Executives: David Yeilding - Senior Vice President of Finance David Ingram - President and Chief Executive Officer Steve Goertz - Chief Financial Officer Jason Appel - Senior Vice President and Chief Risk

Officer
Analysts: Stephen MacLeod - BMO Capital Markets Gary Ho - Desjardins Brenna Phelan - Raymond

James
Operator: Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference Mr.

David Yeilding, Senior Vice President of Finance. Sir, you may begin.

David Yeilding: Thank you, operator, and good morning, everyone. Thank you for joining us to discuss goeasy's results for the fourth quarter ended December 31. The news release which was issued yesterday, after the close of market is available on Globe Newswire and on the goeasy website.

Today, David Ingram, goeasy's President and CEO, will talk about the highlights of the fourth quarter and some of our achievements in the year. Following his remarks, Steve Goertz, the company's CFO, will discuss goeasy's financial results in greater detail. David Ingram will then provide some insights into our strategic initiatives before we open the lines for questions from investors. Jason Mullins, the company's Chief Operating Officer; and Jason Appel, the company's Chief Risk Officer, are also on the call. Before we begin, I'll 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 is finished. The operator will poll for questions and will provide instructions at the appropriate time. Business media are welcome to listen to this call and use management's comments in responses to questions and the coverage. However, we would ask that they not quote callers unless that individual has granted the 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 our MD&A. Now I'll turn the call over to David Ingram.

David Ingram: Good morning, everyone, and thank you for the participating in today's call. The fourth quarter and all of 2017 for that matter was strong for our company. We experienced a largest levels of originations and loan book growth, we reported record revenue earnings, we met all of our stated targets and we delivered on a number of strategic initiatives.

Finally, we recapitalized the balance sheet given up the new debt structure that will support our plan growth for many years to come. So all in all, 2017 was a transformational year for goeasy. Before Steve reviews the detailed financial performance, I want to touch on some of the highlights from the quarter and recap the key accomplishments from 2017. During the fourth quarter of 2017, our strategic initiatives and our investment in advertising and costumer acquisition drove record growth. We are now the most widely recognized non-prime lender in Canada with aided awareness levels of approximately 80%.

Originations top to 120 million, up 50% against the full quarter 2016 and delivering 53 million in logo growth more than double Q4 2016. Growth is an important to us both in service prudent risk management and responsible lending. Our continued investment in proprietary credit, underwriting and collection models along with the use of every broadening analytics tools coupled with the shift tools more credit worthy borrowers has delivered significant improvement in delinquency and charge-off rates. Annualized charge-off rates were 12.8% in the current quarter compared with 15.8% in the fourth quarter of 2016. The growth in revenues have easy financial and improved operating profits contributed to a significant increase in earnings.

Excluding the onetime charge related to our refinancing, diluted earnings per share for the quarter was $0.79 compared to $0.60 in the fourth quarter of 2016, up 32%. The increase in earnings was despite an incremental advertising spend of 2.1 million and an increase in the provision for future charge-offs due to the larger growth in the loan book of 1.6 million. These two items impacted earnings per share by an incremental $0.17. Overall 2017 was an outstanding and transformational year for goeasy. We continue to strong track record of sustainable growth.

Over the last 17 years, we have delivered compounded annual growth rate of 12% for revenue and 29% for net income. 2017 also continued the company's trend of 66 consecutive quarters of positive net income and 31 quarters of positive same store sales growth. Throughout 2017, our focus was on growth and leveraging the scale of easy financial. In additional to delivering strong financial results, we met or exceeded all of our stated targets. We targeted a closing loan book for 475 million to 500 million and we ended the year of 526 million.

We targeted total easy financial revenue yield of 60% to 62% and we achieved 61.2% for the full year. We targeted total revenue growth of 10% to 12% and we delivered revenue growth of 16.6%. And finally, we targeted easy financial operating margins of 35% and 37% and delivered 38.3%. In addition, we had a targeted return on equity of 18% to 19% and we delivered 19.8%. We also made significant progress on our strategic initiatives.

In particular, I want to focus on a few key achievements. First, we completed a recapitalization of our balance sheet. This recapitalization began with the closing of about 53 million convertible debt offering in June and finished with the concurrent closing about USD 325 million high yield debt offering and 110 million back revolver in early November. The new debt structure provided by the North American capital markets and a group of national and international banks provides us with capital structure to fund that growth for the foreseeable future. Additionally, our new credit facilities are less restrictive offer improved the bonds rates as well as lower cost of borrowing.

Second, we significantly expanded our easy financial footprint. We now offer loans from coast to coast having launched easy financial in Quebec in the second quarter of 2017. The growth in Quebec has exceeded our expectation and by year end we grew to 11 branches and a loan book totaling $23 million. We will continue to growth our Quebec business and expect to have approximately 40 branches within the next few years. The Quebec marketplace was large underserved by non-prime lenders and the opportunities available in this market will be a major contributor to our growth in the years to come.

Our ability to reach customers for our easy financial loan products was also improved in the second quarter of 2017 as we began to offer an unsecured lending products within almost 100 of that easy home leasing stores. This expansion allowed us to further increase the distribution footprint of our financial service products and leverage our existing real estate and employee base that understands our targeted customer demographic. All told, we now offer lending at over 300 locations across Canada as well as online and through mobile technology. Third, we broaden our product offering. We believe strongly and improving the lives of everyday Canadians by helping them on their journey back to lower cost prime financing.

A key element of this is a laded sweet of loan products which allow our customers to reduce their overall cost of borrowing and improve their credit profile. In 2016, we launched risk adjusted pricing with features interest rates starting at 29.99%. We offered these products to our best performing customers enabling them to reduce their cost of borrowing and increase the access to financing. After understanding performance of these risk adjusted loans, we significantly expanded the availability of our rate adjusted lending product in 2017. More recently we launched a secured loan product that is offered to qualifying homeowners who are looking for lower cost form of financing and who are able to pledge their residence as a security for the loan.

Loan sizes range from $15,000 to $25,000 with rate starting from 19.9% and turns up to ten years. All loans require periodic instalment payments of both principal and interest and have real estate pledged as a security for the loan. While the borrower's equity in the home is important lending decisions are based primarily on the credit worthiness and ability of the borrower to repay similar to how our unsecured loans work today. The secured nature of this product will reserve in lower loss rates and servicing cost which will allow us to reduce interest rate charge to the consumer. Risk adjusted pricing and secured lending have allowed qualifying customers to gain access to greater amounts of financing while reducing the cost of borrowing.

While we will see a moderation of yield, we believe that these products will feature longer customer tenure, reduced rates and charge-offs and lower relative cost to underwrite and administer. Thus we expect ultimately deliver a higher long term value for our customer. These lower rate products allows to reward customers to perform with the reduced cost of borrowing, greater access to funds and enable them to improve their financial feature. This strategy is the right thing for the consumer but it is also the right thing for our company. Now I'll turn the call over to Steve to review our financial result for the quarter in greater detail.

Steve Goertz: Thank you, David. The growth of easy financial contributed to improve financial results for the quarter. Total revenue was 108.6 million, an increase of 17.3 million or 18.9% compared with 91.3 million in the fourth quarter of 2016. As David indicated, the gross consumer loans receivable portfolio grew by 53 million in the quarter, reaching 526 million by quarters end. Revenue generated by easy financial was 74.6 million, up 33% against the fourth quarter of 2016.

The revenue increase was driven by the growth of the loan book for the reasons that David just detailed and was offset by a 270 basis point decline in total yield due to the increased penetration of risk adjusted interest loans to a more credit worth customer and a higher proportion of larger dollar loans which have reduced pricing on certain products as well as the launch of secured loans. The decline in yields has been offset by lower charge offering and lower relative cost to originate and manage the portfolio. The growth in the loan portfolio was aided by a continued investment in advertising. We continue to increase our investment in advertising and customer acquisition during the fourth quarter. Advertising spend dedicated easy financial increased by 1.6 million or 50% during the quarter, but this help to drive the 50% increase in originations in the quarter.

Although bad debt increased by 2.9 million when compared to the fourth quarter of 2016, this was due to an increased provision for future charge-offs driven the record levels of growth within our consumer loans receivable portfolio. Even though we did achieve record growth during the quarter and for the full year, this did not negatively impact the credit performance of our portfolio. During the fourth quarter, we did achieve an improvement in delinquency rates through strong collections activities and experienced lower bankruptcy losses. Charge-off as a percentage of the average consumer loans receivable declined from 15.8 in the fourth quarter of 2016 to 12.8 in the current quarter. The growth of the loan book and improvement in charge-off rates contributed to the strong operating margin recorded for easy financial this quarter.

The operating margin in the quarter was 38.4% compared with 34.9% in the fourth quarter of 2016. Turning to easy home, total revenue declined by 1.3 million when compared with the fourth quarter of 2016, primarily due to store sales to franchises or closures which occurred over the past 15 months. The operating income of easy home declined by 600,000 in the current quarter compared to the fourth quarter of 2016 for the same reason. Overall, normalized operating income was 24.5 million in the fourth quarter of 2017 which was up 42.4% against the operating income in the fourth quarter of 2016. Operating margin was 22.5% for the fourth quarter 2017, up from the 18.8% reported in the fourth quarter of 2016.

In order to effect the refinancing, the company incurred a onetime 8.2 refinancing charge in the quarter. We've excluded this onetime charge in a normalized adjusted figures for comparison purposes. Adjusted net income for the quarter excluding the effect of the refinancing charge was 11.4 million or $0.79 per share on a diluted basis. This compares with normalized net income of 8.3 million or $0.60 per share in the fourth quarter of 2016. On this normalized basis, net income and earnings per share increased by 36.6% and 31.7% respectively.

As David indicated, during the fourth quarter, we completed the recapitalization of our balance sheet by completing an offering of U.S. denominated senior unsecured notes. These notes are due November 2022 with a U.S. coupon rate of 7.875. Concurrent with this offering, we also entered into a currency swap agreement to fix the foreign currency exchange rate for the proceeds from the offering and for all required payments of principal and interest under these senior notes.

Effectively hedging the obligation under these to a principal amount of CAD 418.9 million and Canadian dollar interest rate of 7.84%. Concurrently, we entered into a new 110 million Canadian dollar senior secured revolving operating facility with a syndicate of banks that matures in 2020. Borrowings under this facility will bear interest at either the Canadian banker's acceptance rate plus 450 basis points or the lenders prime rate plus 350 basis points. We use the net proceeds from the sale of the notes to repay the existing term long and to pay fees and expenses related to the offering. We will use remainder of the proceeds from the offering and the funds available under the revolver to expand our consumer loans portfolio.

We anticipate this financing couple with a cash generated by our strong net income will allow us to growth our loan book into 2019. Our strong financial performance and balance sheet couple with our outlook for the future as given our board the confidence to increase our quarterly dividend by 25% to $22.5 per share. Finally, we will be adoption IFRS 9 starting in the first quarter of 2018. IFRS 9 changes the methodology for calculating the provision for future loan losses and will result in a larger provision. Our allowance for loan losses under the current methodology was 31.7 million or 6% when expressed as a percentage of the ending gross consumer loans receivable.

Based on the analysis performed to date, we estimate that implementing the requirements of IFRS 9 would result in an increase to this percentage between 300 and 360 basis points as of December 31, 2017 which we translate into a 15.8 to 19 million increase in the allowance and an after tax reduction to retail earnings between 11.5 and 13.8 million. The adoption of IFRS 9 on January 1st, 2018 has no impact on the cash flow generated by the company or on the net charge-off rate which is driven by our board's credit profile and repayment behavior. In adopting IFRS 9, we will continue our policy of charging off unsecured loan balances at 90 days and secured loans at 180 days. Ultimately, the cash flows used in and generated by the company's loan book will not be impacted by the adoption of IFRS 9. Goeasy like most lenders and including the banks will reporting the impact of the transition to IFRS 9 prospectively effective January 1st, 2018.

Given out higher rate of growth, the higher rates of provisioning will have the effect of reducing our earnings in the future as compared to the what otherwise would have been reported under previous accounting standards. The analytical work required to support to this transition to IFRS 9 is largely compete and is in the process of being finalized and approve. Now I'll turn the call back to David.

David Ingram: Thanks Steve. We believe that there will remain significant demand for non-prime lending in the Canadian marketplace and we estimate that the size of the Canadian market for non-prime consumer lending excluding mortgages is an excess of $165 billion.

This demand is currently being met by wide verity of industry participants who offer diverse products. Generally industry participants have tended to focus on a single product or single channel for distribution i.e. online of physical branches rather than providing consumers with a broad integrated suite of financial products and services. As a result, opportunities for growth exceeds for those lenders who are able to effectively offer multiple products span in the non-prime consumer credit spectrum across various distribution channels. Historically, the consumer demand for non-prime was satisfied by the consumer lending of several large international financial institutions.

Since 2009, many of those largest branch based participants in this market including Wells Fargo, HSBC Finance and City Financial have either closed or sold their operations due to changes in banking regulation related to risk adjusted capital requirements leaving easy financial as one of a small number of coast to coast non-prime lenders with stated growth aspirations. With that strong balance sheet, robust infrastructure, expanded product offering and coast to coast branch network, we are well positioned to capture much larger share for this $165 billion non-prime consumer credit market. We believe that the current market conditions are supported of growth opportunities. The macroeconomic indicators support strong credit performance in the coming quarters. Unemployment levels are at or near record lows.

The prices of oil and gas have moderated and inflation remains at reasonable levels. While we will continue to monitor these indicators and adjust that credit underwrite is necessary, the strong and stable macroeconomic environment gives us comfort and continuing with our growth plans. In short, we believe there is never been a better time for well managed organizations to build the enterprise here in Canada. In 2018, our focus will be on leveraging the investments we made to continue to grow both our loan book and earnings. We will continue to invest in our digital properties, we believe the online experience of that consumer is good but it could be better.

We will be upgrade in our existing digital loan application platform utilizing leading architecture which will further streamline the customer experience while significantly reducing the customer's effort to get a loan. The loan act will also capture key data that will allow us to rapidly test and learn what application methodology and format delivers the optimal customer experience and maximize the ratio of started apps to funded loans. We believe that this investment will increase the volume and ultimately drive increase conversion rates. Machine learning and artificial intelligence offers great promise for our business. We already employing many elements of machine learning in our credit dedication models.

We believe that we have only scratched the surface and then many more opportunities exist to employ artificial intelligence by improving and streamlining our business processes with the potential for significant improvements in efficiency and cost reduction. We will further explore the potential of this exciting and burgeoning technology in 2018. In addition, we see further opportunities to provide our customers with additional products that meet their financial needs and assist them on their journey back to lower cost financing. In 2018, we will research and explore other lending products that can be added to our product suite in 2019 and beyond. We've remained committed to building our full suite of products to ultimately serve all the borrowing needs of non-prime consumer.

The growth experience in the fourth quarter given us renewed confidence for the future. Given the strong growth of our core products, risk adjusted lending, Quebec expansion and our outlook for secured lending, we feel very confident in our stated targets. And as such, we are right on track to achieve our near term goal of a loan book that exceeds $1 billion by the end of 2020. As we close our 2017, I want to take this opportunity to thank our entire team for their commitment and hard work that allowed us to meet our goals. 2017 was a transformational year for goeasy that featured record growth of many strategic achievements that position us for that long term success.

In some ways being the first Canadian non-prime instalment lender to receive large revolver facilities from major Canadian and international banks was an inflection point for our journey to grow goeasy into all of its possibilities for the future. We have a history of setting ambitious goals but we also have a history of delivering on our promises. While we will use technology to facilitate our growth, we're remained true to our principals of first being great managers who focus on lending and collecting. With that formal comments complete, we will now open it up for questions.

Operator: [Operator Instructions] And our first question comes from the line of Stephen MacLeod from BMO Capital Markets.

Your line is now open.

Stephen MacLeod: Great, thank you. Morning guys.

David Ingram: Good morning, Stephen.

Stephen MacLeod: I just wanted to just get a sense of the pace of growth through 2018 for easy financial just in terms of what to expect in terms of loan book growth and store count and then I guess related to that margins.

Do you expect all that to sort of accelerate through the year or would you pick up on the momentum that you had in Q4 and that continues into Q1 and it's more evenly spread out?

David Ingram: So, I would share with you that we obviously saw change in the growth pattern coming out of Q2 and through Q3 and Q4 and we continue to see that elevated demand for the product. So the season started well for us in 2018 and the target that we gave in November, we restated again today. We feel very good about that given the trend that we continue to see. So for us, we think you are going to see that growth continue acceleration and we are feeling quite ambitious that we can now get to the high end of exceed the high end of this stated range we gave you for this year.

Stephen MacLeod: Okay, great.

David Ingram: In terms of the yields, the yields are looking very good for us. We still see highest demand for the unsecured product at the higher price point. So while we are seeing good performance from the risk adjusted pricing and that's driving quite a decent percentage of originations. So in Q4 that drove somewhere in the order of 24% of originations. It's the product that's at the higher end of the unsecured rates that still driving over 50% of the originations for us.

So yields for us again they are looking positive staring the year in 2018.

Stephen MacLeod: Great. Can you just repeat the, you said you are seeing good demand for - you said the secured products is outpacing the unsecured product?

David Ingram: The demand as you understand, we test its risk adjust in 2016, we wrote it out to up to 20% of the volume apps and we capture that rate for most of 2017. We opened up slightly. So when you look origination volumes for the Q4 period, roughly 24% of all originations came from risk adjusted pricing which is the product that is essentially ranged from 29.9 up to 46.9.

And then if you look at what we did at 46.9 that was well over 50% of add total origination channel. So that shows that the blended yield is slightly more favorable than we thought it would be coming out of Q4.

Steve Goertz: For the secured loan product, we only launch that the beginning of November. Right now, it's not material part of originations, we expected to continue to growth as we get more experience with the products and more consumer knowledge of that product. But today, it's not a material portion of the loan originations.

Stephen MacLeod: Okay, that's helpful. Thank you. Okay. And then just to follow-up on that, David in your prepared remarks, you mentioned talked about some expanding your suite of products in 2019 and beyond and I know we are in early days here and obviously you are working on several things at onetime but is there - you able to give a little bit of color us to what you might expect in terms of broadening your product portfolio?

David Ingram: So, I guess the - it just might be helpful to you on this is if you look at the makeup of the $165 billion non-prime lending sector that excludes mortgages, the majority of that's going to take up with customers whose credit has degraded slightly from being prime product the banks hold and therefore they started more into non-prime type of credit. So that credit could be held in credit cards primarily and a lot of it could in auto finance.

So if you think of those two are the biggest occupant of the space of the 165. There are other products but those are the two biggest. So our lens is to look at the size of the opportunity inside the market. So we would definitely look at those two products, but there is a bunch of other products that we are looking at. And I think at the point where we know the right test results and the right infrastructure is pulled back then we can be a bit more helpful in telling you what we're going to be using in 2019.

But at this point, we are looking at the whole size of that market to understand which ones would be a good complement to our existing range for the customers in the non-prime sector.

Stephen MacLeod: Great, okay. That's very helpful. And then maybe just finally, Steve you mentioned that you know the IFRS 9 which you provide us some good color on. Is there way to give some color around what the retainer impact and what the impact deal, is there any way to quantify on an apples-to-apples basis what the expected reduction to earnings looks like?

Steve Goertz: I think as a quick number you can say an increase to the provision rate we said 300 to 360 basis points as a quick number, if you apply that to the originations - to the growth of the loan book, excuse me, over last year the forecast for next year and then tax effected, that's a rough impact of what the impact will be on 2017 and 2018.

As we get further into the quarter and release the result for Q1, we will be able to provide some more commentary there as we do the look back and the looking forward. For a quick guide, apply that same percentage against the growth in the portfolio looking backwards and forwards and you get rough estimate of the impact on income.

Stephen MacLeod: Okay. Okay. And I notice that tax rate was a bit higher in the quarter and I think it's turned hard to the year.

Is that something that you expect in 2018?

Steve Goertz: No, the tax rate on a normalize basis is still about 27.5%, it moves up or down you know as we have taken some charge-offs for the U.S. receivables and don't get the tax benefit of that, but as we've recognized some gains on sale obviously lower tax treatment for those. But in an normalized basis the 27.5% statutory rate is pretty good.

Stephen MacLeod: Okay. Okay, that's great, that's it from me.

Thank you.

Operator: And our next question comes from the line Gary Ho from Desjardins. Your line is now open.

Gary Ho: Thanks. Just first question just on the macro side of it, just wondering if you can give us an update on what you are seeing on the credit environment? And related to that notice the IFRS 9 impact is now the higher end of your previous guidance.

Any color on kind of what drove the change versus three months ago?

Steve Goertz: Sorry, how is that speaking again.

Gary Ho: Yeah, it's Gary from Desjardins.

Steve Goertz: Hey Gary, I missed the name. So in terms of the overall credit environment, I can tell you that we get regular quarterly research reports from trends union and very similar to the macroeconomic staffs that David shared earlier about the low unemployment and relatively moderated inflation and oil and gas prices. As you would imagine, we are seeing that that has a positive impact on losses on a general basis.

So the credit performance of the entire industry across both prime and non-prime continues to be very healthy and stay at fairly low levels. Yeah, on the IFRS 9, if you recall with our Q3 numbers, we indicated that the impact of IFRS 9 would be between 250 and 350 basis point. We've tightened that up and the range has moved up a little bit. And the biggest reason for that increase in the rage is the future looking economic indicators. IFRS 9 requires to incorporate a future looking indictors in your calculation of your provision.

If we look at those future looking indicators that mostly our impact customers inflation, the price of gas and oil and employment, the trends has generally for those indicate - forward-looking indicators to get a little bit worse from Q3 to Q4. As a result of that it's move the provision up just slightly. One of the things as we fully understand IFRS 9, the incorporate of those forward-looking indicators is going to introduce a little bit more volatility in the provisioning rate than we've seen in the past and that was evidenced by the movement that we saw between Q3 and Q4. Even though the fundamentals of the portfolio and the inherent charge-off rates were relatively unchanged.

David Ingram: Just to add to that, you should also look at what our ending delinquency rates look like.

So that has been a great predictor and indicator for us what the loss rates will be, it's kind of 6 to 12 months out and our ending balances continue to be lower year-on-year. So you know the indicators might suggest that they could worsen, they are coming from the lowest base that they could stop from and that's why can only get slightly worse. But in terms of delinquency and loss rates, everything that we see today looks very strong and improved year-on-year.

Gary Ho: Got it, that's helpful. Just second question is wanted to get an update on the Quebec expansion, so that you now add 11 branches, any surprises so far positives and negatives or any response from the existing players?

Steve Goertz: So in terms of the growth profile and the outlook, we've said 20 to 30 new locations.

This year about 10 to 15 of those will be in Quebec, so we'll continue to progress towards the stated number David mentioned earlier about 40 locations in Quebec once we get the full scale there. Lots of little operational learnings along the way as we navigate in the market as we would have expected but nothing material in terms of the way we do business. The customer response there continues to be very positive. We've continue to have great success in attracting and retaining really good talent on the ground level. So I think everything continues to more forward there as we would have expected and above our expectations.

Gary Ho: Okay, that's great. And then just lastly that back to David, just another question on the potential new products. Would you look to build that organically or there are potential M&A opportunities that you see on the marketplace?

David Ingram: That's a very good question because we are trolling with that choice ourselves. If we find the products that we believe we already have the in-house competence to do then we'll be able to do ourselves. We are not frightened to find a partner that has more experience and expertise in the particular place, and if we find the right one, then we are quite open to doing some M&A to assist us and speed up the process and remove some of the potential for risk and getting it wrong.

So I think you should see or expect us to go with that question as we see each opportunity and we are being quite diligent looking at options that exist in the market today. So I think it will be a combination of both it's what ultimately what we do.

Gary Ho: And then in terms of size, financing like how help can you guys go in M&A scenario?

David Ingram: Well we can go as big as fine what was that biggest competitor a year ago, so we told you then we had the financing capacity and support of particularly the North American banks to balance sheet us for very large acquisitions. In this particular case, we're looking at some different options are domestic to Canada and once you get passed the two or three big operators that exist here there is a lot of very smooth sized options. So it's not - at this point, we're not seeing any material size but we are seeing things that could be very complementary to us.

Gary Ho: That's great. That's if for me. Thank you.

David Ingram: Thank you.

Operator: [Operator Instructions] And our next question comes from the line of Brenna Phelan from Raymond James.

Your line is now open.

Brenna Phelan: Hi guys, good morning.

David Ingram: Good morning, Brenna.

Brenna Phelan: So, looking at the improvement and charge-offs year-on-year down to 12.8% annualized, can you just give us some more detail on how we think of the contributions from firstly, a decrease in credit risk but then also the contribution of better credit dedication, better collection policy and analytics?

Jason Appel: Yeah, Brenna. It's Jason Appel here, good morning.

I think it's a combination of factors. It certainly is a function of ongoing analytics that we use to support our credit underwriting. I said on previous call obviously we regularly refresh this is a performance of our underwriting models and the supporting documentation we require from the customer in an effort to really triangulate how best to manage the risk or trade off, that's the piece of it. The other big piece as David and Steven both mention on the call is obviously the decision we move into risk adjusted rate loans was two fourth, obviously it set betterment with the customer who has demonstrated their ability to pay, while we've also seen a various types in terms of overall loan performance. And as we're able to give those customer a larger loan on average because of rate has come done, we see that translate into equally better if not superior performance when it comes to overall repayment and re-borrowing, that's went itself to be a positive factor.

And I'd say the third factor that's also contributed to that movement down the losses is the continued ability of our branches and also our centralized collection staff to I'd say with some degree of excellence as well as support create modeling, pursue the collection of cash where we have to and on a regular basis, our ability to get out lending and collections right it's an ongoing effort that required a fair amount of engagement and support within the business. And I'd say it's a combination of that data analytics as well as having a continued improvement in our staff's ability collect the repayments from our customers, a normal payment from our customers that's really combined to keep those loss rates strong. And finally, just pointing out one final point and that is obviously we are being aided by some measure of ongoing growth in the book. While overall year-over-year growth in the loan book continues to be at strong double-digits. We haven't necessarily seen that cannot be expensive worsening the loss performance on an ongoing or vintage basis.

So we feel pretty good about that continued trend of our loss rates and our ability to keep moving forward as we hit into the new year.

Brenna Phelan: Okay. What I was trying to get at though is if I am - if we'd expect the growth field to move down as charge-offs move down also with credit quality of the borrower, what's the contribution assisting that like how do I do I think of the relative contribution from better collections in data analytics versus the basic just generally higher quality borrower?

David Ingram: So, I don't know that the answer is as scientific and precise is maybe what you're looking for, but I would say my best guess for what the contribution of those pieces would be, I would say probably about a third of the improvement in the credit quality is coming from the risk adjusted pricing and optimization of our underlying credit model, so just the ongoing improvements to our sophistication. Probably about a third is coming from improvements in collection performance. And then a third will come from the overall product mix into the next couple of years as these secured loan product which has a much lower loss rate profile starts to slowly consume a larger portion of the total portfolio.

So if you were to try to disaggregate the decline in loss rates into those buckets that's how we would do it up. Obviously over and top of all of that is that currently we face a really favorable macroeconomic environment and that also helps create some tailwind for us as well.

Brenna Phelan: Okay. That's a really helpful. Thank you.

And my next question is about the investment in the digital loan application system and associated investment to machine learning and AI, is that captured in your expense forecasts, your margin guidance for 2018 or is that can we expect some incremental spending there?

Steve Goertz: Some of that's going to be capitalized particularly as we develop new system online that would be a capitalized system and that would be included in a capitalized cost which obviously be depreciated over the life of it. The rest of it starts such as investigating AI will be more expense in nature for the upcoming 12 months as we explore the opportunities. So some of that will be expense load. Fortunately, most of that will be conducted by our own in-house people, so the staff that we got in place. So the incremental cost will be that significant.

So yes, it would be incorporated into the margin rates that we talked about.

Brenna Phelan: Okay. Great. And then just the capitalized spending, can you give any guidance on what that would be for a system?

Steve Goertz: We haven't given it for the individual components. For the last couple years, our capitalized spend and split between hard assets we saw improvements and technology has been about $12 million a year.

That's likely to tick up by about $4 million in the current year as we have to go through some corporate office renovation and continue build out our technology platforms.

Brenna Phelan: So 4 million a year. Okay, great. And then last question for me. Can you talk about what you're seeing in terms of advertising marketing campaigns spends from your competitor Fairstone, are they becoming more aggressive, I also noticed on their website they offer a partner affiliate marketing program, is that new, can you guys offer looking at any color there would be helpful?

David Ingram: Sure.

So, generally speaking, yes, we've seen in a lot number of months they've now started to increase their level of investment in advertising and then trying to create brand awareness for the brand. So we expected that to happen once they were able to fully digest the acquisition and go through the rebranding and resolve all of their technology related matters. So what we're thinking is right in line with what we thought of the timing that we thought. We can tell the brand awareness for the new Fairstone brand is still quite low. So that that of the big challenge or hurdle from them and it represent less than half be aided brand awareness that easy financial currently has because of obviously the time we've got a market.

So some of their over investment and spend and the recurrent you're seeing in TV for example and that necessarily going to translate into media origination, some of that is what we had to do a few years ago which is first just create an awareness for the new brand. We are seeing an increase in the amount of deterioration in the online marketing space. So when we look at the impression share which measures when we do digital paid search ads, what percentage of the time did they also come up bidding for the same keyword as us, we have been increased year on year they've gone from about 20% impressions share of the same keywords we're betting on to about 30%. So there is an uptick there. And of course generally speaking that drive your cost.

Unfortunately for us because we were ahead of the current on our investments in digital marketing and digital advertising, we've been able outrun that through improvement in our SEO, organic traffic, other digital vehicle and paid search like Facebook and so net-net, we've been able to drive growth without being that increase in cost that that they would otherwise be driving. So I guess along we say, yes, we've seen increase but we've been able to continually run it either relates to affiliate that's something we've been doing now for several years. So you've probably seen on various documents we have in the market, a portion of our application volumes comes from indirect or third party sources, affiliates are part of that. So we've always had partnerships that have driven our referral to us and it's a pretty strong challenge for us although they're new into that space it's something we've had for some time.

Brenna Phelan: Great.

Very helpful. Thanks a lot.

David Ingram: Thank you.

Operator: I am showing no further questions.

David Ingram: Okay.

Since there are no questions, as always like to thank everyone for their participation in the call today and we continue to look forward to the growth at goeasy and updating you on our start in 2018 when we come back in May. So once again thank you very much.

Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may all disconnect.

Everyone, have a great day.