EHMEF Q2 2025 Earnings Call

Operator: Good morning. My name is Aubrey, and I will be your conference operator today. At this time, I would like to welcome everyone to the goeasy Limited Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. Mr. James Obright, you may begin your conference.

James Obright: Thank you, operator, and good morning, everyone. I'm James Obright, President of Investor Relations and Capital Markets. Thank you for joining us to discuss goeasy Limited's results for the second quarter ended June 30, 2025. The news release, which was issued yesterday after market close, is available on Cision and on the goeasy website. On today's call, Dan Rees, goeasy's Chief Executive Officer, will review key highlights for the second quarter and provide an outlook for the business. Hal Khouri, our Chief Financial Officer, will provide an overview of our financial results as well as our capital and liquidity position. Jason Appel, the company's Chief Risk Officer, will then provide an update on our credit and underwriting. After the prepared remarks, we will open the lines for questions from analysts. The operator will poll for questions and will provide instructions at the appropriate time. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company's investor website and supplemented by a quarterly earnings presentation, which will be referred to by our speakers today. For those dialing in by phone, the presentation can be found on our investor website. As a reminder, the slide presentation and our MD&A contain a disclaimer on forward-looking statements, which also applies to our discussion on this conference call. Business media are welcome to listen to this call and to use management's comments and responses to questions in any coverage. However, we would ask that they do not quote callers unless that individual has granted their consent. I'll now turn the call over to Dan Rees.

Daniel Llewellyn Rees: Great. Thank you, James. Given this is the first earnings call I'm leading since joining goeasy, I would like to begin by extending a personal welcome to all of those listening, including our employees, investors and the research analysts that follow the company. I would like to start by echoing some of the initial comments I made during our Q1 call. My first few months in this role have confirmed my confidence in goeasy. With my direct engagement with our employees across Canada as well as many of our external stakeholders, I continue to believe this business is already operating at a high level and that we continue to have substantial potential for more. My initial focus across the business has surfaced many positive insights. And as you can see now in our Q2 results, we have begun to deliver on a few operational refinements. As we press ahead, I would like to reiterate a comment I made on a prior call, expect broad continuity in terms of strategic direction. What has been working well at goeasy has been working well for a reason. My aim is to ensure goeasy has the talent, systems and capital to build on the legacy of growth and strong returns that David Ingram and Jason Mullins have both established. That said, with increasing size comes both opportunity and responsibility. So as we continue to level up, we will scale up. In keeping with the heritage and norms of goeasy over the years, we will continue to be growth-minded, deliberate, thoughtful and forward-leaning as we enter this exciting new chapter in goeasy's history. With that, let's now get into the quarter. I'll ask you to turn to Slide 4 of the Q2 2025 earnings presentation available on our website. I'm pleased to report that our loan book increased a record $313 million in Q2, driven by a record origination level of $904 million. This exceeded our previously stated quarterly outlook. This strong performance lifted our receivables to $5.1 billion in the quarter. On June 12, you will have noticed that we proudly press released that we moved through the $5 billion level. And as you can imagine, this was a major milestone for us internally and was rightly celebrated throughout the organization. I was reminded the other day that when Hal joined goeasy just over 6 years ago, our loan portfolio was actually slightly below $1 billion. For reference, last year, at this point, it was $4.1 billion. So even as we get bigger, our rate of loan growth has been very impressive and very well managed. Our record growth, together with improved cash collections helped to generate record quarterly revenue of $408 million, up 11% from Q2 of last year. Tailwinds in the quarter, which we will dive into shortly, included an important 50 basis point uptick in our total yield relative to Q1, now at a very encouraging 31.8%. Yield benefited specifically from improved product mix, stronger pricing and better performance in ancillary sales. We also saw the continuation of recent trends in credit performance this quarter. In Q2, we reported another decline in our net charge-offs, down 50 basis points from the prior year, now at 8.8%. Net charge-offs benefited from an increased contribution from secured lending as well as underwriting enhancements. As we continue to expand our business and as we drive increased volumes through our merchant partners, we are seeing a benefit in our efficiency ratio, which now at 25.6% came in 130 basis points lower or better than last year. Our adjusted EPS at $4.11 was the same level for the same period in 2024, despite, as you know, the impact of the rate cap. These results in combination underscore the resilience of our business model, coming off just a slightly lower yield in Q1. Looking ahead, our Board and the management team are aligned on pursuing our successful strategy and executing our plans relentlessly. We are advancing well and considering all of our growth potential options, with ongoing and more fulsome discussions as we pass through the fall. In keeping with past practice, we will affirm our priorities and 3-year growth outlook early in 2026, in conjunction with the release of our full-year results. We continue to expect to deliver against the 2025 forecast we shared earlier this year. And now based on these Q2 numbers, expect our loan book to finish at the top end of our original expectations of $5.4 billion to $5.7 billion. Turning to Slide 5. I would note that our strong Q2 performance was made possible by the focus and dedication of all of our 2,600 employees. Personally, as part of a group of 30 goeasy leaders, I recently had the opportunity to participate in our annual leadership tour. Collectively, the group of us visited over 225 of our locations across Canada. I met with many goeasy leaders at our annual National Conference recently, which was attended by 600 managers from across the organization. Throughout all of this engagement with the goeasy team at all levels, I've been struck by how consistent and how powerful our passion is for our customers and our culture. I've been spending a lot of time with our LendCare business, including our merchant partners. These partners, which now number more than 11,000 remain a critical component of our growth, particularly in the auto sector. In the quarter, automotive as well as unsecured lending, home equity loans and point of sale, all delivered strong sequential loan growth. Rounding up my opening comments, I'm very proud to highlight what the goeasy team delivered this quarter. Turning to Slide 6. You can see that our performance in Q2 met or exceeded the outlook we shared recently with you just in May, all of this despite a complex macro backdrop. This is a testament to the strength and adaptability of our business model and it underpins, pardon me, our confidence in the future. With that, I will pass the call to our Chief Financial Officer, Hal Khouri, to provide an update on our financial performance and balance sheet.

Hal Khouri: Thanks, Dan. Good morning, everyone. I'm picking up on Slide 8. We experienced very strong originations in Q2 at over $900 million, up 9% year-over-year. Growth was driven by record applications for credit across all product and acquisition channels, including unsecured lending, home equity loans, automotive and point-of-sale lending. Dan called out the consistent growth we've been driving in our gross consumer loans receivable, but I wanted to pause on the increased percentage of our portfolio, which is secured. We've grown this 3.5 percentage points since this time last year to almost 48%, supported by strong originations in auto and home equity lending. On Slide 9, total revenue in the quarter was a record $418 million, up 11% over the $378 million in the same period in 2024. Total yield on consumer loans declined year-over-year at 31.8% due to growth of secured loan products, which carry lower rates of interest, a higher proportion of larger value loans with reduced pricing on certain ancillary products and implementation of the new interest rate cap. Notwithstanding the decline year-over-year, management actions and product pricing and collections optimization efforts led to a 50 basis points improvement in yield quarter-over-quarter. Turning to Slide 10. Strong loan growth, stable credit performance and continued gains in operating efficiency drove reported adjusted operating income of $164 million, an increase of 7% compared to $153 million in the second quarter of 2024. That operating income translated to adjusted diluted earnings per share of $4.11. The difference between our $5.19 reported and our $4.11 adjusted EPS relates primarily to fair value changes on prepayment options embedded in our notes table. Turning to Slide 11. We continue to experience the benefits of scale, including through greater operating efficiency and productivity improvement. During the second quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue improved to 25.6%, a reduction of 130 basis points from 26.9% in the second quarter of 2024. In Q2, we reported an adjusted operating margin of 39.3%, down from 40.5% in the same period of 2024, primarily driven by the decline in total yield due to mix shift towards secured loans, tighter credit and underwriting practices and the impact of the rate cap as well as the increase in allowance for credit losses, primarily driven by unfavorable movement in macroeconomic forward-looking indicators. This was partially offset by the continued improvement in operating efficiency and net charge-off rate. As outlined on Slide 12, in the second quarter, we added to our long track record of obtaining capital to support our growth plans. In April, we took advantage of favorable market conditions and issued USD 400 million senior unsecured notes due in 2030. We also concurrently 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 facilities, we have approximately $1.74 billion in total funding capacity. At quarter end, our weighted average cost of borrowing was 6.7% and the fully drawn weighted average cost of borrowing was 6.1%, in both cases, an improvement year-over-year and quarter-over-quarter. We 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. Bolstering our strong funding position and as described on the bottom left of Slide 13, the business continues to produce impressive levels of free cash flow. Free cash flow from operations for the trailing 12 months before the net growth in the consumer loan portfolio was $377 million. As a result, we estimate we currently grow the consumer loan book by approximately $350 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. Reflecting confidence in our continued growth and access to capital going forward, the Board of Directors approved a quarterly dividend of $1.46 per share payable on October 10, 2025, to the holders of common shares of record as of the close of business on September 26, 2025. During the quarter, we took advantage of market weakness to purchase approximately $25 million worth of our shares, bringing the total number of shares bought back in 2025 to approximately 590,000. With many attractive growth opportunities available in the business, expect us to be a disciplined buyer of our stock as we carefully allocate capital going forward. On Slides 14 and 15, adjusted return on equity landed at 23.2% for Q2, down 220 basis points year-over-year. The main driver was lower adjusted net earnings due to lower yield from secured mix shift, rate cap impact and increased credit provisions, which Jason will cover off in further detail in his credit and underwriting commentary. Jason, over to you.

Jason Appel: Thanks very much, Hal, and good morning, everyone. I'm pleased to be able to provide some additional comments on our approach to managing credit and underwriting for the non-prime consumer and how it impacted our business in the second quarter. The key takeaways, which I will leave for your reference, are summarized on Slide 17. Turning to Slide 18. Our net charge-off rate of 8.8%, which came in at the lower end of our guided outlook for the quarter, represented a 50 basis point improvement over the prior year and a 10 basis point improvement over the prior quarter. We continue to benefit from a shift towards secured lending, now sitting at just shy of 48% of the total portfolio, along with the tailwinds with the proactive credit adjustments we made late in 2023 and throughout 2024 in anticipation of weakening macroeconomic conditions. We've talked for a while now about the increasing percentage of our book that is secured. And as Hal noted, we expect the pace of the shift to moderate in the coming quarters as we look to take advantage of opportunities we are seeing in the unsecured installment loan market, caused in part by the migration of certain segments of customers into the non-prime segment. Total delinquent balances at 6.7% of the portfolio declined 100 basis points from the prior year and 20 basis points from the prior quarter. Late-stage delinquencies defined as loans more than 90 days past due at 2.8% were 103 bps higher when compared to the prior year. However, we continue to make steady progress in optimizing our late-stage collections as the volume of our delinquent balances more than 90 days outstanding declined 50 bps quarter-over-quarter from 3.3% to 2.8%. We expect to see continued progress in reducing these balances by further streamlining the processes to recover the assets collateralized by our secured loans. As we work toward making further improvements, our recovery rates continue to remain stable and consistent with prior periods. With demand for credit remaining strong, we continue to maintain a conservative posture in our underwriting of new loans, funding just 13% of applications at a dollar weighted average credit score of 622 in the quarter. Q2 was our 14th consecutive quarter with average scores above 600. We also made some further enhancements to the risk management of our portfolio by implementing our first phase of next-generation detective controls. These trigger-based mechanisms will enhance our ability to identify opportunities for potential credit expansion, as well as areas of potential credit risk across a variety of segments within our portfolio, including by product, channel, risk group and income stratifications, to name but a few. Turning to Slide 19. Our allowance for credit losses saw a modest quarter-over-quarter increase of 6 basis points to 7.92% from 7.86%. The increase was due to unfavorable movement in the forward-looking macroeconomic indicators, or FLIs, produced by Moody's Analytics. This was partially offset by the improved credit and product mix of the loan portfolio as well as credit and underwriting enhancements made in the quarter. These FLIs have continued to worsen over the last few years and now sit at an all- time high. This, coupled with a higher mix of late-stage delinquent accounts lifted both the rate and size of the allowance over the last year. As we continue to remain focused on managing our net charge-offs and reducing our late-stage delinquencies, we would expect our allowance to gradually decline, with the potential for future relief should we begin to see meaningful improvement in underlying macroeconomic performance. Finally, on Slide 20, we have highlighted some of the ways in which we continue to take a balanced approach in our management of risk to build further resilience in our loan portfolio. Early in the quarter, we introduced underwriting changes for customers working in industries impacted by high sustained tariffs, think steel, aluminum as examples. This follows the approach we took during the COVID-impacted period where modifications to our underwriting were adjusted at the industry level in response to changing conditions. We continue to keep a watchful eye on potential tariff changes and would highlight that our loan portfolio remains highly diversified with no industry sector accounting for more than 9% of the loan book. Also in the quarter, we introduced a new credit model for our home equity loan product and increased our maximum loan size to $150,000 for qualifying properties with loan-to-value ratios below 50%. We continue to hold a very favorable view of our home equity product given its low net charge-off rate and ability to attract lower cost sources of funding. Critical to our ongoing success in the coming quarters will be maintaining an appropriate balance between managing the level of growth and risk in a way that fully accounts for the best interest of both our customers and goeasy. As such, you can continue to expect us to remain disciplined underwriters of non-prime credit as we continue to navigate against the backdrop of a stagnant economy and a constantly evolving tariff picture. With that, I'll turn the call back to Dan for our outlook and some closing remarks.

Daniel Llewellyn Rees: Great. Thank you, Jason. Looking to Slide 22, where we introduce our Q3 '25 outlook. Here, you can see we're aiming to continue the growth momentum we have in our consumer loan portfolio, while as Jason mentioned, balancing it with prudent underwriting practices. Maintaining this balance quarter after quarter has been a hallmark of goeasy's approach and a critical pillar of our historical success. And I want to ensure investors that we will not lose sight of that as we continue to scale the business. For our Q3 outlook, we are targeting growth in our loan book of between $325 million and $350 million. Our expectations for total yield and net charge-offs remain the same as in Q2. Moving to Slide 23. We reiterate our forecast that we expect gross consumer loan receivables to come in at the top end of the $5.4 billion to $5.7 billion range. As you know, these 3-year plans are closely connected to our annual strategic planning process, which takes place this fall. As I spend more time in this role and engage further with all the stakeholders and our Board as part of our planning, you can expect us to update you further when we publish our annual results in February of next year. I want to thank the entire team for their unwavering commitment to our vision. We have incredible talent across our organization at all levels. Over the past few months, I've had the opportunity to build deeper relationships with the excellent senior leadership team here at goeasy, and I remain very pleased with the bench that I'm getting to know better. On the topic of talent since we last spoke with you, our former Chief Strategy and Corporate Development Officer, Farhan Ali Khan, has assumed a new role that we created as the Chief Revenue Officer at LendCare. I would like to take this opportunity to thank Farhan for his many contributions and wish him the very best in his new role. Farhan's move has given us the opportunity to add some new executive talent. And for one, we brought James on board as the Senior Vice President of Investor Relations and Capital Markets. So, a formal, warm welcome to you, James. And in addition, we've added leadership in areas such as strategy, collections and a few others. These hires bring many years of external experience that we believe is highly complementary to that of our tenured goeasy executive team. My colleagues and I have high ambitions to continue to build on the market leadership that we have enjoyed and have multiple levers to continue to do so. In addition to advancing our products, services and channels, we are investing in and embedding an AI and automation mindset in all of our technology-enabling activities to ensure that we achieve scale and efficiency concurrently. For example, we are deploying a substantial upgrade to Salesforce, making several ongoing enhancements to our customer website, a range of improvements to our collection processes and technology and all of which will demonstrate important benefits to our employees and our customers. In closing, goeasy plays an essential role, as you know, in the financial system broadly by serving the many millions of hard-working Canadians that rely on us to pursue their goals and live full lives. I'm very proud of this entire team and very excited about our future together. And so now with the formal comments complete, we'll open the call for questions. Back to you, operator.

Operator: [Operator Instructions] Our first question comes from John Aiken of Jefferies.

John Aiken: My apologies about that. Hal, in your prepared commentary, you talked about collection optimization. For the uninitiated like myself, can you give us a couple of examples of what that might entail? And then talk about the benefits that we saw in terms of the margins in the 90-day delinquencies -- 90-day plus delinquencies. How sustainable are those levels? And can we actually see some acceleration moving forward?

Jason Appel: Maybe I'll take that one. It's Jason Appel here. As previously noted, we did see a nice quarter-over-quarter movement in our collections late stage, moving down 50 basis points from 3.3% to 2.8%. For those people who may not be as familiar with how we managed to achieve that, I would say, broadly speaking, it's all about focus and really understanding the KPIs that can help move the needle. So as you think about some of the ways in which we're working through that inventory of late-stage accounts, it's about expediting the time frames with which we can get at those accounts, bringing those accounts sooner and forward in the delinquency cycle so that we can, if necessary, repossess them and sell them and sell them in such a way where we can maximize the recovery value of those assets. We've continued to do that, obviously, in Q1. We saw a meaningful improvement in Q2. Judging that, obviously, we still have some room to go. We would be optimistic in seeing how that number would move down in the coming quarters. So, we're optimistic that number should move below the 2.8% level. The exact number, we don't have that to share at this point in time, but we would be broadly optimistic in that number coming down just simply because the amount of effort and focus and some of the KPIs that we use to manage that business are all trending in the right direction.

Operator: Our next question comes from Etienne Ricard of BMO Capital Markets.

Etienne Ricard: So, loan growth appears to be accelerating heading into the second half. And the press release notes that there's strong demand across all the products and the channels. So, I'm wondering, relative to last quarter, where are you seeing improving demand that is giving you the confidence that you'll be able to achieve the high end of the forecast for this year?

Hal Khouri: Yes, Etienne. It's Hal here. So further to our discussion yesterday, we're seeing heightened level of demand across all of our primary channels for sure, be that on our secured end, auto, home equity and in particular, because of the seasonality around our powersports vertical, particularly as the warmer weather hits, that one definitely has a seasonal impact attached to it. In addition, notwithstanding the maximum allowable rate of interest, we've seen some great demand on our unsecured lending vertical. And we continue to optimize from an overall risk standpoint on that particular product, but that's been a very strong vertical for us. And so we feel fairly confident that, that momentum will continue not only into the third quarter, but into the fourth quarter as well. And as per the guidance that we've offered up, we would expect that to be within the $325 million to $350 million range.

Etienne Ricard: Okay. And Dan, last quarter, you raised that a focus for you is around better leveraging the customer relationship. So, what are some of the opportunities you see in terms of integrating the LendCare and the easyfinancial platforms together going forward?

Daniel Llewellyn Rees: Thank you for the question. And I would just tag on to Hal's answer and just reinforce the demand from customers across the product suite has been substantial this quarter. And I would just reemphasize our confidence in that continuing. On the subject of the customer relationship, I think what you would have seen in terms of yield improvement sequentially is in part based on our emphasis on ancillary sales. The way in which we go to market with our existing customers to introduce additional add-on products has been very successful for us historically, and we made some very important progress of that in the quarter. On the subject of LendCare and cross-selling and multi-long, we do know that we have opportunities ahead of us that Ali Metel and Patrick, myself and now Farhan are discussing with regards to better leveraging the data between the businesses and also leveraging our digital channels such as our Connect app. We do know from a credit perspective that multi-loan products perform better because the customer feels like whether it's through the digital channel or in-store that they have a connection with the people at goeasy. They work within the brand in general and that they trust us and therefore, are more accessible and more collectible and therefore, the end- to-end lifetime value of those customers with multiple products is more attractive. So, I would say we're aware of the opportunity. We've made some progress with the status that we have at the moment and know that, that will be important as we step into '26. And we'll share more plans as those become more advanced.

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

Gary Ho: Maybe just the first one for Jason. Just on Slide 20, looks like some underwriting changes were implemented for customers working in industries impacted by tariffs. Can you elaborate what changes those were specifically? And then second, there's also a new credit model for home equity loans and increasing the loan size to $150,000. Any color on that would be helpful.

Jason Appel: Yes. Sure, Gary. Thanks. The way I would have you think about the underwriting changes we put in is just adding an additional series of layers of validation. We're by no means excluding people working in those industries from having access to credit. That's not our intent. It's about making sure they have stability of income. And as such, we increase our tightening, if you will, or checking of that income to a variety of ways. So, those kinds of changes are the kinds of things that we would typically do to bolster our underwriting. That's not altogether different from the approach we took in the COVID period, nor was it substantially different from the approach we took in 2015, where you may recall, we had a recession in the province of Alberta. So, think of it as another fine-tuning layer in how we just go to market to make sure that the business we are writing has the strength of repayment over the long haul as opposed to over the next couple of quarters. As it relates to the home equity business, as you know, we've constantly employed a test-and-learn approach when it comes to introducing new credit. We've been testing this new model for a period of time in our business and now have rolled that model out. And as I noted in my introductory remarks, we have been very careful to do that in combination with an increase in the maximum loan size and are doing such with only a portion of the eligible property types that we underwrite and only for situations where the loan-to-value ratios are significantly below our minimum tolerance level. So, that should give you a bit of a feel that we are being pretty prudent that even though we're using a new model and are increasing our maximum exposure, we're doing it on only a portion of the portfolio. Think of it as more of a broad testing and learning approach that we're rolling out. So, think of those as just different examples of how we try and seek opportunistically ways in which to grow the portfolio with products that have historically very low charge-off rates and solid returns with the need to be very prudent and tight around those unsecured products, which can obviously be impacted to changes when economic conditions change. So that's how I'd have you think about it.

Gary Ho: Perfect. My next question is just on the revenue yield. Rebounded nicely, 31.8%. That was good to see. It sounds like outside of the ancillary products, Dan, you just mentioned, there's maybe some pricing adjustments on several products. Maybe can you walk me through several of the bigger moving pieces? And are there more to do? And I think that demand hasn't suffered post these pricing changes.

Hal Khouri: Yes. Gary, it's Hal here. So as you've noted, we've seen a nice uptick in the overall yield quarter- over-quarter, as you initially referenced, ancillary being one of the prime contributors there with the heightened level of growth that we've experienced predominantly in the secured category. which has higher levels of attachment on ancillary products such as warranties, tire and rim, gap insurance, those types of things. So, that's been a nice uptick for us. In addition, the better cash collections overall attributed to our net charge-offs. So while in addition to, as you might have noted and seen here around our principal charge-offs improving quarter-over-quarter, we also see on our interest and fees as well, the charge-offs on those improving slightly into the second quarter as well as our waived interest and reversals there. On the pricing front, as you've noted, we've seen some competitive dislocation in the marketplace, big banks tightening up, some of the smaller players going the wayside. And we feel that predominantly on our secured loans that there was some room there on the pricing front, again, optimizing around our credit optimization, so balancing risk as well as the APR and the total revenue yield. So in terms of the outlook for the third quarter, we've provided guidance of 31% to 32% in terms of total yield contribution and again, generally in line with our full-year guidance. So, I would expect that to be within that range going forward.

Gary Ho: Okay. Great. And then just last one. Dan, you just spoke about the multi-loan kind of customers and working on that. I think in the past, the company has talked about launching a revolving card product this year as a strategic initiative. Any update that you can provide on this potential cross-selling opportunities and path to growth over the coming years?

Daniel Llewellyn Rees: Yes. Thank you. I think I would just reiterate our interest in ensuring that our product shelf, our product suite reflects the interest of customers. And we know that the credit card product is a substantial -- offers substantial market size opportunity and yield, and we continue to make progress of advancing the infrastructure necessary for us to add that product to our shelf. It is a meaningful change for the company because it would be our first revolving credit launch. And I think that as we would have indicated for quite a number of quarters now, we're taking a measured, planful approach given the importance of it as a source of new customers, the source of balances and making sure that it fits within the product suite with the infrastructure as needed. So, no new updates there other than we're advancing as expected.

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

Graham Ryding: Maybe, Jason, I could just start with you. You've given us some good color of sort of your approach to managing credit prudently. Can you just talk about what you do or your approach on the auto loan side, in particular, given it's been such an important growth area for you, but it also is a pretty competitive space. Can you talk about how you sort of approach managing credit there and don't grow too fast or you don't take on the wrong risk?

Jason Appel: Yes. And I appreciate the fact that you've highlighted the fact that it is a balance. There are some different approaches that we take to manage all of our portfolios, which auto, obviously, is a key part. So if I think about the kinds of things we've done over the last couple of quarters as that particular product set continues to grow at a fairly progressed rate, obviously, we continue to use a couple of different approaches. If we just start with credit, the one is to make sure that we're confident and happy with the level of underwriting. Obviously, we employ a fairly sophisticated approach when it comes to approving those loans based on credit score and a variety of interweaving business rules. And we constantly modify those rules as we see opportunities or concerns in the performance of our portfolio. The other area that I think we also do is we use pricing and have used pricing. I think we did remind that we do make some pricing adjustments in the quarter. So in instances where we may be seeing changes in the underwriting performance of the loan book, we certainly have the ability to take actions to mitigate the exposure and impact on the trends by using pricing as an opportunity. The other thing just turning back to credit is we obviously keep a watchful eye on the loan-to-value ratios that we use in valuing the assets that we underwrite. Those LTVs are reviewed on a regular basis and where appropriate, we will tweak them, either raising them as we think we need to be competitive with the market or tightening them if we feel that historical performance is deviating from our expectations. So it's really a combination of walking a very careful road in looking at both ways in which we could manage the risk, but also price for it in such a way as we begin to see those numbers move in a way that we wouldn't expect. So again, I would point out that, that's the approach we take on most of the products and not just auto, but those are just some of the ways we handle at the bottom.

Graham Ryding: Okay. That's helpful. And then, Dan, if I could just follow up on your comments around some investments towards technology. Can you elaborate on maybe how material the spend you're considering on that front, either on the OpEx and/or on the CapEx side?

Daniel Llewellyn Rees: I think my references really were a call out to the decisions made before I arrived, to be honest with you. And I think the OpEx, CapEx mix is unchanged and our commitment to getting the kind of the operating performance metrics, margin and efficiency and otherwise remain intact for the fiscal '25 period. So, these are kind of multi-year investments. We're advancing very well, and they're in response to both things that our customers have said they wanted as well as what will help our employees be more and more productive. So, no new adds there. Our incremental investment with regards to technology, AI, automation and so forth will all be folded into our updated 2026 and beyond 3-year forecast, which we'll bring back to you in around February.

Operator: Our next question is coming from Stephen Boland of Raymond James.

Stephen Boland: Just one question. I apologize if this has been talked about. Just for the past due loans, the ones that are like 150 to 180 or even more, I know they're kept current because you're confident in the recovery of the asset. I'm just wondering, has there been any situation where you've recovered the asset, sold it at auction and you've even recorded a partial loss so that the depreciated asset is less than the loan? Or is there such a comfortable, I guess, gap or margin between the loan to value and the sale?

Jason Appel: I think broadly speaking, when we repossess those assets, in some instances, we are going to sell them for the value of the outstanding amount of the loan. In some cases, we're not just given the state of the vehicle when we go without repossess. It's really going to vary from time to time. It's important to keep in mind, though, that the loan loss provision or the allowance for doubtful accounts that sits on the balance sheet takes all of that into consideration over historical periods. We use obviously the probability of default, the exposure at the time the customer goes into default and then the loss given default, which is basically the effect of the exposure minus the recoveries that we get on the loan. So that risk, if you will, just to put it in general terms, is something that we face every day in our business. And the allowance, generally speaking, takes that into consideration. And as you rightly pointed out, it will vary on a case-by-case basis. But when you do look at it in aggregate when it comes to putting the provision together, we believe we've adequately reserved for that amount based on historical progress. And as I think I've said before, we've typically not seen a material shift in our recovery rate or performance over the last quarters despite the uptick in the late-stage buckets. And the other point I would highlight is that year-over-year, we have seen a lift in the allowance from around the 7.3-ish range up to around the 7.9% range. So again, we've taken that adjustment into consideration as we think about a provision for future credit loss.

Daniel Llewellyn Rees: Maybe, Jason, I'll just follow on that quickly. One of my observations with regards to the provisioning stance here as well as the collectability and collection efficiency and effectiveness at the back end and secured. Slide 19, I think, clearly points out the rising line of provisions that Jason mentioned in his scripted remarks. He did refer to having added in excess of $100 million in ACL over the period. So as we continue to work through what we would have described for some time as an industry dynamic at the back end, you mentioned auction and wholesaling, we'll continue to refine our improvements at recovering and ensure that those recovery rates make their way back into the provisioning that we're building in anticipation of that inventory.

Stephen Boland: Okay. And just to follow on that, Dan, when we talked last -- and maybe apologies if you mentioned this on the call again. Like you talked about staffing up the collections that whole part of doing a loan. Is that still in progress? Or is that still a work in progress?

Daniel Llewellyn Rees: Both, I would say. I think the emphasis on collections certainly was there before I started, obviously. I think the kind of quarter- on-quarter performance in terms of the ability to absorb higher provisions and still hit tremendous earnings growth. I'm talking about adding a bit more technology, a few more people, a bit more leadership, tightening up on some of the data flows, exercising some third-party relationships that have been underway and ensuring that both our bailiff network as well as those third parties are kind of fully on board with the projections that we have because, obviously, we're growing at a fast rate. And so we need them to be right there alongside us in terms of scaling and in terms of providing accurate reporting. So, work in progress for sure, and it's progressing as expected. I think where I was -- when we last spoke and even last quarter, it being important is sort of resonates with the organization and we're using technology to make that happen.

Operator: Our next question is coming from Jack Cohen of National Bank Financial.

Jack Cohen: So, you reported a sequential increase in the 1- to 30-day delinquency bucket. I was just wondering if you could provide a little bit more color on what drove the increase there in the quarter.

Jason Appel: It's Jason here. I think it's important just to point out that the 1 to 30 bucket does oscillate from quarter-to-quarter. In fact, if you look over the last 4 quarters, it's moved around. At 2.5%, which is where we landed in Q2, we are still down from the 3.0% year-on-year. And I would point out that what we've also seen about the movement in the 1 to 30 bucket is we aren't necessarily seeing the roll rates in the later stages. If anything, in more recent quarters, those roll rates have improved. So the fact that, that 1 to 30 bucket may move up from time to time from quarter-to-quarter isn't necessarily something that we would be concerned with. It would only be a concern if we actually see that translate into that movement in the later-stage buckets. And if you look at the later stage buckets, those buckets are absolutely coming down as both an absolute number and as a percentage of the total. And just to add on top of that, if you consider the fact that from an underwriting perspective, we're originating larger amounts of loans, a higher percentage of those were secured. The weighted average credit score of those loans remains quite robust. We've got 14 consecutive quarters of weighted average scores above 600. I would say that it's not unusual to expect modest oscillations from quarter-to-quarter in the 1 to 30. The thing you do want to be mindful of, and obviously, as Dave mentioned, we're laser-focused on is to make sure that doesn't show up in your later-stage buckets. And to date, certainly, since the year has begun, we've been quite pleased with how that's been performing over this period. So just keep that in mind. And also bear in mind that the way in which a quarter can end from what we often refer to as a day weighting perspective. So the last day of the month of a quarter can also influence that 1 to 30 bucket depending on whether that quarter ends on a day where you're pulling a lot of payments for customers or you're getting a lot of payment returns from customers can most quickly and be most manifestly felt in the 1 to 30 range. So again, you will see oscillation from quarter-to-quarter, but we're pretty confident that, that 1 to 30 bucket isn't contributing to any issues down the road. And therefore, we would say no concerns at this point.

Jack Cohen: Okay. That's helpful. So also the funding rate of new applications increased to 13% in the quarter. While it still seems low, does this suggest an increased appetite for growth maybe?

Hal Khouri: Yes. It's Hal here. So obviously, we always look at optimizing from a credit posture and credit standpoint. I think as we've seen those applications flow through, particularly as some of the large players have actually tightened up the large banks, bringing really good throughput of customers our way. We'll continue to look at optimization. We think that there's opportunity there for some marginal uplift in our overall approval and funding rates. And we are still dealing with the overall dynamic of the maximum allowable interest rate. And as that continues to flow through, that will have some impact. But generally speaking, we've been managing that in line with expectations or, in fact, slightly better than what we expected coming through. So we're very pleased with the throughput, very pleased with the growth. As I've mentioned, record levels of originations, record levels of growth and very pleased from a competitive posture and we'll continue to try to optimize our risk appetite/reward.

Daniel Llewellyn Rees: I would just -- as I think we're wrapping the call here shortly, to say the market size, the competitive dynamics and the high customer demand in this environment leads us to believe that there is opportunity in the funding rate. And I think what you're seeing is that, Jason, as I hope has been convincing, has been reassuring you that we want to take a long-term view, and we want to balance that growth upside with returns that take into account the full end-to-end cost, including credit. So, I really appreciate you pointing that out. 87% of the ones we don't fund, right? So the opportunity is within our control to determine how we toggle the intake on new customer demand. So, I would just end by saying it's been a really, really positive last several months. Obviously, the results speak for themselves and we just really appreciate all of your questions and interest in the company. And I'll pass it back to James.

James Obright: Operator, should we do a poll for any last questions?

Operator: [Operator Instructions] There are no further questions at this time. I would now like to turn the call back over to Mr. James Obright for his closing remarks. Please go ahead.

James Obright: Thank you, operator. We'd like to thank, everyone, for participating in this conference call. We look forward to updating you on our next quarterly call in November. Have a great rest of your day. Thank you.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.