It's a pleasure to introduce our next speaker, Mr. Patrick Ens, Chief Executive Officer of goeasy Limited. Hey, how are you doing?
Good. How are you?
Good. All right. Well, listen, it's been a challenging time, I think, for goeasy, but clearly the company's moving from crisis mode towards a pathway to normalization. Maybe before we get into progress and the path forward, we can start off with a bit of a recap into what led to the current situation.
Sure. Yeah. Maybe just taking a step back and making sure everyone's familiar with the goeasy story. We're one of Canada's leading non-prime lenders operating in consumer credit. I joined the company about two years ago at this point as president of the easyfinancial and easyhome businesses, which were the direct-to-consumer lending and leasing arms. Then we have a third business as well, LendCare, which is a point-of-sale merchant originations business that we acquired in 2021. I was fortunate enough to have the opportunity to become CEO of the company in January.
First up on the list of things to do was to address some challenges in our point-of-sale business, our LendCare business, where essentially the originations were not performing to expectations, which was going to lead to a significant increase in credit losses and a write-down associated with some of those balances and the goodwill attached to the portfolio. That had a series of kind of knock-on consequences that we were working through. Underpinning that was some accelerated growth in our acquired LendCare business, where ultimately the infrastructure supporting that growth wasn't able to support the growth as it occurred and, as a result, the performance of the loans that we had didn't meet our expectations.
Okay. I guess kind of on reflection, what are the high-level learnings from this, and how are those really kind of informing changes to operations, to governance, and corporate strategy?
Yeah. We took very decisive action upon coming to the conclusion that the originations through our LendCare business weren't performing and were not likely to perform at the level of returns required on the portfolio. One of the first things we did was essentially take originations down, not all the way to zero, but very close to zero and pull back on credit in that space, which really formed the basis of the action plan moving forward. One of the things that we've been internalizing, I guess, through this process is just to ensure that when we're doing our lending, it is supported by the data that's behind it. Ultimately, our role as a company is to take the capital provided to us and lend that out and return more than it costs to get it back.
It was a pretty simple choice in that case to say, if we take a step back and we look at the performance of our LendCare portfolio versus our direct-to-consumer business, we should really be putting way more of our capital behind the direct-to-consumer business, where we see very strong returns and really shutting down the growth engine on that LendCare book.
Okay. You launched a six-point action plan, and we are now six months in. Can you give us a bit of a progress update on that plan?
Yeah. It has been a very productive first eight months of the year. We did have six points. The first two points were really relating to shifting the mix of our portfolio. As we were decreasing the mix of our LendCare loans, we were increasing the mix of our easyfinancial loans. At a point in time, as an example, if you look at where we were at the end of Q2 2025, we had about 54% of our loan book was attached to our direct-to-consumer business. That is up to 60% as of the end of Q2 this year. That is going to continue trending in favor of the direct-to-consumer business as we are going forward. Another major facet of our action plan was shoring up the balance sheet.
We made the difficult decision to pause dividends at the start of this year, also to no longer pursue share buybacks for a period of time. And we have been able to bring down our leverage. We measure that on a debt to adjusted tangible equity basis. A year ago, that was hovering around 4x. It went up into the mid-5x, and we moved down to 4.95x at the end of Q2. We are continuing to move forward on that. And then thirdly, we have been really invested in the infrastructure of the business, and we have started with the team. We have made a number of important executive hires in our credit risk and data space, in our legal space, in operations, in the audit function as well.
Okay. Can you share with us some of the key priorities for the next 12 months?
We remain laser-focused on a few things here. One is driving improved credit performance. Ultimately, that is the biggest point of leverage in driving financial performance for the business. We measure that on a percentage of loans that are charged off in a period, and we annualize that. We started the year at about 17.8%, came down to 16.7% in Q2. We guided to 14.5%-16% for Q3, and we had set overall for the year to be in the mid-teens space. We're very much focused on driving that trajectory down. We're doing that through a concerted effort on the collections of our LendCare business, on shifting the mix from LendCare to easyfinancial, which is performing better, and then just staying very disciplined on the operational focus.
Driving down credit performance continuing to shift the mix in favor of our direct-to-consumer easyfinancial business, and then continuing to work down our leverage ratios by improving the balance sheet, both on the debt and equity side.
Okay. It's certainly been a unique situation since you took the helm of goeasy on January 1st. But how would you gauge success over your first year as CEO?
I joined the company two years ago because frankly, I saw a massive market opportunity in Canada in the non-prime consumer credit space. I strongly believe it continues to be less well-served relative to the demand from consumers out there. I think the company plays a really important role in the lives of Canadians with non-prime credit scores. It's very difficult to go through your life without access to credit. And I felt like goeasy was positioned to win in this marketplace. I still feel that way, and that's why I jumped into the CEO seat when I had that opportunity. Of course, where we're at today, there's a lot more foundational work occurring than maybe I had projected the day that I joined the organization. But it's an honor and a privilege to do that.
As we are moving through the year, as we continue to see stronger performance from a credit perspective, as we continue to see stronger financial performance from the shift towards the direct-to-consumer business, as we continue to see the team get stronger with additional talent that is really fired up and ready to deliver on the mission, I get a lot of energy from that, and I think that will be a very successful first year on the job.
Okay. Let us dig a little bit deeper into subprime lending conditions and some of the credit performance. I think in August you updated some of the near-term outlook and kind of altered that planned trajectory of loan growth with a bit more cautious stance. Really my question here is what drove that decision and how are subprime lending conditions evolving in Canada?
Yeah. Maybe just taking a step back for a second. I thought it would be hard to top my first decade in consumer credit in terms of how interesting it has been. But the 2020s, my first decade was in the, I guess, the aughts. Going through kind of the boom cycle and the recession that followed in 2008 and 2009. But honestly, if you look at 2020 and beyond, it has just been one of the most interesting consumer credit environments. Nobody in March of 2020 would have said we are going to get the best consumer credit performance you have ever seen over the next two years. But ultimately that is what happened.
Then 2022, 2023, it was a bit of a period of returning to normal, so to speak, which ultimately led to some outsized inflation and then what has been a two-year, up until July, rising trend on the unemployment front, right? Rising unemployment, inflation in core goods and services tends to be challenging for the non-prime consumer, frankly. I think we have seen that to some degree show up in our own portfolio data, and we have also seen that in the macroeconomic data that we look at produced by the credit bureaus for us. I think for the non-prime Canadian, it has been a challenging run over the last couple of years. Then we get to July and August and we start to see better reads on unemployment, not better reads necessary on inflation.
But at the same time, you have maybe as much trade uncertainty as you've had the whole time. So it's difficult to predict where that's going to go. As a lender in the space, really the best thing you can do is prepare for a multitude of outcomes and make sure that your underwriting is resilient to a multitude of outcomes.
Okay. And I guess specifically for the non-prime sector then, where do you think we are on the credit cycle today?
Well, I just wonder if this credit cycle is going to look different than every preceding credit cycle. So it's difficult to put yourself exactly on a curve. It has been a gradual worsening over the last couple of years, frankly, and we've seen that in the unemployment data. We've seen that in the inflation data. You can see that in the Canadian consumer bankruptcy and consumer proposal data, where there's been an increase from 2024- 2025 and again from 2025- 2026. Although I'd highlight the July data came out today was the first month down year-on-year. So maybe there's an interesting turn happening there. I think we're going to be living in a space where there's a fair amount of uncertainty and volatility here for a period of time to come.
Okay. And how much incremental risk do you see from the escalation of the U.S.-Canada trade war?
For goeasy, the most important thing is the health of the Canadian consumer, which is going to be attached primarily to, again, how unemployment and inflation trend. It's just going to depend from our perspective on how much the labor market feels the impact of any sort of trade uncertainty, which if you use recent history as a barometer, there have been some impacts, but certainly not as significant of impacts as, say, the early onset of COVID or back to 2008, 2009.
Okay. I think you delivered some surprise return to profitability in the second quarter. Should investors kind of read into that as you've turned the corner?
Q2 is a quarter that we executed exactly as we said we were going to execute it. The objective heading into Q2 was to leverage it as a bit of a reset quarter on our balance sheet. We had made the decision heading into Q2 that we would pull back on lending across our entire portfolio. On LendCare, our point-of-sale merchant origination channels through LendCare. That was because the returns weren't there. On easyfinancial, it had nothing to do with the returns available and everything to do with wanting to retain cash for the purposes of paying down debt. We paid down close to CAD 400 million in debt in Q2. We generated almost CAD 600 million in cash before originations, and that's how we were able to drive down that material improvement on leverage in the portfolio.
We also hit the midpoint of our guidance on losses and the loan book, and maybe a little bit better on yield. From our perspective, Q2 was a quarter where we were able to execute on exactly the plan that we had laid out and really demonstrated how powerful the cash generation of the portfolio can be and how quickly we can, when needed, de-leverage the book.
Okay. And I guess with the addition of Mark Snyder as Chief Credit Risk and Data Officer, should investors expect changes to underwriting, like model governance or portfolio management?
Well, really excited to have Mark join. Mark is someone who's got close to 25 years. He spent his entire career in consumer credit. He originally worked in the U.S. business of Capital One before joining the Canadian business of Capital One, where I know him from. He then moved on to PC Financial and EQ Bank. He is being brought in because of his ability to optimize, frankly. He excels on the data modeling, analytics, data science side. His job is not simply to reduce risk, but his job is to help us maximize risk-adjusted margin through more sophisticated approaches to underwriting. That's really his mandate. There's a lot of opportunity and a lot of leverage in getting that right, and I'm just really excited to have Mark on board.
Excellent. Listen, as LendCare continues to run off, how are you deciding what role, if any, merchant-originated lending should play in goeasy's long-term strategy? As a bit of a follow-on, what would that business need to demonstrate to continue to receiving capital and management attention?
goeasy is a tough business to fight for capital inside because the profitability of the direct-to-consumer business is so strong. It's not an easy competitive league table internally. Listen, long term, I think the merchant point-of-sale channels play an important role in the ecosystem for lending and borrowing from non-prime Canadians. As a company, if we're building expertise as we are in underwriting, in modeling, in collections, in servicing, there's no reason to think that won't be extensible with some additional capabilities to point-of-sale channels. I think open to the long-term opportunity there. Near term, the goal is very clear. We have healthy return profiles on the originations in our direct-to-consumer business, and we have less attractive return opportunities on the point-of-sale business.
We are putting our capital where we see the stronger returns as we revisit and review all of the past practices and learnings there to determine what the go-forward strategy should be.
Okay. Going to change gears a little bit, and we will talk kind of balance sheet and funding. What are the key milestones investors should be watching, I guess, regarding warehouse facility renewals, securitization capacity, and overall, I will call it funding flexibility over the next 12 months?
Yes, we have two primary sources of debt capital today in addition to our equity capital. We have our high-yield bonds that form the majority of the debt borrowing that we do. We have a securitization warehouse from a banking syndicate that we are leveraging today, and then we have a revolver from a banking syndicate as well. Currently, we are not borrowing against our revolver. The immediate next step on our horizon is working through the renewal of the bank warehouse securitization facility that comes due at the end of October. We are in active process on that. The next after that would be the bank revolver facility, which comes due in July of next year. At this point in time, we have nothing borrowed against that facility, but it is important to have the flexibility.
Our first high-yield bond renewal is not for another 18 months, essentially after that. Our focus in the short term is to continue to improve the financial performance of the portfolio so that we are generating capital that we can use to de-leverage, which will ultimately lead to better borrowing costs as we are going back to the market over the long term to grow the portfolio.
Okay. What is the target leverage ratio through cycle? How quickly do you think you can get the debt to adjusted tangible equity back towards historical averages?
We've been evaluating exactly that question. Up until Q3, Q4 of last year, it was below four debt to adjusted tangible equity. We're currently at 4.95. Generally speaking, we believe the destination is lower and probably significantly lower than where we're at today. We've stopped a little bit short of saying exactly where we plan on landing that plane. We think over the foreseeable future, we'll continue to be working that down. Then we'll reevaluate as we continue to get closer to more historical levels and see how cost of borrowing is responding to our leverage as it improves.
Okay. Well, I think again, while 2026, I think is likely to be viewed as a transitional year with a focus on stabilization. I want to look forward another 12 to 24 months. What are the operational kind of milestones or kind of macro conditions you want to see before re-accelerating some of the loan growth?
Yeah, just to clarify a really important point. On our direct-to-consumer business, the easyfinancial direct-to-consumer business, we are back into growth mode. We grew that portfolio in the 15%-20% range last year. That portfolio was about CAD 3 billion in assets at the end of Q2, so we're continuing to focus on the growth of that portfolio. We will moderate or accelerate the growth of that portfolio based on the performance of the loans as they continue to season over the quarters and the quality of the applicants that we're able to drive in through the door. But we're taking a very pragmatic view to leaning into growth that we believe has the right risk-return profile. That is today being offset by a decline in our LendCare portfolio, and we expect that portfolio to continue to decline for the foreseeable future.
As and when, until we are able to see a world where we have built the capabilities to drive similarly attractive risk-return economics to what we would see on our direct-to-consumer business, at which point that would then warrant leaning further into those channels as well.
Okay. What do you see as the greatest growth opportunities for goeasy?
Well, if we are talking about earnings growth here, which I think is the really important part of the story. Part of the reason why I was really excited to bring Mark Snyder on as our Chief Credit Risk & Data Officer is that I just believe one of the greatest sources of leverage we have as a business is better modeling as it pertains to our through-the-door risk strategies, right? So adding 1%, 2%, 3% to risk-adjusted margin for any of the analysts who are running their models knows that that is a night and day difference between how you would evaluate the returns to the business. So I think that is a very big one. Beyond that, we have a couple of pretty significant opportunities. So one is how we are building out the servicing model for our portfolio.
Today we have a 300+ strong kind of physical footprint branch network that has been built out over the last decade or so. We are now into the phase where we are trying to extract as much value from that and scale for the business. How do we grow the direct-to-consumer business without having to grow the fixed costs behind that business? It is the perfect time to be addressing that problem, just given how much the technology landscape has evolved in the last two, three, even months, but years alone. So we will be looking at a lot of opportunities that will streamline and make our processes more efficient so that maybe it does not necessarily reduce costs today, but over time, as we are growing that book, costs do not necessarily need to rise at the same rate.
Whereas I think the historical model has had our revenue and cost growth a little more tightly linked.
Okay. And where do you think goeasy's got probably the strongest sustainable competitive advantage?
Consumer credit in the non-prime space is a difficult business, right? There are not a lot of participants in the business because it is not easy. When you look at what we have in our easyfinancial business, we have one of the best-known, highest considered lenders for non-prime Canadians. We've got two decades of experience in credit and underwriting in this space that we can leverage to further enhance and improve our credit and underwriting. And we've achieved a certain degree of scale with our loan book, with our customer base, with our branch footprint, that gives us the opportunity to operate at a lower overall efficiency rate than any sort of new entrant might experience coming into this.
I still strongly believe the reason why I joined the company that someone is going to emerge to play the leading role in the non-prime consumer credit space here in Canada is going to be goeasy. We just have a couple of really big head starts that I think are difficult to replicate. And the short term has all been about clearing some of the brush out of the way so that that underlying really healthy direct-to-consumer business can shine.
Okay. Historically, goeasy, I think is focused on target ROE above 20%. Is ROE still the right measure for performance in the near to midterm, or are you more focused on return on assets or some other KPI?
ROE is the destination, of course. Between here and ROE, our focus really has been on credit loss rates and risk-adjusted margins, revenue yields minus credit loss rates. Because there's a certain level that we need to get to so that at the end of that funnel, we'll have strong ROEs. Ultimately, at the end of the day, ROE is our measure of whether or not we're leveraging shareholder capital to turn it into more shareholder capital. That's our ambition. That's our goal. We know that we need to operate at probably a higher return target than your traditional financial institution to be attractive to capital suppliers. Yeah, we're still working towards that and on the right path.
Okay. How do you think about capital allocation at this point? Share buybacks, debt buybacks, dividends, et cetera.
Yeah. Short term, it's a pretty clear strategy for us, right? As we're winding down the LendCare receivables, we're simply replacing them with easyfinancial receivables. Being able to shift from unprofitable assets to highly profitable assets has a significant impact on the overall earnings generation of the portfolio. We're doing that. We're largely doing that within a fixed kind of capital structure at this point. Because we're operating at a level of leverage that's higher than what we believe our destination will be, until that day comes that we get that back down to a normal level, something like share buybacks or dividends aren't really an option. That's why the management team is so focused on driving that earnings generation to bring down overall leverage ratios so that we're able to have more avenues to reward our shareholders for their investment.
Okay. I think earlier this year, I think you stated into 2028 and beyond, you expect to deliver discipline, high performance. Does that timeline still hold? Should investors kind of read that as a return to 20% ROE?
We did. Not to be too evasive, but we stopped short of declaring a specific ROE target by a specific day. All that said, the plan, as we stated we would execute, I think we hit all of our marks in Q2. That was step one in the process. Moving into Q3, we feel really good about the direction of travel, and we're pleased with the guidance we gave on how much more credit losses are anticipated to step down. Based on where we sit today versus where we were when we presented that slide, feel very good about our progress against the trajectory that we had laid out at a high level for the organization.
Okay. Just as the time's kind of running down and closing thoughts, obviously there's still lots of work to be done. But you've made solid progress, and the stock remains, I think, heavily discounted relative to some historical perspective. From an investor standpoint, what makes now the compelling time to own goeasy stock?
Well, you've got to believe that there's a strong market opportunity, right? That there's going to be a need from Canadians with non-prime credit scores to access credit. You have to continue to believe that that market will be won by someone who has the right distribution network, the right brand and loyalty from customers, and the right credit and underwriting capabilities. You don't get to build those overnight. Our company's been building those over the last two decades, which is why I think we're incredibly well-positioned to take on that challenge. If you believe those factors, then I think there's a compelling opportunity for a goeasy investment.
Excellent. Well, Patrick, it is a great conversation. I would like to thank you again personally for taking the time to meet with us and meet with other investors today. And again, the goeasy organization for your continued support, so thank you.
Thank you, Phil. Thank you for having me.
Excellent. I am going to pass things back to my colleague Mike, who will be hosting Sagicor for this afternoon's final speaker.