goeasy Ltd.

Good morning. My name is Dion, and I will be your conference operator today. At this time, I would like to welcome everyone to the Go Easy Limited first quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the Pounds key. Now, I will be turning over the time to Farhan Ali Khan. You may begin your conference.

Thank you, Operator, and good morning, everyone. My name is Farhan Ali Khan, the Company's Chief Strategy and Corporate Development Officer, and thank you for joining us to discuss GoEasy Limited's results for the first quarter ended March 31, 2025. News release, which was issued yesterday after the close of market, is available on Cision and on the GoEasy website. Today, David Ingram, GoEasy's executive chairman, will review the results for the first quarter and provide an outlook for the business. Hal Corey, the company's chief financial officer, will provide an overview of our capital and liquidity position. Dan Reese, the company's chief executive officer, and 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 through the company's investor website and supplemented by a 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 pull 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 However, we would ask that they do not quote the callers unless that individual has granted their consent. Today's 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 Good morning, everyone, and thank you for joining the call today. We produce 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 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 first quarter of applications for credit at 672,000, up 10% from quarter one 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 $190 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 channels. The average loan and portfolio across our branch network rose 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 from 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. This second mortgage product, secured by residential real estate, is primarily used for debt consolidation for major home repairs and is one of our best-before-we products with the lowest credit risk. The overall weighted average interest rate charged to our customers during the first quarter was 28.4%, down from 30% at the end of the first quarter last year. Combined with auxiliary revenue sources, the total portfolio yield finished at 31.3%. The portfolio yield declined year over year was due to growth of secured loan products, which carry 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 is at the lower end of our forecasted range, we're addressing this through the opportunity in product, pricing, and collections optimization efforts. When we estimated total yield in the new interest rate cap environment, it was based on a combination of pricing on originations, how much we can increase pricing below the rate cap, and the runoff of our LEXI portfolio above 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 quality 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, the highest in the company's history, highlighting the benefits of our credit adjustments and improving product mix. The first quarter was also the 13th consecutive quarter, where the dollar-weighted average credit score of our originations was greater than 600. Secured loans now also represent a record 46% of our loan portfolio. Despite the weakening economic environment and higher delinquency in the portfolio relative to last year, our credit losses have remained broadly stable as a result of proactive credit tightening and the higher proportion of our portfolios secured by hard collateral. As our customers adapt to managing their finances within this new reality of economic uncertainty and stress, we remain focused on supporting them while balancing the need to manage risk and ensure timely repayment of our loan principal. 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 the weakening economy and its impact on collection and recovery efforts. We continue 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 26.1%, 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 non-recurring 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.

Thanks, David. 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 400 million US dollars seniors unsecured notes due in 2030. 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 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 $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 continues to produce a growing level of free cash flows. 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 could currently 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 dividends. Once our existing and available sources of debt are fully utilized, we could 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 repurchased 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, to the holders of common shares of record as at the close of business on June 27, 2025. I'll now pass it back over to David.

Thank you, Hal. Turning to the upcoming quarter, we continue to take a conservative approach 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 and $300 million, while the total yield generated on the consumer loan portfolio to be between 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 broader economic situation is evolving could lead to a higher degree of oscillation within the range as compared to the previous quarter. 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 and 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 through its next stage of growth. His entrepreneurial approach aligns well with our culture, and his addition strengthens the executive team on 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 over to Dan to provide some remarks.

Thank you, David, and good morning, everyone. I'm very excited and honored to join and lead the Go Easy 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. One 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 in collections 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 pronouncements. 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 competitions. 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.

Great.

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 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 hardworking Canadians that rely on us for the credit that fuels their lives. I'm very proud of this entire team. Now, with those comments complete, we'll now open the call for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. Your first question comes from Etienne Ricard of BMO Capital Markets. Please go ahead.

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?

Good morning, HN. 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, owing principally to the fact that the product mix of secured lending has now reached an all-time high. You'll recall that's sitting at about 46% of the book and represents a fairly significant portion of new originations the organization continues to optimize its ability to collect from the accounts that do sit in the delinquency ranges. So you could chalk that up to better experience and understanding the nuances of this customer base, particularly those that hold secured collateral or were 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 underrating performance at the front end of our business and continued optimization of collections at the back end.

Okay.

It's interesting to see that 73% of the net loan advances this quarter were 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 six or 12 months ago?

And have you seen any evidence that prime lenders have been tightening? Let me answer that in two ways.

I would say certainly based on the incoming volume of applications we're seeing, and we've seen this before in prior events, as an example in Alberta 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, keep in mind that, as 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 significantly. 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 were 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 of these types of events. But that is not the only reason. It's also because of the adjustments we made to the offers we had out in the market, which simply translated into better quality customers converting on the offers we had out.

One more piece I would add in the quarter is we should all keep in mind that this new rate cap environment is still new to us as well as it is to everyone else. So one of the highlights in the quarter that 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 of 15.4%. So when you see the credit quality go up, it really speaks to Jason's point that there may be a prime that's coming down and being rejected by the banks. We're seeing a high credit type of custom coming through. We're also being much more discreet with who comes into the system because of this new rate 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 at 35% of the loan. 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 discreet as we try to carefully navigate this change.

Great. Thank you very much.

Your next question comes from Jeff Fenwick of Cormark Securities. Please go ahead.

Hi, good morning, everyone. 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 would be 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's variable that we should be keeping in mind?

Yeah. Hey, Jeff. It's Hal here. So as you know, we currently have two securitization warehouse facilities, one that houses 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 portfolios 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 term, concentration, et cetera. We certainly examine our securitization facilities regularly to determine if there are opportunities or constraints vis-a-vis the subset of credit performance and quality, excess spread, and the like. We feel that we've actually had quite a successful run that 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 market as we have. We took advantage of that subsequent to quarter end and were opportunistic around raising roughly another $550 million Canadian at about 6%. And we feel that we have ample access, capacity, liquidity runway, great syndicate of bank lenders, and we think we're in fantastic shape as it relates to the balance sheet overall.

And with respect to Facility 1, I think it matures in October of this year. So just any thoughts about, can you do that a bit earlier? Obviously, you'd probably want to get that settled ahead of that time, but any expectations there?

Yeah, absolutely. And we're already in the throes 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 others.

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

That's correct, yeah. 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 little bit of a timing blip in terms of paying down some of our securitization facilities as we raised the high-yield funds.

Okay, thanks for that, Culler. I'll recue.

Your next question comes from John Iken of Jefferies. Please go ahead.

Good morning. 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 quarters. 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?

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 some, I'll give you some quick color and then Jason can be more specific than I can. From our perspective, the risk, I think you asked what the risk could be that it could dip below 31. I think the risk is less likely if we break the yield into two parts, which is the coupon, the price at which we write the yield, and then the actual yield, which is what we actually collect from the yield. 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 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 collected side, obviously the collected side has got all kinds of different pieces that could give headwinds. Some of it could be the economic environment where customers have found it more challenging to make 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 at 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 descriptive in the actuals.

approach improving the yield gradually over time. David already spoke to the first one, which is just selectively taking pricing on new originations where we believe the competitive environment would support it. And we do see some opportunities to do that. And as I think I pointed out on previous calls, that is part of our parcel of how we optimize the yield on the portfolio. The second area would be continued evolution and how we use both our tools both secured and unsecured accounts. We've been evolving our capability in that area over the last several quarters by building much more robust models to target and identify the right customer who has a higher likelihood of repayment under the right circumstances. We continue to refine that capability and testing and learning against that. And then the third broader area would be just continued work around modifying how we go to market on our products, and in particularly the mix of the types of products As an example of our unsecured loan, we continue to test and move up our coupon rates on that program by focusing, as we had pointed out at the outset of the call, the proportion of new customers with whom we are originating, the substantial majority of whom are priced at $35 at the cap. So as a result of just those types of product mix modifications, It obviously, as you can appreciate, 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 broadly be the three tool sets, pricing on originations, improved collectability of cash through collection tools and segmentation, and modification of our product mix.

Great call, guys. Thank you.

Your next question comes from Gary Ho of Desjardins Capital Markets. Please go ahead.

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 five scenario worsening, again, from the Moody's analytics, just curious to hear whether the 25 base points increase in the provision came from the FLI forecast deteriorating, or were there shifts in the probability as well?

Yeah, well, as you would appreciate, the ACL strengthening was primarily model-driven, and it basically reflects its deterioration in the third-party forward-looking indicators that we incorporate into the allowance, alongside what I would call a mostly being impacted by a longer timeframe for us to recover and collect our asset. But as you would also know, against that backdrop, we continue to maintain a very conservative posture with a substantial majority of our model scenario weightings 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 ND&A and financial statements disclosures this quarter, Virtually every single FLI that we track to worsen quarter over quarter in response, as you would appreciate, to the impact and uncertainty that we see with U.S. imposed tariffs on select Canadian goods. Plus, you'll also note that in the quarter we saw evidence of further weakening in the Canadian economy with GDP having turned negative in February and core inflation having ticked up with the elimination of the GST holiday around the middle of the month. Now, we would continue to expect the volatility and the high degree of negativity associated with those forecasts to continue, but we do see them moderating over time. And I think what will ultimately drive that moderation is the degree to which we get clarity on the types of impacts the tariff situation will meter out and whether or not we can enter into what I would call an enhanced bilateral trade agreement with the United States, though, 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 would expect, we continue to remain focused on our secured mix, being selected with the credit that we're underwriting, and continuing to optimize our collection efforts. So, quarter on quarter, I would say, we did not see a material adjustment on our side in the weightings. They are still very much favored toward neutral and pessimistic, and we'll likely continue to remain in that posture until we see evidence of the situation.

And maybe just to bolt on, sorry, it's out here, maybe just to bolt 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 naturally look to reduce our overall provision rate.

Yeah. Okay. Copy that. 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. Yeah, it's tough on our side to kind of gauge the appropriateness of that. So when I look back, I think when your loan book was more unsecured, tilted, right at the onset of COVID, the provisions kind of touched 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 two bigger buckets, what would that look like?

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 begins to triangulate around 50% of the book being secured and relative to the unsecured book, naturally you can kind of gravitate yourself towards you know, 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 in unsecured to secured ratio. And as we've disclosed previously, you know, just under 30% of our book currently is our legacy book that would have been above 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?

The only thing I would say, Gary, is obviously if you just look at where the provision is traveling in the quarter, it's 786. As you can appreciate, we're students of history here at GoEasy, so we have a pretty good view as to how that's oscillated over the last several years under which we've been following IFRS 9. That provision rate has traveled in and around the mid to high sevens for about the last three to three and a half years, and that's despite the fact that we have significantly continued to improve the product mix. That said, you know, obviously the underlying reason why the provision rate continues to move up is because the economic situation over that period has meaningfully deteriorated, even if you go back to 22 and 23. And as you can appreciate under IFRS 9, we ought 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 ought 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. And one of the ways in which we do that, obviously, is to focus on growing our mix of secured loans. So I wouldn't look at it as how it would impact the provision, because while our mix of secured loans has been growing, the provision rate, again, if I go back two to three years, has basically been flat. What's been preventing that provision rate from being higher is that mix of secured loans, because the underlying macroeconomic indicators have worsened materially over that period. So I wouldn't 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.

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 from Q4 to Q1, the principal payment 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?

Are you talking specifically, Gary, about the loan originations change quarter on quarter?

No, just the loan book reconciliation. There's a couple pieces. There's 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. So what I can certainly speak to is...

the amount of pay down that you would see in the ND&A quarter-on-quarter. So let me try and unpack that. Originations to new customers were up 76 million quarter-on-quarter, and as we pointed out before, that 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 amount strategy even to more credit-ready customers. Originations to existing customers, however, were down 86 million quarter-on-quarter, and this was due to the change that we introduced with the introduction of the APR rate cap to gradually moderate the decline of portfolio of loans held above 35%. And where these customers approached us, the customers who had existing loans with rates above 35%, where they approached us 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 borrowing we could give to that customer, inclusive of their existing loan, was smaller. Again, because we were not paying down their existing loan. 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. And you can see that on page 14 of the MD&A, which shows that the amount of net credit advance to existing customers was actually flat year on year, despite the fact that we had a meaningful drop in origination volumes. And when you combine that with the fact that we actually wrote more business to new customers, that is how we actually wound up writing new or an additional amount of net principal in the quarter as compared to the prior quarter.

Okay, that's great. Thanks for the call there. That's it for me.

Your next question comes from Graham writing of TD Securities. Please go ahead.

Hi, good morning. You called out in your presentation, you approved and funded 10% of loans. Is that new loans or both new and renewals? And then how would that compare to maybe a year ago and perhaps your sort of longer term approval rate?

Yeah, so that number that we're quoting, Graham, is new loans, only because obviously they represent the vast majority of our loan originations, as I referenced in the prior comment. And that obviously would be down from the prior year, where we would hover more around the 15-ish percent range. And again, the number one reason why that conversion is down is really twofold. One, we obviously saw a significant uptick in the number of applications for credit, given the macroeconomic environment, the high loan demand. And as we pointed out on repeated 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 basket of customers, the net impact of which is that our conversion rate as a percentage of the total applications that we see coming through the door is down. We would expect that ratio to travel in and around that range, but as in most cases, we are continually optimizing our customers 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 would fuel the denominator. Or we could see that number potentially tick up as we begin to get more comfortable and see the results of the changes we've made post the rate cap, which, as you can appreciate, are only three or four 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 for the next little while.

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?

Yeah. So the overall coupon on cost of borrowing is what you're referring to, I think, Graham, there. Yeah. Look, I think as we continue to go out to 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 prevailing rate at the time. So there's not much of a movement on the existing portfolio in terms of variable rate movement. but it'd be on subsequent draws where based on the rate curve and the outlook, we should see some nominal reductions in the overall cost of borrowing there.

Okay. That's it for me. Thank you.

Your next question comes from Nick Prebay of CIBC Capital Markets. Please go ahead.

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

Yeah, it's out here. So I think the comments around that, around our ancillary products, as Jason had alluded to in terms of the tightening up of overall credit costs, that would typically have perhaps a higher penetration rate of ancillary products. So you think about insurance or warranties, 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 products, whether you're looking at home equity auto, would traditionally garner a slightly lower penetration rate relative to our unsecured product. So there's a little bit of a dynamics going on in terms of those rates. Silver lining around that, we continue to invest in our infrastructure to try to continue to move the needle and the dial on our PEN rates on a prospective basis.

Got it. Okay. And just two follow-ups on that. Just one, 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 product as an example would be relatively pricey and elastic. I guess what I'm trying to say is I wouldn't have thought of the attachment rate being enormously sensitive to the commission. So what was, I guess, the kind of incentive to adjust pricing there?

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 gravitates upwards, the rate for that loan protection product would actually come down, even though you're still garnering more overall revenue contribution, if that's helpful.

Okay. Yeah, that makes sense. And then I guess the way the account would work is when you originate an unsecured loan and there is take-up for the third-party loan protection product, the commissioner on the sale of that product would be recognized in the same quarter that the loan is 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 less front-end loaded, all things equal, so that could put some pressure on the yield in that period. And then over the full course or duration of the loan, the overall ROE might actually look comparable between secured and unsecured. I guess one question I would have is if you were to order rank the product suite by ROE, how would the various products compare?

Yeah, I mean, I think to get back to your earlier narrative around that, I think you're correct, right? Like 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, a 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 trailing in that regard. So, you know, 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've specifically rank 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.

Okay. That's very helpful. That's it for me. Thank you.

Our next question comes from Jaime Gloin of National Bank Financial. Please go ahead.

Oh, I love it. Yeah, I just wanted to ask a question on the OPEX. So maybe first off on the underrated collections line, a little bit higher this quarter. Obviously, you're trying to beef up your collections 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 bit higher here over the next several quarters as you continue to work through what you've called the optimization of collections?

Yeah, hey, James. Yeah, great question. So as we look at OpEx overall, yes, we did see a quarter-on-quarter, year-over-year movement in the overall OpEx line. You know, 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 based on 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 repossession of secured assets, vehicles, power sports, power sports loans as well, that would contribute to a heightened level of overall costs that are being borne into the P&L system.

Yeah, 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 bailiffs we have to contract with or other types of third-party servicers or beefing up 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 on the front end when it comes to OPEX, we'll feel it before we get the benefit. But we would have obviously taken that into consideration as we model these types of investments as we do any time we upgrade our quality capability.

And just tying that theme into the delinquency rate disclosure, so the greater than 150 days, it sounds like there's there's some loans that are greater than 180, um, that you have some visibility on collections. Can you, can you maybe just dig into that figure? That's the, I think it's 104, 110 million. I can't remember the number off the top of my head. Um, that's in that one 50 plus, like how much of that would be greater than one 80 and, and you know, your, your confidence in, in recovering those assets and then, um, and then eliminating those delinquencies.

Yeah, so what I would say is we don't typically disclose a finer breakdown of what I'll call the 151-plus-day bucket, but as you can appreciate, as a result of the backlog that we've been challenged by over the last, this would be now the second quarter, it's obviously taking us about another, on average, 90 days to get recovery of 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've 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 adept and expert at reducing the timeframe within which we can recover and collect on these secured assets, the challenge will be, and not the challenge, the benefit will be is we've already started to see a moderation in the number of accounts that are taking the amount of time 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 work 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 bailiffs 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 with previous periods so it's a decent number of that 100 plus million number but again it's a number that we feel pretty good about being able to move down over time and like i said even if you look quarter on quarter that number

Great. And then maybe coming back to the OpEx and how you're thinking through investments, it looks like technology had a little bump this quarter, but what's the strategy or your near-term view on managing the expense line? You know, 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.

Yeah, James, I mean, what I would say is our first philosophy is always being prudent and mindful around costs and expenses. And certainly that's at the forefront of our thoughts, regardless of the environment that we're in. You pointed out the tech 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, ensuring that our customer-facing platforms that we use to service our customers, we continue to upgrade and make sure those are are top of line. So I think those are critical components regardless of the environment that we're in. But having said that, as we think about areas of opportunity, we've already, if you might 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 pencils, so to speak, as we think about cost outweighs. So I'd say as we think about the next few quarters, notwithstanding the Q1 components around the tech and the collections components, you should see that slightly moderate and there's some timing in there based on our investments, but continue to be well within line of our overall operating margin and continued improvement in our operating leverage.

Thanks, guys.

Your last question comes from Stephen Boland of Raymond James. Please go ahead.

Thanks. I'll be quick here. 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. What gives you confidence that you can hit the guidance? Is this going to be more towards the second half where you catch up on some of these metrics? Yeah.

Yeah, 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 timeframe as we've got another quarter under our belts. We'll re-examine the outlook, not only for 2025, but get a sense on the read with the macroeconomic backdrop and environment in that respect. But at this point, we won't be shifting off of the guidance at this time.

And just the last question for me is when you talk about tightening, Obviously, Jan 1 was a new era for you, but during the quarter after tariffs and economic uncertainty, did that continue throughout the quarter? 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've really got to be careful here.

underwriting platform. I mean, we talked about this prior in COVID, where the situation obviously was 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 element of the credit response modified, and I would have you think about that in a couple of different ways. One would be certainly the most obvious, which would be on the front end of the book, where, as I pointed out in previous calls, we can modify cutoff scores, debt-to-income criteria, and underwriting protocols pretty much within a 24-hour timeframe notice. The other area that we can also have a fairly significant impact is in the back end or the back book, the business that's already out the door and basically in a process of repayment. And again, we can work that book much more effectively by choosing, again, the types of offers and constructs we give 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 a non-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 substantiveness of the degree of change in the broader environment.

Okay. Thanks very much, guys. Thank you, ladies and gentlemen.

That concludes our question and answer session. I will now turn the conference over to GoEC Limited.

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 I look forward to giving you the next quarterly call in August. So have a great day, everyone. Thank you.

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