Mr. Jason Mullins reports

GOEASY LTD. REPORTS RECORD RESULTS FOR THE FOURTH QUARTER AND ANNOUNCES ENHANCEMENTS TO CREDIT FACILITY

goeasy Ltd. has released its results for the fourth quarter ended Dec. 31, 2018. The company also announced that on Feb. 12, 2019, it completed an amendment to its pre-existing senior secured revolving credit facility to increase the amount available to be borrowed thereunder, extend the maturity date and reduce the cost of borrowing. The company has also declared a 38-per-cent increase in its annual dividend from 90 cents to $1.24 per share.

Fourth quarter results

Revenue for the fourth quarter of 2018 increased to $138-million, representing growth of 29 per cent over the same period in 2017. The increase was driven by the growth of the easyfinancial consumer loan portfolio, which reached $834-million, up 58 per cent from $527-million as at Dec. 31, 2017.

During the quarter, the company generated a record $265-million of loan originations, up 50 per cent from the $176-million in the fourth quarter of 2017. The increased originations led to growth in the loan portfolio of $84.2-million, up 57 per cent from the $53.5-million in the same period of 2017. The net charge-off rate in the quarter was in line with expectations at 13.1 per cent, up slightly from 12.8 per cent in the fourth quarter of 2017 and at the midpoint of the company's guided range of 12 per cent to 14 per cent for 2018.

Operating income grew to $35.1-million, up 44 per cent from $24.5-million in the fourth quarter of 2017, while operating margin expanded to a record 25.4 per cent, up from 22.8 per cent.

Net income for the quarter was $15.9-million, up 39.5 per cent from an adjusted $11.4-million in 2017, which resulted in diluted earnings per share of $1.02, up 29 per cent from an adjusted 79 cents in 2017. The 2017 results are adjusted to remove the impact of a one-time $8.2-million before-tax refinancing charge occurring in the fourth quarter of 2017. Furthermore, in 2018, the company adopted IFRS 9 (international financial reporting standard), which served to increase the size of the provision for future credit losses. The company estimates that adjusted net income and adjusted diluted earnings per share for the fourth quarter of 2017 would have been $9.0-million and 64 cents, respectively, if the allowance for credit losses was calculated on the same IFRS 9 basis as the current quarter (and excluding the impact of the refinancing charge). On this basis, adjusted net income for the fourth quarter of 2018 increased 76.2 per cent and adjusted diluted earnings per share increased 59.4 per cent.

"We had a strong and productive fourth quarter, rounding out another record year for the company," said Jason Mullins, goeasy's president and chief executive officer. "Our brand awareness reached an all-time high of 84 per cent, which leads the industry for non-prime lenders. Loan application volume and loan originations in the quarter elevated to record levels, with more than 62 per cent of all advances funded to new customers. The combination of strong revenue growth, increased scale and stable credit performance resulted in the easyfinancial operating margin expanding to 40 per cent, the highest level of the year and at the high end of our guided range." Mr. Mullins continued: "I am also proud that for the full year we achieved all our stated targets, while producing record revenue and earnings. Diluted earnings per share for the full year was $3.56, an increase of 45 per cent versus the $2.46 in 2017, after adjusting for the one-time refinancing charge and the impact of IFRS 9. I want to thank the entire goeasy team for the passion they demonstrate daily to take great care of our customers and congratulate them on an outstanding year."

Other key quarterly highlights

easyfinancial:

• Total application volume increased 26 per cent;
• Revenue grew to $103-million, up 41 per cent from $73-million;
• Secured loan portfolio grew to $52.9-million, up from $8.5-million;
• 62.5 per cent of net loan advances were issued in the quarter to new customers, up from 59 per cent;
• Record aided brand awareness of 84 per cent, up 10 per cent and highest in the industry;
• Average loan book per branch improved to $2.9-million from $2.0-million, an increase of 45 per cent;
• The delinquency rate on the final Saturday of the quarter was 5.2 per cent, consistent with the 5.3 per cent reported in the same period of 2017.

easyhome:

• Same-store revenue increased 7.1 per cent, compared with 0.1 per cent;
• Consumer lending portfolio within easyhome leasing stores increased to $21.8-million from $5.3-million;
• Revenue of $2.9-million from consumer lending, versus $600,000;
• Operating margin of 14.8 per cent for the quarter, an increase from the 14.3 per cent reported in 2017;
• Operating income of $5.2-million in the quarter compared with $4.9-million.

Over all:

• 35th consecutive quarter of same-store sales growth;
• 70th consecutive quarter of positive net income;
• Total same-store revenue growth of 28.5 per cent, up from 20 per cent;
• Compound annual revenue growth of 13 per cent and net income growth of 29 per cent since 2001;
• Return on equity of 23 per cent in the quarter, up from an adjusted 20.1 per cent;
• Net external debt to net capitalization of 66 per cent as at Dec. 31, 2018, below the company's target leverage ratio of 70 per cent;
• Repurchased 398,452 shares in the quarter at a weighted average price of $37.61 under the company's normal course issuer bid.

Full-year results

For the full year, the company financed $923-million in loan originations, up 59 per cent from the $579-million in 2017. The consumer loan portfolio grew $307-million, up 97 per cent from $156-million in 2017. The growth in the consumer loan portfolio produced record revenues of $506.1-million, up 26 per cent compared with $401.7-million in 2017. Operating income for 2018 was $119.7-million, up 37 per cent from $87.4-million in 2017.

Net income for the full year was $53.1-million, up 26 per cent from an adjusted $42.2-million in 2017, which resulted in diluted earnings per share of $3.56, up 20 per cent from an adjusted $2.97 in 2017. The 2017 results are adjusted to reflect removing a one-time $8.2-million before-tax charge associated with the refinancing completed on Nov. 1, 2017. Furthermore, in 2018, the company adopted IFRS 9, which served to increase the size of the provision for future credit losses. The company estimates that net income and diluted earnings per share for the full year of 2017 would have been $34.6-million and $2.46, respectively, if the allowance for credit losses was calculated on the same IFRS 9 basis as the current year. On this basis, net income for the full year of 2018 increased 53.4 per cent and diluted earnings per share increased 44.7 per cent.

Due to the strong growth experienced by the company, it increased its loan book, revenue growth and return on equity targets midyear. The company achieved all its original and revised targets for 2018 as shown in the associated table.

                                                    2018 original targets          2018 revised targets      2018 actual

Gross loan receivable portfolio at year-end  $700-million to $750-million  $825-million to $875-million   $833.8-million
easyfinancial total revenue yield                              54% to 56%                    54% to 56%            54.2%
New easyfinancial locations                                      20 to 30                      20 to 30               23
Net charge-offs as a percentage of 
average gross consumer loans receivable                        12% to 14%                    12% to 14%            12.7%
easyfinancial operating margin                                 38% to 40%                    38% to 40%            38.5%
Total revenue growth                                           16% to 18%                    26% to 28%            26.0%
Return on equity                                               18% to 20%                      21% plus           21.80%

Enhancements to credit facility

The company is pleased to announce that on Feb. 12, 2019, it completed an amendment to its pre-existing senior secured revolving credit facility provided by a syndicate of banks.

The amendment extended the maturity date to February, 2022 (from October, 2020), and increased the maximum principal amount available from $174.5-million (Canadian) to $189.5-million (Canadian).

The interest rate on advances from the credit facility was also reduced from the previous rate of Canadian Bankers' Acceptance (BA) rate plus 450 basis points or the lender's prime rate plus 350 basis points, to BA plus 325 basis points (reduced 125 basis points) or prime plus 200 basis points (reduced 150 basis points). Based on the current BA rate of approximately 2.0 per cent and prime rate of 3.95 per cent as of Feb. 12, 2019, the interest rate on the principal amount drawn would be 5.25 per cent or 5.95 per cent, at the option of the company.

The company intends to use borrowings under the credit facility to expand its consumer loan portfolio.

Balance sheet and liquidity

Total assets were $1.06-billion as at Dec. 31, 2018, an increase of 41 per cent from $749.6-million as at Dec. 31, 2017, driven by the growth in the consumer loan portfolio and the additional cash on hand to finance future growth.

Cash provided by operating activities before the net issuance of consumer loans receivable and purchase of lease assets was $232-million in 2018, an increase of 30 per cent from $179-million in 2017.

During the year, the company issued $150-million (U.S.) of notes payable due on Nov. 1, 2022, which generated net proceeds of $203-million (Canadian). The issuance of the notes payable was at a premium to par resulting in an attractive interest rate (excluding the effect of financing charges) of 6.17 per cent. On Oct. 10, 2018, the company also closed its offering of 920,000 common shares, at a price of $50.50 per common share, for aggregate net proceeds of $44.3-million.

Based on the cash on hand at the end of the year and the borrowing capacity under the company's amended revolving credit facility, the company had approximately $290-million in financing capacity, which will allow it to achieve its targets for the growth of its consumer loan portfolio through to the third quarter of 2020. The company has historically been able to obtain the additional financing required to finance the growth of its business at steadily lower costs of borrowing and increasing rates of leverage. However, the company also estimates that once its existing and available sources of capital are fully utilized, the company can continue to grow its loan portfolio by approximately $150-million per year solely from internal cash flows.

Future outlook

The company has provided updated three-year targets for 2019 through 2021. The periods of 2019 and 2020 remain unchanged.

The company continues to pursue a long-term strategy of expanding its product range and increasing the use of risk-based pricing offers, which increase the average loan size and extend the life of its customer relationships. As such, the total yield earned on its consumer loan portfolio will gradually decline, while net charge-off rates moderate and operating margins expand, resulting in an increase to return on equity.

                                          2019 targets                   2020 targets                  2021 targets 
Gross loan receivable 
portfolio at year-end     $1.1-billion to $1.2-billion   $1.3-billion to $1.4-billion  $1.5-billion to $1.7-billion
easyfinancial total 
revenue yield                               49% to 51%                     46% to 48%                    43% to 45%
New easyfinancial locations                   10 to 20                       10 to 20                      10 to 20
Net charge-offs as a percentage 
of average gross consumer loans 
receivable                              11.5% to 13.5%                     11% to 13%                    11% to 13%
easyfinancial operating margin              42% to 44%                     44% to 46%                    45% to 47%
Total revenue growth                        20% to 22%                      14 to 16%                    10% to 12%
Return on equity                              24% plus                       26% plus                      26% plus

"As we turn the page to 2019, we are well positioned to benefit from the scale and investments that we have made in the business," said Mr. Mullins. "While our corporate strategy remains unchanged, we will increase our focus on driving product and channel expansion and enhancing the customer experience. Key initiatives for 2019 will include reducing friction in the loan origination process, investing in our indirect lending and point-of-sale finance channel, and making transformative enhancements to our credit and analytics capabilities, including testing new data sources and machine learning algorithms. The enhancements to our credit facility, which included an increase to the borrowing capacity, a term extension and a substantial rate reduction, demonstrates the confidence of our lenders in our executing on our business strategy. With this amendment our average interest rate reduces from 7.18 per cent in the fourth quarter of 2018 to 6.76 per cent upon fully utilizing the revolver and provides even greater certainty of future liquidity. We remain confident in achieving our targets for 2019 and in surpassing the $1-billion milestone, while we aim to capture an even greater share of the $186-billion non-prime credit market in Canada."

Dividend

Based on its 2018 earnings and the company's confidence in its continued growth and access to capital going forward, the board of directors has approved an increase to the annual dividend from 90 cents per share to $1.24 per share, an increase of 38 per cent. Two thousand eighteen marks the fifth consecutive year of an increase in the dividend to shareholders. As such, the board of directors has approved a quarterly dividend of 31 cents per share, payable on April 12, 2019, to the holders of common shares of record as at the close of business on March 29, 2019.

About goeasy Ltd.

goeasy offers leasing and lending services in the alternative financial services market and provides everyday Canadians a path to a better tomorrow, today. goeasy serves its customers through two key operating divisions, easyfinancial and easyhome. easyfinancial is a non-prime consumer lending business that bridges the gap between traditional financial institutions and costly payday loans. 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.

                        CONSOLIDATED STATEMENTS OF INCOME
     (expressed in thousands of Canadian dollars, except earnings per share)  

                                          Three months ended            Years ended        
                                          Dec. 31,   Dec. 31,    Dec. 31,   Dec. 31,
                                             2018       2017        2018       2017
Revenue                                   
Interest income                          $ 73,834   $ 48,407    $255,997   $172,315     
Lease revenue                              29,437     30,784     119,745    125,111     
Commissions earned                         31,486     24,883     117,000     91,353      
Charges and fees                            3,403      3,170      13,449     12,949      
                                          138,160    107,244     506,191    401,728     
Expenses before depreciation and 
amortization                     
Salaries and benefits                      29,183     26,696     114,522    102,666     
Stock-based compensation                    1,755      1,527       6,836      5,623       
Advertising and promotion                   6,203      5,014      19,145     16,654      
Bad debts                                  34,186     18,807     118,980     67,826      
Occupancy                                   8,807      8,132      34,665     33,100      
Technology costs                            2,826      2,896      11,118     10,688      
Other expenses                              7,409      6,270      29,205     25,570      
                                           90,369     69,342     334,471    262,127     
Depreciation and amortization             
Depreciation of lease assets                9,944     10,240      40,088     41,221      
Depreciation of property and equipment      1,249      1,658       5,719      5,702       
Amortization of intangible assets           1,492      1,554       6,196      5,285       
                                           12,685     13,452      52,003     52,208      
Total operating expenses                  103,054     82,794     386,474    314,335     
Operating income                           35,106     24,450     119,717     87,393      
Finance costs                             
Interest expenses and amortization of 
deferred financing charges                 12,811      8,774      45,800     28,642      
Refinancing cost                                -      8,198           -      8,198       
                                           12,811     16,972      45,800     36,840    
Income before income taxes                 22,295      7,478      73,917     50,553      
Income tax expense (recovery)             
Current                                     3,753      1,779      24,354     10,854      
Deferred                                    2,655        333      (3,561)     3,567       
                                            6,408      2,112      20,793     14,421      
Net income                                 15,887      5,366      53,124     36,132      
Basic earnings per share                 $   1.07   $   0.39    $   3.78   $   2.67        
Diluted earnings per share               $   1.02   $   0.38    $   3.56   $   2.56        

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