Good morning, ladies and gentlemen. Welcome to the first quarter financial results call for two thousand and sixteen. I would now like to turn the meeting over to Mr. David Yeilding, Senior Vice President, Finance of goeasy Ltd. Please go ahead, Mr. Yeilding.
Thank you, operator. Good morning, everyone. Thank you for joining us to discuss goeasy's results for the first quarter of twenty sixteen. The news release, which was issued yesterday after the close of markets, is available on Marketwire and on the goeasy website. Today, David Ingram, goeasy's President and Chief Executive Officer, will talk about the highlights of the first quarter. Following his remarks, Steve Goertz , the company's Chief Financial Officer, will discuss goeasy's financial results in greater detail. David Ingram will then provide some insights into our strategic initiatives and outlook before we open the line for questions from investors. Jason Mullins, the company's Chief Operating Officer, and Jason Appel, the company's SVP of Risk and Analytics, are also on the call. 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.
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 provide instructions at the appropriate time. Business media are welcome to listen to this call and use management's comments and responses to questions in your 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 However, we would ask that they do not quote callers unless that individual has granted their consent.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 the caution regarding forward-looking statements included in the MD&A. Now, I'll turn the call over to David Ingram.
Good morning, and thank you for your participation on our call today. We had a good start to 2016 with earnings and margin expansion. We delivered on our commitment to leverage scale through the continued growth of easyfinancial. We maintained our charge-off rates within our targeted range of 14%-16%, reporting a sequential decline in our loan loss rate from the last quarter. We also increased the operating margin at easyhome. Before Steve reviews the financial performance for the quarter in detail, I want to touch on some of the highlights for the quarter. Revenue increased 17% to reach record levels for the first quarter. We achieved a 49% growth in earnings per share, which increased from C$0.35 to C$0.52 this quarter. The strong financial results were driven by both of our business units, easyfinancial and easyhome.
The company's revenue growth was again driven by easyfinancial, as it continued to meet demand by offering customers an alternative between traditional banks and the expensive payday lenders, while responsibly managing risk through industry-leading credit modeling and underwriting practices. We believe that easyfinancial business model is ideally suited to effectively service the borrowing needs of our targeted consumer. A combination of retail branches, a strong online presence, and the establishment of point-of-sale financing through merchant partners maximizes brand recognition and origination. easyfinancial utilizes strong central analytics and credit decisioning to make lending decisions that optimize the balance between origination volumes and loan losses. Finally, and most importantly, our national branch network provides a significant competitive advantage when compared to online lending or so-called fintech companies in the near-prime and subprime space.
The establishment of direct personal relationships with customers utilizing our national branch network significantly improves customer engagement, reduces charge-offs, and leads to superior profitability. easyfinancial's gross loan originations climbed to CAD 82 million for the quarter, up 35% against the first quarter of two thousand and fifteen, and driven by strong demand for our larger dollar loan products and by the enhancements that were made to our transactional website. During the quarter, we reached two major milestones. First, our total originations since the launch of easyfinancial in two thousand and six have now exceeded the CAD 1 billion threshold. Second, our loan book topped the CAD 300 million dollar milestone, reaching CAD 304 million by quarter's end. The strong origination volume was assisted by our easyfinancial transactional website, which was relaunched in late two thousand and fifteen.
The enhancements to this website improved the customer experience, clarified our value proposition, and streamlined the application process. Our investment has had the desired effect, with a 48% year-over-year increase in the volume of submitted applications. And further, 70% of our customers who begin an online application now complete the process, compared to only 42% on the old website. With a significant portion of our online loan applications beginning online, these improved conversion rates will be important for the future growth of our loan book. In March, we announced the introduction of risk-adjusted interest rates and an increase to the maximum loan size of CAD 15,000 for certain eligible customers. The new loan products are designed to reward existing customers with improved credit and attract new ones that are eligible for a lower rate of interest.
Eligibility for our lower interest rates is based on a customer's credit profile and strong repayment history. We have taken a cautious approach to this launch, limiting the eligibility for our lower rate product to 10% of originations by dollar value, and so the overall impact on the loan book in the quarter was quite small. Longer term, however, we will be able to reach a broader base of customers by moving up the credit spectrum. Moreover, we feel strongly that this is the right thing for our customers, and it benefits the company by improving customer retention... Ultimately, we are pleased with the financial results for the first quarter, which are in line with our expectations and which we feel represents a strong start for two thousand and sixteen. Now I'll turn the call out to Steve to review our financial results for the quarter in greater detail.
Thank you, David. Total revenue for the quarter was CAD 82.3 million, an increase of CAD 11.8 million, or 16.7%, compared with CAD 70.5 million in the first quarter of twenty fifteen. Same-store sales growth was 14.4%. The growth in revenue was driven primarily by easyfinancial. To better understand our financial performance, I'll review each of our business units separately. With easyfinancial, we continue to experience strong growth of our easyfinancial gross consumer loans receivable portfolio, which finished the quarter at CAD 304 million, up from CAD 207 million at the end of the first quarter of twenty fifteen. This represented an increase of CAD 97 million or 47%. The gross consumer loans receivable portfolio grew by CAD 14.7 million in the quarter.
While the gross consumer loans receivable portfolio grew by 47% over the past 12 months, easyfinancial's revenue grew by 40% compared with the first quarter of 2015, due to a reduction in the achieved yield. This reduction was attributable to two factors: First, the company has seen strong demand for its larger dollar loan products, and such loans have reduced pricing on certain ancillary products. Second, the company has experienced increased unemployment claims against its optional loan protection product, which effectively reduces the net commissions earned by the company on these ancillary products. Our optional loan protection product provides a valued safety net for our customers. In the event of illness, disability, death, or job loss, the insurance policy that underlies the loan protection product makes the required loan payments on the customer's behalf.
While we earn a commission on the sale of this product, the customer claims are netted against our commissions earned and serve to reduce our overall net revenue. We have recently seen an increase in claims, particularly unemployment claims, over the past few months in all provinces. Ultimately, this increase in claims rates has contributed to the decline in the yield in the quarter. For fiscal 2016, we expect the year-over-year yield decline to be approximately 3%. The operating expense of easyfinancial, excluding bad debt expense, increased by CAD 2.2 million or 16.3% in the quarter compared with the first quarter of 2015.
Expenses increased due to the expanded branch network, including the additional operating costs of the 45 branches acquired and opened during the first quarter of 2015, increased advertising expenditures to support the larger loan book, and higher loan administrative and collection costs resulting from the larger loan book and the greater volume of loan originations. Expense growth of 16.3% was significantly lower than the revenue growth of 40%, resulting in our margin expansion. With our overall branch network largely built out, we are beginning to see this business scale and elevate operating margins. easyfinancial's bad debt expense increased to 12.4 million for the first quarter of 2016, from 8.2 million during the first quarter of 2015.
Net charge-offs as a percentage of average gross consumer loans receivable on an annualized basis were 15.2% in the quarter, up from 13.8% reported in the first quarter of 2015. The year-over-year increase was driven by the mix of online-originated loans. Such loans have a higher charge-off rate than retail-originated loans. The higher charge-off rate of online loans is generally offset by lower customer acquisition and servicing costs, such that margins between branch and online-originated loans are comparable. Additionally, the charge-off rate in the first quarter of 2015 was unusually low due to the timing of growth, which occurred in the preceding quarter. The charge-off rate reported for the first quarter of 2016, of 15.2%, was down sequentially from the 15.5% reported in the fourth quarter of 2015.
This reduction was achieved through both the tightening of our credit underwriting models during 2015 and improved execution of our collection practices. We continue to expect that the net charge-off rate will be in the range of 14%-16% for the balance of 2016. easyfinancial's operating income was $15.7 million in the first quarter of 2016, compared to $9.7 million in the first quarter of 2015, an increase of $6 million or 61.4%. Operating margin for the quarter was 34.9%, compared with the 30.2% reported in the first quarter of 2015. Our leasing business generated $37.3 million in revenue, a decrease of $1 million when compared with the first quarter of 2015.
Organic revenue growth across our store network was flat, but the total revenue declined due to store transactions over the past fifteen months and the deconsolidation of various U.S. franchisees. The operating income for the leasing business was CAD 6.4 million for the quarter, up CAD 400,000 or 6.7% when compared to the first quarter of twenty fifteen. While revenue declined in the quarter when compared to the first quarter of twenty fifteen, operating income was positively impacted by expense efficiencies from a lower store count and reduced advertising.
Similarly, operating margin for the first quarter of 2016 improved to 17.1%, up from 15.6% reported in the first quarter of 2015. Overall operating income for the quarter was CAD 14.8 million, compared to operating income of CAD 9.8 million in the first quarter of 2015, an increase of CAD 5 million or 50.9%. Overall operating margin for the quarter was 17.9%, up from the 13.9% reported in the first quarter of 2015. The improvement in operating margin was driven by higher operating margins from both businesses and a larger percentage of our earnings generated by the higher margin easyfinancial business. The improved operating income translated into improvements in net income and earnings per share for the quarter.
Diluted EPS increased to CAD 0.52 from CAD 0.35 in the prior period, an improvement of almost 50%. Finally, our overall financial position remained strong at March thirty-first. CAD 230 million was drawn upon our CAD 300 million committed credit facility, leaving sufficient capacity to fund the expected growth into 2017. On March thirty-first, 2016, the company's ratio of external debt to total capitalization was 0.55. Now I will turn the call back to David.
Thanks, Steve. It continues to be a challenging and uncertain time for the Canadian economy. While the price of oil and the Canadian dollar have rebounded somewhat in recent weeks, frictional unemployment levels remain elevated in certain areas, and workers in the oil sector transition to new careers. The Bank of Canada is cautiously optimistic, calling for a recovery later in two thousand and sixteen. We believe our business has performed well during these trying times. Our disciplined credit underwriting and robust collection practices have allowed us to maintain charge-off rates within our desired range. Our loan protection plan, as Steve discussed earlier, has provided a much-needed safety net for our customers, cushioning the blow of job loss for them and reducing the impact of the challenging economic situation on charge-off rates for our company.
Our plan is working, and we will continue on the same strategic path by expanding the size and scope of easyfinancial, evolving our delivery channels to better meet the needs of our customers, and executing with efficiency and effectiveness. During the quarter, we announced an exciting point-of-sale financing venture with Sears Canada. While we are still working through many of the details of this partnership, we will develop the industry's first single source application system for point-of-sale financing across all customers in the credit spectrum. Essentially, this tablet-based and proprietary application system will allow a customer to complete a single credit application and provide the best possible financing solution for that customer.
Once the new customer credit application process has been put in place, Sears will provide the capital to finance the prime loans, while we will finance loans that do not meet Sears' prime lending criteria, but which meet our own lending criteria. We will use our existing people, processes, and infrastructure to manage, administer, and collect all loans originated under the program, including the loans funded by Sears, under a full cost recovery structure. We look forward to supporting Sears and their customers in obtaining purchase financing and in our ability to leverage this industry-leading and proprietary technology with other business partners. Over the past several years, we've invested heavily in credit risk and analytics. We will continue to optimize our credit risk management expertise and collection practices. Our goal, as always, is to balance the competing objectives of growth with loss mitigation, all while optimizing the bottom line.
We feel that the changes made in our credit underwriting policies over the last 18 months have had the desired effect, and we have seen charge-off rates improve sequentially without unduly impacting loan originations. We continue to see loss rates tracking within our optimal range of 14%-16%. So we remain confident in our ability to achieve our stated 2016 targets. Loan book growth in the quarter was on track to achieve our year-end target of CAD 360 million-CAD 390 million. Our revenue growth in the quarter of 17% was consistent with our stated 2016 revenue growth target of 16%-20%, while easyfinancial's operating margin in the quarter of 35% was at the top end of our targeted range for 2016.
We are certainly off to a strong start in 2016. The trajectory of our business is as expected and in line with our stated targets. We continue to be confident in our ability to meet our goals and achieve record revenue and record profitability for 2016. With our formal comments complete, we will now open it up for questions.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Stephen MacLeod with BMO Capital Markets. Please go ahead.
Thank you. Good morning.
Morning, Steven.
I just wanted to just ask a couple questions on the easyfinancial business, particularly some of the metrics in the first quarter, and kind of how you see that evolving through the year, so specifically, I just wanted to talk about the yield that you saw in the quarter, which was a little bit lower than what I would have expected. And then you talked about your a target for net charge-offs. I just wanted to see how that, you know, 14%-16% range compares to what you would expect to report at, as a bad debt expense, as a % of revenue for the year.
Yeah, it's Steve here. I'll talk about the yield. The yield within easyfinancial did come off a little bit in the first quarter. We have seen declines throughout twenty fifteen, really driven by the shift in mix towards larger dollar loans, which carry a lower total net revenue from the sale of ancillary products. So that trend has continued a little bit into twenty sixteen, which has taken yield down a little, a little bit. On top of that, the claims against our LPP, our Loan Protection Program, have increased in the first quarter, particularly due to unemployment claims made by customers. The way that program works, you know, we put some of the proceeds from the customers into a claims pool. Any surplus from that claims pool are refunded back to us.
Because the claims rate has increased, that refund back to us has been slightly decreased, so it's impacting our overall yield. There's one other item impacting yield in the quarter, and it's really unique to the first quarter of this year. Given the timing of the year-end, we received certain revenue for the sale of ancillary products in the last week of December, and as a result, there was one less pay period where we received that revenue in the first quarter of twenty sixteen. So that had a one-time impact of slightly reducing yields in the first quarter.
Oh, okay. And so would you expect... I mean, how do you expect the yields to trend through the year? Like, do you consider to be back, you expect to be back at that 5.3%-5.4% per month level?
Yeah. You know, over the course of the year, you know, our yield last year was about 64% or so. We'd expect it to continue to decline by about 300 basis points, so the total yield for the full year will be about 61%.
Oh, okay. Okay, that's great. And then on the bad debt side?
I'll turn it over to Jason on the bad debt side.
Sure. Yeah, so, I think your question was particularly due, or relative to the bad debt as a percentage of revenue. So, as I said, or as David said earlier, the loss rates, stabilizing within our target range of 14-16 will mean that you'll see a similar trend of bad debt to revenue as we saw in Q1. Q1 came in around, 27%. I would expect that that'll be roughly the same rate to revenue in the next couple of quarters.
Oh, okay. Okay, that's great. Thank you. And then just sticking on easyfinancial, like the store, it seems like you added a lot of new stores in the first quarter. So, and I thought the commentary at Q4 was that it would be more linear through the quarters. So given that, you know, your net new store count was up seven, I guess, in Q1, would you expect, you know, the new store activity to be sort of muted through the back last three quarters of the year?
Yeah, that's right. It ended up being a little bit more front-end weighted than initially planned. We took advantage of some relocation opportunities from kiosk to standalones that became available. So, we'll still be within the same target range we had initially provided. And so you'll see the growth slow on a quarter-by-quarter basis in terms of store openings, and we'll still finish where we initially targeted.
Okay, great. And then just one final question. Excuse me. On the leasing side, the margins were quite strong in the quarter and, you know, sort of tracking above where I thought it would come out for two thousand and sixteen. Obviously, we're early stages, but, you know, do you expect kind of the impacts that hit the quarter and that hit the numbers in Q1 to continue through the rest of the year, specifically, I guess, the lower ad spend?
Yeah, Steven, if you look at total ad spend for the full year across both businesses, we spent around CAD 10.6 million last year, of which CAD 5 million was on leasing. We're expecting to spend about CAD 13.5 million in total in 2016, and around CAD 4.2 million in the leasing business. So leasing will probably come in around CAD 700,000 to CAD 800,000 lower year on year, as we spend most of the TV properties and digital properties on easyfinancial.
Okay, that's helpful. I'll get back in line. Thank you very much.
Thanks.
Thank you. The next question is from Jeff Fenwick with Cormark Securities. Please go ahead.
Hi, good morning, everybody. I just wanted to follow up on the insurance product a little bit here in terms of the mechanics of how it works. And maybe, Steve, can you just explain, is that insurance covering the full amount of that loan when someone is unemployed, or is it just a period of time where they're covering the payments, and then they're back on the hook for paying it? And it's really within the context, I guess, of the potential for charge-offs to rise later on.
Yeah, it's the way the program works is the customer pays the insurance fee, and it's paid as their payments are made, not as an amount added to their loan balance. So the customer can cancel at any time, and we're not at risk of a higher charge-off, as we've had to fund that entire program. But when the customer makes a payment, we keep a portion as commissions. A portion goes to the providers for their servicing fees and for their risk, and then a portion goes into a loss pool. If that loss pool is not fully exhausted for a period, we get a rebate back to us, so that improves our yield and improves our margin. As claims increase, that rebate back to us gets reduced somewhat.
From the customer's perspective, once they can show they've either had an illness or they're unemployed, the insurance policy begins making their loan payments, and it will do so for a period of up to six months. At the end of that six-month period, if they're still unemployed, it will make a lump sum payment of up to CAD 2,000 against their outstanding loan balance. If there's any loan balance still remaining at that point in time, then the customer is responsible for starting to make his loan payments personally once again.
In the context of how you're providing for that type of loss, is this something that you're taking as bad debt expense at the time, and meaning there's some risk of future loss down the road here? Or I guess, my concern is, you know, we don't capture the potential ultimate loss until this is built up for a while, that six-month period expires, and then they ultimately default on the loan.
I'm gonna add two things. First, the customer is eligible to have the insurance policy make his loan payments if he becomes unemployed. That's what the program is in place for. That doesn't necessarily mean the customer wouldn't make his loan payments himself if he was unemployed and didn't have the insurance product. We don't know what that would be. As it relates to losses, those loans are still performing, so there's no provision necessary specifically against them. However, our overall loss provision is based on the performance of our book over a period of time, including those customers who did have loan payments made for them by the insurance product, and then at the end of the period, may have charged off. Implicitly through our bad debt provisioning, we have provided for any expected losses in those types of situations.
Okay. And let's move on maybe to loan growth here. This was one of the, maybe the lowest quarters in terms of net additions that we've seen in a little while. Just wondering what was at play here. I know you've made some changes in the underwriting focus and the product, a little bit in terms of making the loans larger. I know there can be a bit of seasonality at play. So what was going on through Q1 that had that number a little bit lower than you might have seen over the last few quarters?
Yeah, sure. So it's largely seasonality. If you look at the trend of the loan growth, for prior periods and calculate Q1's contribution to that over the full year period, it's not dissimilar to what we're seeing this year versus what our ending loan book guidance would be. So if you look at our ending loan book guidance of 360-390, the absolute loan dollar of growth, using the average midpoint, would be just slightly less than the absolute dollar growth from last year, and that's really what we saw on an absolute basis in Q1 as well.
Okay. And then a question here, just on corporate expenses. They did move up pretty meaningfully sequentially here. Is Q1 indicative of what we should expect as a run rate over the year, or were there some one-time items in the first quarter?
There were some one-time items for some salary transition costs, as some changes were made here at the corporate office, and there were some professional fees going in, so it was slightly higher than we'd normally see.
Okay. And then, just you spoke about the Sears opportunity here, and you had, you know, you rolled out Leon's over the course of last year. Is there any sort of outlook you can give us around what we should be expecting and how that product is gonna roll out? And maybe an update on Leon's as well, in terms of, you know, how meaningful the contribution is through 2016 and heading into next year.
Yeah, sure, Jason, I can comment on that. So, if I look at just our overall indirect partnership channel, we don't break it down by the individual partnerships themselves, but that overall channel continues to scale. It's still, it's still fairly small contribution. In the quarter, it represented about 9% of our loan applications and between 2% and 3% of the loans we originated. So, that's versus, of course, last year, where it would been almost zero. So, continues to make good progress, and we still have a very positive outlook. As for Sears in particular, it's gonna be a number of months before we're in a position to be able to actually begin originating loans with them.
So, there's multiple months of integration and configuration before we're originating loans on their behalf for the prime program, and then benefiting from the subprime business. So it would be too early to really provide any real outlook as to what that contribution is gonna be in 2016.
Okay, great. I appreciate the color. I'll cue. Thanks.
Thank you. The next question is from Doug Cooper with Beacon Securities. Please go ahead.
Hi, good morning, guys. So I just wanna focus on a couple of things. One, you talked about the yields down. Obviously, ancillaries are down, and you're targeting a client base that presumably has a bit higher credit track record. So these earnings, would you classify these as higher quality earnings with less ancillaries and maybe trending towards a higher credit quality client?
If you look, the yield on our portfolio has come off. The net profit per customer has increased because we're giving greater dollar amounts to a lower-risk customer. So that will help with the lifetime value for that customer, because they've got bigger dollar loans that are on the book a longer time with lower cost to administer them.
Mm-hmm.
Overall quality of the customer, Jason?
Yeah, no, we haven't really seen any material change. You know, we see small fluctuations in the average score of the consumer coming through the door, and that's been generally positive. But we do use custom scores that don't rely purely on that generic score. So those custom scores make the balance of our credit decision.
Right. I guess I'm just looking at the year-over-year increase in interest revenue was 49%. The year-over-year interest, or increase in other revenues was 17.5%. Is that... You talked, obviously, about the insurance, and some of the claims against that. So, you know, is that a trend we should see continuing, like a percentage of revenue from easyfinancial is more interest-driven than other driven?
... Yeah, you would see that generally over an extended period of time anyway, because some of those ancillary revenues are for products that you only generate one time. So if you, for example, if you sell the customer a prepaid reloadable MasterCard that they use to receive the proceeds of their loan, there's a cost to purchase that card, which would only occur one time. Whereas the interest in the insurance revenues are ongoing and associated with the life of the loan. So over time, the revenues associated to those one-time sales as a percentage of your book or in our yield would slowly reduce.
Right, and I guess-
Sorry, just to focus on a couple of areas, because we've heard it in the last few questions, but this loss prevention claim, I mean, the product is clearly doing what it was intended to do, which is to give people the opportunity to use it. They've been paying for it, and in a way, it's helped stabilize the loss rates because it's ensuring that they can make good on these payments, but we've seen somewhat a bit of a crest in the last quarter or so in terms of where those loss claims are coming to, and we've seen record low delinquency rates coming out this last week's end of trading, so the opportunity for us is to start to see a little bit less, an improvement to the loss rates moving forward, so we're hopeful for that.
We think we're hitting a crest in terms of some of the claim rates. I don't think you'll see the acceleration from that. Those two things should help. Despite the fact that, we've said that the yield may drop by three percentage points, there is an opportunity to try to improve upon that if we see that we have, in fact, seen the crest of the claims, and we're starting to see a better trend in terms of loss rates.
Right.
Doug, it's David Yeilding here. One other point I want to make. When you're looking at the other revenue line on the income statement, only growing by 17%, that also includes some of the ancillary revenue from the leasing business and franchise fees. So that mitigates the growth in that. The actual increase in the ancillary fees on easyfinancial were down a little bit lower than the rate of increase on interest rate, but not dramatically lower.
I guess my last question. I just want to... On a trailing twelve-month basis, your GAAP earnings to the period end of December was CAD 1.76, and for the period ended March, was CAD 1.93. So you grew that 10%, and you've seen the stock drop on a PE basis on a trailing twelve-month from 11 to now trading about 9. So two full multiple points lower. You know, is this something that, you know, must be frustrating for the company with record results and your, your valuation keeps dropping for about 18 months straight. Is there a plan at the company to address this?
I mean, it's hard. It is frustrating, and it is hard to do any more, I think, than what we've been doing, which is to try to communicate in a very transparent way, both in our written documentation on the business, and also when we've been out meeting portfolio managers and investors. There clearly is a bit of a sector decline. So when we look at benchmark companies like World Acceptance, the other public company, fintech company here, Mogo, and we look at some of the others, they have seen much bigger declines over that same twelve-month period. So there is a bit of a sector negative influence to this. I think from our perspective, the way that we look at this is we have got a normal course issue, a bid in place.
We have used it in the early months of this year. We will continue to use it if the share price stays valued at these ranges. We will continue to increase the dividends. We have said, and we have continued to look at it on an annual basis and see if we can afford to pay the 30% on trading earnings, so with these earnings going up, you'll see continued dividend increases, so I think we're doing everything we can do, but we are battling a bit of a headwind in terms of the sector confidence, and I think for management, we focus on earnings and execution, and we'll deliver on the targets, and we'll continue to deliver on the targets.
Okay. Thanks so much.
Thank you. The next question is from Michael Overveld with Raymond James. Please go ahead.
Thanks. Guys, just interested in maybe a little bit more color on the new risk-adjusted, the lower interest rate product that you launched, just in March. In terms of what your early experience has been in terms of take-up, new clients versus existing clients, maybe moving to the lower yield product, maybe start with that.
Yeah. Hi, Michael, it's Jason Appel here. I mean, we've been in the market now just over two months. We've seen about an equal split of both new customers and existing customers that have taken this up on the larger dollar loans that accompany the lower rates. We're very encouraged by the fact that, given the fact that we've offered these lower rates, that the average size of the loans that we're offering on these customers is about double what we typically see across the book. And not only are the loans bigger, but they are funding in less time, and they are generally getting approved more often, compared to our average customer. So we're quite pleased, albeit we're two months in.
The other two metrics, obviously, that are going to really play out with time, are going to be the average tenure of these customers, how long they stick to these loans, and obviously, the loss performance. As again, we're still in early days, it is very difficult to measure the loss, but the delinquency trends on this grouping of customers is quite favorable because, as you would expect, we are only offering these lower rates to better quality customers. So initial out of the gate stats are quite encouraging. We track the data monthly, but we expect that we'll need several months of analysis to be able to come back to the community with more of a formal outline on how we're doing.
I guess on the timeline, I think David mentioned in his remarks that you were limiting that product to about 10% of originations. Like, does that imply you've actually had some surplus demand, and you're sort of holding back on promoting it until you get comfortable with where these metrics are trending, in that this might contribute to, call it, an acceleration of loan growth once you get to that point?
Yep, that would be correct.
All right. Thanks. Actually, one quick follow-up on the easyhome business. Just noticing that the average level of assets as well as the revenues per store, you know, declining a little bit in the quarter. I guess we saw a couple stores fall out of the store count, but on a per store basis, a bit of a decline. How would you expect that to trend going forward? I normally think of this as being somewhat of a flattish business, maybe a little bit increase with inflation, maybe as you close some stores, you consolidate merchandise such that we should see a bit of an increasing trend. So I was a little bit surprised to see a decline. Is that gonna decline further or kinda hold steady from here?
It should hold steady. It may increase a little bit. A couple things have happened there. As we've closed and more merged stores, we reduced the merchandise that's on hand with, in stock within our retail locations, so that has the impact of driving down that number. There's a big, large portion, though, that's also due to timing of promotional events. Last year, we had a large promotional event right at the end of March, which means our stores were full of inventory. This year, that promotional event didn't happen till April, which means our inventory levels were a little bit lower because we hadn't yet filled the stores up for that event. So in total, yes, it's dropped a little bit.
It's likely to go back up somewhat, but year over year, we will trend down a little bit on the total, leased asset inventory.
Okay. All right. Thanks, guys.
Thank you. Once again, please press star one at this time if you have a question. The next question is from Kyle Mok with Grizzly Rock Capital. Please go ahead.
Hi, guys. I just wanted to see what % of your gross loan receivables is currently getting paid by the credit insurance or covered under the credit insurance?
Sorry, the question is, what percentage of the payments we received or the portfolio?
No, in terms of the actual portfolio, how much of that or what percentage of that is currently covered by the credit insurance payments that you're receiving?
That's not a number that we've disclosed in the past. It doesn't represent-
Okay.
represent a significant portion of our portfolio, but it's not something that we've disclosed for competitive reasons.
Okay, and then, you know, the other question, too, you know, when I look at your guys' financial covenants, you know, you're getting awfully close to the, you know, your debt to tangible net worth covenant. It looks like only a 7% cushion. I mean, you know, how should I build in your growth assumptions as well as, you know, the ability to potentially buy back a stock or pay a dividend when you guys are getting close to, you know, potentially breaching the covenant? Is there some sort of game plan in place or any color on that would be great.
I wouldn't agree that we're close to breaching our covenants. As we stated in the financial statements, our covenants move in lockstep with our financial targets and our budget. So each quarter, you'll notice there are changes to our covenant levels. So as our performance moves up, or as our balance sheet changes or our leverage ratio changes, and as long as they move in accordance with our plan, the covenants move in lockstep. So we have no concern about our covenants. We've got a strong relationship with our lender, and we've got ample headroom under our covenants to fully draw upon those facilities when the cash is required.
Mm-hmm. Okay. No, that's great. Just, you know, when you look at that debt to net worth covenant over the past couple quarters, it's getting tighter and tighter, and you know, it's a little bit worried about the dividend, but it seems like you guys have a plan in place, so good luck.
Okay. Thank you.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Ingram.
Once again, I want to thank everyone for their participation and support on the company, and as it is our AGM today, I look forward to meeting many of you at 2:00 P.M. this afternoon and updating the rest of you three months from now, so thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time.