Mr. David Ingram reports
GOEASY LTD. REPORTS RECORD RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2018 AND PROVIDES UPDATED OUTLOOK
goeasy Ltd. has released its results for the second quarter ended June 30, 2018, and provided updated targets for future periods.
Results for the second quarter ended June 30, 2018
Revenue for the second quarter of 2018 increased to $123.3-million, up 26.4 per cent from $97.5-million in the second quarter of 2017. The growth was driven by the expansion of the easyfinancial consumer loans receivable portfolio, which grew a record $84.8-million in the quarter, compared with $38.3-million in the second quarter of 2017, an increase of 121.7 per cent. The loan portfolio reached $686.6-million by the quarter-end, up 61.4 per cent from June 30, 2017.
"Our strategy of providing everyday Canadian consumers access to the funds they need, while helping put them on a path back to prime rates and better financial outcomes, continues to resonate," said David Ingram, goeasy's chief executive officer. "During the quarter, we generated record results across several key performance indicators, including loan applications, net customer growth and loan originations. This performance was a direct result of a new multimedia marketing campaign, which drove a 30-per-cent increase in Web traffic and a 54-per-cent increase in total loan applications compared to the prior year. The elevated consumer demand for our loan products was accompanied by a 23-per-cent increase in the size of the average unsecured loan, which collectively produced a record $233.8-million in loan originations, an increase of 67.7 per cent compared with the second quarter of 2017. The evolving product mix, combined with our ongoing investments in credit analytics and collections, also produced an improvement in the credit performance of the portfolio, as the net charge-off rate declined to 12.4 per cent in the second quarter from 14.8 per cent in the prior year."
Operating income for the three-month period ended June 30, 2018, was $26.8-million, an increase of $8.2-million or 44.1 per cent compared with the second quarter of 2017. During the first quarter of 2018, the company adopted IFRS 9, Financial Instruments (international financial reporting standards), which increased the size of the provision for future credit losses that the company maintained on its balance sheet. This new accounting standard was adopted prospectively on Jan. 1, 2018, without the restatement of the prior-year comparative results. The increased size of the provision under IFRS 9 resulted in an additional $2.5-million in non-cash bad debt expense in the current quarter than would have resulted under the previous accounting standard. The significant increase in loan book growth in the quarter resulted in an additional $2.7-million in bad debt expense compared with the second quarter of 2017.
Net income for the quarter was a record $11.8-million, up $2.9-million or 33.0 per cent from $8.9-million in the second quarter of 2017. Diluted earnings per share for the quarter were a record 82 cents, an increase of 19 cents or 30.2 per cent from 63 cents in the second quarter of 2017. The company estimates that net income and diluted earnings per share for the second quarter of 2017 would have been $7.3-million and 52 cents, respectively, if the allowance for credit losses was calculated on the same IFRS 9 basis as the current quarter. On this basis, net income increased 62.6 per cent and diluted earnings per share increased 57.7 per cent.
Secured access to growth capital
The company was also able to secure additional growth capital at a significantly reduced cost. The size of the company's senior secured revolving credit facility, which is provided by a syndicate of banks, was increased from $110-million to $174.5-million. In addition, a number of related covenants were adjusted to make them less restrictive and to provide for greater operational flexibility including an increase in the maximum leverage ratio from 2.50 to 3.25. The North American capital markets also showed their confidence in the company's business model and its strategy as the company issued $150-million (U.S.) in unsecured notes at a 105 premium to par resulting in a yield to maturity of 6.17 per cent, a significant reduction in the company's cost of borrowing. Taken together, these activities provided the company with an additional $268-million in capital, which is expected to fuel the growth of its easyfinancial business through the second quarter of 2020.
"It is clear that investors are confident in our growth and business model as evidenced by our ability to raise capital at increasingly lower rates," said Mr. Ingram. "With the highest revenue and portfolio growth of our benchmarked companies in North America, we continue to be optimistic about the future."
Other highlights for the second quarter of 2018 include the following.
easyfinancial:
- Revenue increased by 41.4 per cent to $89.0-million from $63.0-million in the second quarter of 2017;
- Record net customer growth of 9,290, up from 8,116 in the second quarter of 2017, an increase of 14.5 per cent;
-
Average loan book per branch of $2.5-million, up from $1.7-million in the second quarter of 2017, an increase of 47 per cent;
- Delinquency rates on the final Saturday of the quarter reduced to a record low of 4.2 per cent from 4.8 per cent on the final Saturday of the second quarter of 2017;
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Operating margin for the second quarter of 2018 increased to 37.5 per cent from 33.9 per cent in the second quarter of 2017.
easyhome:
- Same-store revenue increased 6.9 per cent;
- Consumer lending portfolio within easyhome leasing stores of $12.8-million, up from $1.1-million in the second quarter of 2017;
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Revenue of $1.6-million from consumer lending, versus $100,000 in the second quarter of 2017;
- Operating income of $5.1-million in the quarter compared with $5.3-million in the second quarter of 2017.
Over all:
- 33rd consecutive quarter of same-store sales growth;
- 68 consecutive quarters of positive net income;
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Operating margin was 21.7 per cent for the quarter, up from 19.1 per cent in the second quarter of 2017;
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The company's return on equity was 20.9 per cent in the current quarter, versus 17.1 per cent in the second quarter of 2017;
- Net external debt to total capitalization of 67 per cent as at June 30, 2018, within the company's optimal leverage ratio of 70 per cent;
- Employee retention year to date has improved by 14 per cent over 2017.
Six-month results
For the first six months of 2018, goeasy achieved revenues of $238.1-million, up 24.2 per cent compared with $191.8-million in the same period of 2017. Operating income for the period was $51.7-million compared with $39.0-million in the first six months of 2017, an increase of $12.7-million or 32.6 per cent. Net income for the first six months of 2018 was $22.9-million, and diluted earnings per share were $1.58 compared with $19.2-million or $1.36 per share, increases of 19.5 per cent and 16.2 per cent, respectively.
Revised outlook
"Given the record growth in the first half of 2018, the strengthening of our balance sheet and our plans for the future, we are providing an updated and more ambitious three-year outlook. We now expect the high end of our loan book in 2018 to be 17 per cent higher than our original targets and the high end of our loan book in 2019 of $1.2-billion to be 26 per cent higher than the $950-million target previously set out," said Mr. Ingram. "These growth targets will be achieved by continuing to build our brand awareness in Canada and executing on our strategic initiatives. We will continue to meet our customers' needs through risk-adjusted pricing, expansion in the Quebec market and growth of our secured lending product. The growth will be further aided by several new initiatives that we are bringing to market in the second half of 2018, including investments in our on-line digital platforms and continued efforts to build out our laddered suite of products that help graduate our customers up the credit spectrum, all of which are contributing to our confidence in the future."
2018 2019 2020
Gross consumer loans
receivable portfolio
at year-end $825-million to $875-million $1.1-billion to $1.2-billion $1.3-billion to $1.4-billion
easyfinancial total revenue
yield 54% to 56% 49% to 51 46% to 48%
New easyfinancial locations 20 to 30 10 to 20 10 to 20
Net charge-offs as a
percentage of average gross
consumer loans receivable 12% to 14% 11.5% to 13.5% 11% to 13%
easyfinancial operating margin 38% to 40% 42% to 44% 44% to 46%
Total revenue growth 26% to 28% 20% to 22% 14% to 16%
Return on equity 21% plus 24% plus 26% plus
Dividend
The board of directors has approved a quarterly dividend of 22.5 cents per share, payable on Oct. 12, 2018, to the holders of common shares of record as at the close of business on Sept. 28, 2018.
About goeasy
Ltd.
goeasy
is a leading full-service provider of goods and alternative financial services, providing everyday Canadians with a chance for a better tomorrow, today. goeasy
serves its customers through two key operating divisions,
easyfinancial
and
easyhome.
easyfinancial
is a non-prime consumer lender that bridges the gap between traditional financial institutions and costly payday lenders. easyhome
is Canada's largest lease-to-own company, offering brand-name household furniture, appliances and electronics to consumers under weekly or monthly leasing agreements through both corporate and franchise stores.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of Canadian dollars, except earnings per share)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2018 2017 2018 2017
Revenue
Interest income $ 60,775 $ 40,781 $114,566 $ 78,915
Lease revenue 30,133 31,525 60,802 63,435
Commissions earned 29,188 21,936 56,127 42,909
Charges and fees 3,247 3,304 6,625 6,532
123,343 97,546 238,120 191,791
Expenses before depreciation and amortization
Salaries and benefits 29,715 25,793 58,190 49,615
Stock-based compensation 1,735 1,266 3,354 2,332
Advertising and promotion 5,661 5,295 9,590 8,727
Bad debts 27,549 17,173 51,927 31,290
Occupancy 8,668 8,304 17,230 16,616
Other expenses 10,320 8,317 19,823 18,152
83,648 66,148 160,114 126,732
Depreciation and amortization
Depreciation of lease assets 10,051 10,220 20,053 20,942
Depreciation of property and equipment 1,391 1,330 3,009 2,654
Amortization of intangible assets 1,451 1,242 3,218 2,444
12,893 12,792 26,280 26,040
Total operating expenses 96,541 78,940 186,394 152,772
Operating income 26,802 18,606 51,726 39,019
Finance costs 10,425 6,578 20,095 12,403
Income before income taxes 16,377 12,028 31,631 26,616
Income tax expense (recovery)
Current 6,413 (1,310) 11,335 4,137
Deferred (1,857) 4,448 (2,599) 3,319
4,556 3,138 8,736 7,456
Net income 11,821 8,890 22,895 19,160
Basic earnings per share $ 0.86 $ 0.66 $ 1.67 $ 1.42
Diluted earnings per share $ 0.82 $ 0.63 $ 1.58 $ 1.36
We seek Safe Harbor.
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