describe the competitive environment relative to maybe 6 or 12 months ago? And have you seen any evidence that prime lenders have been tightening?

Jason Appel: Let me answer that in 2 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 in 2015, when the oil crash happened. We generally see a tightening that does take place in the major financial institutions, including the banks. And as you would expect, we would be a net beneficiary of that impact. But if you look at the quality of the originations that were written in the quarter that you commented upon but keep in mind that as we -- I think we had indicated in the prior quarter, in anticipation of the introduction of the APR rate cap, we had made adjustments to focus on the ability through which we can improve the qualified loan amounts that we give to our better quality customers. And what we saw in the quarter in Q1 was that our conversion of those customers actually increased meaning that by offering those customers slightly more funds at a lower interest rate, that being the 35% interest rate cap that was introduced we saw a tick up in the number of new customers that we're now interested in taking advantage of the product offer, in particular, on the unsecured side of our business. So those factors are what contributed to the numbers that you see. But I would point out again that the influx of individuals from better credit quality segments is something that is pretty typical in these types of events. But that is not the only reason, that's also because of the adjustments we made to the offers we had out in the market which simply translated into more better quality customers converting on the offered we had in.

David Ingram: One on all piece I would add in the quarter is we still 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 for the quarter then will lead to some moderation during the next few quarters is, we only funded 12.3% of applications versus a run rate or a normalized rate from last year, 15.4%. So when you see the credit quality go up, it really speaks to basis point that there may be a prime that's coming down and being rejected by banks. And we're seeing a high credit type of customer coming through, we'll also being much more discrete with who comes into the system because of this new great cap environment. So as it's taken us many, many years to get the portfolio close to $5 billion. It's likely going to take us a few more quarters to just really optimize what a new rate cap environment looks like a 35% or below. So these are good indicators of the health. It just means that we may be missing some opportunity for more originations because we have been more discrete as we try to carefully navigate this change.

Operator: Your next question comes from Jeffrey Fenwick of Cormark Securities. Please go ahead.

Jeff Fenwick: I wanted to start my questions off back to the securitization facilities. And as you articulated, you have a lot of capacity now after your last notes issue. But on those facilities, in particular, could you maybe just speak to some of the terms around them with respect to lenders? And is there the potential for some variability in terms of what was acceptable to put into those facilities, if there's a shift in the credit profile or the mix somehow does that change what you can put into them? Or is there anything there that was variable that we should be keeping in mind?

Hal Khouri: Yes. Jeff, it's Hal here. So as you know, we currently have 2 securitization warehouse facilities, when that house is our auto portfolio and another one for our general loans that are under management. As you can imagine, there are covenants and requirements associated with those securitization portfolio as per the normal course. That would include eligibility, reinvestment criteria and advance rates and certain requirements in terms of portfolio-based requirements, whether that's average time concentration, et cetera. We certainly examine our securitization facilities regularly to determine, if there are opportunities or constraints. These are the subset of credit performance on quality, excess spread and the like. We feel that we've actually had quite a successful run and continue to improve conditions surrounding those facilities and would expect that to continue going forward as well. In addition, I'd also say we counterbalance that, as you know, with the ability to enter into the unsecured notes markets as we have. We took advantage of that subsequent to quarter end and we're opportunistic around raising roughly another CAD 550 million at about 6%. And we feel that we have ample access, capacity, liquidity runway, great syndicated bank lenders and we think we're in fantastic shape as it relates to the balance sheet overall.

Jeff Fenwick: And with respect to Facility One, I think it matures in October of this year. So just any thoughts about -- and can you do that a bit earlier. Obviously, you probably want to get that settled ahead of that time but any expectations there?

Hal Khouri: Yes, absolutely. And we're already in the pros of negotiating with our bank partners don't see any issues in getting that renewed and we'll be looking to do our best at enhancing some of the terms associated with that as well as always.

Jeff Fenwick: Then on Facility 2, I know it's targeted more of the auto loans. The balance there didn't move quarter-over-quarter. So obviously, a very active source of originations for you. Is this just a timing issue that you're carrying them on the revolver before you put them into that facility?

Hal Khouri: That's correct. Yes. So as we naturally do, we pool that set of receivables and loans and move them into the warehouse, we naturally would have as part of our overall growth. We are continuing to grow our auto vertical quite aggressively. And because of the raising of the high-yield notes subsequent to quarter end, we 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 the high-yield funds.

Operator: Your next question comes from John Aiken of Jefferies. Please go ahead.

John Aiken: I wanted to focus on the yield from the quarter. David, in your prepared comments, you talked about obviously, some movement that might come back and forth in terms of the quarter. And I know that you're still guiding for yield of at least 31% in the quarter. But I guess my first question is what is the risk with the changing movements that we've seen within the portfolio that we could actually dip below 31%. And then can you give us some specific instances or examples in terms of what may actually cause the yield to increase through the rest of the year?

David Ingram: Sorry, I'm going to give Jason the pen on this one because I think he'll give you a more tangible response in terms of the breakdown. So in terms of -- I'll give you some quick color and then Jason will be more specific than I can. From our perspective, the risk, I think you asked what the risk would be that it could dip below 31%. I think the risk is less likely and if we break the yield into 2 parts which is the coupon, the price at which we write the yield out there and then the actual yield which is what we actually collect from the yield. So on the coupon side, I think the risk is very much less there because we obviously control what that would be. And from our first kind of quarter view of life we can see some opportunity to actually lift in certain categories, a small amounts in the yield in the coupon. So that from our lens based on the competitive set that we're in, based on the application demand which has been very strong and has continued to lift into April and May. So we don't see any resistance or reasons why we can't put some of the coupon up in some of the different verticals. And so, we'll be doing that over the next few months in a measured way. On the actual collective side, obviously, the collective side is -- has got all kinds of different pieces that could give headwinds. So something could be the economic environment, where our customers are finding it more challenging to make time as -- payments on a timely basis. And that's probably more pronounced in certain verticals than others. So we are susceptible to that. At this point, we don't see that being a huge risk but it does carry some risk and obviously the tariffs do play some part in how that works its way through. So that's a general picture and I think we're comfortable in the 31% range long term, we are looking for ways to try to edge that up. But I'll pass it over to Jason, he'll give you a bit more description than the actuals.

Jason Appel: And maybe just to bolt that into sort of 3 broad categories, in ways which we've approached improving the yield gradually over time. David already spoke to the first one which is to selectively taking pricing on new originations, where we believe the competitive environment would support it. And we do see some opportunities to do that. And as I think I pointed out on our previous calls, that is part of our parcel and how we optimize the yield on the portfolio. The second area would be continued evolution in how we use both our tool set and offer set to optimize the collection of cash from both secured and unsecured accounts. 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 customers, who has a higher likelihood of repayment under the right circumstances. We continue to refine that capability and testing and learning against that. And then the third broader area would be just continued work around modifying how we go to market on our products and in particular, the mix of the types of products we write. If you take just a single example of our unsecured loan. We continue to test and move up our coupon rates on that program by focusing, as we had pointed at the outside of the call, the proportion of new customers which when we're originating the substantial majority of whom are priced at 35 [ph] at the cap. So as a result of just those types of product mix modifications, we can influence the yield to move upward. And obviously, as you can appreciate, it just takes a few quarters to work its way through the portfolio, given the size of the installed book now approaches $5 billion. So those would probably be the 3 tool set pricing on the originations improved collectibility in cash through collection tools and segmentation and modification of our product mix.

Operator: Your next question comes from Gary Ho of Desjardins Capital Markets.

Gary Ho: Okay, great. Jason, maybe a couple of questions on the credit and the provision side. So I asked this last quarter just on the FLI weight on each of the scenarios. And I think last quarter, there was no material change made last quarter. So with the 5 scenario worsening again from the Moody's analytics, just curious to hear whether the you had a 25 basis point increase in the provision came from the FLI forecast deteriorating or were there shifts in the probability as well?

Jason Appel: Yes. Well, as you would appreciate, the FTL strengthening was primarily model given and it basically reflects the deterioration in the third-party forward-looking indicators that we incorporate into the allowance. 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 time frame for us to cover and collect asset. 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 we've being allocated to what we call the neutral and pessimistic scenarios which are updated every month by Moody's Analytics. Now within those scenarios themselves quarter-on-quarter and you can see this in the MD&A and the financial statement disclosures this quarter, virtually every single FLI that we track to worsen quarter-over-quarter. In response, as you appreciate to the impact and uncertainty that we see with U.S. and post tariffs from our Canadian goods. But you'll also note that in the quarter, we saw evidence of further weakening Canadian economy with GDP having turned in February and core inflation having picked up with the elimination of the GST holiday around the middle of the month. We would continue to expect the volatility and a high degree of negativity associated with those forecasts. To continue but we do see they're moderating over time and I think what will ultimately drive that automation is the degree to which we get clarity on the type of impact at the tariff situation will meter out. And whether or not we can enter into it but I would call them enhanced bilateral trade agreement with the United States. So as you would appreciate, the timing of this does remain a little fluid. We would also expect the provision to gradually moderate in response to a reduction in the volume of late-stage delinquent accounts and as well the strong quality of the new originations that we've already spoken about what we are writing which is leading to an overall reduction in our early stage delinquent accounts. In the interim, as you'd expect, we continue to remain focused on our secured mix being selective with the credit that we're underwriting and continue to optimize our collection efforts. So quarter-on-quarter, I would say we do not see a material adjustment on our side and the weightings that are still very much favored towards neutral and pessimistic and we will likely continue to remain in our posture until we see evidence of the situation.

Hal Khouri: Maybe just to follow-up on -- sorry, its Hal here. Maybe just to follow-up on -- of course, as those macroeconomic indicators, if they were to shift in a positive direction relative to the FLIs that are currently in place. We would not able to reduce our overall negative.

Gary Ho: Yes. Okay. And then as a related question, just on the provision rate, the 7.86%, are you able to segregate that between your secured versus unsecured loan provisions. Yes, it's tough on our side to kind of gauge the appropriateness with that. So when I look back I think when your loan book was more unsecured to it, right, the onset or core base the provision such 9% 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 2 biggest buckets, what would that look like?

Hal Khouri: Maybe -- it's Hal 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 of our provision rate between secured and unsecured. What I will say, though, is as our portfolio begin to triangulate around 50% of the book being secured and relative to the unsecured book, naturally, you can kind of gravitate yourself towards that pro rata distribution in a certain sense of the receivables and the associated provision around that. Secured book will be gravitating towards a better risk profile as well. That would create some nuance in that overall provision and unsecured to -- secured ratio. And as we've disclosed previously, just under 30% of our term book currently is our legacy book as that would have been on the rate cap as well. So you can factor that through in terms of your modeling exercise, as you look at that from a -- not only from a provision standpoint but from a net charge-off perspective as well. Anything further on that?

Jason Appel: The other thing I would say Gary is, obviously, if you just look at where the provision is traveling in the quarter at 786 [ph] and as you can appreciate, where students have history here at goeasy. So we have a pretty good view as to how that's also available for the last several years under which [indiscernible] IFRS 9. That provision rate has traveled in and around of mid- to high-7s or about the last 3 to 3.5 years. And that's despite the fact that we have significantly continued to improve the product mix. That said, obviously, the underlying reason why the provision rate continues to move up is because the economic situation over that period has meaningfully deteriorate even if you go back to '22 and '23. And as you can appreciate as far as IFRS 9 to be on to and should be incorporating that in terms of the expectation of future loss. But as with most things, the expectation of future loss doesn't necessarily translate into actual loss as you see with the fact that credit losses this quarter were pretty stable. So while we have to reserve and on to reserve against our allowance for future credit losses, we're very much mindful of how we practically mitigate that risk on a regular basis. So -- and one of the reason which we do that, obviously, to focus on growing our secured loans. So I wouldn't look at it as how would impact the provision because while our mix of the secured loan has been growing, the provision rate, again, if I go back 2 to 3 years, basically being flat we've been presenting our provision rate from being higher, against that secured loans because the underlying macroeconomic indicators have worsened materially over that period. So I really think about it so much in terms of security as I would. The benefit that we get from the secured product, giving us a nice buffer to mitigate the risk of broader economic weakness in the portfolio [ph].

Gary Ho: Okay. That's helpful. If I can just sneak one more in maybe a numbers question. When I look at the sequential change in your loan book in Q4 to Q1, the principal payment and adjust and adjustment was quite a bit lower than the last couple of quarters. Just wondering if there's a reason why -- or what would cause that to be lower this quarter?

Jason Appel: Are you talking specifically varied by the loan origination change quarter-on-quarter?

Gary Ho: No just the loan book reconciliation, yes, there's a couple of pieces there the loan originations. There's the principal payment adjustments and then there's the gross charge-off. 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's causing that.

Jason Appel: So I think what I can certainly speak to is the amount of paydown that you would see in the MD&A quarter-on-quarter. So let me try and unpack that. Originations to new customers were up $76 million quarter-on-quarter. And as you point at the point, it was largely due to higher conversion rates as a result of the introduction of the rate cap at 35%. On top of which we obviously made very positive adjustments to our qualified loan on a strategy giving to our credit [indiscernible] customers. Origination 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 rate cap to gradually moderate the decline in portfolio of loans held about 35% and where these customers approached us, the companies who had existing loans of rates about 35%, where they approach this for an increase in lending. We did not require that their existing loan balance be paid down. Instead, these customers were adjudicated based on their existing loan balance remaining and the repayment of that loan remaining continuing which meant that the total amount of additional borrow we could give to that customer, inclusive of their existing loans smaller again, because we were not paying down their existing loans. So despite the drop in originations year-over-year, this didn't translate into a reduction in the amount of net credit or net principal advanced to these existing customers. You can see that on Page 14 of the MD&A which shows that the amount of net credit advantage to existing customers is actually flat in here despite the fact that we had a meaningful drop in origination volumes. And when you combine that with the fact that we actually got more business to new customers, that is how we actually wound up or an additional amount of net principal in the quarter as compared to the prior quarter.

Operator: Your next question comes from Graham Ryding of TD Cowen Securities.

Graham Ryding: You called out in your presentation, you approved and funded 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?

Jason Appel: Yes. So that number that we're quoting Graham is new loans only because obviously they represent the vast majority of our loan originations as a reference to the prior comment. And that obviously would be down from the prior year, where we've been hovering more around the 15-ish percent range. And again, the number 1 reason why that conversion is down on is really [indiscernible] we obviously saw a significant uptick in the number of applications for credit. Given the macroeconomic environment to highlight in demand. And as we pointed out in our previous calls, we have tightened our underwriting, in particular as it relates to the unsecured customers we are writing, so that just gives us an ability to be a little bit more mindful and thoughtful about how we cherry-pick out of that asset of customers. The net impact, of which is that our conversion rate as a percentage of the total applications that we see through the door is down we would expect that ratio to travel in and around that range residents 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 -- because that is the denominator. When we can see that number potentially pick up as we begin to get more comfortable with seeing the results of the changes we've made post the rate cap which as you can appreciate are only 3 or 4 months old. So still a little bit of learning to be done. But I would say at the moment, that 10%-ish level around new loans is likely where we're going to travel to the next little one.

Graham Ryding: Okay, that's helpful. And then you flagged that your average blended coupon rate was 6.8% in the quarter, that's flat year-over-year. What's your outlook for this sort of rate through the rest of 2025. Should we expect it to be fairly stable?

Hal Khouri: Yes. So the overall combined cost of borrowing is what you're referring to, I think, Graham there. Look, I think as we continue to go at the market, as you might be familiar, we have a proactive hedging strategy that we employ to ensure that our debt facilities are at fixed rates and any subsequent draw on our facilities would be at the fulfillment rate at the time. So there's not much of a movement on the existing portfolio in terms of variable rate movement but beyond subsequent draws where based on the rate curve and the outlook, we should see some nominal reductions in the overall cost of borrowing there.

Operator: Your next question comes from Nick Priebe of CIBC Capital Markets.

Nikolaus Priebe: Okay. Just wanted to drill a little further into the portfolio yield. There was a comment in the MDMA just suggesting that commissions earned on the sale of ancillary products was partly impacted by reduced pricing, can you just elaborate on what that relates to and when those pricing changes would have been implemented?

Hal Khouri: Yes, I can -- it's Hal here. So I think the comment around that around our ancillary products, as Jason has alluded to in terms of the tightening up of overall credit that we typically have perhaps a higher penetration rate of ancillary products. So you think about insurance or warrantees, those types of products that would be complementary to the loan. So that would be an initial impact on those numbers. I'd say as well, the increasing shift to secured and the secured mix overall. Typically the secured product, whether you're looking at home equity, auto with traditionally garner a slightly lower penetration rate relative to our unsecured products. So there's a little bit of dynamics going on in terms of those rates. So we're winding around that. We continue to invest in our infrastructure to try to continue to move the needle on the dial on our pen rate on a prospective basis.

Nikolaus Priebe: Got it. Okay. And just 2 follow-ups on that. Just 1 I'm curious what kind of prompted the change in pricing on those ancillary products? Like I would think the demand for the loan protection products, as an example, be relatively pricing elastic. I guess what I'm trying to say is, I would have a thought of the attachment rate being enormously sensitive to commission. So what was, I guess, the kind of incentive to adjust pricing there?

Hal Khouri: So I would say, in terms of pricing more broadly and if I were to look at our loan protection program specifically, that would have tiered pricing based on loan amount. And so as the loan amount, gravitate upwards, the rates for that protection product would actually come down, even though you're still garnering more overall revenue contribution, if that's helpful.

Nikolaus Priebe: Okay. Yes. That makes sense. And then, I guess, the way the account would works when you originate unsecured loan and there is pickup for the third-party loan production product, the commissioner on the sale of that product would be recognized in the same quarter that the loans originated, right? So I think what you're trying to suggest is that in a period, where the mix of loans sold skews more towards secured lending which has a lower attachment rate to those products the economics of those loans are what's 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 of duration of the loans, the overall ROE might actually look comparable between secured and unsecured. I guess 1 question I would have is if you were to order rank the product suite by ROE, how would the various products compare?

Hal Khouri: Yes. I mean, I think to get back to your earlier narrative around that, I think you're correct, right? Like depending on -- depending on the product that's being sold, either there's an upfront recognition in totality as we're a distributor of those products, for example, of warranty 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 fee, where we take an upfront service charge or service fee. And then we have back-end return economics that would be a bit drilling in that regard. So there's a little bit of a dynamic in that respect. If we think about the contribution of the overall products, all are significant contributors to the overall bottom line. I don't think we specifically ranked ordered them in terms of contribution overall to the economics. But certainly, all of them would be significant contributors to our yield and overall economics as we look at underwriting the products.

Operator: Your next question comes from Jaeme Gloyn of National Bank Financial.

Jaeme Gloyn: Yes, I just wanted to ask a question on the OpEx. So maybe first off on the underwriting and collections line, a little bit higher this quarter. Obviously, you're trying to beef up your collection teams. Maybe just a little bit more color on where those costs are going? And then is this something that you expect that will kind of run a little higher over the next several quarters as you continue to work through the -- what you call the optimization of collections.

Hal Khouri: Yes Jaeme, 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. Collections and the focus in on collections, certainly would be an area, where we've had increased OpEx. That would be baseline to what Jason was describing earlier in our drive to invest in infrastructure around those collections and collections activities, whether that's people, resources, whether that's third parties. We also -- as we continue to engage in the possession of secured assets of vehicles, powersports. Powersports loans as well, that would contribute to a heightened level of overall costs that are being born into the P&L.

Jason Appel: Yes. Maybe just to bolt onto that. It's also 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 the payless, we have to contract with or other types of third-party services or beating up on our own internal service capability. Those costs are going to hit us 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 back end of our business but certainly on the front end, when it comes to OpEx, we'll feel it before we get the benefit. But we would have obviously taken it into consideration as we model these type of investments as we do any time we upgrade our quality capability.

Jaeme Gloyn: And just tying that theme into the delinquency rate disclosures. So the greater than 150 days, it sounds like there's some loans that are greater than 180 that you have some visibility on collections. Can you maybe just dig into that figure that -- I think it's $104 million -- $110 million, I can't remember on the top of my head. That's in that $150 million plus. So how much of that would be greater than $180 million and your confidence in recovering those assets and then eliminating those delinquencies?

Jason Appel: Yes. So what I would say is we don't typically disclose a final breakdown of the 1 -- what I call it 151-plus day bucket. But as you can appreciate, as a result of the backlog that you've been challenged by over the last, this would be not the second quarter is obviously taking us about another on average, 90 days to get recovery on 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 principal or a decent portion of our principal. As a result, we're not seeing that simply because of the challenges, not just faced by us 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 as we become more aggressive and expert at reducing the time frame within which we can recover and collect on these secured assets, the challenge will be -- and we worked out the challenge, the benefit will 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, it's obviously just going to take us a couple of more quarters to look through that population of loans. Again, not because we see the credit of the portfolio to be at risk just simply because we're facing a limited number of processors, payless and third parties that can help us work through the volume of these accounts. Knowing full well that we intend to recover and apply roughly the same degree of recoveries that we've seen in keeping the previous periods. So it's a decent number of that $100 million plus 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, we would expect that number to continue to improve as we reach in the next few quarters.

Jaeme Gloyn: Great. And then maybe coming back to the OpEx and how you're thinking through investments, it looks like technology a little bump this quarter. But is there -- like what's the strategy or your near-term view on managing the expense line. Just given that there's obviously a little bit higher sensitivity to macro conditions feeding through to protect your margins here over the next few quarters?

Hal Khouri: Yes, Jaeme, I mean what I would say is our first philosophy has always been prudent mindful around costs and expenses. And certainly, that's for -- at the forefront of our thoughts regardless of the environment that we're in. You pointed out the tax piece. Yes, we absolutely continue to invest in our business, in our platform, specifically projects that are underway right now with credit card launch, auto title refi that we've already spoken to the market quite actively around turn that our customer-facing platforms that we use to service our customers. We continue to upgrade and make sure those are top of the 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 have noticed within the salary lines, that has tightened up relative to the volume and the growth of the overall book will we continue to be mindful around our hiring practices, third-party servicing costs as we think about sourcing and procurement and continue to sharpen our pencil, so to speak, as we think about cost outlays. So I'd say, as we think about the next few quarters, notwithstanding the Q1 component around the tech and the collections component, you should see that slightly moderate and there's some timing in there based on our investments. But continue to be well within line of our overall operating margin and continue improvement in our operating leverage.

Operator: Your last question comes from Stephen Boland of Raymond James.

Stephen Boland: I'll be a bit quicker. Just in terms of the numbers this quarter and your 2025 guidance, I think you said you can still hit those numbers. But if you annualize your revenue, you're below the low end, your ROE, if we use the 20.7% is below what you had guided to. And then for Q2, your revenue yield is going to be in this range. I'm just -- we'll give you confidence that you can hit the guidance. Like is this going to be more towards the second half, where you catch up on some of these metrics?

Hal Khouri: Yes. So in terms of our confidence level with our overall annualized position, I would say that at this time, we would reaffirm 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 through the course of the year, while still maintaining to be within range, likely at the lower end of our overall guidance in that respect. And as we traditionally do, we'll come back in the August time frame as we've got another quarter under our belts, we'll reexamine the outlook not only for 2025. But get a sense on the read with the economic backdrop and environment in that respect. But at this point, we won't be shifting off of the guidance at this time.

Stephen Boland: And just the last question for me is when you talk about tightening, obviously, Dan one was a new error for you. But like during the quarter, after tariff some economic uncertainty, was the tightening continually it's like does that continue throughout the quarter? So by March, metrics were much different than January or February. I'm just trying to gauge how much you looked at the environment and said this is getting worse, we really got to be careful here.

Jason Appel: So it's Jason. I think it's fair to say we're always tightening or oscillating with the underwriting platform. I mean we talked about this prior in COVID, where the situation obviously is far more dire and very much uncertain. We were tightening or releasing or adjusting almost on a weekly basis in response to at that time were fairly sizable shifts in the macroeconomic environment amongst other things. I'd say over the course of the quarter, a, we continue to monitor the overall health of the portfolio. And there isn't a week that goes by that some elements of the creditors fostering at the book isn't either be tweaked, more modified. And I would how do you think about that in a couple of different ways. 1 would be certainly the most obvious which would be on the front end of the book, where as I pointed out on previous calls, we can modify cutoff scores debt to income criteria, underwriting protocols pretty much within a 24-hour time frame notice. The other area that we can also have a fairly significant impact is in the back end of the back book the business is already up the door and basically in the process of repayment. And again, we can work that book much more effectively by choosing again the types of offers and constructs to 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 businesses. The only difference is we may not necessarily make those changes every week but we will review the need for those changes every week because that's just how we go to market on managing an on-prime portfolio. So that's just part of our go-to-market BAU business as usual activity and we were doing that throughout the first quarter. And I'll point out, we'll continue to do that throughout every quarter. Just the scale with which we choose to make changes, will only vary in response to the suspensive of the degree of change in the broader environment.

Operator: Thank you ladies and gentlemen. That concludes ends our question-and-answer session, I will now hand the conference over to goeasy Ltd.

David Ingram: Okay. Thank you, operator. Since there are no more questions, we want to thank everyone that participated on the call and we appreciate your interest in the company and we'll continue to update you and look forward to giving you the next quarterly call in August. So have a great day, everyone. Thank you.

Operator: This concludes today's conference. Thank you for attending. You may now disconnect your lines.