Earnings Call: Q4 2019

Feb 13, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the GoEZ 4th Quarter 2019 Financial Results Conference Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Hal Khouri. Thank you. Please go ahead, sir. Thank you, operator, and good morning, everyone. My name is Hal Barry, the company's Chief Financial Officer, and thank you for joining us to discuss Goeasy Limited's results for the Q4 ended December 31, 2019. The news release, which was issued yesterday after the close of market, is available on GlobeNewswire and on the Goeasy website. Today, Jason Mullins, goeasy's President and Chief Executive Officer, will talk about the highlights of the Q4 and review our financial results and outlook before we open the lines for questions from investors. David Ingram, the company's Executive Chairman and Jason Appel, the company's Chief Risk Officer are also on the call. Before we begin, I remind you that this is a conference call, which is open to all investors and is being webcast through the company's investor website. All shareholders, analysts and portfolio managers are welcome to ask questions over the phone after management has finished. 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 However, we would ask that they do not quote callers unless that individual has granted their consent.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 contain forward looking statements. I'm not going to read the full statement, but I will direct you to caution regarding forward looking statements included in the MD and A. Now, I'll turn it over to Jason Mullins. Thanks, Al. Good morning, everyone, and thank you for joining today's call. The Q4 wrapped up another record year for the company and was highlighted by strong loan growth, stable credit performance and further improvements to our balance sheet and liquidity. I'll first review the results of the quarter before providing a summary of the full year, an update on a few of our key initiatives and then our outlook and plans for 2020 beyond. During the quarter, we continued running our new fully integrated branded media campaign, which focuses on helping our customers achieve better tomorrow's. The campaign helped to lift our aided brand awareness to an all time high of 85% and drove a 55% increase in web traffic to EZ Financial. The continued strength in consumer demand produced a 19% increase in loan application volume and a record $314,000,000 in loan originations during the quarter, which increased 18% over the prior year. It was yet another strong quarter for customer growth, with the most net customers being added to the business in any Q4 in our history. The loan portfolio grew $75,000,000 increasing the average loan book per branch to 3,700,000 dollars At quarter end, the consumer loan portfolio finished at $1,110,000,000 up 33% from the $834,000,000 at the end of 2018. Company revenue was $166,000,000 in the quarter, an increase of 20% driven by the growth of Easy Financial. The total yield on the consumer loan portfolio in the quarter was 49.8%, which trended down moderately from 52.7% in the Q4 of 2018 and 50.1% in the prior quarter of this year. The gradual decline in the yield continues to be part of our long term strategy to increase the use of risk based pricing and expand our product suite, which increases the average loan size and extends the life of our customer relationships. This approach provides consumers with the opportunity to progressively access larger loans and lower interest rates on their journey back to prime credit, while also producing greater long term profitability for the company. As we highlighted in recent periods, we have seen the rate of decline in our yield moderate due to the increased proportion of online applications and new customer growth. Credit performance remained stable in the quarter with a net charge off rate of 13.3% versus 13.1% in the prior year and 13.2% in the prior quarter. The overall delinquency as of the final week of the quarter closed at 5.1%, also broadly flat against the 5.2% at the end of 2018. We continue to be confident that we are striking an optimal balance between growth, yield management and credit quality, while delivering an exceptional experience for our customers and maximizing the long term performance of the business for our shareholders. The provision for future credit losses also remained flat in the quarter at 9.64%, consistent with the same rate recorded in Q3. The loan originations along with the active loan portfolio at year end both saw an improved mix of credit quality. However, this was offset by the forward looking indicators, which when combined resulted in no change to the provision rate. Despite the natural fluctuations experienced throughout the year, the provision rate finished 2019 within 10 basis points of where it began, continuing to demonstrate its longer term stability. The revenue growth, healthy yields, stable credit performance and improving scale and operating leverage led to continued expansion of the company's operating margin, which was a record 28.1 percent in the quarter, up from 25.4% in 2018. During the quarter, we recorded a $16,000,000 after tax charge associated with the refinancing of our unsecured notes payable, which was completed on November 27, 2019, which I will discuss in more detail shortly. Net income including this charge was $6,700,000 while diluted earnings per share was $0.46 Excluding the one time refinancing charge, adjusted net income was a record $22,600,000 up $6,800,000 or 43 percent from the net income of $15,900,000 in the Q4 of 2018. Adjusted diluted earnings per share was also a record $1.45 an increase of $0.43 or 42 percent from diluted earnings per share of $1.02 in the Q4 of 2018. The strong earnings growth and consistent financial leverage also led to record adjusted return on equity of 27%, up from 23% in the prior year. Lastly, in early December, we were honored to receive our 5th award of the year after being named a top employer in the Greater Toronto Area. We continue to build and nurture our culture, creating opportunities for employees to do meaningful purpose driven work where we reward strong values, innovation and performance. This award comes timely as we expand and relocate our call center to our corporate office location later this year, which brings all of our support services teams together under one roof. Turning to a brief update on some of our active initiatives. We have been pleased by the continued improvement we are seeing in the growth and performance of our business in Quebec. The loan book there nearly doubled in 2019 to $76,000,000 and is now almost 7% of our portfolio, while the net charge off rate in the province now sits in line with the national average. We have also been happy with the growth of our secured loan product, which more than doubled in 2019 to $115,000,000 and exceeds 10% of our total portfolio. Although this product operates with a lower risk adjusted margin than We've also seen continued improved performance from our easy home business, We've also seen continued improved performance from our easy home business with an increase in both revenue and operating income, which hit its highest level since 2013. The benefits of adding consumer lending to easy home stores, where the loan portfolio grew to $38,000,000 in 20 19, continues to more than offset the modest declines experienced in the core leasing portfolio and the business remains a strong and stable generator of cash flow. During the quarter, we were also excited to begin testing our new fully integrated point of sale solution with PayBright, following the strategic partnership and equity investment we announced last quarter. Growing our point of sale financing business provides another key source of customer acquisition as part of our strategy to expand our channels of distribution. In November, we began testing our integrated solution with a small group of e commerce merchants and have seen promising performance. We are now in the process of continuing to slowly add more e commerce merchants and working with PayBright to source and acquire new partnerships. We also expect to develop and implement the integrated in store solution later this year. As part of our broader indirect lending channel, we also continue to seek other new referral partnerships that can create further traffic to go easy. Before I pass it over to Hal to provide an update on our balance sheet and liquidity position, I'll just briefly summarize the financial results for the full year of 2019. We were pleased that after adjusting for the impact of the one time refinancing charge, we finished in line with all of our stated targets for the year. Loan originations for 2019 reached a record $1,100,000,000 up 19% from 2018. The result of strong sales volume drove net loan book growth of $277,000,000 resulting in an ending portfolio of $1,110,000,000 up 33%. Strong loan growth helped produce record revenues for the company of $609,000,000 an increase of 20%. The net charge off rate finished the year at 13.3%, up from 12.7% in 2018. We continue to see the benefits of scale and operating leverage that the average loan book per branch increased from $2,900,000 in 20 18 to $3,700,000 at the end of 2019. Operating income was up 41% year over year, while the operating margin expanded to a record 27.7%, up from 23.7% in 2018. Including the impact of the $16,000,000 one time after tax charge associated with the refinancing of our notes payable, net income for the full year was 64,300,000 dollars while diluted earnings per share was $4.17 Excluding the one time refinancing charge, adjusted net income was a record $80,300,000 dollars up $27,200,000 or 51 percent from the net income of $53,000,000 in 20.18. Adjusted diluted earnings per share was also a record 5.17 dollars per share, an increase of $1.61 or 45 percent from diluted earnings per share of $3.56 in 2018. Lastly, we were pleased to report a record for adjusted return on equity of 25.3 percent, up from 21.8% in 20.18. Based on the 2019 adjusted earnings, the increasing level of cash flow provided by the business and the confidence in our continued growth and access to capital going forward, the Board of Directors has approved an increase to the annual dividend from $1.24 per share to $1.80 per share, an increase of 45%. 2019 was the 5th consecutive year of an increase in dividend to shareholders, which subsequent to quarter end led to our addition to the TSX Canadian Dividend Aristocrats Index with a 42% compound annual growth rate of the dividend over the prior 5 years. 2020 will now see that trend continue with our 6th consecutive increase. And officially wrapping up 2019, I want to thank the entire Goeasy team as it was another year in which our people deserve all the credit. They are the ones that have built an inspiring high performing culture and who care deeply about our customers and their financial well-being. They make it happen each and every day. I'll now pass the call over to Hal to briefly review our balance sheet and liquidity position before I provide an outlook for the future. Thanks, Jason. The Q4 was highlighted by several major enhancements to our balance sheet. 1st in October, we are pleased to announce an amendment to our senior secured revolving credit facility, which increased the maximum addition, the interest rate on advances from the credit facility were also reduced by 25 basis points from the previous rate of 90 day Canadian bankers acceptance plus 3 25 basis points to 90 day BA plus 300 basis points. There was no change to the interest rate where we select the lender's prime rate for draws on the facility. We then followed on in November with refinancing of our unsecured notes payable, which after a strong response from the market, we upsized issue US550 $1,000,000 at a rate of 5.375 percent, maturing on December 1, 2024. We can currently enter it into a cross currency swap to fully hedge the notes at a Canadian interest rate of 5.65 percent. The proceeds from these notes were used to extinguish our previous US475 million dollars of 7.875 percent unsecured notes payable that would have matured on November 1, 2022, and to unwind the related cross currency swap of that facility. As a result of repaying these notes, we incurred a one time $16,000,000 after tax charge relating to the extinguishing of the notes, which included incurring an early repayment penalty, recognizing the remaining unamortized net deferred financing costs, realizing a net loss on settlement of the derivative associated with the notes and reclassification of the net change in the cash flow hedge from other comprehensive income to the consolidated statement of income. Together with our revolving credit facility, the refinancing reduced our total fully drawn weighted average cost of borrowing by over 1 full percentage point from 6.8% to 5.5% and serve to extend our liquidity. With our revolving credit facility as the next natural stage of evolution in our capital structure. We as the next natural stage of evolution in our capital structure. We have already begun laying the groundwork in speaking with potential bank partners and hope to provide a further update during our Q1 quarterly release later this spring. Based on the cash at hand at the end quarter and the borrowing capacity under our amended revolving credit facility, we had approximately $240,000,000 in funding capacity, which will allow us to achieve our growth targets through to the Q3 of 2021. We also estimate that once our existing available sources of capital are fully utilized, we could continue to grow the loan portfolio by approximately $150,000,000 per year solely from internal cash flows. Cash provided by operating activities before the net issuance of consumer loans and purchase of lease assets rose to $71,000,000 this quarter, bringing the full year total to $296,000,000 up 28% over the prior year. While we continue to operate with a maximum target leverage ratio of approximately 70%, net debt to net capitalization, we are able to fully fund the equity portion of our loan growth solely from internal cash flows, while also gradually delevering the balance sheet. Lastly, although we didn't choose to exercise our normal course issuer bid in the quarter, over the course of the year, we repurchased a total of just over 450,000 shares bought at a weighted average price of approximately $44.31 With our NCIB recently renewed, we will periodically repurchase shares when we think they are trading undervalued based on our business outlook and when we conclude it would prove a good return on our capital. I'll now pass the call back over to Jason to provide some comments on our outlook and plans for 2020. Thanks, Hal. In our release yesterday evening, we provided an updated outlook, which contains our forecast for the next 3 years. In addition to updates made to our 2020 2021 expectations, we have now provided an outlook for 2022, during which we expect the loan portfolio to finish between $1,800,000,000 $2,000,000,000 In 2020, we expect to finish the year with a consumer loan book of between $1,300,000,000 $1,400,000,000 by year end. We would expect the growth to build gradually throughout the year in a similar pattern to 2019. We have also chosen to accelerate our retail expansion due to the favorable results we have seen in the Quebec market and other urban centers. As such, we have increased our net new branch opening plan to 20 to 25 more locations in the year, which will primarily occur in the 2nd and third quarters. We have also updated our expectations for the yield and credit performance of the portfolio in 2020. We expect the total annualized yield to be between 46 percent.5% and 48.5 percent, which should begin at the higher end of the range and gradually decline throughout the year. Furthermore, we expect the net charge off rate in 2020 to be within the same previously guided range as 2019 of between 11.5% and 13.5% on an annualized basis. Our current outlook would suggest that the rate will be broadly consistent with current charge off levels in the 1st part of the year and then begin to gradually improve throughout the back half and into the following years. Early indications are showing that the effects of our credit model enhancements and further optimization of risk based pricing will continue to have a positive long term impact to the broader portfolio. Lastly, as Hal mentioned earlier, we are also expecting that should growth align with our current forecast, the business will begin to moderately delever over the next few years. We expect this to be driven by both the strong internal cash generation and an assumption that we will see our outstanding convertible debentures converted into common equity either at the choice of the company or by the debenture holders at some point in 2020 or 2021. Meanwhile, we continue to expect strong revenue growth and expanding margins as we continue to gain more operating leverage and achieve greater levels of profitability. With only a small share of the $230,000,000,000 non prime consumer credit market, we are truly just getting started. Our strategy to become the largest and best performing lender in our industry is guided by our 4 strategic pillars of expanding our product range, developing our channels of distribution, increasing our geographic footprint and delivering a best in class customer experience that has helped over 60% of our customers improve their credit score and 1 in 3 graduate to prime credit within 12 months of borrowing from us. We are in the early stages of our 3rd wave of growth and in 2020 we will undertake 3 major initiatives designed to prepare the business for expansion for many years into the future. Our first major initiative will be to focus on developing our point of sale business in partnership with Per Haybright. With only a small handful of e commerce merchants live today, we'll work together to onboard new partners, further optimize the technology platform and launch the in store solution by year end. We expect the sales volume from this channel to slowly build throughout 2020 and into the future. Most importantly, customers acquired through this channel will have the opportunity to access our other unsecured and secured loan products as we aim to give them the full easy financial borrowing experience. Our second major initiative will be to pilot a new product later this year in the form of a direct to consumer auto secured loan. After careful and exhaustive research of the market, we see a significant opportunity for this product to take several forms. One, we estimate that there is over $13,000,000,000 of non prime auto loan originations annually and we think there is an opportunity to create a better car financing experience for these consumers. Today, customers must wait until they find a dealership that can get them approved for financing and they are often at the mercy of the dealer who controls the entire transaction. By pre approving customers for financing upfront, they will be able to shop wherever they like with ease and control. 2, many non prime consumers rely on purchasing vehicles through a private sale, such as from a neighbor or a friend. However, there is currently a void in the market to arrange financing for those types of transactions. This is a true white space opportunity we believe we can fill. 3, as we aim to offer customers larger loans at lower interest rates on their journey back to prime, we see an opportunity for our customer to offer their existing vehicle as security to secure a better loan offer. Similar to our real estate secured loan, this product would be underwritten on credit and affordability and utilize security as a means to offer a more attractive interest rate to the customer. Consistent with our test and learn philosophy, we are aiming to be in market with a pilot program in 2020, which we will trial and learn from before beginning to scale the product in 2021 and beyond. Finally, our 3rd major initiative, we have begun to upgrade our core lending platform. With the size of our ambitions for product and channel expansion, our desire to use new technologies to disrupt and innovate within our industry, the need to have a fully optimized customer experience and the competitive edge to be gained through a more flexible and faster development cycle, our core lending technology represents a critical part of our business. While our current platform, which we've developed nearly a decade ago, could continue to scale and serve the business we have today, the introduction of a best in class fully cloud based SaaS lending solution will give us the platform to scale the enterprise for many years into the future. We expect to complete the configuration and migration to the new platform for testing and rollout in 2021. With a well capitalized balance sheet and an incredible group of over 2,000 passionate team members that are inspired to help everyday Canadians improve their credit and get back to prime rates, we are more excited about the future than ever before. This year's investments will further strengthen our platform and build new sources of growth that will help sustain our long track record of performance. With those comments complete, we will now open the call for questions. Our first question comes from Nick Priebe with BMO Capital Markets. Your line is now open. Okay, thanks. I think I'll start with a question on the direct to consumer auto loan. Jason, wondering if you can help us frame how we should think about that new vertical for you. I guess more specifically, wondering if you could share with us what your research has suggested on how pricing, risk adjusted yields and credit performance would compare to your traditional unsecured and secured credit products? Yes, sure. Happy to. I think the crux of our research ultimately shows that for the non prime consumer that relies solely on the dealership to arrange financing for their vehicle, they have a very ineffective experience. They have to go around possibly from dealer to dealer until they can find one that has the appropriate lender already in the system to be able to approve them. And there's really no guarantee that they're going to get the best loan size and the best rate for them to have ultimate choice of the vehicle they want to purchase. So we see this as an opportunity to go direct to the consumer. Unlike most of the other lenders in that space, we have a national brand and a national distribution platform, where we already speak and access to those same customers. In terms of the specific product features, still some things to be determined over the years as we build and prepare for the pilot. But what I would say is we believe this product will sit sort of between our real estate secured loan and our unsecured loan. So obviously, higher loan sizes than unsecured because they're going to be used to secure and purchase vehicles, but likely not as large as our auto our real estate secured loan and pricing will probably sit somewhere in between those two in terms of the range of the APR. So that's about the direction I would give now and then as we get a little further into the year, we'll be able to find to that and be a lot more specific. Okay, that's helpful. And then just shifting back to the traditional unsecured product, I also was hoping you could give us a bit of a read on the competitive landscape for Easy Financial. I've noticed that some payday loan companies have been converting towards line of credit and installment loan products in the past few years. Just interested to get your thoughts on how you see that progressing, whether you perceive any competitive threats and how you feel you may need to adapt over time? Yes, sure. So, I mean, it's something we try to look at carefully, but can be a little bit difficult to do given there really isn't many public company comparables we can look to. We don't really know exactly what is currently happening with Fairstone's business. We're aware of them in the market, but they don't tend to show up in a highly competitive way where we're currently marketing and advertising. We know, Money Mart has transitioned into installment lending, but they did that quite a number of years ago. So they've been an active competitor frankly through the last 3, 4, 5 years during the entire period we've been able to deliver good growth. And I think that they ultimately have a different customer experience than we do and as a result end up attracting a different segment of the non prime market than we do. And then the only one that's public that we have access to really see is Curo Group out of the U. S, which owns the Cash Money and Lend Direct brands in Canada, previously a payday loan lender that's migrated into a line of credit products, we can see that they've had some growth, but it's been quite moderate relative to ours. I think in the most recent quarter, they just released their line of credit product only grew by about 14,000,000 dollars in the quarter. And since that today, still less than $250,000,000 in total. So still a fairly small representation of that total market. So I would say, generally speaking, there's definitely competition and choice out there, but it still feels fairly limited relative to the size of the $230,000,000,000 total marketplace that we're operating in. Yes, okay. That's good. Thanks for taking the questions. No problem. Thanks. Our next question comes from Gary Ho with Desjardins. Your line is now open. Thanks. Good morning. Jason, there's a decent step up in the store openings expectations. I think you said a bunch of those are in Quebec. Can you give us an update on what you're seeing in that province and kind of what gives you comfort in being more aggressive with store openings there? And how many more locations do you see you can get to over kind of the next 3 to 5 years? Yes, sure. So yes, you're right. We did call up our store expansion plans for this year and next year, really driven by 2 things. 1, as I mentioned in my prepared comments, we are quite happy with where things are trending in Quebec. We obviously had some early learnings that we all know, but by the time we put in place multiple iterations to our credit model, we've now started to see really strong performance. Growth is strong. Losses are in line with the national average. So we feel very good that we're in a position we can accelerate the growth there and start to expand that province closer towards its proportionate share of the population, which is, as you know, over 22%. So we finished last year with between 20, 25 locations in Quebec, and we think there's capacity for closer to 50 locations in that province as we get closer to maturity. So of the branches that will expand in the next couple of years, I'd say roughly half of that will be in the province of Quebec. The other areas that we've seen good opportunities is in the urban centers, particularly places like Toronto, Calgary, Vancouver. We've generally been under penetrated in those markets in the past. We've gone through an exercise in the last year to do a very targeted site selection analysis using some thorough customer segmentation data and that's allowed us to get more confident as to exactly where we would build branches in some of those more dense urban markets. So all of that conspires us to say, this is a good opportunity to be able to just pick up the pace a little with some of our branch expansion. Okay, great. And then switching gears a little bit, can you talk about the direct to consumer auto loan product and developing the PayBright relationship, in terms of the contribution in loan book growth over the next 3 years. So I'm assuming those initiatives, the contribution from those are embedded in your 3 year forecast. Is that the right way to think about it? Yes. So the point of sale contribution will be fairly limited this year. We'll scale a little bit more in the outer 2 years. And yes, there is some assumption for growth from that channel built into the forecast. Although we've been reasonably conservative with what we expected to contribute, given that it's so early stage visavis, if we're a little bit off where we think, its impact on our ability to achieve our forecast is fairly minimal. What I would highlight with the point of sale channel is that it's very much a customer acquisition channel, meaning that the average loan size originated at point of sale is much smaller than our other products. And so the primary objective for us as we onboard a customer through point of sale is to be able to offer them the other range of products and for that to actually drive unsecured and secured loan originations once the customer has been onboarded. So slowing the pay build throughout 2020, bigger contribution in the outer years. But as far as the actual net number of customers that we'll add, it will be quite meaningful. Auto loan, that will obviously pilot later this year. Just like we've done in other products, we'll be fairly slow in testing and trialing, rolling it out before we begin to push the gas and start to accelerate. So that acceleration is not likely to happen until 2021 and beyond. And again, we've been very, very conservative with our estimates as to what we think it will contribute. So therefore, if it performs well, then that could provide some upside to our current outlook. Great. Okay, that's helpful. Next question I have, I think in your outlook section, you guys mentioned international expansion. How could this look like over the next 3 to 5 years? Can you maybe talk a little bit about the return metrics, how that looks like in terms of ROEs in some of these other markets and maybe touch on strategic rationale? Yes, sure. So we've mentioned a couple of times in the past over the last year or 2 that part of our ongoing process has always been to study and benchmark the industry we're in, in other countries around the world. It's been very helpful at seeing how companies in other countries operate into business. We've networked with a number of companies in different markets and shared experiences and knowledge. And that's been a very good process for us for benchmarking and helping us build our business. What I would say is through that process, it's become clear to us that there as we say in the document, a number of other markets around the world, where there is an equal opportunity as what there has been and is in Canada, effectively where we see a comparable gap between the banking system and some form of very high cost either online or storefront payday loan market, where the number of players in the middle is fairly limited. And where there are players in the middle, we think that they tend to perhaps be a little outdated in certain areas of their business. I haven't necessarily used digital capabilities, strength in analytics and credit modeling, building an omnichannel model with a brand presence that focuses on the customer. We just don't see that being well represented in a number of other countries. And so I think it's just our view that at some point, there's an opportunity to take the easy financial business model and then it can be successful in other countries around the world. Today, we're being a bit more passive, meaning we're looking at opportunities as they come across to us and just keeping our eyes and ears open. There's no urgent rush for us to do anything because we have a great outlook for growth organically here in Canada. But we are keeping our ears and eyes open for if an opportunity came along that was the right one. In terms of some of the other questions you had around economics and returns from these other markets and things, a bit too early to kind of provide any guidance at that point. We're really just keeping our options open. Okay. And then just last one for me, maybe for Jason Nupal. Wondering if you can provide an update on the credit quality portfolio, maybe by geography, any weaknesses or items that's on your watch list? Overall, I'd say the overall underlying credit quality of the portfolio actually strengthened in the quarter. Obviously, it was one of the factors that drove the provision rate to remain stable, while the net charge off rate more or less has remained within the guided range. I wouldn't point to any necessary weak spots. I mean, obviously, with the price of oil coming down in more recent weeks, it does raise some eyebrows with respect to some of the western provinces, in particular, the Alberta. But as you know from prior discussions, we track the delinquency and the charge out performance very closely by area all the way down to the MSA, the metropolitan area. We haven't necessarily seen a dramatic uptick in that market in particular. I'd say overall, the portfolio is in reasonably good shape. If you look at the quality of the originations, the continued evolution of the mix of product, in particular, the addition of secured product, which we're quite pleased with in terms of overall loss performance and our continued optimized use of risk based pricing, I would say there aren't any trouble spots. But like anything with an economy that's in year 9 of an economic cycle, we've been making periodic credit enhancements, Jason has mentioned, over the course of the year, and that's ultimately designed to keep that credit and charge off rates stable. Okay, perfect. That's it for me. Our next question comes from Jeff Fenwick with Cormark Securities. Your line is now open. Hi, good morning. Jason, just wanted to circle back on your commentary around the new upgrading the core lending platform. Can you give us a sense of the cost of that initiative and what would be the split between recording it as OpEx versus CapEx? Yes, sure. So I think if you think about total CapEx spend for a second, last couple of years have been at around the $15,000,000 to $17,000,000 mark. This year, we'll see that climb to between $20,000,000 $25,000,000 which will come from a combination of the investment we're making in the core lending platform, but also the fact that we've accelerated the growth of store openings and so there's real estate development there as well. I think the cost of the system in total will be in and around $7,000,000 over the next year and a half period, the vast majority of which is CapEx, very little OpEx involved in a project like that because it's a technology project. The platform model that we're going with is a SaaS model, a complex SaaS model. So that means it's more affordable to implement and we believe in the long run, we'll also be more affordable to operate relative to the technology we have today. Okay. That's great color. Thank you. And then maybe circling back to the store openings again. What's your sense about how tight the real estate market is for the types of locations that you're looking at? I'm thinking particularly in some of these larger urban centers, vacancy rates, I imagine, are pretty low. So could that be a constraint here in opening new locations? Yes. So it's a good point. I think that the low vacancy rate has been something that has existed for us from a store opening perspective for many years now. So that's always been the case. It's one of the reasons that openings throughout any given year aren't always as cleanly linear because it is contingent on the availability of real estate. Generally speaking, we plan for real estate expansion about a year of advance. By the time you go through, making sure you select the right site, negotiate the right lease terms, build out the location, etcetera, we're planning about a year out. So the expansion that we have in the queue for this year is a fairly clear line of sight. Essentially all almost all, if not all of those locations have already been scouted and are in progress. And then now we're actively working on selecting the sites for 2021. So, so far, feel very good and feel like we'll find the right spots, Again, particularly because about half of them are in Quebec where we're entering large areas of the market that we just don't even have any presence. And so it's not as difficult to say it is in a community or market where you maybe already have 1 or 2 branches and you're trying to really pick a particular plaza. So, so far, feel good about hitting those ranges. Okay. I think that's all I had. Thank you. Thanks. And our next question comes from Jaeme Gloyn with National Bank Financial. Your line is now open. Yes, thanks. Good morning. First question is related to the leverage targets declining. I just would like a little bit more color as to why you would allow the leverage to decline from the previous target of 70% to the 62% to 64%, why not just keep leverage running at about 70% through your forecast? Jamie, it's Hal here. So it's a good question. What I would say in terms of the leverage ratio, you're seeing as a product of 2 things. 1, the natural increase in cash flows of the business, which continue to increase and drive our retained earnings and equity position. The other component that Jason referenced earlier around the debentures that we have out there, the convertibles, and our view that we would exercise our ability either directly or indirectly to redeem those convertibles and which are sitting just north of $40,000,000 on the balance sheet, which will add incremental equity position and reduce the overall debt on the balance sheet, which will also impact that overall leverage ratio. And just lastly as well, this outlook, as Jason had referenced earlier, does not contemplate M and A activities. It's part of our baseline outlook. And in the event that there was some acquisition or additional product diversification, obviously, that would then impact the leverage as well. Okay. So if I understand or read between the lines correctly here, this is the leverage moving lower is just more a function of events that are going to happen within what you have visibility on right now. The target of 70%. This isn't necessarily a shift, let's say, that look, we're not comfortable running that 70%. We're more comfortable running in the low 60s. It's just the way the business is evolving and progressing. Is that fair? Yes. I'd say that's first, David. And these are forecasts as opposed to targets as well that we've laid out here as well, right? Yes. Jaime, I can just jump in and add to Hal's comments. So if you think about our And we And we think that at that level, we're running kind of optimal. Because these forecast currency do contemplate a natural delevering related to the matters that Hal outlined, that results in a slow decline in that net debt level. Really, essentially, the way to think about it is that actually gives us the capacity to be able to accelerate growth beyond the levels outlined in the plan. So if we do find that some of the new product introductions, whether it be point of sale or auto, become successful and we can accelerate growth, this just demonstrates that we have the capacity to do that and to use leverage to do that. And it also means that we were to identify an acquisition opportunity that made sense, we would have more balance sheet firepower to be able to support doing it because the business will have naturally delevered and giving us more capacity. So you really have just 2 ways to be able to prop that leverage up. 1 is to grow more quickly or purchase more cash flows via acquisition or to distribute the capital to shareholders. And at this point, we would prefer to reserve that capacity in the balance sheet to be able to put it behind more growth as we find new opportunities. Okay, great. Still on this topic then around the M and A discussion, what would be something that you'd be looking at, whether it's portfolio lifts or businesses? Is there something that you see out there right now that could fill a gap quickly? Maybe a little bit more color about the M and A strategy. Sure. So I think the way we would look at it is, we're always on the lookout for nice and easy small acquisitions, small businesses or small portfolios that are within our existing market, within our existing product range. If we see something that's an ICV tuck in, we will do that. There generally has not been much out there in that category. There are a few things, but it is fairly limited. If we were to consider a more material acquisition, buying another business, whether it be in our market or another market. I think the way we would frame our objective would be that we would look for a business that has some existing platform and some existing stable operation. We're probably, given our high growth potential in Canada, not interested in taking on something that would be a significant turnaround effort or a massive rescue mission. At the same time, it would obviously have to be a good opportunity for us, which would mean that it's priced very well and we clearly see we can bring synergy to the business through all the capabilities we've developed in Canada, as I said before, whether that be digital, analytics, branding and our customer proposition. So it has to fit nicely kind of in between those sets of parameters. So as I pointed out, there's not been generally a lot out there, but we are obviously always going to keep our eyes and ears open. So if something comes to us that looks very attractive, we're going to be prepared to explore further. Okay. And just maybe more specifically on that front then, as it relates to the auto loan strategy, that strategy is specifically an organic strategy. There isn't really an intention to look at an existing non prime auto lender. I mean, obviously, Rifco got taken out recently, but there's other opportunities there. This is just want to confirm that, that strategy is primarily organic. Yes, that's right. I think the component part that we're most convicted about is going direct to consumer, not inserting ourselves into the dealer channel, but rather offering customers the ability to access the credit, get pre approved directly from us and then go shop wherever they like, however they like. By default, that means there really isn't acquisition opportunities for us that are of any interest given that from what we can see effectively all the competition in that space is in the dealer channel. So if there was something there that made sense, that would be nice, but there really isn't. So at this point, it's an entirely organic focused product strategy. Okay, thanks. Shifting to credit, I just I don't know if I heard this correctly, but around the provisioning rates, I think the comment was that forward looking indicators would have suggested a lower provisioning rate and then there was something else that would have suggested an increase in provisioning rate. Can you just run through that again real quick for me? Yes. Hey, Jamie, it's Jason here. As far as the provision rate is concerned, obviously stable quarter over quarter. One of the drivers for the stability in that rate was the fact that we did see an underlying improvement in the credit quality of the book. When you think about the overall loan loss provision, it's really made up of 2 components. It's got a pre FLI component and an FLI component. While we certainly got some a bit of a tailwind from the FLIs in the quarter, the vast majority of the reason why the credit quality remained where it was, was we actually saw an improvement in the underlying quality of the book. So while the FLIs were not as positive as they were last quarter, that was more than made up for the fact we saw improvement in the underlying quality of the loan portfolio. So net net, the 2 combined produced a no change, if you will, on the overall loan loss provision. Okay. Got it. And then last one for me around bankruptcies and insolvencies. There's a line in the MD and A that states that following a notification that if the customer is bankrupt, Easy Financial will perform a detailed review of that filing. I'm just curious how long does that detailed review take? Would there be some lag between bankruptcy filings and that resulted in a charge off with Easy Financial? And are there cases where based on your review, the bankruptcy or the charge off is denied or something along those effects? It's Jason again. I can take that one. Generally, we give ourselves upwards of about, I'll say, 3 to 5 business days to review these notifications. And in most cases, we're mostly talking about consumer proposals here. And the reason why we give ourselves that allowance is depending on the position we as a lender in that proposal can take. We have the ability to respond to that proposal with either an agreement or if we in some cases wish to challenge it. There is quite a wide variety of practices currently practiced by the bankruptcy and insolvency trustees whereby we'll want to take a good look at each individual file to make sure that the proposal that is being advocated for is both fair to the consumer and fair to the lender. But we do not generally practice an act whereby we delay the charge off. We typically take that charge off within the week. So if you think about it, how it affects our actual bankruptcy or charge off line, it's effectively benign. We've been giving ourselves that room, if you will review for the last year. So it hasn't affected how we take our charge offs, but it does give our operators an opportunity to review each file in those circumstances where we believe the proposal should go back and be readjusted or adjusted in general versus be taken as is. And that's how you should think about it. Okay. Okay. And a consumer proposal that loan would be charged off when you receive that proposal, correct? Yes. Generally, it's charged off within the week that we get it. That's correct. Yes. Okay, great. Thank you. And at this time, I'm showing no further questions. I'd like to turn the call back over to Jason Mullen for any closing remarks. Thanks. Well, since there are no more questions, we'd like to thank everyone for participating in the conference call. And we look forward to updating you all again next quarter at our release and at our AGM in May. Thanks, everyone. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.