goeasy Q1 2024 Earnings Report

goeasy EPS Results

• Actual EPS: C$3.83
• Consensus EPS: C$3.77
• Beat/Miss: Beat by +C$0.06
• One Year Ago EPS: N/A

goeasy Revenue Results

• Actual Revenue: $357.11 million
• Expected Revenue: $350.44 million
• Beat/Miss: Beat by +$6.67 million
• YoY Revenue Growth: N/A

goeasy Announcement Details

• Quarter: Q1 2024
• Date: 5/7/2024
• Time: N/A
• Conference Call Date: Wednesday, May 8, 2024
• Conference Call Time: 11:00AM ET

goeasy (TSE:GSY) Ltd provides financial services to own furniture, electronics, computers, and appliances. It offers merchandise leasing of household furnishings, appliances, and home electronic products to consumers under weekly or monthly leasing agreements. The company also offers unsecured installment loans to consumers. Its reportable business segments include easyhome and easyfinancial, of which it derives maximum revenue from easyfinancial segment.

goeasy Q1 2024 Earnings Call Transcript

Key Takeaways

• Goeasy delivered record Q1 earnings with loan originations up 12% to $686 million and its loan portfolio growing 29% year-over-year to $3.85 billion, driving adjusted operating income up 35% to $144 million.
• Credit quality remained strong as the dollar-weighted median score of new originations hit an all-time high of 629, the net charge-off rate stayed at 9.1% within guidance, and the provision rate was modestly increased to 7.38% to reflect near-term economic forecasts.
• The company maintained robust profitability and efficiency, with portfolio yield at 35%, weighted average APR reduced to 30%, an improved efficiency ratio of 27.4%, and adjusted return on equity of 24.6%.
• In Q1, Goeasy strengthened its balance sheet by raising over $500 million of new capital—including a US$400 million note issue at a 7.2% cost—and ended the quarter with approximately $1.26 billion of funding capacity and strong free cash flow.
• Strategic priorities for 2024 include scaling automotive financing (up 49% to over $100 million in originations), piloting a general-purpose credit card, and rolling out digital enhancements, while guiding Q2 loan growth of $250 million–$275 million.

Presentation

[Operator]

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

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Thank you, operator, and good morning, everyone. My name is Farhan Ali Khan, the company's Senior Vice President and Chief Corporate Development Officer, and thank you for joining us to discuss goeasy Ltd.'s results, first quarter ended March 31, 2024. The news release, which was issued yesterday after the close of market, is available on Cision and on the goeasy website. Today, Jason Mullins, goeasy's President and CEO, will review the results for the first quarter and provide an outlook for the business. Hal Khouri, the company's Chief Financial Officer, will also provide an overview of our capital and liquidity position. Jason Appel, the company's Chief Risk Officer, is also on the call. After the prepared remarks, we will then open the lines for questions from investors.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Before we begin, I'll 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. For those dialing in directly by phone, the presentation can also be found directly on our investor site. All shareholders, analysts, and portfolio managers are welcome to ask questions over the phone after management has finished their prepared remarks. The operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to 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. Today's discussion may be containing forward-looking statements.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

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 Jason Mullins.

[Jason Mullins, President and CEO at goeasy Ltd.]

Thanks, Farhan. Good morning, everyone, and thank you for joining the call today. 2024 has gotten off to a great start. We produced strong loan growth and stable credit performance, leading to record first quarter earnings, while also raising over CAD 500 million of additional capital and earning a spot in the top 50 Best Workplaces in Canada. All of this is a testament to our team and their passion for helping Canadians with non-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 volume of applications for credit at over 610,000, up over 40% from Q1 last year, generating over 40,000 new customers into the business, an increase of 17%.

[Jason Mullins, President and CEO at goeasy Ltd.]

Loan originations during the quarter were CAD 686 million, up 12% compared to CAD 616 million produced in the first quarter of 2023. Organic loan growth was CAD 207 million during the quarter, with our loan portfolio finishing at CAD 3.85 billion, up 29% year-over-year. Unsecured lending continues to be the largest product category at over 60% of loan originations, and within our direct-to-consumer channel, the average loan portfolio across our branch network of 295 locations rose to a new high of CAD 6 million per branch, up 18%. We also continue to make very good progress in scaling our automotive financing, with volume exceeding CAD 100 million of originations for the second quarter in a row, an increase of 49% year-over-year.

[Jason Mullins, President and CEO at goeasy Ltd.]

In the last year, we have expanded our automotive team, grown our dealer network from 2,800 dealers to over 3,500 dealers, and experienced a meaningful increase in funding volume from multi-location dealer groups, another positive sign that we are winning market share. As has been our strategy for the last seven years, we continue to pass on the benefits of scale to consumers by shifting our mix of lending toward lower APR products. The overall weighted average interest rate charged to our customers during the quarter reduced to 30% even. Combined with ancillary revenue sources, the total portfolio yield finished at 35%. Total revenue in the quarter was a record CAD 357 million, up 24% over the same period in 2023.

[Jason Mullins, President and CEO at goeasy Ltd.]

We also continue to be very pleased with the quality of our loan originations and credit performance of the overall portfolio. The dollar-weighted median credit score of our first quarter loan originations rose to an all-time high of 629, highlighting the benefits of our credit adjustments and improving product mix. Secured loans now also represent a record 42.7% of our loan portfolio. Despite the softening economic environment and unemployment being 1 point higher year-over-year at 6.1% today, credit losses have remained stable and within our forecasted range. The annualized net charge-off rate during the first quarter was 9.1%, at the midpoint of our expectations for the quarter and full-year.

[Jason Mullins, President and CEO at goeasy Ltd.]

To account for weaker economic performance forecast in the near term, we've increased our loan loss provision rate slightly to 7.38% from 7.28% in the prior quarter. We continue to feel very confident in the credit quality of our portfolio, and that we will continue to see stable losses in the quarters ahead. As has been the case for the past few years, we are continuing to experience the benefits of scale through operating leverage and productivity improvements. During the first quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue, improved to 27.4%, a reduction of 570 basis points from 33.1% in the first quarter of the prior-year.

[Jason Mullins, President and CEO at goeasy Ltd.]

As a function of receivables, operating expenses were 10.3% versus 13% during the prior-year, producing almost 400 basis points of margin to absorb the reduced APRs and higher funding costs. After adjusting for unusual items and non-recurring expenses, we reported record adjusted operating income of CAD 144 million, an increase of 35% compared to CAD 106 million in the first quarter of 2023. Adjusted operating margin for the first quarter was 40.2%, up from 37.1% in the same period last year—adjusted net income was CAD 66.3 million, up 25% from CAD 52.9 million in the first quarter of 2023, while adjusted diluted earnings per share was CAD 3.83, up 24% from CAD 3.10 in the first quarter of last year.

[Jason Mullins, President and CEO at goeasy Ltd.]

Adjusted return on equity was above our target level of return at 24.6% in the quarter, an increase of 70 basis points from 23.9% in the same period last year. With that, I'll now pass it over to Hal to give an update on our balance sheet and capital position before providing some comments on our outlook.

[Hal Khouri, CFO at goeasy Ltd.]

Thanks, Jason. During the first quarter, we continued to build our long track record of obtaining capital to support our growth. In February, we took advantage of the gradual improvements to the interest rate environment and issued $400 million of senior unsecured notes due in 2029. In connection with the offering, we concurrently entered into a cross-currency swap agreement, which served to reduce the Canadian dollar equivalent cost of borrowing on the notes, 7.2% per annum, a full 200 basis points better than the notes we issued last fall. Before giving effect to the cross-currency swap, the coupon on the notes was 7.6% per annum.

[Hal Khouri, CFO at goeasy Ltd.]

Based on the cash at hand at the end of the quarter and the borrowing capacity under our existing revolving credit facilities, we had approximately CAD 1.26 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 6.9%. 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 continues to produce a growing level of free cash flow. Free cash flow from operations before the net growth in the consumer loan portfolio was CAD 77 million in the quarter, while the trailing twelve months of free cash flow exceeded CAD 375 million.

[Hal Khouri, CFO at goeasy Ltd.]

As a result, we estimate we could currently grow the consumer loan book by approximately CAD 250 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 also could continue to grow the loan portfolio by approximately CAD 450 million per year, solely from internal cash flows. 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 CAD 1.17 per share, payable on July twelfth, 2024, to the holders of the common shares of record as at the close of business on June 28th.

[Hal Khouri, CFO at goeasy Ltd.]

I'll now pass it back over to Jason to talk about our outlook and forecast for the coming quarter.

[Jason Mullins, President and CEO at goeasy Ltd.]

Thanks, Hal. We remain very proud of the work that we do to serve the over 9 million Canadians with non-prime credit scores. We help them pay bills, purchase vehicles, pay for dental work, care for their pets, purchase furniture, renovate or repair their home or vehicle, and finance many other day-to-day living expenses that fuel their lives. We are prepared to give them a second chance when the banks aren't an option, and we provide access to credit in a transparent and responsible manner. Within 12 months of borrowing from us, one-third of our customers graduate back to prime credit, and over 60% experience an improvement in their credit score. We play an essential role in the financial system. With the first quarter behind us, we are well underway in executing our strategic priorities for the year.

[Jason Mullins, President and CEO at goeasy Ltd.]

We have begun designing the pilot concept for a new general purpose credit card product and continue to assess potential platform partners. We have made numerous automation enhancements designed to improve productivity and reduce operating costs. Lastly, another 32,000 consumers downloaded our goeasy Connect mobile app during the quarter, with numerous enhancements in development for later this year. The progress against our strategic priorities and the momentum in our business is fueling a very strong second quarter. In Q2, we expect to grow the loan portfolio at a record level of between CAD 250 million and CAD 275 million, driving the full-year toward the high end of our forecast range.

[Jason Mullins, President and CEO at goeasy Ltd.]

While this heightened level of loan growth will create an additional drag on earnings in the quarter due to the extra provision expense for future loan losses, organic growth is the most accretive use of capital for future earnings. We expect the total yield on the consumer loan portfolio to be between 34% and 35% during the second quarter, reflecting the gradual decline in APRs, driven largely by product mix. We are also very confident in the health and performance of our loan portfolio. We continue to expect stable credit performance, with the annualized net charge-off rate finishing between 8.5% and 9.5% in the quarter. Based on early trends, the net charge-off rate is likely to be down slightly, both year-over-year and quarter-over-quarter.

[Jason Mullins, President and CEO at goeasy Ltd.]

We also plan to continue taking advantage of the elevated level of demand by further tightening credit in the coming months, just to embed further conservatism into our business. In closing, I want to once again thank the entire goeasy team, as we owe the results and performance entirely to them. Today, we are over 2,500 team members, many of which are in our branches, stores, call centers, or out on the road acquiring and supporting our merchant network of over 10,000 partners. They are the ones working hard daily to help our customers get access to the credit they need while aiming to support them on the journey back to prime credit.

[Jason Mullins, President and CEO at goeasy Ltd.]

We have a strong balance sheet with over CAD 1 billion in liquidity, a relentless focus on prudent risk management and underwriting so that we can set our customers up for success, and an emphasis on operational improvements that allow us to drive more scale and ultimately reduce interest rates for borrowers. With this backdrop and only a 2% share of the total non-prime lending market, we are excited to continue serving the millions of Canadians that rely on us for access to credit each and every day. As we always say, we are truly just getting started. With those comments complete, we will now open the call for questions.

[Operator]

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any key. Our first question comes from the line of Étienne Ricard from BMO Capital Markets. Go ahead, please.

[Étienne Ricard, Equity Research Analyst at BMO Capital Markets]

Hey, thank you, and good morning. Could you please share an update on the competitive landscape, given the continued strength in new customer acquisition? I mean, to what extent are you still benefiting from prime banking institutions tightening credit as well as some subscale non-prime competitors through tail new originations?

[Jason Mullins, President and CEO at goeasy Ltd.]

Yeah. Good morning, Étienne. So those trends continue to be true today. I think it's very clear that given the current economic environment, prime lenders and major banks continue to have a conservative credit posture. All the major banks and prime lenders talk about having more tight credit today, and continuing to tighten. So inevitably, that pushes more borrowers into our segments. And, we're continuing to see disruption within the competitive landscape, again, specifically smaller scale competitors. Just in the last three months or so, one competitor has filed insolvency, two others have announced they're doing strategic reviews to figure out how to manage or divest their portfolios.

[Jason Mullins, President and CEO at goeasy Ltd.]

So those trends only continue, and that's, as we said before, we believe is just pushing more proportion of the market, to goeasy and others with scale. And I think that's evidenced in the material increase in the applications for credit that we've had, in the last year.

[Étienne Ricard, Equity Research Analyst at BMO Capital Markets]

Okay. On the launch of the credit card, it's interesting to look at the experience of one of your peers in the U.S. in this regard. One feature I found interesting is that most non-prime credit card payments, as well as the servicing, are made via the application. So do you expect this to also be the case with your new product? In other words, can the goeasy Connect application support a similar experience and efficiency?

[Jason Mullins, President and CEO at goeasy Ltd.]

Yeah, most definitely. I think that one of the appealing things about a card product, that is unique to all of the other installment products that we offer today, is it creates a compelling reason for customers to come back into our digital app and engage on a more regular basis. You know, cards are generally used for everyday household expenses like gas and groceries. People commonly check their balances, make payments. We intend to build some form of loyalty reward into our program. People are incentivized to wanna come back and see how they're earning benefits and rewards, cash back.

[Jason Mullins, President and CEO at goeasy Ltd.]

And so by building it into your digital app, even though we'll still offer the product and service the product from our branch network, where we can build those meaningful relationships, the presence in the digital app just creates more sticky relationships, allows us to maintain ongoing dialogue with the customer, and and increase the regular usage of our products. So that's very much our intent over time with the product we'll build as well.

[Étienne Ricard, Equity Research Analyst at BMO Capital Markets]

Okay, and just one last question for me. I'd like to cover the recent government proposal to count rent payments towards credit scores. How do you think this could impact the non-prime lending industry? Do you think this would actually help improve your underwriting process or actually make it easier for new entrants to compete, given greater data disclosure?

[Jason Mullins, President and CEO at goeasy Ltd.]

I think generally speaking, any new data sources that a lender can obtain allow them to strengthen the decisions that they make and the accuracy of their models. So we certainly welcome the inclusion of that data and getting access to that data, particularly given that the majority of our customers, 80%, are renters, so we don't always get great visibility to their rental payment history, other than when we look into the banking transaction data, which we do still get on most borrowers. I will say that I think it's a ways out before the credit reporting agencies are able to figure out how to get the data and how to embed it into their bureaus and their credit scores.

[Jason Mullins, President and CEO at goeasy Ltd.]

So, you know, I think like many things, that announcement is still very early in terms of it being a practical source of data for us. But if and when it does happen, any of that additional data is just going to allow us to continue to refine and increase the predictability of the models that we built, so we're happy to have that happen.

[Étienne Ricard, Equity Research Analyst at BMO Capital Markets]

Great. Thank you very much.

[Operator]

Thank you. We have our next question coming from the line of Gary Ho from Desjardins Capital Markets. Go ahead, please.

[Gary Ho, Research Analyst of Financial Services at Desjardins Capital Markets]

Thanks, and good morning. Let me just start off with a question on FLIs and unemployment rate. I think in the past, you mentioned you have factored in a mild to moderate recession in your three-year outlook, and you quantify that by saying it's 6%-7%, unemployment rate. But when I look at the Moody's FLI, that's in your disclosure, your neutral case calls for 6.23%, and your moderately pessimistic is 8.46%. So can you help me reconcile that? And the second, part of that question, Jason, as you mentioned, the March unemployment rate is already at 6.1%. At what point would you update your unemployment assumption looking out?

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Yes, I can open up with a few comments, and then I'll pass it to Jason to just add on here. Think about our base case continues to be that the economy will go into a mild to moderate recession. As you pointed, that assumes unemployment rate will rise as high as 7%. That base case is essentially the midpoint of our range. So unemployment could rise another full one point to 7%, and we believe that our current credit tolerance levels would still be supportive of maintaining a loss ratio at the midpoint of our range.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

As the unemployment rises beyond that, if it were to rise beyond 7, to say, 7%-7.5%-8%, that would begin to push us into the upper end of our range, and if it went beyond 8%, we would now be considering to revise the range. However, as noted earlier, in order to contemplate reducing the risk of that probability, we're gonna continue to make credit refinements. We've got a couple of credit tolerance adjustments that we're planning on making in the next couple months. Again, to be clear, we see absolutely nothing in our data set that is of concern today. As noted earlier, the delinquency and the loss rates are very stable. I think they'll come even down slightly in the second quarter.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

So notwithstanding the economic outlook, we feel very good, but we will continue to operate with more conservatism and discipline as we always have, and take advantage of the robust, robust demand to continue to tighten credit. Jason, anything you wanna add?

[Jason Appel, Chief Risk Officer at goeasy Ltd.]

Yeah, just to, really briefly, just to add is just to remind, folks that we do have a number of levers that we can pull with, with relative quickness to offset the types of risks, Gary, that you're talking about. Credit tightening certainly is one that Jason mentioned. We regularly refine and update and swap our credit models out as we ingest and refine the data we get. The shifting product mix, which as Jason pointed out, now sits at an all-time record high of just under 43%. And the fact that we do toggle the affordability calculations that we use on our customers, all of which really go into making sure that we can be highly selective.

[Jason Appel, Chief Risk Officer at goeasy Ltd.]

And I think that's best indicated by the fact that despite the fact that our application growth was substantially higher year-on-year and quarter-on-quarter, we're actually more discerning now than we've ever been in underwriting the customers that we do onboard. And we do that in part to reflect the changing economic circumstances that operate in the backdrop, but it also allows us to be very selective on who we onboard as new customers and the kinds of credit performance we expect going forward. So those tools and levers really help us to stay well ahead of the game, in combination with the very robust reporting we look at on a very regular basis.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Let me just add, Gary, the other thing to point out is that, the provision rate we carry on the books today, is still down from where it was last year. I think that despite there's gonna be quarter-to-quarter oscillation, when you look at it over the long run, you can see clear evidence that we feel very good about the current trends and the, and the performance, of the business. And I would also just rehighlight a comment I made in the prepared remarks. The median credit score, on a dollar-weighted basis of the loan originations that we did in this past quarter, was the highest it's ever been. So as you onboard progressively better quality loan originations, and you progressively continue to tighten credit, you really set yourself up for a stable portfolio, despite some of those economic headwinds.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

So we're just as confident now as we've ever been, that we can very safely navigate through any headwinds that might arise.

[Gary Ho, Research Analyst of Financial Services at Desjardins Capital Markets]

Okay, thanks. Thanks for the detailed answer there. My next one, just on the revenue yield, was 35%. That was above your Q1 guidance. Just curious kind of what drove the outperformance versus your expectations heading into the quarter. Did you perhaps maybe underwrite more unsecured loans than you expect? And how do you manage that versus the credit risk that you're taking on? And I think, Jason, you mentioned, you know, tightening credit again in your prepared remarks.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Yeah. I mean, as you know, we've taken advantage of the opportunity to adjust pricing where we can. You know, we, like all businesses, have to account for higher funding costs, and every lender in the marketplace has put up pricing. So we've tried to take advantage of that where possible, where it makes sense. We also experienced a little bit better cash payments volume in the quarter. We had an extra day in the quarter this year versus comparability, so we didn't see anything material.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

I think that we just experienced a strong quarter in terms of payment performance, got to experience the benefits of a little bit of pricing increases, and then with the extra day in the quarter, that helped us put the yield just a bit over the upper end of the range we previously forecasted.

[Gary Ho, Research Analyst of Financial Services at Desjardins Capital Markets]

Okay, great. And then just my last question, just on the rate cap. I don't think we've seen an implementation date so far, and I think that compares to your mid-year implementation expectation. Maybe can you share any scenario analysis in terms of what a no-rate cap would do to your revenue yield expectations when we look at, like, 2025, 2026 numbers? Like, would it just push it to your upper end of your range, or would it be above that upper end?

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Yeah, so just to, again, recap, we have embedded an assumption into our business and our forecasts that the new 35% maximum allowable rate will come into force in July of this year. Given that the draft regulations indicated that once the final regulations have been published, that will be with 90 days of advance notice. That means that we're really already beyond the point at which the new rate will come into effect at that timeframe. We don't have any visibility or line of sight to when that date will come. I think it's possible it could get announced any day. It's also possible that it could continue to get delayed.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Certainly, I think the federal government continues to have an appreciation for all of the points and concerns that we and the association have raised, about how it will negatively affect a segment of borrowers, and I think that that message is resonating. So hard, hard to say exactly when it may take effect. To your question about what does that do to yields? Yes, essentially, think about it as that for each quarter, delayed beyond July, that continues to then, be net positive to the yield of the business. And, you know, we, we can either take that in the form of holding growth constant and benefiting from a slightly better yield, or we can take advantage of the opportunity to continue to price loans competitively and grow more quickly and exceed the growth forecast, and still stay within that yield range.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

So similar to the way we can toggle risk tolerance, we can also toggle the growth forecast, in part because there is a degree of pricing elasticity. So net-net, as that gets delayed, that's favorable, either in the form of better yield and more the upper end of the range, or it gives us another tool and another lever to continue to drive very robust growth in business. Okay, great. Thanks for taking my questions.

[Operator]

Thank you. Just a quick reminder, ladies and gentlemen, should you have a question, please press star followed by the number one on your touchtone phone. We have our next question coming from the line of Jeff Fenwick from Cormark Securities. Go ahead, please.

[Jeff Fenwick, Managing Director and Head of Equity Research at Cormark Securities]

Hi there, good morning. Wanted to follow up on some of the questions on the credit front. Wanted to ask specifically about auto, as that category continues to grow its contribution overall. And maybe just some color from you on your expectations on credit performance or variability in that category. I tend to think about it as one that might have a bit of a wider range of credit performance, and it's influenced by, obviously, economic factors, used cars, pricing, et cetera. So what's your thinking there, and how do you sort of manage that as you build that portfolio out?

[Jason Mullins, President and CEO at goeasy Ltd.]

Yeah, great, great question. So auto is one of the categories that when we look at the improving mix of our originations by credit and average score, auto is one of the categories that has progressively improved and continued to help lift the average credit quality of the loans that we write. So in general, the quality of the loans we're issuing in the automotive financing category are better than the average credit that we issue across all the other product ranges and of our existing portfolio. So as we've been writing more auto business, that's actually been helping improve the quality of our portfolio. We also continue to, within auto, believe that we still maintain a fairly conservative credit posture. We are not buying as deep as some of the other deeper non-prime lenders in that market.

[Jason Mullins, President and CEO at goeasy Ltd.]

We tend to be competing in auto much more for a near-prime customer, alongside some of the non-prime divisions, even of the major banks. So it's a very good quality business. I would also add that if you look at the average car we're financing, we're talking about a vehicle that's six or seven years old. The ticket price of that car is CAD 18,000-CAD 20,000. We're not exposed to a very high-priced vehicle category. And so with vehicles of that age, when you look at the depreciation of those vehicles relative to the rate that the loans repay down, we're often still finding today, we're able to recover the majority of our loan balances when we do need to have a customer surrender the vehicle or repossess the vehicle.

[Jason Mullins, President and CEO at goeasy Ltd.]

So we're constantly fine-tuning our underwriting criteria, constantly adjusting our loan-to-value ratios to account for fluctuations in prices. But net-net, that product's loss ratio sits well below the portfolio average. It's obviously secured by a hard asset, and it's better credit quality customers than the average across the rest of our business. So, yes, it's a growing product for us, but it's actually one that's actually helping the overall credit and helping the portfolio. So we're quite confident.

[Jeff Fenwick, Managing Director and Head of Equity Research at Cormark Securities]

Yeah, that's very helpful color. Thank you. On a second topic here, I noticed in your earnings adjustments, there was CAD 2.5 million associated with advisory services. So I just was wondering if this is related to maybe looking at some strategic opportunities in the market. I know in the past you have articulated the US as an area of interest, but perhaps this period of time in Canada as well. Are you seeing maybe some opportunities if there are competitors or complementary businesses that might be up for sale?

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

Yeah. So a couple of non-recurring items in there. One is in corporate development. As we've said many times before, we are very open-minded to acquisitions and strategic investments, and so we are, on a regular basis, evaluating opportunities. At times those opportunities require us to work with certain advisors to help do the work on assessing those opportunities. Obviously can't share specifics about them, you know, until such time as something becomes real and live. But you should expect that from time to time, you will see us incur some costs related to exploring new strategic investments. So there's certainly some of that in the business.

[Farhan Ali Khan, SVP and Chief Corporate Development Officer at goeasy Ltd.]

And then also, as you know, we, over the last period of time, had a fairly robust undertaking in the government relations area, to continue to bring forth the attention to the unintended consequences of a federal rate cap change. And so we have incurred a little bit of advisory costs in that real domain that were one-time in nature, related to our GR campaign. So just think of it as corporate development and kind of general government relations and corporate affairs. Both one-time costs that that'll no longer be kind of in the run rate of our corporate costs going forward.

[Jeff Fenwick, Managing Director and Head of Equity Research at Cormark Securities]

Okay, thanks for that. And then maybe one last one here on easyhome. It's, you know, we don't speak about it often, given it's become a smaller component of the total, but certainly a notable move in the margin there in the quarter and some commentary on efficiency gains. So is that operating margin in that business looking like it's gonna settle in around that higher run rate going forward?

[Jason Mullins, President and CEO at goeasy Ltd.]

Yeah, generally, think about the operating margin in the leasing business or in easyhome as an operating unit, being a function of the growing proportion of revenues and profits in that division coming from lending. As you know, from many, many years ago, the core standalone leasing proposition would typically run with operating margins between 15%-20%, whereas in an easyfinancial branch, we would have margins between 40%-50%. And so as the proportion of the revenue streams inside easyhome stores continues to shift progressively and gradually toward lending, that's helping improve the margin profile of those overall four walls. So it's really just that dynamic. And yes, we would expect that dynamic to continue to gradually be present in the business.

[Jeff Fenwick, Managing Director and Head of Equity Research at Cormark Securities]

Yeah, that's all I had. Thank you.

[Operator]

We have our next question coming from the line of Jaeme Gloyn from National Bank Financial. Go ahead, please.

[Jaeme Gloyn, Equity Research Analyst of Diversified Financials at National Bank Financial]

Yeah. Hi, thanks. Just one question for me today. I was wondering if you could provide a little bit of color, if you could, on the plans for the potential share split.

[Jason Mullins, President and CEO at goeasy Ltd.]

Oh, sure. Yeah. So as some may have noted, in the preparation for our AGM that we've got later this afternoon, we have asked shareholders to approve our right to conduct a share split. We do not have an imminent plan at this moment to complete a share split. But as we've had continued growth in the share price, and we still maintain a fairly large retail investor base, we have contemplated a share split in the future. And so it's regular and normal course to go and obtain shareholders' approval to do that at an AGM.

[Jason Mullins, President and CEO at goeasy Ltd.]

So we're just putting that on the docket for shareholders to consent to, and of course, would provide more update in the future as we consider a split at some point.

[Jaeme Gloyn, Equity Research Analyst of Diversified Financials at National Bank Financial]

Okay, thank you.

[Operator]

Thank you. There seems to be no further questions at this time. I'd now like to turn the call back over to the company for final closing comments.

[Jason Mullins, President and CEO at goeasy Ltd.]

All right. Well, since there are no more questions, again, we'd like to thank everyone for participating in the conference call. Remind all that we'll be hosting our annual general meeting of shareholders virtually this year. That will take place later this afternoon. We also look forward to updating you on our progress in 2024 at the next quarterly call in August. Till then, have a fantastic rest of your day. Thank you, everyone. Bye now.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

Participants

Executives

• Farhan Ali Khan, SVP and Chief Corporate Development Officer
• Hal Khouri, CFO
• Jason Appel, Chief Risk Officer
• Jason Mullins, President and CEO

Analysts

• Gary Ho, Research Analyst of Financial Services at Desjardins Capital Markets
• Jaeme Gloyn, Equity Research Analyst of Diversified Financials at National Bank Financial
• Jeff Fenwick, Managing Director and Head of Equity Research at Cormark Securities
• Étienne Ricard, Equity Research Analyst at BMO Capital Markets